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The federal government has the tools to combat global poverty with investment. It should use them.
The federal government has the tools to combat global poverty with investment. It should use them.
Eugene Ellmen, former Oikocredit Director, identifies ways that Global Affairs Canada can get back on track with its blended finance strategies.
In early 2018, the federal government launched two ground-breaking programs – worth a total of $1.5 billion -- to form partnerships with private capital to kickstart women-centred enterprises in developing countries. At the time, the government won wide praise for these innovative initiatives.
“Oh Canada! Prime Minister Trudeau’s budget – and the smart, women-centred policy that guides it – is leadership in action,” said U2 star and global justice champion Bono in a statement praising the Budget outlining the programs, and other foreign aid increases.
Now, almost three years after the announcement, it has been revealed that the programs are bogged down in bureaucratic inaction. As recently reported by the Globe and Mail, only $120,000 of the promised $1.5 billion has been disbursed. The two programs – the $900 million International Assistance Innovation Program and the $600 million Sovereign Loan Program -- have been plagued by “poor strategies, inadequate preparations and a lack of bureaucratic appetite for risk,” according to The Globe.
The slow start comes at a time when Canada’s development community is more ready than ever to partner with the government to create new forms of international development.
Last year, I helped to write a report for the Canada Forum for Impact Investment and Development (CAFIID) showing that Canadian investors have more than $2 billion in impact assets deployed in developing countries.
The report, titled Canadian Impact Investing in Emerging and Frontier Markets, illustrated numerous examples of private sector debt and equity placements in microfinance, agriculture, clean energy, environmental and social sectors. These investors include a wide range of not-for-profit, public and private asset managers with impact investments in Latin America, Asia and Africa. The aims were varied, but every one of the projects helped to address global poverty, hunger, womens’ empowerment, clean energy or other pressing developing country needs. Oikocredit Canada was one of the contributors to the report.
After the Covid crisis hit, CAFIID followed up with a second report early this year showing that most of these investors intend to maintain their presence in developing countries despite the risks posed by the pandemic. Many were even planning to increase their commitments.
The community of Canadian global impact investors, including Oikocredit, were enthusiastic about the government announcement. The government commitment represented an opportunity for impact investors to combine their assets and expertise with government loan guarantees or funding for technical assistance to spur women-centred business development in developing countries. Hopes were high for these innovative new “blended finance” strategies.
The fact that these programs are off to a slow start doesn’t mean they are dead. Global Affairs Canada (GAC) spokesperson Patricia Skinner told The Globe that innovative financing tools such as IAIP and SLP are “more relevant than ever, given post-Covid recovery needs.”
So what needs to be done to rescue this promising concept?
It would be very helpful if GAC clearly identified its goals in the program. We know that women-centred development makes sense by strengthening families and communities. So GAC should set out what women-centred impact goals it wants to achieve and in what countries or regions of the world. These could be spelled out in a series of requests for proposals (RFPs) in which program applicants would pledge to achieve the specified goals over a specified period. There could even be penalties for failing to achieve some or all of the impact goals.
As well, the government should be quite clear in these RFPs that it expects diverse organizations to come together to form collaborations. This could include private asset managers, for example, working with traditional international charities to bring both capital and donor money to the table. This is the essence of blended finance, and the government should expect that its substantial commitment from the taxpayer will leverage hundreds of millions of additional dollars in private resources.
And finally, the government should be prepared to take some risk with the program. We have seen with the WE charity debacle that private organizations receiving government money must be subject to complete transparency. And the bureaucracy, not the political staff or elected representatives, must be responsible for the decision-making on the program. There will be failures, as well as successes, but the point will be to ensure that the projects are awarded by independent public servants using strict criteria laid out with complete transparency. That way, any failures will result from the overall risks of the program, clearly articulated to the public, and not by an opaque selection process favouring certain applicants over others.
The government can save this program. It’s a great concept, but the public servants in charge need to be given a mandate to get on with the job. Canada’s impact investors are ready to bring their knowledge, skills and capital to this ambitious project.
Eugene Ellmen is the former Canadian director for Oikocredit. You can follow him on Twitter @EugeneEllmen.
