Proceedings of the Standing Senate Committee on
Foreign Affairs
Issue 11 - Evidence - Meeting of April 12, 2005
OTTAWA, Tuesday, April 12, 2005
The Standing Senate Committee on Foreign Affairs met this day at 3:35 p.m. to examine the development and security challenges facing Africa; the response of the international community to enhance that continent's development and political stability; and Canadian foreign policy as it relates to Africa.
Senator Peter A. Stollery (Chairman) in the Chair.
[English]
The Chairman: Honourable senators, I will call the meeting to order. The minister has been very gracious in coming before the committee to answer questions. I want to welcome everyone to this meeting of the Standing Senate Committee on Foreign Affairs. We are continuing with our special study on Africa, as ordered by the Senate on December 8.
We have the pleasure today of welcoming the Hon. Ralph Goodale, Minister of Finance, who is with us to discuss the report of the Commission for Africa, ``Our Common Interest: Report of the Commission for Africa.'' Mr. Goodale was a member of that commission, whose report was launched on March 11 simultaneously by Tony Blair, the commission's chair, in London and by the Ethiopian Prime Minister, Meles Zenawi, at the African Union headquarters in Addis Ababa.
[Translation]
The minister is accompanied by Mr. Paul Boothe, the Associate Deputy Minister and Canada's representative to the G7.
[English]
Welcome to the Senate of Canada. Minister, you have the floor.
The Honourable Ralph Goodale, Minister of Finance: Thank you for your generous welcome. Mr. Booth and Mr. Rayfuse from the department are with me today. Paul Boothe is the associate deputy minister in the department, particularly responsible for international affairs. Mr. Rayfuse is a director in the international trade section of the Department of Finance.
Honourable senators, it is a pleasure to have the opportunity to meet with you about the report of the Commission for Africa. Around this time last year, I received a call from Gordon Brown, the Chancellor of the Exchequer in the United Kingdom, inquiring as to whether or not I would be interested in serving as a member of the Commission for Africa, and obviously I was delighted to accept that invitation.
The commission is a U.K. idea, if I could describe it that way, as a form of homework and preparation in anticipation for the U.K. chairing the G7-G8 process during 2005. One of the things that Prime Minister Blair wishes to focus upon throughout the course of all the G7-G8 events in 2005 is Africa; and as he sometimes puts it, restoring Africa to a prominent place on the international agenda.
The United Kingdom very generously acknowledges that Canada has been a leader in this field for a great many years. In fact, we took the lead in focusing upon African issues three years ago when the G7-G8 Summit process was in Kananaskis, Alberta. The New Partnership for Africa's Development, known as NEPAD, had just been launched at that time by the leaders of a number of African countries. At the summit in Kananaskis in 2002, Canada led the way in the discussion about a G8 action plan designed to be the G8 response to the NEPAD initiative, understanding that the impetus, the leadership, the ownership and control of any set of initiatives with respect to Africa must rest with Africans themselves. However, we in the G7-G8 have a supportive role to play to try to help Africans achieve their ambitions and their aspirations.
Due to Canada's leadership back in 2002, I think was rather logical for Prime Minister Blair to want Canada to be involved in the preparation of this report, ``Our Common Interest: Report of the Commission for Africa,'' which is intended to pick up where Canada left off and to move Africa back to the centre of the international agenda.
As you point out, the report was published on March 11, and it has spawned a great deal of public interest, much of it very favourable. I had the opportunity earlier this week to meet with the leaders of about a dozen of the most prominent Canadian NGOs who are interested in international development. They noted that they do not always have favourable things to say. They consider themselves to be important civil society watchdogs, if I can put it that way, and they are often critical of governments, not just ours but governments around the world. However, they were very positive in their assessment of this commission report, concluding that, in terms of the international agenda, it had moved African issues substantially forward.
There is a great deal of attention from the NGOs, from African countries and from the world in general to what this report has to say about the volume of foreign aid. The specific recommendation contained in the report is that the volume of foreign aid directed toward Africa should be doubled over the course of the next very few years. The volume of aid, the quality of aid, the mechanisms to deliver the aid are very often the largest focus of attention vis-à-vis this report, and they are no doubt extremely important, but there are some other things that I would like to highlight in the report that are also vitally important.
One of those is the role that a vital and vibrant indigenous private sector can play in African development. This is, I think, a field of real opportunity in Africa that needs further encouragement and the fostering of the right kind of atmosphere and environment. That subject matter is completely consistent with the Martin-Zedillo report that was filed at the United Nations a few months ago, written by our Prime Minister and the former president of Mexico, for unleashing entrepreneurship as a way of improving conditions in lesser developed countries and achieving the millennium development goals of the UN.
In addition to issues related to the quantity and the quality of aid, a focus upon the capacity of the private sector to make a real difference is one of the items that may make it more likely that the Commission for Africa report will enjoy success as it goes through the G7-G8 process this year, and most especially at the summit at Gleneagles. We want to rally support behind the ideas contained in the report, and having a fulsome section on private sector initiatives will be helpful in doing that. We need to foster a more conducive domestic enabling environment in Africa for private sector development, a reformed global trade regime that allows for more market access and less market distortion, better physical and fiscal infrastructure systems within the African continent, and better business services for entrepreneurs.
I also think that the issues of debt and disease are extremely important in terms of creating the conditions whereby Africans can make better progress toward a more satisfactory future, in addition to aid, in addition to a healthy private sector and successful international trade. Dealing with debt and disease will help reduce barriers that hold back African development. The key on issues like this will be for all of us to be able to translate our statements of concern into tangible actions.
In this regard, I am very pleased about a number of the measures that were included in our most recent Canadian budget that was tabled in the House of Commons on February 23. It provided $3.4 billion over the next five years for development aid around the world. Within that envelope, we will be, as recommended by this report, explicitly doubling our aid for Africa by the year 2008-09. In addition to that, we are allocating $342 million to specific health initiatives aimed at either treating or preventing diseases like HIV/AIDS, malaria, tuberculosis and polio. Indeed, our contribution through the World Health Organization to the anti-polio campaign in Africa should, we think, make it possible for the WHO to complete its immunization program on time and effectively eliminate polio from the African continent by the end of 2005. We are providing $172 million for new debt relief measures, re-establishing Canada's position as an international leader in dealing with issues of debt relief. We are also allocating $500 million over five years for peace and security initiatives, and some of that will be specifically related to Africa.
Before I leave the issue of debt, Mr. Chairman, and I will be happy to go into the details later, I would simply serve notice through this committee that tomorrow Canada will be announcing additional steps to reduce debt burdens on lesser developed countries around the world. We have, as you probably know, an outstanding initiative called the Canadian Debt Initiative. Mr. Rayfuse has discussed this with the committee. Over a period of years, it will add up to about $1.1 billion of debt relief on a bilateral basis, initiated by Canada. A number of countries have already benefited from that program, and a number of others will. Tomorrow, we will be announcing that Canada's bilateral debt relief initiative will be extended to include Honduras, Rwanda and Zambia. They will be added to a number of other countries that have gone before — Senegal, Ghana, Ethiopia, Madagascar, Tanzania, Benin, Guyana and Bolivia. They have previously benefited from the Canadian initiative, and I am pleased to say tomorrow we add three more, two of which are on the African continent.
The budget was also significant for some other issues that it addressed, Mr. Chairman. The management of our international assistance envelope has been substantially reformed, and this will lead to greater effectiveness and priority setting for Canadian aid. We have also now within that envelope set aside a crisis pool to better enable us to respond in a timely way to global events. Even with all of these initiatives that I have discussed, we know that there is more hard work to tackle as we move forward and implement to conclusion the things that we have begun. Canada will continue its commitment to Africa, both in the context of what is contained in this report and beyond it, Mr. Chairman.
I will be meeting with prominent American political, business and NGO leaders in Washington this weekend on the margins of the World Bank/IMF spring meetings. I will be taking part in a panel with several other fellow commissioners from the Commission for Africa to talk about where we go next in responding to African issues and making sure that, in the context of the American political system, the content of this report is well understood.
I will also have the opportunity later this month to attend a meeting in Toronto of the Canadian Council for Africa. This council, as you know, is very interested in developing business relationships between Canadians and Africans, and that can help in moving the yardsticks forward.
Finally, of course, we are all riveted on the G8 summit at Gleneagles in June. We want to see there positive results flowing from this report that will build in 2005 upon those initiatives that Canada began in Kananaskis in 2002. We will also continue all of our efforts to improve the overall management of our aid programs to ensure that the roll-out of the international assistance envelope framework is successful.
It is a difficult enough challenge to muster the resources into place to pay for that envelope and we want to ensure that the administration that goes with it as efficient, focused and successful as it can be, both to satisfy the requirements of Canadian taxpayers, but also, and perhaps even more important, to make sure that that money makes a real difference in the lives of the poorest people on earth, who need our help.
The Chairman: I just wanted to say, in response to your mentioning the Canadian Council for Africa, they will be coming before the committee next month. We have them scheduled at some point.
Senator Andreychuk: I would want you to comment on a few items out of that report, first, whether you believe that this report is of assistance to the NEPAD process. I did not hear you say that. It seemed to me when this process started — and I recall Prime Minister Blair's comments — it was not to supplant or put aside the NEPAD initiative, it was simply to do our part, which we had fallen down on, because we had all committed to the 0.7 per cent target in 1975 and we have yet to achieve it. While we were going about saying that African leaders have to be more accountable to their people and to begin governing in a different way — which was their report, their blueprint of how they will proceed — that we would do our part by providing the funds and assistance that we had previously; and are still wanting on. I know you say that the budget front-loaded our development assistance, but we had through the decade gone backward in our aid efforts, and critics will tell you that the amount by which we have increased our aid in the last couple of years just puts us back into the early 1990s framework. We have a lot of catching up to do, therefore. I would like your comment on that.
Second, if my calculations are correct, according to those who seem to track this, we have yet to set a timetable to deliver that target. I know three more countries have done so, and perhaps you know which ones. Originally there were several countries that have met and exceeded the 0.7 per cent goal. There were six other countries that had specific timetables; they were planning to meet this target by 2015. Is Canada actually intending to produce a timetable, and if so, when? That way, we can see whether we will be in a position to meet our obligations when the next review of the millennium goals comes along. Those are a few broad questions I wanted you to pick up on.
I always struggle personally with the issue of giving money to the poorest of the poor, because we are always then weighing why they are the poorest of the poor. Is it because of management issues or is it because of other factors beyond the control of those governments? More recently, the Pan African Parliament that I was privileged to sit in on began to discuss a definition of ``poverty'' that takes into account real poverty as opposed to just showing a bottom line of poverty. Are we factoring that in to assist those who are helping themselves to get a leg up?
Mr. Goodale: Senator Andreychuk, first, let me acknowledge your longstanding personal interest and experience in issues related to foreign aid and particularly related to Africa. Your distinguished career is very well known and I think well respected.
On the latter issue, we have consistently made the point that in dealing, for example, with our debt initiatives it is important to alleviate that debt burden, but there are a number of principles that should go along with any new debt alleviation plans beyond HIPC. One of those principles is that the assistance should be incremental. It should not substitute for some other aid flow, but it must increase the overall volume of aid. Second, our initiatives should be equitable among both the HIPC-identified countries and other countries that have debt problems but may not technically fall within the HIPC definition.
Third, one of our principles has been and continues to be that there should be incentives built in for good governance, for proper principles of democracy, accountability, transparency and so forth. Within the HIPC system those conditions are part of the process. Within the poverty report system outside of HIPC there is a parallel way to measure these things, and we believe that there are good arguments to be made that those countries that are really working hard to meet the health, the education and the social services needs of their people, to find ways to build and expand their economies, to improve the governance system, to improve the environment for their own private sectors in terms of legal regimes, fiscal regimes, regulatory systems and so forth, all merit a positive response from the wealthier countries. Indeed, those factors that you have mentioned are very much taken into account and in a prominent way.
With respect to how this report fits vis-à-vis NEPAD, it is indeed explicitly intended and stated that it needs to be supportive of NEPAD, and not in any way presumptuous or peremptory. This is not intended to be instead of NEPAD. It is intended to be consistent with and fully supportive of what African leaders, through NEPAD, have defined for themselves as their priorities and their game plan.
There has been, as you know, for decades and decades, indeed centuries, a paternalistic attitude on the part of wealthy countries in the Western and Northern world toward the African continent. Africans are working hard to shake that off, and we do not need to re-establish that very unhealthy paternalism in the way we do our aid programs. The point here, clearly, is yes, the actions recommended in the Commission for Africa report are very much intended to be consistent with and supportive of NEPAD.
On the issue of aid levels, the report talks about the broad requirement to meet the 0.7 global objective. Canada continues to work on that. We have not yet established the timetable that you refer to, but the achievement of the goal continues to be a Canadian aspiration.
The specific recommendation in the report vis-à-vis Africa is that within their various assistance envelopes, countries should double their commitment to the African continent before the end of this decade. I am very pleased to tell you that Canada will do that. By 2008-09 we will have doubled the Canadian aid flows to Africa compared to the 2003-04 fiscal year, I believe it is. We work on the broad objective, which is the worldwide objective, of the 0.7.
In terms of aid flows overall historically in Canada, as you say, the percentages move up and down. That is because growth rates and GDP also fluctuate. In terms of absolute dollars, the Canadian number continues to move up year after year.
The most recent commitment was around the meeting in Monterrey, where we as a country committed ourselves to an annual increase of about 8 per cent, which would double the+level of funding in our international assistance envelope between 2002-12. We are on track to meet that objective. We have done it, up to now, by annual increases of roughly 8 per cent, and I am happy to say that in my budget of a month or so ago we decided, rather than doing annual tranches, we would do five years all at once because that was the fiscal framework we were dealing with. Therefore, at this moment, with the addition of $3.4 billion in the budget, Canada's commitment is now just one year short of the doubling that was the Monterrey obligation, and we will meet that in the budget of next year.
Senator Andreychuk: By signing on to the commission, did we not agree to establish a timetable? If so, will Canada establish the timetable? I understand Germany has just done so in the past couple of days. The U.K. has established timetables, and that is specifically stated in the report. We signed on to do it. Will we do it?
Mr. Goodale: The report, Senator Andreychuk, is by 17 specific individuals. None of us who participated as commissioners were participating as ministers or Prime Ministers or national representatives. We were participating as individuals with a passionate interest in the subject matter, hoping ultimately to persuade the world of the virtue of what we were recommending.
Some countries will be able to do it more quickly than others. Some countries will focus on some areas rather than others. We hope the report will stimulate a broad range of actions around the world, but it is not the report of any one country. It is the collective view of 17 individuals who want to make a difference in Africa and will advocate for the content of this report in their individual capacities.
Senator Downe: You mentioned in your presentation this afternoon that in the international assistance envelope, a pool of money has been set aside within CIDA. I believe you called it a ``crisis pool.'' How much is that pool, and what happens to the money if it is not spent on what is perceived to be a crisis?
Mr. Goodale: Let me ask my officials if they could describe the technical structure of the envelope. I think we have established here a substantial administrative improvement in the management of the envelope. As you can imagine, whether it is crisis management, aid flows or reconstruction efforts after disasters and so forth, there could be quite a scramble for dollars within the envelope, which sometimes made decision making a little less orderly than it ought to be.
Therefore, we have tried to establish distinct pools within the envelope and management structures to make sure that the money flows properly in a timely way. Mr. Boothe played a large role in putting that organization together, so I will ask him to describe how it is now structured.
Mr. Paul Boothe, Associate Deputy Minister and G7 Deputy for Canada, Department of Finance Canada: Senator, the way that we have organized it is we have divided it into five pools, and the largest pool, by far, is the development pool. That is managed by CIDA.
There is also a small but important pool that we call the ``research pool,'' which supports the work of, for example, IDRC in development research. There is a peace and security pool that supports Canada's efforts to help with security issues and work on the peace side.
There is a pool that we call the ``IFI pool,'' which is international financial institutions, and that looks after the contributions to the World Bank, the IMF, and also our debt relief initiatives are funded out of that pool.
Finally, the pool you asked about is the crisis pool. The crisis pool is set aside so that Canada has the capacity to respond to international emergencies or crises without disrupting the longer-term funding for development, for example. That was the problem in the past. We had this envelope. A crisis would come up. We would say, ``How will we deal with it,'' and we would have to see how we could rejig our priorities in the short term. Some of them would be much better left alone to work unaffected.
The size of the crisis pool, when the envelope framework is fully mature, will be $200 million. That is being phased in over two years. It is starting out this year with $75 million. It will grow, funded out of the growth in the envelope, to $150 million next year, and then it will reach its final size, $200 million.
Of course, this is a work in progress, a management system, and so we will have to get some experience over time to see whether the $200 million is the right amount to manage crises. We hope that means we will be able to protect the development and the research pools, so they will not be affected by the necessity to respond to crises that come about from time to time.
Senator Downe: I have one final question. I will try not to be too long.
Minister, there is a group in Prince Edward Island, Farmers Helping Farmers, that has been working mainly in Kenya for at least 25 years on small development projects. A lot of rural women were walking miles for water every day. With the assistance of CIDA, they were able to fund over 60 water collections. They worked with dairy farmers who had trouble with milk spoiling in the heat by funding some coolers. They have been back to Kenya many times with their local farming expertise that all Canadian farmers have.
One of the unintended impacts of the budget was that CIDA advised this group that they would not be matching the dollars that they raised. I understand for every dollar they raised, CIDA gave them $2, and they have been informed that CIDA is reviewing that and it will be at least a year before they have an answer to whether this funding will continue. They are very concerned that the people in Kenya are counting on them. They did not know this was about to happen. They feel they are letting the people of Kenya down.
I have some documentation that I will leave for you. I appreciate you do not know the answer to this today, but I am wondering if you or your officials could get back to me and if you could review this situation.
Mr. Goodale: Specifically, I would be happy to look into that. This is an issue for CIDA to determine internally, but I will certainly make sure that Minister Carroll is aware of it and we will try to get an answer back to this organization as to exactly what their status is.
The Chairman: I know people are wondering about this report, namely, this weighty tome that I have here. I received it only yesterday, and it can easily be confused with the 3,000-page report that came out of the UN. There are many reports, and if people are wondering, we will try to get a copy of this one.
Mr. Goodale: It is available on the Internet.
The Chairman: It is easier if you can get something you can read.
Senator Andreychuk: It is also an excellent summary.
The Chairman: As I say, I just got it yesterday, and it was not so easy for me to get a hold of, but we will do what we can. I saw people were wondering what it is.
Mr. Goodale: My staff has just advised me that we have supplies within the Department of Finance. They are not unlimited, but we do have some, so that we could assist with the supply.
The Chairman: Does it exist in French? Is there a French copy?
Mr. Goodale: I do not think the U.K. printed it in French.
The Chairman: Apparently, parts of it have been translated.
Mr. Goodale: It is in the process.
The Chairman: Well, I can only deal with what I received, and if we can get French copies, we will, but that is the situation at the moment. As I say, it is easily confused with an enormous UN report.
Senator Di Nino: Thank you for coming. We always appreciate your support, minister.
We have been beating around this bush for many years, and we do not seem to have achieved a great deal of success. Poverty is increasing. The plight of many African countries is as desperate now as it has been for many years. When Senator Dallaire was a witness here, he talked about the desperation factor in Africa and how that may impact the world of the future. Yet I believe there has been a real effort by the world, including Canada, albeit, as my colleague has said, perhaps not enough, to try to make a difference.
The aid has been described as genuine pity. Arguments are being made around the world that until we address the economic issues — the chronic unemployment, the need for jobs — we will not solve this problem.
You mentioned in general terms in your comments that the direction in which we are going does not seem to be bringing results. Has your department or the government given any thought to changing direction to address economic issues, to create employment and jobs?
Mr. Goodale: The situation on the African continent is an enormous challenge. Based on the research and analysis in our report, and also on the brief time that I personally was able to spend in Africa in the last year to learn about the African reality, while I would not want to underestimate the magnitude of the challenges, I also would not want to leave you with a sense of hopelessness about the situation. I sense progress and the opportunity for more.
In dealing with the business environment, for example, and creating the conditions within which indigenous African entrepreneurs can thrive and succeed, there has been real progress in places like Botswana and Tanzania. On the issues related to violence on the continent, with which I am sure there is no Canadian more familiar than Gen. Dallaire, 10 or 15 years ago, 15 or 20 countries in Africa were seized by very violent circumstances. Today, that number is in the neighbourhood of four to six, so there has been a substantial improvement there.
With regard to issues related to corruption, which also lies at the root of why there is not a better business atmosphere, Nigeria, for example, under a new regime, is making a solid effort to acknowledge the issue, talk about it publicly and focus national and international attention on their efforts to deal with it.
I had the opportunity just yesterday to speak with Finance Minister Ngozi, from Abuja, Nigeria. She recognizes that in order for Nigeria to succeed in its claims for debt relief it must demonstrate good governance, progress on fighting corruption files and so forth.
Progress is being made. Is it enough yet? Obviously it is not.
Your question reveals that this is not only about money. The quantity and quality of aid flows are a very important part of the equation, but establishing the right environment in which African SMEs have the chance to succeed is also part of it. Fighting corruption is part of it, as are bringing down the level of violence; improving the governance systems; having regulatory and fiscal regimes that are conducive to good business practice; fighting disease; and bringing down the scourge of AIDS, which has such a debilitating effect on families and, ultimately, the workforce.
This is a very complicated set of issues. Have we made enough progress yet? No, we have not — ``we'' meaning all of us collectively. We have made some progress, and we have to be absolutely determined to pick up the spirit of this report and drive it forward. It requires more than money, including the element to which you referred, a successful business environment, so that we are not only unleashing what governments can do but also what the private sector can do, and that will probably, ultimately, make the biggest difference.
Senator Di Nino: I do not disagree with you, minister. However, an empty stomach is more susceptible to illness, corruption and being swayed in the wrong way. I wonder whether some of the billions of dollars of aid that are going to these countries cannot be directed specifically to creating opportunities and jobs, perhaps in partnership with companies that would not expect a profit. Perhaps some of the aid would be used in lieu of profit. That would certainly fill some stomachs and perhaps would address, to a small degree — which would grow to a larger degree — all of the other maladies that exist there.
In the same vein, agriculture is probably the most important industry in Africa. Yet the Western world, including Canada, subsidizes its agriculture products to the degree that African products cannot be brought to the market in a competitive manner. That is the kind of thing I am talking about in the sense of economic issues — the jobs and opportunities that would allow people some self-sufficiency, dignity and self-respect so they would not be so susceptible to being part of the other problems.
Mr. Goodale: Senator, you have touched on a variety of points that are completely correct and relevant. I am happy to say that all of them find a place in our report and Canada is already moving forward with many of them.
As a result of the Kananaskis effort in 2000, for example, we established the Canada Investment Fund for Africa, an effort to match resources from this continent with counterparts in Africa to improve opportunities for business success. Under the private sector portions of this report, we are looking at Canadian initiatives that are already established. One is called Enablis.
Mr. Chairman, that group is based in Montreal, I believe. You may wish to invite them to appear before your committee to describe what they are doing in partnership with the private sector in South Africa. That is an initiative that we can support and encourage to foster better business relationships.
With respect to the trade agenda, Canada stands very strongly on the side of a result from the Doha round that will be not only in our national interest, but also helpful to a continent like Africa. We want to eliminate export subsidies. We want to see substantial reductions in levels of trade support that have a trade-distorting effect. We want to see market access improvements around the world.
In many ways, we are ahead of our European and American counterparts in being receptive to the requests of African countries.
We all have a lot of work to do on that trade agenda to make sure that it is inclusive of Africa.
Senator Carney: In the committee, we are aware that talking about Africa is too broad an issue. It is like talking about Europe or Asia. There are so many different countries at so many stages of development. We have also been told that Africa's future does not necessarily lie in north-south trade, that we do not import much from or export much to Africa, and that south-south trade between African countries is more important.
We have been told by some of the countries involved that one role that Canada can play is as an advocate supporting the renovation of agencies like the IMF and the World Bank. We have also been told consistently in these hearings that the IMF and the World Bank generally cause more harm than good in some countries because the goals they set and the disciplines they tie to the loans they make are very disruptive of the economies.
The report deals with this. As we have said, we do not have the report, but the summary says that the World Bank and the IMF should assign a higher priority to Africa. If these institutions are not working for those African countries that are their clients, what changes do you think could be made?
Mr. Goodale: You are quite right that south-south trade may, in relative terms, be more important for Africa than north-south trade. As I understand from those who calculate trade barriers, there are more tariffs and other trade restrictions between and among countries on the African continent than between Africa and, say, Europe or North America.
While we hope Doha will produce a more trade-conducive result worldwide, if it just deals with the north-south situation, it has not dealt with enough. The trade flows within Africa need to be substantially enhanced, and this could perhaps be accomplished more rapidly than for some of the longer distance ones.
There are also some other issues that go along with this, apart from just having an African-friendly result from the Doha round. There is the issue of physical infrastructure. If you have the market opportunity available, can you physically get the goods from A to B, or do you have to go around the Horn? Transportation, communications, energy, water and infrastructure on the African continent are critical requirements, and the lack of them is holding back a lot of things, including trade.
Another issue that has to be addressed internally, and where I think Canada can be helpful, is trade readiness. If the barriers come down — whether it is within Africa or between Africa and other parts of the world — are there indigenous enterprises that are ready to take advantage of the new access opportunities and in a position to develop trade patterns that will serve Africa well? There is an internal capacity-building issue there.
On the international financial institutions, this is now the60th anniversary of the World Bank and the IMF. There is currently an internal strategic review of those institutions under way through Marcel Massé and Kevin Lynch. Canada is playing a very active role in the internal examination of international financial institutions, how to make them more relevant and useful to a continent like Africa. We are developing a number of specific ideas.
I would like to offer an illustration in relation to Nigeria. Even with its oil wealth, Nigeria carries a huge debt load. A large flow of capital goes every year to pay the service charges on that debt rather than into health, housing, social development, education or the fighting of disease within Nigeria.
Nigeria is looking for a way to alleviate that debt burden. They recognize that they will need to go through the Paris Club process to achieve that result. In order to get to the Paris Club, they have to have a satisfactory relationship with the IMF. That is one of the conditions to get in the door of the Paris Club and get the debt relieved so you can work on those other priorities.
The Chairman: Will you tell us about the Paris Club, for the benefit of those who do not know?
Mr. Goodale: The Paris Club is an international group of 19 countries. Canada is a member. From time to time, it seeks, on a consensus basis, to address issues of debt alleviation around the world. My officials will give a much more technically precise definition than that. It sounds a little snobbish. I am not sure if one wants to be a member of the Paris Club, because it means that people owe you a lot of money.
Here is the issue. How do you achieve a satisfactory relationship between Nigeria and the IMF so that the debt reduction possibilities in the Paris Club can be available to Nigeria?
Canada has suggested a new vehicle, a new IMF tool, to facilitate the circumstances of a country like Nigeria. Presently, there are only two forms of IMF engagement. The Article IV engagement is a standard, routine annual assessment of how a country is doing in terms of its fiscal performance. The report on Canada was just issued a couple of months ago — very favourable, I might add — but that is a kind of routine surveillance system. At the other end of the spectrum entirely is direct IMF intervention, where they come in with a fairly heavy-handed approach. There is loan money involved, and very tough conditions are imposed.
Nigeria is of the view that for their own political and economic reasons, they could not accept that more intrusive IMF intervention. Canada has suggested something in between the routine, almost cursory examination and the heavy- handed intervention. We have suggested a kind of country-led surveillance system, where there would not be a loan involved, but there would be IMF surveillance and advisory services up to the high standards that the IMF usually brings to the table. In our view, we should make the argument at the Paris Club that if Nigeria has that kind of intermediate stage of IMF engagement, it should be good enough to get in the door of the Paris Club so that debt alleviation issues can then be considered.
Senator Carney: My follow-up comment is that is exactly the problem, because the countries that we have heard about say, ``Let us deal with the direct IMF intervention and the tough disciplines.'' That is where the damage comes from, because often those disciplines involve the removal of subsidies and issues like that. I am not talking about debt reduction. I am talking about the operation of the country, and the result is higher prices and higher unemployment. That is the legacy that the IMF leaves.
The idea that the IMF would do surveillance is a rather paternalistic attitude — with all respect to Canada — but these countries want help that is designed for their problems. The surveillance might be useful, but what can Canada do to make sure that these world agencies — which are now in their 60th year, as you point out — fit the client better without disrupting their economies?
There has to be something we can do that is helpful that has nothing to do with debt reduction, nothing to do with buying more goods.
Mr. Goodale: I think the 60th anniversary and the strategic review of the institutions provide us with the opportunity to put new ideas on the table. The reason Nigerian Minister Ngozi phoned me yesterday was actually to thank Canada for our intervention on their behalf in suggesting the creation of this new tool within the IMF that would help them get through the door of the Paris Club, and therefore receive the debt alleviation that they want, on the condition — this is their own condition — that they would put what they save in debt servicing costs into the fight against AIDS, building more schools and economic development in local communities.
I used the Nigerian example as one illustration of a Canadian idea that is gaining some traction in the world. Through Marcel Massé and Kevin Lynch, we are working on a variety of these ideas to help make the IMF and the World Bank more relevant and meaningful in dealing with poverty alleviation, recognizing that they are financial institutions, and therefore it is important that the principles of financial integrity be respected. However, we want to find more modern ways to be relevant in the very painful circumstances that some of these countries suffer.
Senator Carney: I am anticipating the chair on this, but would that review be finished in time to be of assistance to this committee, or could we have an interim report from the reviewers? This is a question we have to answer in our report.
Mr. Goodale: I will be in Washington this weekend for the regular spring meetings of the IMF and the World Bank. I will ask both Mr. Lynch and Mr. Massé where their process now stands. What I might also suggest is that since their international travel frequently brings them back to Canada, maybe during the course of your committee hearings you might want to hear from them. They are the people who are on the ground as our official representatives in both those institutions.
The Chairman: We have made a note of that, Senator Carney and minister, and that shall be done. I want to repeat what Senator Carney had said. Through the assiduous attendance of members of this committee on Africa — the excellent turnout and the work that has been done have been quite surprising to me — we have found that a couple of areas keep coming up. They are agriculture and the problems with the international institutions. We have not just heard this from average citizens. This has come from ambassadors, from people speaking on behalf of their governments. It is not just straw, as they say in Spanish.
I think it would be valuable if we could have a report on just where this is all going, and the obvious need for reform. I know our time is running out, but they go to a country like Zambia, which then is obliged to liberalize its agricultural sector to the point where it is practically bankrupted because it cannot stand the various pressures. You say, ``We would not do that in Canada.'' Why would we ask other people to do it?
These are questions that the committee has had asked of it by not just one person.
Mr. Goodale: Let me add a further thought, because I think it is consistent with your point. As we work through the end results of the Doha round on trade negotiations, for example, and I am thinking particularly now of the agricultural sector, what may work for the average farmer in North Dakota or South Dakota, or the average farmer in the French countryside, or for that matter, the average farmer in Red Deer or Brandon, may not work for the average farmer in Mali or in Tanzania.
Therefore, we ought to be careful on the Doha round about having a prescription that one size fits all. It may be that some of these trade practices that we might want to prohibit from a Northern perspective might be necessary for a time on the African continent as a catch-up measure.
The Chairman: That is what I think anyway.
Senator Carney: I have a supplementary question on that. I know you can review our committee's deliberations, but this is a two-way street. In terms of the review, could the committee identify, before our report is filed, some of these trends and issues that our client countries have brought to us?
Mr. Goodale: If there are some initial thoughts on that that you would like us to pass along to Mr. Massé and Mr. Lynch, I would be happy to do that.
Senator De Bané: Mr. Minister, I would like to put three issues to you and your senior people. The World Bank, in which we are an important participant, has done a study of the indebtedness of African countries to see if it is a problem of liquidity, of cash flow, or if it is an obstacle to sustained development — if their indebtedness makes it impossible for them to create economic development because the debt is too heavy for them to shoulder.
I understand that one of the major authors of that World Bank study is a Canadian official, Dr. Nawal Kamel, and they have come to the conclusion that yes, there are countries where it is more than a question of liquidity; that indebtedness is a problem of the state development.
I would like to know if the Canadian government, under your leadership, can spearhead some action to alleviate the indebtedness of those poorest countries that, with that kind of debt that they shoulder, cannot do anything. This is number one.
Number two: Our director of research has made a summary for us of the recommendations of the Commission on Africa, of which you were one of the major authors. What I like about the summary is those seven chapters, seven areas that you have identified for Africa. In one column, we have what the Africans have to do; in the other, what the rich countries can do for them, whether for governance, for peace and security, investing in people, growth and poverty, trade, how to make all this happen. We have a column showing what those African countries must do themselves — nobody else can do it — and the other column is what we, the wealthier countries, can do.
I wonder if your department can tell us about that second column, what the donor countries can do, and how Canada would react to those recommendations that are addressed to the rich countries. There are so many of those recommendations, but I would like to know what the Government of Canada, under your leadership, can do in those areas.
Finally, I would like to put to you the following suggestions: Already, the international community, through the World Bank, the IMF and the Paris Club, is helping Africa. The international community is there.
Number two, the donor countries meet regularly to try to liaise to see what can be done in each country.
The idea that I would like to put to you is this: What do you think of the feasibility of having four or five rich countries focusing on each of those countries in Africa, instead of saying that wealthy countries are in charge of that continent? In the end, there is no one in charge. The international community is already there through international organizations. As a second step, Canada, with four or five other countries, would have primary responsibility for certain African countries. On the question of the dam in Congo, if Canada is one of the five, then we will say we have to put our money where our mouth is, et cetera.
Mr. Goodale: On the debt alleviation issues, there are many countries, sadly, where the level of the debt is beyond just a question of cash-flow management and has escalated into a real barrier to development. Canada is engaged in debt relief in four ways.
First, the Paris Club initiative that we talked about earlier is an ongoing international institution; second, through a set of initiatives called HIPC, the Heavily Indebted Poor Countries Initiative, which was coming to an end last year and has been extended for two years to provide more time for it to run its course. HIPC seeks to provide the right kind of incentives for good governance and social and economic improvement in countries while providing debt alleviation. Canada's contribution to date to the HIPC Initiative stands at about $312 million. We set aside another $34 million in my budget of a month and a half ago.
Third, we are involved in the Canadian Debt Initiative, which is a bilateral initiative where we focus on the debt that specific countries owe to us. We have invested about $600 million in that so far. We have another $600 million or so that we are ready to invest. As I indicated, tomorrow we will be adding three countries to the list of those that will benefit from the forgiveness of this debt. When the full $1.2 billion is invested, we will eliminate that debt around the world. As soon as countries meet certain thresholds, they qualify for the list.
Finally, there is another proposal that I announced a couple of months ago at the last round of G7 meetings, which was funded in my budget. That is a proposal that the wealthy countries of the world should assume the debt-servicing costs of those countries that are either eligible for HIPC or are adhering to equivalent standards. This would be aimed at multilateral debt; that is, the World Bank and IMF debt and the African Development Fund. Our proposal is simply that we would pay the carrying charges for a period of 10 years and each country would assume its proportionate share around the world. That would mean that those countries for which we pick up the tab would then be able to put their own resources into education, fighting AIDS, improving the local economy or other social improvements that we would like to see.
There is somewhat of a tussle going on now within the IMF about how they would handle this from a technical point of view. Canada is prepared to put in at least $172 million — that is in my budget — which would cover our obligations under the World Bank and the African Development Fund. We are also prepared to put roughly an equivalent amount of money on the table to deal with the IMF obligations. This would give as many as 50 or 60 of the most indebted countries in the world who are trying to lift themselves up a very important 10-year breathing space where they would not have to pay the bankers, but could focus on social and economic improvements within their own countries. Those are four ways Canada is trying to help.
We can make a difference beyond that by doubling our aid flows to Africa. That is one of the things that we are doing right now. Another area where we are active is in making investments in the fight against tuberculosis, malaria, AIDS and HIV. We are also putting some extra money, through the international assistance envelope, into new initiatives for peace and security, to be helpful in circumstances of conflict and loss of life.
Canada can make a real difference in the areas of improving the quality and quantity of our aid flows, dealing with debt, dealing with disease and working on the improvement of the local indigenous economy.
In regard to more coordination and focusing our various aid efforts on the continent, that is very good advice. Minister Carroll is working at that as we speak as part of her reorientation within CIDA. Rather than trying to do a little for a lot of people, we need to better focus our Canadian effort and coordinate that with the other donors so that we are not all trying to reinvent the same wheel.
When I was in Tanzania last year, I had an opportunity to sit down with seven or eight other donor countries, including the U.K., the Dutch and the Americans. That kind of effort is something we must do more of so that they know what we are doing, we share our priorities and we probably increase the impact of what we can do collectively.
The Chairman: I remind honourable senators that Minister Carroll will be with us on May 11.
Senator Corbin: The research branch of our committee prepared a report in which they commented on where financial resources will come from, and that additional finance should be obtained from an international finance facility as well as through new international taxes. I would ask you to respond to that.
In your general presentation, minister, you alluded to a round of meetings you will have soon with the IMF, the World Bank and institutions like that. You added that you will probably have another meeting or an approach where you will ensure that the content of the report is well understood within the American context. Would you relate to us the American attitude to this whole exercise?
Mr. Goodale: Those are both important questions.
In order to deal with the issue of aid flows and the volume of available aid, the United Kingdom has developed an idea for an international finance facility. I gather that may or may not work within the accounting systems of the EU. Essentially, the idea is this: They have anticipated, and they would within their fiscal framework have laid out, a flow of international aid over, say, the next 10 to 15 years. In order to get more aid flowing quickly in the short run, they would, as an accounting measure, reach forward about 10 years, scoop up the aid that they would spend then, bring it forward and spend it now, but account for it over the long term rather than the short term. It is like reverse depreciation or capital cost allowance. I do not know if that technique works in the European accounting system, and the EU is looking at it right now, but I would not want to test that one on the Auditor General. I think she would have two very sharp words and they would not be favourable.
This facility is something the Europeans are exploring, particularly the U.K. Our response to it has been, it may work for you, but we know it does not work in the North American context. The Americans have said the same, and their accounting systems will not sustain this, so we are looking at more direct methods of increasing our aid rather than just using an accounting technique to change what is a long-term booking problem into a short-term cash flow issue. Good for the Europeans, if they can make it work. We will have to find another technique, because the Auditor General will not accept it here.
The other European idea is this issue of international taxes on financial transactions, or on what they call kerosene, which is really jet aviation fuel. While they were listing off the things they might include in some kind of international tax regime, I happened to ask, ``Why do you not throw in arms sales,'' and then they lost their interest in the subject matter. I do not know whether that works for the Europeans or not. Again, it does not work from our perspective.
Rather than spending time and effort on these devices in order to raise revenue, or appear to raise revenue, our Canadian advice is to just get to the nub of the issue. We have to come up with more resources. That is our national obligation country by country by country. You cannot produce more aid just by an accounting technique. You have to put cash on the dash, and we should shoulder our responsibilities to do that. That is what Canada is doing through our international envelope every year. It stands at about $3.6 billion per year. It is increasing at the rate of 8 per cent per year, new money, year after year after year. Those are real, tangible dollars, and it is going up.
The U.S. reaction is that they certainly do not like the idea of international taxes, and they do not like the idea of the international finance facility, but I think my counterpart, John Snow, is thoroughly engaged. In the bilateral meeting that we will be having with him on Saturday in Washington, he would like to know about this report. I was a member of the commission; he was not. He would like to know what Canada thinks of this report and what role the U.S. can play. In most of the international meetings, Mr. Snow is very proactive in advancing ideas. Sometimes we agree, and sometimes we do not, but he is certainly at the table and trying to be a proactive participant in the international focus on Africa. A United States citizen, a former senator, was one of the 17 individual participants.
The objective this weekend, in that media glare that comes to bear on Washington when the IMF, the World Bank and the G7 finance ministers will all be there, is to take advantage of some of that publicity to get the Commission for Africa into some of the American media — why it was established, what it concluded and what we would hope it would recommend for the future.
The Chairman: Thank you very much. Senator Robichaud has a very brief question. The minister has to leave shortly.
[Translation]
Senator Robichaud: You said that the Canadian government or Canadians could have some influence on the regional economy. Are we currently doing enough? Witnesses have said that when certain countries were more or less forced to take steps to comply with the recommendation of the Internatial Monetary Fund and the World Bank, people became considerably poorer and these interventions did not really help them. Furthermore, goods were being produced that nobody wanted to buy and considerably less was produced for domestic consumption.
[English]
Mr. Goodale: That is an issue that requires attention. We should pursue the ideas for changes in the international financial institutions through the strategic review that is now under way. I would welcome the advice of this committee as to the kinds of things that Mr. Massé and Mr. Lynch should be advocating as our representatives in the World Bank and the IMF. It might be useful at some future date to invite them to come here to talk to you directly about how the international financial institutions can modify their behaviour to be more useful to the local communities.
Let me close on a small but important Canadian success story, and I quite literally stumbled across it in the market in Dar es Salaam. Talk about an exercise in raw local entrepreneurship. The market is a fascinating place to visit, but what it needs, of course, is a local financial institution to facilitate the thousands of commercial transactions that are going on in an informal way all the time. Canada is there through a well known, major Canadian financial institution, Desjardins, which has helped them to establish a local financial institution to provide the kind of institutional structure that that local entrepreneurship needs.
There are encouraging Canadian examples of that kind right across the African continent. Canada is well regarded on the continent, but I think we have to continue to work hard to merit the trust and respect of Africans and achieve the kind of constructive role we can play.
The Chairman: On behalf of the committee, it has been a very interesting session. Thank you.
Our next witness is Mr. Klaus Büttner. He is accompanied by Mr. Jean-François Croft. We will then hear from Mr. J. Perry Maisonneuve.
Welcome to the Senate of Canada. Mr. Büttner, you have the floor.
Mr. Klaus Büttner, Regional Vice President, Africa, Europe and Middle East, Export Development Canada: Honourable senators, Export Development Canada is Canada's official export credit agency. As such, it is our role to support Canadian exporters and investors abroad by offering them financing and insurance services. Such support is of help to our Canadian private sector clients in all foreign markets, but even more so in emerging markets, including in Africa.
[Translation]
I am going to begin by giving you a few figures about our sales in 2004. In 2004, EDC supported Canadian exporters and investors in Africa by providing financing and insurance services worth more than $1,038,000,000. This amount includes activities in North Africa, where Canadian businesses have had a strong foothold for a long time, particularly in Algeria. EDC's sales in sub-Saharan Africa totalled $387 million in 2004.
[English]
All of EDC's main product lines were used in Africa in 2004: Financing, political risk insurance, contract insurance and bonding, as well as short-term credit insurance. While the financing and political-risk insurance transactions were concentrated in a limited number of countries, EDC's short-term credit insurance, contract insurance and bonding services were used by many small and medium-sized companies for sometimes very small transactions, including transactions of less than $100,000, in a great number of African countries. As such, in 2004 EDC was able to support a total of 225 Canadian companies in 34 out of 54 African countries.
The foreign buyers of Canadian equipment and services are indirect beneficiaries of the EDC support. As such, EDC supports the development of the private sector on the African continent, including at the SME level, because some of these smaller transactions are effectively SME-to-SME transactions.
[Translation]
EDC is prepared to support Canadian exporters and investors around the world, subject to certain conditions, including conditions that affect Canadian benefits, the environment, the absence of corruption and the financial risk to EDC.
[English]
Whether doing business in Africa or in other parts of the world, EDC owes it to itself and its shareholders — the government and, ultimately, the citizens of Canada — not to engage in transactions that would represent an unacceptable level of risk from a financial and/or a reputation standpoint.
At the same time, EDC understands that it is our role, our mandate, to support high-risk transactions. For that reason, EDC has country specialists in its political risk, economics, business development and underwriting groups who have the expertise to distinguish between acceptable and unacceptable high-risk transactions.
Before talking about our support for the private sector, I should say that EDC's ability to provide financing to the governments of a number of African countries is constrained not only by the possibility of future payment defaults or debt forgiveness, but also by restrictions imposed by the International Monetary Fund. Specifically, under some of the programs that the IMF has with 19 African countries, it does not allow governments to borrow on commercial terms. Such governments are only allowed to borrow on non-commercial, which means aid, terms.
While the intent of the IMF is laudable, the practical implication for EDC is that we cannot provide sovereign financing to such countries. However, when supporting transactions in the private sector, EDC does not face those types of constraints. EDC has developed a level of expertise on Africa within various groups of the corporation, which allows the underwriting of transactions which many other financiers would not touch.
Such expertise exists on both ends of the spectrum of our products, i.e., both the small-sized credit insurance deal and the huge project-finance transaction can be handled by EDC. In the one case, it is EDC's ability to identify acceptable local banks whose letters of credit we are willing to insure for the Canadian banks that will make the deal happen.
In the other case, EDC's solid reputation among international project-finance banks as a provider of sizable financing capacity can tilt the project sponsor's procurement decisions toward Canadian providers of equipment and services.
[Translation]
Even though EDC believes that its capacity to meet the needs of Canadian businesses that require financing and insurance services to support their potential contracts in Africa is generally satisfactory under the circumstances, it decided to enhance its role in order to actively promote business opportunities in Africa for Canadian businesses, by making the market aware of them and forging alliances with other entities.
[English]
There are essentially three components to EDC's strategy with respect to Africa.
First, there is increased interdepartmental cooperation with other government departments. Second, there are more joint initiatives with the private sector; and third, there is the need in the future to explore opportunities to work with the new Canadian Investment Fund for Africa that will have its public launch at a major financing conference in Toronto later this month.
This submission is focused on the first two types of partnerships. Number one is the increased interdepartmental cooperation with other government departments. At a meeting held between EDC and then DFAIT approximately two years ago, it was decided to create a joint Africa working group.
This group has held a series of meetings over the course of the past two years and was expanded last year to include other governments and agencies such as CCC, CIDA and Natural Resources Canada.
Anne-Marie Bourcier, director general at DFAIT, and I have acted as co-chairs of this group since its inception. The existence of this group has already produced tangible benefits, mostly by allowing a better alignment of priorities and activities and by improving the information flow on business opportunities among departments and agencies.
This had tangible benefits for Canadian companies because they want to be able to rely on one government department's knowledge of what other government departments can do so that they are directed to the right services at the right address.
EDC is, of course, committed to further strengthening the collaboration with its partners in the Africa working group as well as with other federal and provincial government bodies.
Just briefly, on more joint initiatives with the private sector, EDC has been working closely with individual companies and regional business associations such as the Forum Francophone des Affaires or the Canada-South Africa-Chamber of Business for a long time.
However, what had been missing is the regional business association with an interest in the entire continent. Such an association now exists. It is the Canadian Council on Africa.
EDC is a major partner on the Canadian Council on Africa, including financially, but we have also helped develop the council's web site and have acted as a co-organizer of a number of events that have taken place under the umbrella of the council.
As such, it has become EDC's main partner for promoting business opportunities in Africa to the Canadian private sector.
In conclusion, Africa is a continent of natural resources, and EDC is known to have provided support to a number of big projects in the mining, oil and gas sectors where Canadian companies required support in the form of either financing or insurance.
However, EDC is keen to provide support to our small and medium-size customers in identifying and winning contract opportunities in a variety of other sectors.
While doing business in some African countries, as in a number of other developing regions, is not always easy for financial or reputational reasons, Africa has started to change in many corners, and the development of a stronger private sector in the African economies can be expected to lead to improved business practices and hence an improved business environment for Canadian companies and EDC to increase their presence on the continent. Thank you.
The Chairman: Thank you very much.
Mr. J. Perry Maisonneuve, Principal, Northern Lights Franchise Consultants Corporation: I will keep my opening remarks fairly succinct. I have taken the liberty of preparing a short briefing paper that you can follow up on. There are copies of the report to which I will be referring. By way of introduction, I would like to give you a little background on Northern Lights Franchise Consultants Corporation and perhaps one of the reasons why we are here today. We are a management consulting firm that specializes in small and medium-sized enterprises in Canada, and in 2002 we were contracted by the African Development Bank to conduct a study on the potential implementation of franchising and licensing as a strategy to impact success rates of SMEs in Africa.
The first issue is that franchising is considered to be a North American or Western phenomenon, and given what we know about levels of corruption, lack of rule of law and so on and so forth in Africa, it begs the question as to whether franchising could work at all.
Therefore, we launched a team of specialists, about 15 of us, including economists, lawyers and business people, to study franchising in Africa. We did primary research in four African countries: South Africa, Egypt, Morocco and Côte d'Ivoire.
Subsequently, we have been doing work in Nigeria, Ethiopia and other areas of Africa, but Nigeria in particular. I will be referring later to some of Minister Goodale's comments in terms of Nigeria.
There are some points I would like to draw to everybody's attention.
First, as everyone may be aware, the SME sector in Africa represents 90 per cent of the private sector.
What is interesting about that is that this SME sector is now contributing greater than 50 per cent of the GDP of Africa.
However, about 90 per cent of these SMEs fail within two years. It is noteworthy, in fact, that that is not necessarily inconsistent with failure rates of SMEs in Canada. The impact of franchising in Africa, specifically in South Africa, indicates that franchised businesses, business from franchising systems, experience a 13 per cent failure rate, so it is dramatically different from SMEs in general.
Therefore, the implementation of franchising and licensing strategies for SMEs in Africa has the ability to dramatically impact wealth, poverty reduction and employment creation.
We found one particularly noteworthy fact — and you will see in the brief a map of Africa to give a visual representation of this. We found franchising and licensing activity in 40 per cent of the African continent, representing 58 per cent of the total population.
In addition, when we studied enabling environments and compared them to so-called big emerging markets like India, China, Indonesia and Russia, we found that the majority of these African countries actually had enabling environments that were comparable, or in some cases better.
This again I found particularly noteworthy. Therefore, franchising and licensing could in fact expand into 80 per cent of African countries covering 70 per cent of the economies and 80 per cent of the population.
Contrary to the popular view, clearly, enabling environments are not necessarily an issue. We found it particularly interesting that, using South Africa as an example, where there is a strong and viable franchising sector, with some 500 systems versus Canada's 1,500 franchise systems — again a noteworthy statistic in comparison to a developed Western economy — 83 per cent of the franchise systems were indigenous, and of those, 56 per cent have successfully expanded into other sub-Saharan countries.
The Chairman: I do not want to interrupt, but could you give us an example of an indigenous franchise?
Mr. Maisonneuve: Nandos is a quick-service restaurant that has done extremely well in South Africa and has in fact expanded to Canada. Steers is another that is a competitor to McDonald's. Debonairs is a quick-service pizza chain. The Academy of Math and Science, which is involved with private supplemental education, has also expanded to Canada. There is any number. There is also the automotive aftermarket. Sector after sector deals with retail, food service, and it is branching off into various service sectors as well.
The Chairman: Outside South Africa?
Mr. Maisonneuve: Outside South Africa
I found it particularly interesting that the franchise association in South Africa refers to itself as the Franchise Association of Southern Africa, because it is all over Southern Africa, as you will see by the map.
When you see a South African franchise doing business in Nigeria, where you will not see McDonalds, Pizza Hut, Kentucky Fried Chicken or whatever, it begs the question of how they can do it when Western-based systems, with all of their sophistication and models, cannot. We postulate that this is an illustration that Africans know how to do business in Africa quite successfully. This is a competitive advantage for African businesses. It is key to private sector development in Africa that they capitalize on existing strengths there.
As another example, there is a publicly traded company in Zimbabwe called Innscor that is successfully operating franchise businesses, some originally from South Africa and others that they have created themselves, in 15 sub- Saharan countries. They are now negotiating to bring the Canadian franchise system into sub-Saharan Africa as one of the flagship brands in its portfolio. There are great opportunities there.
Everything that Minister Goodale said about infrastructure is true. Why can African businesses do that? How do they deal with the fact that electricity is not reliable and water is not necessarily clean? The answer is that they build that into the capital costs. They build in the cost of a water purification system and a generator, and the increased investment is compensated for by lower margins on labour and rents. The return on investment hovers between 30 and 35 per cent, which is phenomenal. By North American standards, it is unbelievable.
I believe that there is vast potential in the area of private sector development, specifically in the area of SMEs, and the Canadian government can take a direct and proactive role in stimulating that. I hope that will be discussed this afternoon.
I was asked to comment on our interaction with international financial institutions. The two that we have dealt with directly are the World Bank and the African Development Bank. One of the challenges in dealing with these two institutions is that the notions of a private sector and entrepreneurialism are new. How entrepreneurs or business people think is not particularly well understood. There is a cultural divide, and it is especially compounded when dealing with franchising, which is not particularly well understood by academics, the public sector or the business community in general, even in North America. Franchising is a bit of an anomaly in the economic development sector.
With regard to our involvement with the Canadian public services, we have specifically dealt with International Trade Canada, the EDC and CIDA. Generally speaking, the individuals in the trade commissions we have dealt with and in EDC, both overseas and in Canada, have been excellent to work with from a private sector perspective. They have been timely, relevant, proactive and extremely professional. From a private sector point of view, we consider them an underutilized resource, although we do include a few suggestions in this area in our briefing paper.
CIDA falls into the same category as the IFIs in general, that is, the notion of private sector development is perhaps new and therefore presents certain challenges.
The Chairman: Thank you very much.
Senator Eyton: Thank you for your presentation. I am curious about franchising. From your remarks, I gather that the franchising business you are talking about is very much like franchising as we would understand it in North America.
Mr. Maisonneuve: By way of clarification, franchising, as we commonly use that term, refers to business format franchising as opposed to trade name franchising, and there is a big difference between the two applications.
Business format franchising includes what I refer to as backroom systems — the management, the know-how in terms of advertising and marketing, et cetera — as opposed to licensing a trade name. That is an important distinction.
Senator Eyton: I would have thought that most franchise businesses would carry those other elements as well.
I am curious about your role. I understand that you have done studies and that you understand the opportunities. I presume, however, that you have acted for Canadian companies that, through your efforts or introductions, have gone into the franchise business as you define it.
Mr. Maisonneuve: Yes.
Senator Eyton: Is that a business in which you are having some success and that is growing?
Mr. Maisonneuve: Yes.
Senator Eyton: Are these existing Canadian franchises, or are they newly conceived, with new people and new ideas?
Mr. Maisonneuve: Our practice specializes primarily in what we refer to as emerging and mezzanine-level franchise systems. The distinction in the Canadian context is that an emerging franchisor is either an entrepreneur who has an existing business, usually with at least three different outlets and three years of positive cash flows — the basic elements needed to franchise that business — or they have been franchising and have less than 20 franchisees and, usually, less than five years of franchising history. They are emerging; there are still a lot of learning-curve issues. Franchising is a different business from the retail business they started with.
Mezzanine-level franchise systems are defined as between20 and 60 franchise outlets and usually 5 to 10 years of operating history. Again, that definition will change if we apply it to the United States, for example.
Pure franchise systems, the Tim Hortons of the world, have usually in excess of 80 franchise systems and have been around for some time. They are the dominant players.
Senator Eyton: That is a revelation to me.
I would like now to turn to the EDC and talk a little about the business terms and your lending experience, particularly in Africa.
I have encountered EDC in my business years, and it seemed reasonably conventional in its financing, although I cannot remember ever being involved with a loan to African countries or organizations. I would have thought the experiences would be different there, and there is some implication of that in your remarks. For example, you said that if they are paying more than half their debt service they will be okay. I think you were using someone else's standards.
Can you describe the special terms that you would attach to business in Africa and your resulting experience over a number of years in terms of recovery, and perhaps even return on investment?
Mr. Büttner: EDC does not take a different approach to Africa than to other developing markets. Our standards of credit are essentially the same. For instance, with respect to our environmental, anti-corruption and financial standards and financial terms, the OECD consensus applies to Africa and other developing markets. We do not have a special program for Africa. We apply in Africa the same products lines that we have for other developing markets, to the extent that they are applicable.
I would have to get back to the committee with details on our claims and recoveries experience, but I have no reason to think that it is worse, on average, than in other continents. The challenge in Africa is sometimes a little greater, in the sense of identifying the counterparts with whom one can work. The challenge is more at the underwriting stage as opposed to necessarily at the claims or collection stage.
We do not want to get to the stage of the collection experience. We have to include a number of important African markets in the African strategy. For instance, Nigeria is a very important country in Africa.
The Chairman: I would like to point out to anyone watching that it accounts for 25 per cent of the population of Africa. That is sometimes forgotten. Nigeria is not just another country; it is 25 per cent of the population.
Mr. Büttner: That is accurate, and if you take it to the next level, you cannot really have an Africa strategy without including Nigeria in it. The approach we take in such a market, where there can be certain challenges with respect to the public sector, is to identify the private entities, the financial intermediaries, with which we can work, and effectively make use of their local understanding of the market to get deals done — specifically, identifying financial institutions in Nigeria that could on the short-term credit side be banks that we could confirm letters of credit of, on the medium- to long-term side, banks that we could establish lines of credit with. In such an instance, our exposure would not be to the ultimate buyer of the Canadian equipment and services, but to the bank that is effectively lending.
That is a key strategy for EDC across emerging markets, including in Africa. We cannot possibly know all the potential end buyers and have expertise on them at EDC, but we can establish relationships with those local entities that have high enough financial and other types of standards — reputational standards, corruption wise — for instance. We can use them as the intermediaries to allow the transaction to conclude.
Senator Eyton: This is my last question for the moment. Can you comment on the trend lines for the private sector? I understand that your business is growing in Africa. I understand there is an emphasis on Canadians trying to do more to help and to invest. I assume the private sector is getting more involved and that more players are surfacing, day by day and week by week. Can you comment on the trend lines and, essentially, the source of the private sector participants? I have been in business many years and have been involved in two or three investments in Africa of a larger size. We are talking here about SMEs and their initiatives, and I am curious about where they come from and to what extent it is a business that is growing for you and for them.
Mr. Büttner: Our overall business volume and number of customers served in Africa, and sub-Saharan Africa in particular, has remained relatively constant over the past two, three or four years. There are some sizable investments that Canadian companies have made in the natural resource sector — Barrick, Placer Dome, et cetera. Those ones are known. With respect to some of the smaller companies, we certainly have the machinery and equipment suppliers in the natural resources sectors, oil and gas, mining. That is a target for our business development initiatives in Africa and actual users of our policies. It goes beyond that. It is construction equipment, telecommunications, information technology equipment, even the educational sector to some extent. It is relatively broad.
In terms of our business development approach to the private sector at large, beyond our large customers, we try to work regularly with the Canadian Consul on Africa; the no-longer-so-newly created entity representing the private interests in Africa. We collaborate with them in the organization of events because it is important to spread the news on Africa, on the opportunities that exist. That includes outbound missions, inbound missions, the conference I alluded to earlier. It includes working with the other government departments to ensure that we find ways to communicate to the private sector what each department's responsibility is. We are not CIDA; CIDA is not CCC, et cetera — the different arms of government. Each entity plays its distinct role and it is important that these different roles are understood and that they work together.
The Chairman: I am looking at the testimony to the committee of the Nigerian ambassador, Ambassador George, and a very senior official in Nigeria. He said one major obstacle to the promotion of closer economic cooperation — and which is also of serious concern to me — is the attitude of the Export Development Canada, EDC, in refusing to grant the usual insurance coverage to Canadian companies wishing to do business in Nigeria. That is what he said to this committee a month ago. He continued:
If I might say it openly here, some of the reasons that have been advanced to me I find unbelievable. Because the Americans have issued such and such a report, therefore we must toe that line. That is the challenge. Send your people there to conduct your own investigation. The IMF and the World Bank gave a clean bill of health and have supported the reform programs, as I said in my statement.
That seems to be reasonably critical of the EDC, does it not? Would you like to make a comment?
Mr. Büttner: Thank you, Mr. Chair. EDC supported business in Nigeria in 2004. We will continue to do so, with private sector entities, for the types of transactions that are brought to us.
With respect to the Nigerian sovereign, the fact is that Nigeria has decided to cap its payments to its Paris Club creditors — in other words, our fellow ECAs and other OECD governments — at an amount of $1 billion U.S. a year, although its debt-service obligations are more than double that.
Now, Nigeria ostensibly does that because they feel they deserve debt forgiveness, and it is not EDC's role to comment on whether it does or does not. This is an issue for us as a financial institution in the sense that we cannot be reasonably expected to provide additional financing to a government that at this time is only paying roughly 40 or 45 per cent of its annual debt-service payments to the other governments that are creditors of Nigeria at the Paris Club. That is the situation.
We are not closed in Nigeria. We do support private sector transactions there. However, EDC is by no means the only organization, the only export credit agency that faces this challenge with the Nigerian government. The OECD, the Organization for Economic Cooperation and Development in Paris, of which essentially all developed countries are members, rates Nigeria in country category as seven out of seven; that is the worst category.
These are just some of the facts that we have to take into account when we develop an underwriting position on a specific country; but I repeat, we are open to supporting Canadian exporters in Nigeria for private sector transactions — and have done so.
Senator Di Nino: That was an interesting point that you brought up. I was trying to remember what the ambassador had said. Thank you for that.
The clarification is an interesting commentary; the roadblocks are being put up by the Nigerian position on servicing of its debt as opposed to EDC's inability or unwillingness to finance projects.
Mr. Büttner: That is correct, yes.
Senator Di Nino: I would like to stay on the same line but talk a little about the relationship with CIDA. Do you work with them on projects?
Mr. Büttner: Yes, we do work with CIDA on certain projects. We cooperate with CIDA on both the transactional level and the policy coordination level in our Africa working group.
There are certain rules that have to be respected when we work with CIDA, for instance, OECD consensus rules that put certain restrictions and parameters on the ability of an aid agency to work together with an export credit agency. Within those parameters, we have worked with CIDA on projects.
Senator Di Nino: Is this in cases where one might classify CIDA's participation as tied aid?
Mr. Büttner: Absolutely.
Senator Di Nino: How does that work? Give us a specific example.
Mr. Büttner: Let us say, for instance, that CIDA is approached to finance a project in its early phases. I gather from your question that this committee has looked at the rules on tied aid. There are certain restrictions on the minimum amount of tied aid that has to be provided. It is generally 35 per cent of the overall contract that has to be at the concessionary level for it to be considered genuine aid as opposed to just an export subsidy.
There are certain exceptions to that, for instance, for the financing of small feasibility studies that lead to the export contract. In those instances, it is possible to combine CIDA support at the feasibility stage, at the early stage of the project, with EDC export credit financing on normal OECD consensus terms at a later stage.
Senator Di Nino: I am concerned that the assistance we are trying to give certain countries in Africa be real assistance that will help them develop self-sufficiency, in more ways than one. I am trying to figure out whether what we are doing is good or bad. Are we helping, or is it only a way of making our products available to that country, which may not be as beneficial as EDC-assisted financing that could provide jobs and deal with some of the chronic unemployment?
Do you have an opinion on that or would you be overstepping the bounds of your authority here?
Mr. Büttner: Indeed, I am not an aid expert. I do not think it would be appropriate for me to comment on another government agency's plans or what it wants to do with its programs.
Senator Di Nino: Do you feel that the programs you have for Africa are benefiting the countries where you are participating?
Mr. Büttner: The types of projects we support are generally commercial projects. It is the very nature of a commercial business transaction that it would not be undertaken if both sides did not see an interest in it. Let us take it to that fundamental level. If two parties conclude a commercial transaction, be it the sale of equipment or a service or an investment, it is because both sides see an actual business benefit to it. EDC's role is to facilitate the conclusion of that particular transaction.
It benefits our Canadian customers, but because the African entities who enter into contracts with our Canadian clients do so on a willing basis, because they see a genuine business benefit to them in concluding those types of transactions, it also helps them, and in that sense it helps the development of the private sector in Africa.
Senator Di Nino: I would like to ask one further question of Mr. Maisonneuve. It sounds like your experience there has been quite extensive. How many countries are you involved in at this time?
Mr. Maisonneuve: Six out of 54. I am working my way through the rest.
Senator Di Nino: We wish you luck. Has your experience been positive in these countries? Has it created the kind of economic benefit that one would expect?
Mr. Maisonneuve: Absolutely. Frankly, before I got involved with the African Development Bank, I probably shared the opinion of most other Canadians that Africa is a World Vision commercial — and it is not. My experiences there have been positive. The business people I have met have been very professional, well educated, competent and ethical. They have been great, with a few exceptions, but no different from what I have experienced here.
In fact, Nigeria has become something of a pet project of mine simply because everyone else seems to want to run away from it. I made a point of going to Abuja and Lagos last year, and I have been working with NOTAP, the National Office for Technology Acquisition and Promotion, which is directly involved with intellectual property and, by extension, franchising, and the local franchise association there. I found that they really bent over backwards to compensate for the misinformation and the poor reputation from which they suffer.
It was the same in Egypt, South Africa and Morocco. We have become friends and colleagues. There is a real passion there. I have always been amazed by the passion in Africa, and that is why my heart has been attracted to it. There is a raw entrepreneurialism there. As we say in the Income Tax Act in Canada, this adventure in the nature of trade. It is raw, it is real; it is there.
We were involved in a symposium put on by NOTAP last April, and it was packed. We were surrounded by entrepreneurs who wanted to know more about how to do this.
Senator Di Nino: These are African entrepreneurs?
Mr. Maisonneuve: I was basically the only Anglo, shall I say, there. There was a gentleman from Sweden and everyone else was African.
Senator Di Nino: One of my concerns, and I think it is shared by a number of people, is that aid is usually, as I said the minister — and I am just quoting someone — genuine pity as opposed to real help. I asked the minister if, through CIDA and other programs, we should not be looking at helping to fund businesses that can create jobs to deal with the chronic unemployment and let the countries help themselves. I made the comment that an empty stomach is much more susceptible to sickness, certainly corruption, and all of the other maladies that affect some of those countries.
In your experience, have you seen some benefit from the creation of jobs that you can tell us about firsthand, rather than me putting words in your mouth?
Mr. Maisonneuve: There have been some great case studies or experiences I have seen there. I will go to Nigeria again, because it is so exemplary in so many ways. One example is a brewery called South African Breweries. It is one of the biggest in Africa. They franchised their delivery trucks to basically Black Africans, so the truck drivers are franchisees. These truck drivers have trucks full of beer. They drive into a ghetto like Soweto, where there are 5 million people, and they will park the trucks and people come over and buy the beer. These truck drivers are making a good living from an all-cash business; it is all informal, but they are doing well.
I would like to comment, senator, on your point about pity. Frankly, the Africans I have dealt with have absolutely no interest in charity or pity — none. They are looking for know-how, expertise — just show us what to do and we can do it perfectly well, thank you very much. Examples of that are South Africa and Nigeria. Nobody wants to go Nigeria in terms of franchising so they are starting their own. There is a very successful cell phone company called Econet that in four years has gained 40 per cent of market share. It is the only one of four such companies in Nigeria that is franchised.
Another one is Tantalizer, which is indigenous to Nigeria, has 23 outlets and is growing quickly. That company has learned how to franchise its business and is vertically integrated. It owns the land and the equipment to compensate for the corruption issues and lack of rule of law. Being vertically integrated allows them to deal with these issues. Nigerians know how to do business and make it work in Nigeria. Mr. Big, another example, made a deal with Imperial Oil to place some of their businesses on land controlled by Imperial Oil. In that way, Mr. Big does not have to worry about negotiating with landlords.
There are some excellent examples of private sector initiatives in Africa, of business people taking the bull by the horns, creating jobs and bringing people in. Innscore is another great example of sub-Saharan private sector development. They are vertically integrated as well, right down to preparing and processing of foods to supply their restaurants. By being vertically integrated, they can control their costs. It is important to be able to sell a chicken drumstick for a price that the average African can afford to pay. We could learn a few strategies from these business people because they are good at what they do.
[Translation]
Senator De Bané: I would like to tell you, Mr. Büttner, that I found your mastery of our country's two languages remarkable. Congratulations. You speak both languages extremely well and this is something to which I am sensitive —
Tell me, does your institution, the EDC, have offices in Africa?
Mr. Büttner: I would like to thank you for your nice compliments. As you no doubt suspect, neither French nor English is my first language.
As for your question, EDC has a number of offices abroad. We have representatives in Mexico, Brazil, China, India, Poland and Malaysia. We are thinking about expanding our representation abroad. For example, a location like Russia comes readily to mind, and could justify additional representation at some point.
These discussions are something that happens at board level; I am simply reporting the general trend to you: we are in an expansion phase with respect to representation abroad.
As for Africa, that is a possibility. For the time being, there are no plans for Africa.
Senator De Bané: As you know, the Standing Senate Committee on Foreign Affairs is looking into what Canada could do for the African continent. Would it be possible for you to prepare something for us about the possibility of more initiatives by your institution to help the African continent?
Thus far, you have described what is happening now. Our committee would like to prepare a report for discussion with the government. What more could we do for the African continent?
No doubt your institution, which is very familiar with the economies of all these countries, could make some suggestions to us; for example, if the government wanted to do this or that, and at what cost. These things could be considered.
You spoke about the way your institution worked with CIDA. Could you give specific examples? How can a financial institution like yours conjoin its efforts with those of the Department responsible for aid? Can you add the interest costs? How do the two of you work together? You spoke in general terms. Could you spell out some possible formulas that would demonstrate how the two could work together?
Mr. Büttner: To answer the senator's two questions with respect to being able to provide a document to this committee; EDC can certainly give you some additional ideas. You want to know what else EDC could do.
Senator De Bané: And under what conditions.
Mr. Büttner: We could certainly submit a brief to this Committee to provide a few ideas and perhaps clarify in greater detail things that I was unable to explain in ten minutes to describe exactly what tools are available to EDC to support the African continent.
As for working with CIDA, I can give you two examples. The first example is approximately what I said in response to an earlier question. It is within the framework of support provided by CIDA at the time of the feasibility study for the generally limited amounts covered by a rule called OECD consensus de minimis. In such a case, the grant from CIDA under this feasibility study and future funding from EDC may be compatible.
But there is also another example in which CIDA provided 35 per cent, which is the OECD minimum for aid, and for which EDC provided 65 per cent, the maximum rate, under conditions required under the OECD consensus. A water purification project in Algeria was jointly supported by CIDA and EDC in this way.
Those are two examples, but perhaps I could develop this point in greater detail in the brief.
[English]
Senator De Bané: Mr. Maisonneuve, you mentioned that you had some cooperation from the EDC. On how many projects was EDC a partner, helping to make things happen?
Mr. Maisonneuve: Are you referring to the number of projects that we asked about or the number of projects for which we received funding?
Senator De Bané: Your distinction may be very relevant.
Mr. Maisonneuve: We approached the EDC on six projects and one of them was financed. The African Development Bank study was financed by the EDC. Without the EDC's help, the study would not have happened because of the challenges that I had, as a small practice, with my commercial lending institution. They simply said that small SMEs in Canada do not do international work, so they would not talk to me about it. We had to put up a performance guarantee with the African Development Bank. Some people at the EDC walked across the street to talk to senior officials at the TD's head office. After some closed-door conversations, the funding was in place. A phone call to the regional office, and it was done. The project would not have happened had it not been for the EDC, so they get top marks in my books.
Senator Mahovlich: Mr. Maisonneuve, back in the 1970s, large corporations such as Pepsi-Cola and McDonald's were making inroads in Russia and meeting with some success. Has Pepsi established itself in Africa? Do they have bottling companies?
Mr. Maisonneuve: Coke owns Africa. I have a picture of myself standing in front of the pyramids holding a Coke bottle. The label is in Arabic, but you know instantly that it is Coke.
Senator Mahovlich: Are they all over Africa?
Mr. Maisonneuve: Coke is all over Africa; they have done extremely well.
Senator Mahovlich: What is the situation with McDonald's?
Mr. Maisonneuve: It is interesting that 40 per cent of Pepsi-Cola's and Coca-Cola's sales come from purified water. They are getting out of the pop business altogether. The future is water. You are paying more for a bottle of water than you are for gas.
Senator Mahovlich: There is plenty of water in Africa.
Mr. Maisonneuve: However, you have to treat it first, most of the time.
Talking about opportunities for Canadian businesses to expand into Africa, in Canada there are purified-water retail stores. You go in, fill up an 18-litre jug and you go home — cash and carry. They are like mushrooms in Canada; they are everywhere. The technology is public information. Those operations do not exist in Africa.
We did a feasibility study in Cairo and in Johannesburg last year. We are now doing one in Nigeria. We are talking about break-even points for a purified water store with reverse osmosis technology. The break-even point is the second month of business versus six months in Canada.
The Chairman: This has been an interesting day. Like Senator Eyton, I did not know anything about franchising in Africa. That subject had never occurred to me. As Senator Mahovlich will know, I have also been to Russia, with my bicycle. I was astounded at the number of McDonald's operations in Russia. The McDonald's operation in Russia is the best I have ever seen in my life. I never thought I would actually be looking for a McDonald's to have a coffee in, but I was certainly doing that there.
The committee adjourned.