Proceedings of the Standing Senate Committee on
Foreign Affairs
Issue 14 - Evidence - Meeting of May 11, 2005
OTTAWA, Wednesday May 11, 2005
The Senate Standing Committee on Foreign Affairs met today at 3:13 p.m., pursuant to its study on 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.
[Translation]
The Chairman: Honorable senators, welcome to this meeting of the Senate Standing Committee on Foreign Affairs, as part of our special study on Africa.
Today's meeting will be divided into three parts. First of all, we will concentrate on Mali. We will then welcome the Minister of International Cooperation, and finally, we will look into the World Bank.
Today, we have the honour and pleasure of receiving the President of the Republic of Mali, His Excellency Amadou Toumani Touré, accompanied by Mr. Moctar Ouane, Minister of Foreign Affairs and International Cooperation, Ms. Fanta Sylla, Minister of Justice and Keeper of the Seals; Mr. Ousmane Thiam, Minister of International Promotion, Small and Medium-sized Enterprises, and Government Spokesperson; and Mr. Badi Ould Ganfound, the Minister of Civil Service, State Reform and Relations with Institutions.
I would like to note as well the presence of His Excellency Mr. Diawara, the Malian Ambassador to Canada, as well as Her Excellency Ms. Louise Ouimet, Canadian Ambassador to Mali. I welcome you all to the Senate of Canada.
As we have only 25 minutes, Mr. President, I will give you the floor immediately, and say that we have a few questions to ask you. I know we are somewhat pressed for time. We are a very bilingual group and you have interpretation. We are well organized for that. We have been given questions on the global institutions, such as the World Bank and the International Monetary Fund. In your observations, you could perhaps give us your opinion on Mali's problems with global institutions like the World Bank and the International Monetary Fund.
His Excellency Mr. Amadou Tounami Touré, President of the Republic of Mali: Thank you, Mr. Chairman. I would like first of all to respect one of our homegrown traditions. I wish to express all our thanks to you, and through you, our gratitude towards the Canadian people for the invitation we received at what is, admittedly, a difficult time. We greatly appreciate the solid support Canada offers us through the excellent cooperation that exists between our two countries. Mali is one of the 25 target countries Canada has chosen. Over the last four years, Mali has seen its share of Canada's generosity increase threefold. I must say that every significant aspect of development in our country is currently supported by Canada, that is education, health, the environment, rural development, our institutions — because we have entered into a particularly significant phase of decentralization — and above all, justice, which is after all an extremely important issue, not only in terms of fairness but also in terms of the expression of people's rights.
Mr. Chairman, as you have stated, Mali today has very good relationships with these institutions, particularly the Monetary Fund and the World Bank. However, I must in all honesty point out that in certain cases, there are some aspects with which we are uncomfortable.
First of all, as far as the World Bank is concerned, there are certain kinds of conditions that are proposed to us; they are asked for in an intelligent and friendly manner. I would like, for example, to take the case of the cotton sector. Mali is the biggest producer of cotton south of the Sahara, and the second biggest producer in Africa after Egypt, with an average annual output of 600,000 tonnes. Almost 3.5 million Mali citizens make a living from cotton, directly or indirectly.
However, Mr. Chairman, would you believe that no T-shirts are made in Bamako, Mali? Almost 98 per cent of the cotton produced in Mali is exported. We have no added value that could potentially enhance the revenues of our cotton producers, but what is worse, there is no added value to allow us to create jobs for our burgeoning young population.
Why is that? First of all, because of some countries' subsidies, but most of all because of the huge production. Somewhere at the WTO, people are talking to us about free competition. We are told about truth and the realities of pricing. Prices are not set in our country. On the other hand, the World Bank is saying: we are creating programs to combat poverty. Personally, I say that the best way to combat poverty is to buy what poor people are selling at a fair price.
These subsidies are killing us, are completely destabilizing us. On top of that, the dollar is losing ground. When goods are sold in dollars, and the dollar loses almost 30 per cent of its value, that creates very serious economic problems for us. The World Bank makes things worse by imposing further conditions on the deficits created by Malian cotton, for example. And yet we are not responsible for most of those deficits.
We accept responsibility when there has been bad management that may have had an effect on this deficit. We are prepared to make the necessary adjustments when this happens. However, we see no tangible evidence of the World Bank intervening with certain countries to make them understand that their cotton, which is not the same quality as ours, can destabilize us.
We used to call Malian cotton ``white gold.'' Today, it has become the ``golden nightmare.'' Not only is cotton unprofitable, it is compromising our development. All the resources we should be devoting to other growth sectors are used to make up the cotton deficit. How can there be fairness when some, thanks to their deep pockets — and good for them — subsidize their cotton producers to the tune of billions of dollars. Whereas we, although we find ourselves with a deficit, suffer all the wrath of the World Bank and of some of our senior partners, sometimes for reasons we are not totally responsible for. At times, we experience difficult conditions.
In other cases, the World Bank does not consult us enough. How can a person who has never seen a cotton branch allow themselves to draft a cotton policy and come and propose it to us? They should come and see us first, visit the cotton producers, see at least one cotton field so they know how it grows. Sometimes we feel there is a significant disconnect between the decisions that are imposed on us by the bank and some of our partners as far as reality is concerned.
On the other hand, we must be fair on other points as well. The bank has contributed quite significantly to the development of our country. But we have been surprised to realize that realities that were completely taboo at the World Bank 15 years ago are major realities today.
Take infrastructure, for example. Mali is a country of 1,200,000 square kilometres. That is not impressive by Canadian standards, but it is among the 15 largest countries in Africa. In the past, before building a road, we would say: we cannot build this road without seeing what its usefulness will be, that is to say how many trucks will use it. But in order to see, one has to build a road first. These are the kinds of thought processes we are going through, which are — even though the intellectual analysis is quite correct — completely separate from reality.
Moreover, we are experiencing a kind of contradiction. Ours is a developing country. Our population is particularly young. Our educational infrastructure is breaking down. We do not have enough schools, teachers, or books. Today, Canada has launched a broad program to give our children books because books represent a great value in some of our villages. Some students have never seen a book because only the teachers have them. Today, thanks to Canada, millions and millions of books are distributed throughout our country and our children have the opportunity to have a book. But what is happening?
With the structural adjustment program, the public service is imposing limits on us. Thousands of new lawyers, professors, doctors, engineers of all kinds and musicians, who went to universities in Canada and elsewhere, are coming home. There are more of them than our universities can produce, that is to say the 2,000 or 3,000 young people graduating from our schools. And they have no chance of being recruited, because the bank will simply not accept that certain parameters not be respected.
We are dealing with a glaring contradiction. We are not hiring, and yet we have a shortage of people. We have villages and hospitals without doctors; we cannot recruit because then we would have a payroll that the bank would not accept, because we risk creating problems according to certain economic parameters.
If we hire a teacher for a class, his salary will be added to public expenditures, and Mali cannot go beyond a set quota within which all salaries must be included. Sometimes, it seems as though there is water, water everywhere, but not a drop to drink. We have water right in front of us, but we cannot lean forward to drink it.
These are the kinds of inconsistencies we are often faced with. On the other hand, I acknowledge that the World Bank's attitude has been perfect with regard to some programs to combat poverty; certain infrastructure programs were understood and accepted. They participated effectively in the development of our country. It must be said. We would like the bank to be closer to us, to participate more and help us, and most of all listen to us, so that we could truly say what our problems are and so that we could draft the proper policies together. But we have hospitals without doctors, young doctors from Canadian universities, from Moncton or elsewhere. We cannot recruit them in Bamako because the Malian public service is not hiring. And yet, we need doctors. Sometimes we are in an extremely difficult position. But still, we salute the efforts of the World Bank. With them as well as with other partners, we have launched a vast program to combat AIDS/HIV. We must thank the World Bank, because they drafted a multisectoral program on HIV/AIDS.
Happily, it is still the situation in our country today that we have an incidence of less than 2 per cent; however, South Africa had the same percentage 10 years ago, which did not prevent them from suffering an exponential rise in AIDS. We must honour and highlight such projects. Today, the World Bank is interested in agriculture, which was not the case in the past. Two of the mightiest rivers in Africa go through Mali: the Niger and the Senegal. The Niger travels 4,200 kilometres in total on its journey from Guinea to Nigeria where it empties into the Atlantic Ocean. It covers 1,780 kilometres in Mali.
Today, we are obliged to turn to Canada for aid because of food supply instability. Our agriculture is totally subject to the elements. When we get rain, we have good growth, and when we do not, the growth is almost negative.
The World Bank — we must not be ungrateful — has brought us some solutions, but they need to listen to us more. The bank needs to focus more on development, and it needs to work with us more often rather than imposing conditions on us. As regards the International Monetary Fund, with its structural adjustment program, everything is going well. We have even gotten away from the classical structural adjustment program. However, we have asked the Monetary Fund to support us for another two or three years. We freely accept this in order to be in a position to consolidate the gains we have made until now.
What is the International Monetary Fund's leitmotif? Privatization. We have just privatized the cotton industry, transportation, et cetera. In some cases, this may be the condition. We privatized and it did not work. We were obliged to re-nationalize. Today, we once again are being asked to privatize the same industries. This is all to say that this has at times created significant problems.
We will not be ungrateful. I believe that the World Bank as well as the International Monetary Fund are playing some important role in helping us with our development.
The Chairman: Thank you, your presentation is very interesting and very important to our committee. Your comments on the World Bank and the Monetary Fund were very instructive. I thank you on behalf of the members of the committee, and I will stop here as I do not want to interrupt your schedule.
Mr. Touré: I am honoured.
[English]
The Chairman: Honourable senators, we are into the second part of our meeting this afternoon. We have some of our old friends, in the sense that Mr. Hunt has been before the committee previously. I cannot remember, Mr. Cameron, if you have. Yes, you have.
[Translation]
We now have the pleasure of welcoming the Honourable Aileen Carroll, Minister of International Cooperation. The minister is accompanied by Ric Cameron, Senior Vice-President and by Paul Hunt, Vice-President — Africa Branch.
[English]
Welcome to the Senate of Canada. My colleagues will remember that the minister appeared before us in December to discuss the performance report of her department. Today, the minister is with us to discuss the new focus of the aid program of CIDA, the impacts of the 2005-06 budget on her department, as well as the February 2005 report by the Auditor General of Canada, all in the context of our Africa study.
Minister, you have the floor.
Hon. Aileen Carroll, Minister of International Cooperation: Thank you, Mr. Chair. My apologies for being late, we were just now released from the House. I thank you for your patience.
I am delighted to be here today. I enjoyed coming last time and look forward to our discussions this afternoon. I will talk about the implications of Budget 2005 for CIDA. I will also address a key section in the Auditor General's report concerning CIDA.
I will begin by saying that over the past few years, particularly since the G8 Summit in Kananaskis, Alberta, in 2002, the Government of Canada has made Africa a priority for its international development programs. We have made commitments on behalf of all Canadians to work a lot harder to help African countries to lift themselves out of poverty, and to do so within the context of the Millennium Development Goals, an ambitious agenda to cut global poverty in half by 2015.
I am proud to say that Budget 2005 delivers on our commitments, for these reasons. First, the Government of Canada is increasing international assistance by $3.4 billion over the next five years. This puts on us on track to achieve our goal of doubling aid from the 2001-02 level by the end of the decade. Most of this increase will benefit Africa, the world's most impoverished continent. By 2008-09, Canada's aid to Africa will have doubled from the 2003-04 level.
The government's recent international policy statement further underscores our commitment to Africa. CIDA has identified a core group of 25 development partners that will receive at least two thirds of our bilateral budget by 2010. These are countries that can use aid effectively and prudently and where Canadian expertise and resources can make a difference. It would interest the committee to know that more than half, 14, of these countries are in sub-Saharan Africa.
[Translation]
In addition to focusing our energy and resources on a smaller group of core countries, we are also heightening the impact of our development assistance by concentrating in five priority sectors directly related to the Millennium Development Goals: promoting good governance, improving health outcomes (including HIV/AIDS), strengthening basic education, supporting private sector development, and advancing environmental sustainability.
Ensuring gender equality will be systematically and explicitly integrated across all programming within each of the five sectors of focus. Budget 2005 paid particular attention to the health sector, providing $340 million in additional funding to address infectious diseases such as HIV/AIDS, tuberculosis, malaria and polio.
Africa — which is suffering from the burden of these diseases more than other regions — will benefit directly from these extra resources. That said, I want to emphasize that Canada will continue to support countries in other regions. We have earmarked up to one-third of CIDA's bilateral budget for countries of strategic importance, or for countries where Canada can continue to make a difference.
I also want to recognize that increasing both quantity and quality of assistance will not, in itself, allow Africa to achieve the Millennium Development Goals. That is why the International Policy Statement reflects a comprehensive, whole-of-government approach.
It enables us to harness all the tools and instruments at our disposal such as promoting greater market access, more debt relief and more support for the private sector in developing countries.
The Government of Canada, through Budget 2005, introduced a new management framework for the International Assistance Envelope. The government now has five distinct pools devoted to development, international financial institutions, peace and security, development research, and crises.
The aim is to improve flexibility, coordination and transparency in our budget allocations, aside from ensuring stable funding for CIDA's programs and development work.
[English]
I will bring you up to date on the specific issue of how CIDA allocates its budget. It allocates funds through two channels, grants and contributions. When an organization receives a grant it has no further obligations to fulfil. By contrast, contributions are subject to performance conditions. In other words, the recipient must meet certain conditions over the life of the agreement in order to be reimbursed for specific costs. In her February 2005 status report, the Auditor General raised questions about CIDA's increased use of grants and their potential impact on the agency's ability to monitor and control budget allocations.
It is true that CIDA is using more grants as part of its drive toward greater aid effectiveness. CIDA has been pooling its resources with other donors to meet common objectives. We do this by providing grants to multilateral institutions, to the WHO to UNDP. Harmonizing our work with other donors reduces duplication and heightens overall impact. Rather than reducing accountability, I believe these kinds of grants actually enhance it. Why do I say that? There are two reasons.
We only give grants to multilateral partners with proven track records in the sector or region in question. We choose only multilateral agencies with high standards of management and monitoring that are aligned with the needs of all participating donors, including Canada. For these reasons, CIDA believes the risk of poor performance through grants to multilateral agencies is actually quite low, especially when compared to stand-alone projects that use various executing agencies that work under contract or contribution agreements. That being said, we appreciate the Auditor General's desire for CIDA to justify the use of grants more clearly. To that end, the agency has clarified and strengthened criteria for the use of grants and we are now incorporating these guidelines into training courses within the agency. I have no doubt that they will help CIDA continue to improve its overall effectiveness, and as chairman, I am comfortable with pursuing that direction.
Mr. Chairman, I have outlined some of the implications of Budget 2005 for Canada's development cooperation program and the work of CIDA. Clearly, it is an exciting time for international cooperation. It was an exciting process, the international policy statement, and I tell you that I think we have put forward an excellent piece of work and that I look forward to the implementation of our portion. We have, of course, already commenced. I am confident that CIDA has carved out a niche that will allow us, in collaboration with partners at home and abroad, to do what we set out in that report, which is to truly make a difference in the world.
Senator Andreychuk: As you point out, minister, there are presently many demands on your time. I want to find out a little more about how you chose the 25 countries and how you would define ``strategic importance to Canada.''
Ms. Carroll: We spent considerable time determining an appropriate set of criteria. I am sure you would know we did not do so casually. We built on our own experience and that of other development agencies. We applied three criteria.
First, we determined the level of poverty in the countries that would become full development partners. It had to be $1,000 per year or less. That was our first criterion, to determine poverty per se.
Second, we considered how capable the countries were of effectively using the aid and what capacities had been built to allow an effective use of development assistance. Inherent in that, along with other factors, was a serious analysis on the governance side. We are not, of course, naive enough to ask countries to commit to good governance or to commit to achieving good governance and have completed a process, but we did want a buy-in from the countries that that was an important way to pull themselves out of poverty. That is the second criteria.
The third criterion was what did Canada bring to the table? In what way did we perhaps bring a particular expertise or experience to assist those countries? Where did Canada fit in the list of donors? Where we sitting at twelfth or thirteenth on the list, or, as is the case you will find in looking at our relationship with those partners, were we second, third, fourth or fifth? In which case, it was reflecting a long term relationship.
That is how we chose the countries. If you apply the criteria, you will see the reason we are at 25 is because 25 countries met them. When I was here last, we talked about Canada giving aid to approximately 155 countries. Canada has been the most disbursed of any donor in the international community right now.
Senator Andreychuk: There is always a debate on the definitions of ``assistance'' and ``aid,'' and increasingly over the last decade we see that what we used to call aid now includes things like peacekeeping, emergency humanitarian aid, contributions to the international financial institutions, and all kinds of things. As a Canadian populous we never quite considered that as aid. We saw it more as a contribution from country to country. What impact can Canada have on the international community? More and more, people are saying the change must come from within, it cannot be imposed. Then our best efforts are when we combine with other countries and multilateral institutions to set international standards such as international human rights legislation, whether it is the universal declaration, the political and civil covenant, the economic social and cultural covenant, or a host of others like the Convention on the Rights of the Child. Canada seems to be talking now about projecting Canadian values overseas. We send judges and lawyers and other experts, as if sending our expertise over there is the best way of handling development and growth. Detractors have started to say that there are cultural values, indigenous answers, and they do not need our expertise transferred over there. What they need is the development aid so that they can use their home-grown solutions. In that sphere, would Canada not set a better example if we met the 0.7 target that we put in place a long time ago? Would we not be a better leader if in fact we put out a timetable, as the Blair commission has stated and as other countries are doing? We would have a better format for accountability, rather than assessing whether this or that project was successful or not.
Yesterday we heard excellent evidence that there is a lot of risk in development. It is not the same kind of success rate that you can measure in Canada. Would it not be better to set out compliance with an international standard and target and put in a timetable?
The Chairman: May I interrupt, minister, to explain? I have just learned this myself, that you have to be out the door at 4:15 because you have a vote at 4:20.
Ms. Carroll: I would rather stay.
The Chairman: There is nothing we can do. I just wanted to explain that.
Ms. Carroll: You have asked a lot of questions clustered together, and let me begin with the 0.7. This is a Pearsonian benchmark, and it is frequently mentioned. I would reply by saying the government has committed to, as a minimum, an increase of 8 per cent last year and this year. We will see our IAE doubled by the year 2010, as I mentioned in my opening remarks. It is clear and we have stated it publicly, that we will accelerate where we can, and we are committed to getting there. We have not given a date, but the Prime Minister and I have made it very clear that it is a goal.
I would say, sometimes you hear 8 per cent. Just for the record, the increase in our budget from last year and this year was 21 per cent, and that is excluding tsunami relief. Had I left that in, I think it is approximately 30 per cent.
Yes, I agree with you. How much aid we give is certainly important, but I also think how effective we are is equally important. That led us to the process of the IPS, and you commented in your remarks on some of the aspects of effective aid.
First, I agree with you that sending Canadians overseas or attempting to export Canadian values is not the appropriate way. I would assure you that the governance work we do is very much demand driven and not supply driven. We work in the context of the poverty reduction strategies developed by the countries themselves. Again, I mentioned last time that I had worked with CIDA as a young undergraduate student in the 1960s. In the 40 years since then there have been a lot of different approaches, a lot of lessons learned, and we have grown a great deal.
It is demand driven and I assure you that I do not have enough expertise to meet the demand. Whether it is the Canadian Bar Association working to build legal aid systems, to build community aid services for women, for the poorest, the most disenfranchised, or whether we are working to build a capacity in health systems, in public service systems in Georgia — where I know we are training and assisting with just the kind of resources a new democracy needs and that we take for granted in our well-resourced House of Commons — it all comes under governance. All of it is how we assist countries, not to emulate Canadians in how we solve problems, but rather to meet international standards of human rights-based and rules-based society.
The Chairman: I apologize to everyone. I have to make up the agenda as I go along. We have Mr. Massé at five o'clock.
Ms. Carroll: That will be excellent. I will come and listen.
The Chairman: If you could come back — if it would be convenient — at 4:45 for another 15 minutes.
Ms. Carroll: I would be delighted. That is not difficult.
The Chairman: We would then have another 15 minutes, because we have our next witness after you at five o'clock.
[Translation]
Senator Robichaud: Minister, it is always a pleasure to have you as our witness. Yesterday, we heard witnesses say that the Auditor General had asked for CIDA to have a clearer and more results-based process. The grant process had become cumbersome, and lengthy. It seemed as though CIDA was favouring programs which would deliver short-term rather than medium-term — over five or six years — results. She decried the fact that CIDA was straying away from these programs. Canadian development programs do not deliver results after a first or second year, but rather over the long term. Are you conscious of a change in the process and the criticism it may have elicited?
Ms. Carroll: It is probably easier for me to express myself in English because the details are very important and somewhat complex. Could you tell me who your witness was yesterday?
The Chairman: It was Mr. Kieran.
Ms. Carroll: From the private sector.
The Chairman: Yes.
[English]
Ms. Carroll: I thank you for that. It does provide a bit of context. First of all, I am a little confused about how he quotes the Auditor General as saying that we over-responded. I will leave that for the moment. I read a very interesting statement from another witness, Mr. Ian Smillie, who came May 10.
The Chairman: May I say what I believe he said — I do not want to put words in anybody's mouth — as I understood him, it was that the Auditor General was applying too rigid guidelines. Was that not what he said?
Senator Andreychuk: No, one person certainly, and some others, added that the difficulty in CIDA now is that there is risk aversion because of the Auditor General's reports. That is a bit of a problem.
[Translation]
Ms. Carroll: I agree with you on that.
[English]
Ms. Carroll: I agree that there is risk aversion in CIDA. I agree that we are over-processed. I did read, I think it was Mr. Smillie, a very bright and astute person, who says that we, being CIDA, are pathologically risk averse. CIDA officials are terrified of the Auditor General. This might be a little bit of hyperbole. The agency has a low tolerance for failure. Since we want to be the best, failure does not appeal.
I do agree very much with what he is saying, and I thought we had discussed that when I was here before, but I am delighted to say it again. When you are continually criticized — and there has been an Auditor General's report on CIDA — then the result is that an agency tends to hunker down and add more levels of auditing, evaluation, accountability and process. This certainly does not lead us to be flexible or quick on our feet, and it is certainly not where we want to be.
I am truly excited to get started on a great deal of the implementation, but at the same time, the agency has already begun some of it. A reference was made as to how we evaluate ourselves. We are very much involved in implementing results-based management, which is a good way to respond, rather than adding so many layers that we have made it very difficult, not only for ourselves, but for the countries with whom we work and for the partners we value and on whom we greatly depend.
If there is one thing I would like to leave as my signature piece, it would be that we have de-processed a marvellous agency considerably. We have more on wheels.
I had a very interesting discussion today with Senator George Mitchell from the United States, who as you know is preparing a report for the American government on UN reform. What I talked about with him, and I share with you, is that I would like to see a lot more of our decision making happening on the ground in the countries where we are providing assistance.
I would like to see more CIDA personnel have the ability to make decisions where they are and not have everything come back into headquarters Monday to Friday, just as he feels maybe it should not be coming to headquarters at the UN. That is a very fair statement, senator.
[Translation]
I agree with your point of view, and I hope we will be able to improve the situation, but we do need a bit more time and I hope our partners will be patient with us.
[English]
The Chairman: I will suspend the meeting because the vote is coming up. Minister Carroll has to go. We will see you in a half an hour.
The committee suspended.
The committee resumed.
The Chairman: Honourable senators, I call the meeting back to order. Minister Carroll has returned from the House of Commons, and we are delighted,
I should like to draw the attention of the committee to the presence of a parliamentary delegation from the State of Kuwait, led by Mr. Basel Saad Al Rashed, member of Parliament. The delegation includes Mr. Abdullah Youssef Al Roumi, Mr. Adel Abdelaziz Al Sarawi and Mr. Ali Fahed Al Rashed. They are accompanied by His Excellency Dr. Musaed Rashed Al Haroun, Ambassador of Kuwait to Canada.
Welcome to the committee.
I will now call on Senator Nancy Ruth to ask her question.
Senator Nancy Ruth: My question is about gender equality. The emphasis in your department was on stories. I will tell three to set a context.
Within the last two weeks, a woman from Sudan appeared here the same day that there was an announcement that Canada had given Sudan half a million dollars to help support a criminal court to bring war criminals to trial. I wondered whether, if Canada is serious about gender equality, there was also half a million dollars given to those who experienced the violence of those who would be tried.
My second story is about housing. If Canada is serious about gender equality and we support selling our housing products or giving money for housing to war-torn areas, or other areas, can we first give it, first, to widows with children; second, to disabled women with children; third, to families with children; and fourth, to men? If we did that it would be a radical approach in terms of understanding gender equality, for which Canada has an affirmative action program.
My third story deals with the capacity of NGOs to deal with the structure that has been set up here. Coming from the NGO sector myself, I know that it is very difficult to learn the language and the customs, the way to work with government bureaucrats or multilateral agencies. It is also my experience that when you are talking about poverty, you are primarily talking about women and children. Therefore, I wonder whether the structure that is described in your presentation is not one that alienates many of the creative resources of women's leadership.
Therefore, my question is generally about gender equality.
Ms. Carroll: I am very glad you asked, senator. I cannot think of anything more pertinent to your study on Africa or to much of what this committee is doing. I will begin by saying, as I did in my opening remarks, that gender equality issues run throughout CIDA. They run throughout our five priority sectors. While we discussed, just before I went off to the vote, how process is overburdening us, our reputation internationally on gender equality is excellent. We are considered leaders. My colleagues have heard me say before that I do not think politicians should overstate the need for us to be leaders in various areas, but I am very comfortable that we enjoy leadership on the issue of gender equality. It is a huge part the fight to reduce world poverty. An example is what we are trying to do on HIV/AIDS, which is a lead part of our specialty in health.
I have joked about this sometimes, but I never considered myself a feminist in the 1960s. I was involved in the anti- war movement and a number of activist groups, but I never thought of myself in that way. I was the first woman student at an all-male university, but to use the slogan of the time, I did not go there to burn my bra; I went there to study politics, which was not considered a woman's field.
My time at CIDA has been one of intense conversion. I readily admit that. The face of poverty is too frequently female. The face of HIV/AIDS is female.
I strongly endorse the record of our agency and our commitment to continue that. I guarantee that lens is applied to every program. Every decision memo that comes to me from the department tells me how it meets that bar and how it will positively impact on women and children and on the issues that you have described.
Did you want me to comment on Sudan?
Senator Nancy Ruth: It was an example of how the taxpayers of Canada, through their government, support a legal system to bring war criminals to justice, but not the other side of that, which is to support the people who have been offended by the crime, who in this case are often women and children.
Ms. Carroll: Your point is well taken.
Senator Nancy Ruth: Can our government split the money in half and give a quarter-million to the criminal justice system and a quarter-million to those victims? Why not do both? Why are we only doing one? How does that work as a policy?
Ms. Carroll: I am not exactly sure about Mr. Pettigrew, the Minister of Foreign Affairs, making an announcement of half a million dollars with regard to Sudan, dedicating it to bringing persons charged to the International Criminal Court. I am cognizant of the $90 million that we pledged at the Oslo conference, and will disburse, for Sudan. I am cognizant of the fact that we have spent to date approximately $27 million in humanitarian relief, in support for the AU and their forces, and on helicopters. Security is key, and security for women, in those camps and outside of those camps, is key. I do not know about that half-million, but I do know the impact of the millions we are putting forward in Sudan will have. I am not able to add to that.
[Translation]
Senator Corbin: It is always a pleasure to hear what you have to say, minister. In your remarks, you said one objective was to concentrate more energy and resources in five priority areas, including support for private sector development, which I consider a very important and often neglected aspect of aid program design. Could you elaborate further on the specific objectives you have in mind for this sector?
Ms. Carroll: I agree, and I think you are right, as always. And specifically on this matter, in other words, private sector development.
[English]
It is, as you noted, senator, an area of priority, one of our five. We built on the Martin-Zedillo report ``Unleashing Entrepreneurship'' from the United Nations, which is co-authored by our Prime Minister and the former Prime Minister of Mexico, Mr. Zedillo. Of course, the rationale for that is found in the theories of De Soto. If we do not develop the economies of the countries we are attempting to impact, then I would argue even with the likes of Jeffrey Sach that with all the money in the world — and he does want commitments of huge amounts of money, which is an argument in itself — without the development of those economies, those marketplaces, it is not sustainable in the manner we want.
We have very much engaged private sector development. We have set up an excellent workshop, with some top experts. They produced a report and very quickly the department is working with that. We have a record — though it will become far more a specialty or priority — in the area of micro finance and that has shown enormous success in Africa, particularly with women, who are frequently the ones attempting to take the goods to market.
We have a good track record there. I would say that donor countries have begun to worship a little at the altar of micro finance and maybe we got stalled there. That is not to devalue the concept or the results in any way; it is merely to say that CIDA intends to build significantly on that.
We have programs now where we are assisting small and medium enterprises, but we have even greater plans to do so. We are working as well with the concept of the regulatory system, whether in place or not, that in many cases throws up barriers to entrepreneurs who are trying to bring goods to market. Again, we come back to the problem of women who have no land ownership and are not entitled to be beneficiaries as a result of death. In any case, we are connecting on the private sector development side within our organization and in conjunction with other donors. It is also a whole of government approach as you look at the impact of the Doha Round on those economies, working as I am with Minister Peterson, which is huge.
We are proud of the launch on April 25 in Toronto of CIFA, the Canada Investment Fund for Africa. This is unique and it took since Kananaskis, a couple of years, to get it right. This is the creation of a public-private partnership with a fund manager. This shows that we are not completely risk averse, but we have walked a very careful path of fiduciary duty, putting this in place appropriately so that the checks and balances are right, and at the same time, it is arm's-length from government, which it must be. This has been well received by the investment community, here and overseas. We are partnering with Montreal and British agencies in that regard. I believe this comes out of our commitment at Kananaskis. It responds to the priorities of NEPAD, to what African countries want themselves, and it is intended to trigger the kind of investment that Africa needs today.
It was wonderful to birth this baby, and I would tell you that Mr. Hunt has worked inordinately hard with his colleagues on this and deserves great credit. We took our kudos in Toronto, and we look forward to the success of a very good venture.
Senator Prud'homme: You will all be surprised to hear that I will be extremely brief. I just want to repeat, and I usually do not do that, that I have great admiration for you, Madame, as a person and as a minister. I want to be on record as having said it publicly.
Second, I think you are never wrong to listen to the good advice of Senator Nancy Ruth, because that has been my experience of 41 years, that there are limits to what we can spend on development. We can get more results by investing some time with these people who are directly involved. I saw that in Pakistan; I repeated that last time I was here. I went there when some people, not me, were not too happy with Mr. Musharraf. I saw two or three million refugees from Afghanistan, and no one was sent from Canada. Who took care of them? They were women. Everywhere you go in Africa there is immense poverty. Women have a sense of organization that sometimes escapes the attention of us men.
Any time you need encouragement or people to defend your policy, you will always find me onside.
Ms. Carroll: Thank you very much.
The Chairman: Minister, I want to thank you on behalf of the committee. You and your colleagues in the Foreign Affairs area have written to the committee asking it to look at the foreign policy statement, with special attention, in the case of your department, to the development booklet that I have sitting on my desk. We are trying to find time to deal with that. The steering committee reported that, if we are still here, we will be doing this in July. I wanted to tell you that personally on behalf of the committee. We will send you a letter as well, but you heard it here first.
We thank you very much.
Ms. Carroll: It has been my pleasure. I would like to come back again, because I would love to have the opportunity, uninterrupted by votes and such democratic things, to explore with you where we are going. We touched briefly on a few areas. This is an exciting time to be involved in Canadian development programs, and we have great things coming.
The Chairman: The committee has heard some very interesting testimony during our Africa study, which is the context in which we are looking at these issues, and we are arriving at quite a range of opinions on this. I do not mean a range amongst the members, but rather a range of things that we have discovered.
[Translation]
The third part of our meeting today is on the World Bank. It is a pleasure for us today to welcome the Honourable Marcel Massé, Canada's Executive Director at the World Bank since 2001. Mr. Massé was elected Member for the Hull-Aylmer riding, in 1993 and then in 1997. He has in the past, amongst other things, been Minister for Intergovernmental Affairs and President of Treasury Board.
[English]
Before entering politics, Mr. Massé had an impressive career in the civil service as, among other things, Clerk of the Privy Council, President of the Canadian International Development Agency and a member of the board of directors for Canada at the International Monetary Fund.
Welcome to the Senate, Mr. Massé. We do have some questions as a result of testimony that we have heard from previous witnesses.
Mr. Marcel Massé, Executive Director, World Bank: Thank you very much, Mr. Chairman. It is a pleasure to be back here. I feel that I am back in the family, because I know quite a number of the senators around the table personally and I still feel at home in Parliament. To some extent I miss it, although perhaps a little less these days.
My introductory statement will be very brief because I want to concentrate on your questions. I was told that you want to deal with the role of the World Bank in Africa — what we do, what we can do and so on.
The first part of my presentation is about statistics, but you know these. I will only say that there are 47 countries in sub-Saharan Africa, although perhaps 56 if you count the Maghreb and so on. This is the area of the world that has done the worst in the last 40 years.
I was first in Africa at the beginning of the 1960s, and I wrote a thesis on the development of the manufacturing industry in Senegal. When I went back a few years ago, I realized that the income per head had barely increased, notwithstanding the hundreds of millions of dollars spent there. Therefore, we have a number of questions to answer in terms of what we have done and why we have not succeeded.
The number of poor people has decreased in the world by about half; by poor people I mean those living on less than $2 a day since 1981. However, in Africa it is almost twice as large as it was before. It is the countries of Asia, in particular, China, and in good measure, India, that have reduced considerably the number of the poorest of the poor. In Africa it has not decreased.
I will go immediately to one area that you may want to concentrate on. The population of Africa is, as of March 2005 — I asked the World Bank to give me the latest possible statistics — about 702 million people. It grows about 2.1 per cent per year. That means that a growth in GNP of 2 per cent a year will keep people exactly where they are in terms of income per head. Since the population is growing, it means the number of poor will be increasing.
Africa has been growing, on average, in the last 25 to 30 years by about 3 per cent a year, which in itself is not bad, but obviously for a poor continent it is not enough.
We calculate that the rate of real growth would have to be 5 per cent a year just to keep the number of poor people level, and of course it has not been growing like that. As China has proven to us, you need a rate of growth of 7 per cent a year to be able to reduce significantly the number of poor in a country. Why has Africa been unable to grow at more than 3 per cent a year?
The World Bank is a lending institution, but in very poor countries, you cannot lend at market interest rates. Therefore, essentially, we have been using one of the arms of the World Bank, the International Development Association, to make loans for 50 years with no interest and 10 years' grace, in other words, they are semi grants. Even with that amount of money, even though we have invested in a large number of sectors that need it, we have not done any better than the bilateral donors because the results show that Africa has really not grown in the last 40 years.
I read some of the testimony before the committee about the World Bank that asks if it has adapted to its clients, to the needs, to the lessons learned and so on. I have sent to the committee — I hope it has been distributed — a number of pages, what we call an issue brief, about the changes in the last 10 years in the World Bank.
Mr. Chairman, I will leave these questions for the senators to ask, and I will then comment on them and, at the same time, comment on the changes that the bank has been making in these years. The bank has been learning, like everyone else, from its mistakes and has made considerable efforts to change. Perhaps they do not change fast enough, but they have changed sufficiently that they are still considered the prime institution in the world in terms of development, knowledge, and lessons learned and applied about development.
Senator Di Nino: Welcome, Mr. Massé.
The term ``structural adjustment'' seems to be creating problems, at least so we heard from a number of the witnesses we have had before us. Describe what is meant by structural adjustments. Has it contributed, in effect, to the poverty in Africa, as some of the witnesses have suggested, as opposed to helping them?
Mr. Massé: This is an extraordinarily complex question. In macroeconomic terms, that is, the basic fiscal and monetary policies that are more the role of the International Monetary Fund, structural adjustment means putting into place the right policies that will permit the country to start to grow. The IMF is a pretty conservative institution. Therefore, the policies that it has usually advocated have been trying to reduce considerably, and if possible eliminate, the deficit. In terms of monetary policy, it is the strict control of the monetary mass so you reduce, and if possible eliminate, inflation and so on.
In terms of the microeconomic policies, which are sectoral and so on, this is more the role of the World Bank. It means that we have usually recommended the opening up of the economy to foreign trade and therefore the dismantling of the barriers that protect a number of industries in the developing countries.
In agriculture, we have tried to move away from price control and to increase the ability of the farmers to market their goods themselves according to market principles. This is obviously structural adjustment, because if you have an export trade that is very controlled and in which you are really a protectionist, you have to dismantle a number of policies in order to produce freer trade. We know about this in Canada because we have had to, under NAFTA, for instance, dismantle a number of our policies, and we are continuing to do this every time there is a trade agreement on a worldwide basis.
Judging whether this is right or wrong is extremely complex because part of it is ideology. Some people believe the free market is better and they go to the extreme, in some cases, and say that you have to have a totally free market. Other people believe you have to control markets and prices. They have tried that, and in most cases it has not worked. I believe that the truth lies somewhere in the middle, but closer to freer markets.
There is no doubt that when you introduce competition, especially in a poor country, people who were producing at a protected price are affected. Let us take a commodity that is traded worldwide.
The Chairman: Cotton.
Mr. Massé: Cotton is a good example. If you pay your producers more than the world price and they can only sell, if they are in a small African country, on the world market, obviously you will have to subsidize that price.
Who will pay for this? Well, it is done through the budget. Who pays for the budget? The voters do.
I will take the price of cotton in Mali, for example. I think it is demonstrably true that the price they have given to their producers has been higher than the world price. The cost to Mali has been $100 million in their budget. To Mali this is a huge amount. We clearly advised them to reduce the price paid to their producers. The government was close to an election and did not do it.
I understand perfectly that they say this causes misery amongst poor producers, because it is true that when you reduce the price to the cotton producers, you make them poorer than they were before. However, they will be unable to compete in world markets unless that price subsidy is removed.
The Chairman: Is it not true that the price of cotton on the world market is artificially manipulated, by subsidized American cotton in particular, so that the market price that the Malians have to compete with is totally rigged?
Mr. Massé: There is truth to that argument, but you have to define ``totally rigged.'' There is no doubt that the Americans pay a subsidy to their own cotton growers, as a result of which the price of cotton on world markets is lower than it would be.
In my view, what the Americans are doing is wrong. However, our experts calculate that the effect of the American subsidies, given the total trade in cotton in the world, decreases the price by between 10 and 12 per cent. Malians paid their producers approximately 210 CFA francs per kilo of seed cotton this year. That price would have been between 180 and 190 if the market had not been rigged.
We do have to continue to work on the Americans, as we are in the Doha Round, to reduce or, better, eliminate these subsidies, but I will give you an example of the price of production in Mali. Mali produces cotton at $731 a tonne. Brazil produces that same cotton for about $450 a tonne. You can see immediately that you have to increase the competitiveness of the production of cotton, and you cannot do it by subsidies. You have to use your comparative advantage.
Although I am not an expert on cotton, on these questions, especially in an environment of international trade, you have to look at all the distorting factors. In terms of agriculture, I have no doubt that the subsidies paid by the U.S. and the Europeans on agricultural products that are also traded by Africans have to be discontinued. Canada has been working to lower and/or eliminate these tariffs on agricultural goods, including cotton. That is the right direction to go because these distort international markets. In fact, the Africans would benefit more from the elimination of all these tariffs than they do from all the help we are giving them on the side.
Senator Di Nino: I agree with that.
The Chairman: We all agree with that.
Senator Di Nino: We are talking about competition from some of the most sophisticated and developed economies in the world, which use lobbyists, all kinds of political pressure, et cetera. Are the African countries able to compete on a level playing field with the Europeans, the Americans and the Canadians, or is the Western world, with its developed economies, creating an uneven playing field with the use of lobbyists and such garbage? I know that I will be criticized by some of my colleagues for using that word.
Where in Africa have these structural adjustment conditions that you have placed on dealings of the World Bank succeeded?
Mr. Massé: Once again, that is a difficult question for which there is no clear answer.
There is no doubt that in quite a number of fields the advances made by the developed countries are so large that African countries will not be able to compete for quite a while, unless they have a special comparative advantage. The special comparative advantage may be low wages. As you know, about 45 per cent of the African population now is below 15 years of age. That creates an extremely high dependency ratio, but it also means that when these people start to work in a job market with few jobs, they will accept much lower salaries. That, unfortunately, is a comparative advantage of the developing countries, and much of China's trade is based on that comparative advantage.
The second comparative advantage is with regard to the principle of international trade. As an example, if you are the boss and you have a secretary, it is quite possible that you can do the receptionist work as well as your secretary, if you are trained correctly. However, if the two of you are at the office, it still pays you to let your secretary do that work, although you could do it as well as she does, because you are much better at doing things that she cannot do. That is comparative advantage. In international trade, that means that prices will reflect not the fact that the developed countries can do almost all the jobs more efficiently — not all the jobs — but that it pays every economy to specialize in what they are better at. That is the law of comparative advantage. That means that even if the Africans cannot compete on some things, in terms of international trade it will pay the developed countries to let them work on quite a number of activities in which, if the developed countries put their money into them, they could out-compete the African countries. Capital being always scarce, it is to the advantage of the developed countries to put it into more capital- intensive production.
That may not be entirely clear, because this is a difficult subject even for economists, but the answer to your question is that Africans can be out-competed in almost every field except where they have a natural resource advantage, a clear salary advantage or a climate advantage in terms of tourism, for example. However, even though they are out-competed, there are still quite a number of fields where they can grow.
There is also the advantage that with information technology you can leapfrog some stages of development. It is not necessary for the Africans to go through all the stages that we as developed countries have gone through. With the Internet and education, they can jump across a number of these fields, and nuclear physicists from Africa can be as good, or better, than any that the developed countries have produced or will produce. With education, they can compete.
You may ask about a brain drain with regard to that. Yes, that will happen. Many educated people from developing countries immigrate to countries where they can earn a higher income. However, we are now realizing that remittances are one of the best exports of developing countries, because you use the human resources that have been trained in an environment where they are the most productive, and they send part of their salaries back to their families.
This is an economist's judgment. The social consequences have to be taken into account and the question becomes more difficult to argue.
Senator Mahovlich: Mr. Massé, we had a witness a few days ago who talked about a dysfunctional system of governance in Africa, with corruption and a lack of transparency, democratic accountability and rule of law.
How does the World Bank deal with people who are so dysfunctional? If you are dealing with 47 countries, are there some that have proper governance?
Mr. Massé: The answer to your second question is yes.
Senator Mahovlich: Can you name a few?
Mr. Massé: Uganda now, Mozambique, Senegal. There are at present 15 African countries that have had a rate of growth of more than 5 per cent since 1996. That is eight years in a row. These countries have improved their governance and their policies in terms of taxation, export-driven economies and macroeconomic policies. They have done better. There is hope, and there are countries that function well.
Your basic question about governance is indeed basic. I will give it to you in a nutshell. I was a staff member with the World Bank in the latter part of the 1960s. When I started working in development at that time, we thought of development purely in terms of income per head and we calculated the rate of return on projects. We invested mostly in infrastructure. If a road has a rate of return of 13 per cent, you can borrow at 9 per cent, so there is a profit to be made and the World Bank will lend for it.
At that time, investing in health and education was thought to be a social expenditure that had little economic value. In the 1970s we learned as a world that in fact, investment in health and education is not only a social expenditure. It is a basic economic expenditure, and unless you do it, you will not have growth in your economy.
Once we started investing in health and education, which are investments that take a long time to mature, we realized that a number of countries in which education was good, such as Sri Lanka, did not get results.
Then the era of structural adjustments and the conditionality on macroeconomic policies emerged. Money would not be disbursed for the local government unless it administered its budget properly and had the right monetary and fiscal policies. You can have good education, good health and productive people, but your economy will not grow because the money is wasted by the government.
We finally came to the conclusion that you could have a series of good macroeconomic and microeconomic policies that produce growth, and yet the results were still not very good.
We slowly came to the conclusion in the 1990s that institutions do matter. In fact, unless you have a democratic or non-corrupt government, you may have the right policies, but private investment will not come, jobs will not be created, you will not export and you will not grow, especially if you have a fast-growing population that requires more expenditure to stay put. Recall that you need 5 per cent growth to not increase the number of poor.
In order to produce that faster growth, you have to have good governance, which is a vague term that indicates you need a government that is honest, transparent, and has a rule-of-law base. Corruption means contracts are given on the basis of personal contact rather than on who has the best rate of return for the state.
We are now in the decade of governance, which is the area where you must spend a lot of money in order to reform countries. Countries that have sound institutions and good governance will now succeed.
Having gone through four decades of this, you will permit me to be skeptical that we have found a final truth. However, there is no doubt that we are building on the knowledge of these decades of development and adding up the lessons that slowly make the economy better in terms of the policies and those who administer them, in terms of reduction of corruption, of the quality of institutions, and the level of education and health of your population, that allow the rate of growth in the developing countries to accumulate.
As I mentioned, between 1981 and now, the number of absolutely poor in the world has been cut in half. We must not look only at the negative. There have been results in Africa that indicate these policies work. They mean a profound transformation of governments, of people, and of ethics and values in order to work.
Senator Andreychuk: Mr. Massé, it is good to see you again, and in Africa, talking to the people and showing a real commitment to them. I go back to those times often.
You were twice head of CIDA, and you have held other positions. The difficulty I think a lot of people have with the structural adjustments is that they are economic policies and theories. We decide we need health as a basis, rule of law as a basis, but when they fail, those who are harmed most are the ordinary people.
There are experiments being done around the world. The European Union is now experimenting with all kinds of economic practices. The impact of these experiments on the average African has been devastating.
I wonder how the World Bank has changed. I know the World Bank was the advocate of structural adjustments from an economic basis. When they did not work, we would readjust. Slowly, there was a backlash from good governments in Africa and people around the world saying the World Bank has to factor in the impact on people who are so vulnerable. If you live on less than a dollar a day, you are vulnerable to any shift. I know we put parliamentary groups around the World Bank, and I know there is an effort to make receiving countries part of the decision making. How does the World Bank factor in the social conditions and the realities? That is one question.
The second point is still a valid argument, although we were arguing it 15 years ago. India chose one route. Africa took the route of IMF and World Bank. We see the difference. Is there a lesson there?
Finally, you mentioned China and its comparative advantage of low wages.
One of the problems is that China is impacting Africa and many of the goods, the plastic bowls and cups that would have been made in Africa and provide jobs, are now being displaced by cheaper goods from China. The other part of that is the free trade zones have had an impact on the rest of the continent. Are free trade zones a good idea for Africa?
Mr. Massé: Every one of these questions would require quite a number of hours to answer. I will try to synthesize. Senator Mahovlich asked a question that forced me to go through the major lessons that we learned by making errors. Structural adjustment is a necessary component of an economy that functions well, but it is not a sufficient component, and in a way we have outgrown this. For instance, the social consequences of the initial macroeconomic policies that the IMF in particular put together were so large that it did not take many years for lessons to be learned, because a decade in these kinds of situations is not many years. We have been developing for 220 years and we ask these countries to do it in 30 or 40 years.
The social consequences were large. They hit the poor more than other groups, and it was clearly a mistake. Now, both the IMF and the World Bank make an analysis of the social consequences of what they are doing or planning to do. It is like the environment, before we did not take care of it, then we saw the consequences were unacceptable and now we have mitigating measures. We put into place mitigating measures every time, everywhere. We have learned a lesson there and we do not make as bad mistakes as we did. If you argue that there are still lots of poor people who are affected, the answer is this is true. However, you cannot make the types of changes that are necessary in order to create a higher rate of growth, to have sufficient money to fund your education and health system and to create over the long term a society where you can considerably reduce poverty without some people being hurt.
I will use as an example an event where I was present. When we did the program review in Canada because government was too large and spent too much, I remember the considerable hand wringing that took place when we eliminated a number of the military installations in poorer areas of the country, in Nova Scotia and New Brunswick and so on. We took away the main ability to employ people in areas of the country where there were few other means of employment.
In our country, that is probably the best example of measures that had to be taken for the public good, but where the burden of adjustment fell unjustly on people who had fewer means of defending themselves. We either put into place replacement employment or we helped people take early retirement and the government paid for it. In our country we have to do this and people suffer who probably should not suffer. That question of adjustment is one that all governments have to deal with, and the answer seems to be that you cannot prevent the adjustment, but you have to put into place mitigating measures that will permit the losers to adapt.
I have no better answer to your question, because it is true that the poor suffer and that we have modified structural adjustment in order to minimize the shocks that it creates. However, if you want to create economies that grow, you have to enforce change, and change often is costly.
On India and Africa and the lessons learned, I was president of CIDA when we introduced CIDA in China. I created the first program we had there. In China, although they have the feeling that they know what is what and so on, they concluded that even though they probably had more wisdom — I am giving you my impression — from the point of view of economic growth, they had lessons to learn. They took the lessons from outside, including from the World Bank and CIDA. They are now succeeding to a point where they are creating problems for us and, by the way, for Africa and Latin America. Your point is well taken.
India was much slower in adopting what we would now call the necessary reforms. They moved very slowly, for instance, to permit foreign investment, while China, once they had decided to open up, opened up very wide. India did not, but now it is slowly opening up more. As a result, the rate of growth in India this year is something like 6.7 per cent compared to the 3.5 or 4 per cent previously. They are creeping upwards. India is as able as China to grow to 9, 9.5, and 10 per cent a year. I am not saying it is a good thing. I am saying they are able to do that.
In India they would have grown much faster if they had adopted more of the prescriptions for policies that were recommended to them. Africa seemed to accept the advice but did not put it into practice. Why? In my view — this is controversial — essentially it was because we did not do capacity building. In other words, in India they had an education system that produced lots of engineers and other educated people. Out of one billion people, the population now, you can produce a significant group of well-educated people.
African countries were dispersed. They are 47 small populations, and most never had the critical mass of educated people to start the process of self-growth. Therefore, the reforms that were recommended to them were rarely adopted because they did not have enough trained people to put them into place. You may say we should have recognized that before, and that is true, but in the last 10 years this term ``capacity building'' has come to the surface, and you will see now that the World Bank spends a considerable amount of its money on that.
In Canada, it has even been recommended to us that a good part of CIDA's money should be spent on this. In fact, a lot of the money in CIDA is spent on capacity, and education is capacity building in its clearest form. Over the last few years, I do not think there was one project in CIDA that did not have a capacity-building component.
That, at least, we have learned. We are now starting at the beginning and creating more capacity to perform in Africa. My feeling is the reason 15 countries over the last eight years have grown at more than 5 per cent is, in part, because that is starting to pay off.
[Translation]
Senator De Bané: Mr. Massé, I was tempted to call you Minister because of the high posts you have held in the country. You were also the most senior civil servant within government, at Treasury Board, you brought order to government expenditures. I know that a large part of your life has been devoted to the development of countries that are suffering. I wanted to pay tribute to you and tell you how pleased I am that you are our representative at the World Bank because there are not many men of your calibre.
Mr. Massé: You are making me blush.
Senator De Bané: You deserve it. I am very pleased that as fate would have it, just as you come to appear before us, another Canadian, an economist at the World Bank, is here as well. She has also spent a great deal of time and effort looking into problems on the continent our committee is focusing on this year.
[English]
We would be very interested in having your opinion and your guidance on this question. As you know, the backbone of the economy of Africa is essentially commodities. Several economies in Africa depend heavily on commodities. For many African nations, commodities provide more than 80 per cent of their foreign exchange earnings, and for some, particularly the poorest, it is more than 90 per cent. However, commodities prices are very unpredictable and are set through major commodity exchanges in London, New York and Chicago. What can the World Bank do to help these countries manage such uncertainties, particularly in the absence of the ``global'' institution to stabilize commodity prices initially envisaged as part of the Breton Woods system? It never saw the light of day, as you know.
Is there not a void in this regard, and cannot the World Bank do something to protect those countries from extreme variations in commodity prices?
[Translation]
Mr. Massé: Thank you for your kind words. We fought together, and in many areas, we have exactly the same concerns.
With regard to raw materials, that is a problem that the international community has been debating since the end of World War Two. I remain convinced that the only real answer to this would be that global institutions ensure that the prices paid to producers are not as volatile as the market dictates. I think that the markets must have prices that reflect supply and demand and therefore, prices must vary.
This is more or less the same problem we tried to resolve for our own agricultural producers. And in many of these areas, prices are no longer protected. They still are in some areas such as milk, for example, because world prices have to vary in order to adapt to demand. Farm incomes are thus protected. They are protected either with general taxpayers' funds, or by an institution that takes part of the price when it is very high and provides a sort of income insurance when prices are lower.
In my opinion, that is the solution. Why has it not been used? What can the World Bank do about it? First of all, the World Bank and the IMF tried to create a fund for many years, based on the principle of insurance, which would allow producer countries to adapt to the evolution, uncertainty and changes in prices. This was not successful because most countries did not want to have such a large fund, because the temptation is always to spend the money, especially in developing countries where there is always a need for money. The IMF programs did not manage to equalize producer incomes. For years, the World Bank felt that if it was still possible to use the private insurance market, the donor countries and the Bank would pay the premiums so that the market itself could provide the difference to producer countries when prices are extremely low, and these countries could give it themselves to farmers who produce. That is a project that is still under examination.
In my opinion, this is a project that we should support because in our own country, I think we have seen that it is the best way of allowing farmers to have a much more stable income and thus to be able to plan their own investments and not be ruined by a few years where the price of crops are too low. This is a proposal that makes sense, that we must support and that we do now support. The international community is slowly warming up to the subject and it must be encouraged.
[English]
The Chairman: I am watching the clock because another meeting is to take place here in a couple of minutes. It follows on the same line, because remember that we are dealing with this Africa business and we are developing some important evidence.
One of the issues is agriculture — 80 per cent of sub-Saharan Africa is involved in agriculture. I have heard the President of Uganda say that in his country it is 86 per cent. Therefore, if you do not deal with the agricultural issue, you will never increase the standard of living of the people in Africa south of the Sahara. However, the evidence that we have heard is that agriculture is a supremely complex subject. It is fair to ask whether there will ever be actual free trade in agriculture because everyone finds some way of subsidizing or fiddling with the prices. Your reply to Senator De Bané made me think of the attempts to stabilize the coffee market that have failed because the Americans do not believe in marketing boards.
I got the impression from you that, and I know my Keynes well enough to know, the World Bank is a fund and the IMF is a bank, and basically, deregulation is the approach that the bank has been taking.
Now I do not want to put words into your mouth, but that was my impression. I know that there are two kinds of agriculture — international and locally traded. When I lived in Africa, the population was 100 million and it was self- sufficient. That is only 45 or 50 years ago.
That there would be starvation in Africa was impossible to conceive. However, the cost of food imports, we were told just yesterday, equals all foreign aid that goes into Africa. We in Canada have marketing boards, and 4 per cent of the population is involved in agriculture.
In the European Union, 4 per cent of the population is involved in agriculture, and they pay their sugar producers, in some cases, seven times the world price and then export the product. We know about the distortions in the cotton market in the United States.
Four per cent of our population is dependent on agriculture, and we say that we will defend our marketing boards in the Doha Round. Yet we say that countries where 80 per cent of the population is dependent on agriculture do not have a legitimate right to marketing boards, which we reserve for ourselves. I find this contradiction incredible.
What do you say about that?
Mr. Massé: If I learned anything when I was with Treasury Board, it is that the world of agriculture is extraordinarily complex.
The Chairman: Are we not just starving them? That is not an exaggeration in the case of Africa.
Senator Di Nino: It is a good question, Mr. Chairman.
Mr. Massé: The population of Africa is now seven times what it was in 1960. In order to feed the people, the productivity of their farmers would have had to increase considerably. You cannot increase productivity in agriculture, as you know, unless you invest in the knowledge of the farmers and give them capital equipment, inputs and so on to work with.
The process of development in every country, be it Japan, China, or Canada itself, is one in which the productivity of agriculture increases, and the rate need not be enormous. In our country and in Japan it has been a regular increase in productivity of between 3 per cent and 5 per cent per year. Over time, you get to the point where most of your population is working in other areas.
Increased agricultural productivity results in the slow movement of the working population to other sectors, initially, manufacturing, and then services. If we had had in Africa the productivity increases in agriculture that have taken place in developed countries, we would have had that movement. However, productivity has not increased. Is that because world prices of agricultural products were kept low due to subsidies by the developed countries? In part, yes.
It is my strong belief that these subsidies to agriculture in developed countries have to disappear. You mentioned the price of sugar. It is totally unjustified for rich countries to protect their rich farmers, sometimes by paying them for not producing beets on certain surfaces, when you could get the product more cheaply, in terms of world prices, from people who can only produce that. I believe that you are entirely right on this point. The developed countries have to swallow their short-term political requirements in order to make the world a place where the poorest countries can produce, and can sell what they produce at a lower cost than the developed countries.
[Translation]
Senator Corbin: Mr. Massé, you may have been there when Ms. Carroll told us that she tended to favour the decentralization of services by locating them in the countries involved, be it in Africa or elsewhere. In the information sheet you gave us, I noticed with great interest under the heading ``We are closer and more responsive to clients,'' statistics that are quite revealing. You say most of your country directors are in the field. In 1996, there were none, whereas in 2004, 73 per cent of your country directors were in the field.
As I just mentioned, Ms. Carroll expressed a strong interest in decentralizing CIDA services in order to provide better service delivery and quality for its clientele.
Can you tell us what effect this had on the general policy of the World Bank in terms of productivity, service quality and client satisfaction?
I think it would be important for our committee — and for CIDA — to find out about your experience in this area. There is no doubt that long-distance service delivery, without the clientele being close by, can often leave something to be desired. I would like to hear your comments on this.
Mr. Massé: This is a reform that really paid off, in terms of client satisfaction and in terms of the quality and monitoring of projects. There is an additional element here. What I called capacity creation, training, is definitely better because you have people from the World Bank who learned lessons in many other countries, and who come to a country, are there all the time, form friendships with civil servants and ministers and are able to say to them: We tried that policy in 15 different countries and it won't work. Here's how you can sell it.
This was an important reform that the World Bank found psychologically difficult. It means that people who stayed at headquarters and who created their contacts, had their friends and lived in a developed country had to learn to live in the environment of a developing country where their families did not have the same lifestyle at all that they did in developed countries. They had to learn to give orders to the people in Washington, to tell them: The project you want to carry out in this country that we now know well, where we have learned how people live, what their customs are, et cetera, has to be changed so that it will be suitable for these clients.
I have no doubt that this change that was very difficult to the outset has now produced extremely positive results and that the clients are more satisfied. What is even more important is that the projects are better and that they are better adapted to the local environment. But it does cost a lot more. Fortunately, the information revolution arrived at the same time as the decentralization because otherwise, it probably would have been impossible to achieve this.
In the modern world where we seek the harmonization of policies, and a communication channel with developing countries, we should have a group from the World Bank that lives primarily in the country being served. Bilateral agencies should make greater use of the capacity that was created in that country.
There is the whole question of harmonization for the next five to ten years. You will see that this will be one of the reforms that has to be carried out in the relation between multilateral banks, regional banks — such as the Asian Development Bank — and bilateral agencies. We have to bear in mind that what I just said about the benefits of decentralization does not necessarily apply in its entirety to bilateral agencies.
[English]
The Chairman: Thank you very much for your very interesting presentation. It was appreciated by the committee.
The committee adjourned.