McMaster University, M.A. IR Major Research Paper

‘Building the Canadian Advantage’

A Study on the Use of Canadian Foreign Aid to Promote Commercial Interests Abroad

Ashley Sheppard

June 2015

Abstract: The 2013 amalgamation of the Canadian International Development Agency (CIDA) and the Department of Foreign Affairs and International Trade (DFAIT) signifies a new era in the Canadian foreign aid industry. Foreign aid policies have long been connected to donor countries domestic economic and commercial interests. Under the Harper government however, this commercialization of aid has taken on a new agenda. That agenda has been to use foreign aid policies as a means of promoting Canadian commercial interests abroad, which has come at the expense of development goals. This paper explores how these changes have been implemented and argues that they have caused a disconnect between aid and the good governance principles of transparency and accountability which has further resulted in the reduced effectiveness of aid in developing countries.

Supervisor: Lana Wylie

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Table of Contents

Introduction………….………………………………………...…….…3

Background Information……………………………………………...4

I. Canada and Foreign Aid………………………………………7II. Economic Diplomacy…………………………………………10

Section One…………………………….………….….……………….13

I. Corporate Social Responsibility Strategy …………………….13II. Development Finance Initiative ………..…………………….16

Section Two………………...…..………………………………….…..18

I. Motivations……..………………..……..…………….……….18II. Transparency………………………………………………….22III. Social License…………………………………………………24IV. Accountability…….…………….....…………………........….27

Conclusion…………………………………..………………………...29

Bibliography………………………………………………….……….30

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The Canadian foreign aid industry has undergone many changes in the last two years. In

2013, the Harper government introduced Omnibus Budget Bill C-60. This bill, among other

things, merged the Canadian International Development Agency (CIDA) and the Department of

Foreign Affairs and International Trade (DFAIT). The newly amalgamated Department of

Foreign Affairs and International Trade and Development (DFATD) has made significant

changes to both who gets aid as well as how it is implemented. More specifically, their prime

directive from the Harper government has been to seek “direct returns on aid ‘investment’ in

other countries” (Leahy, 2014). Aid policies have also changed to reflect this stance. One

important change that has occurred is that “civil society aid organisations working with DFATD

are no longer aid delivery partners but sub-contractors bidding on aid programmes and

increasingly forced to work with the private sector” (Leahy, 2014). This means that Canadian aid

organizations are now required to work with sectors of interest, such as mining, natural gas, and

oil, in order to receive funding from the government.

This paper will begin by discussing two specific projects that have been implemented

under the Harper government; the Corporate Social Responsibility Strategy and the Development

Finance Initiative. Each of these projects illustrates the recent shift in Canadian foreign aid

policies towards the use of aid as a means of promoting Canadian commercial interests abroad.

This paper seeks to prove that the main objective of the Harper government’s investment into

these programs is not to advance development under the mandated guidelines of Canada’s

Official Development Assistance Accountability Act, but to advance the development of national

commercial interests. This paper further argues two main points. First is that this shift

demonstrates a lack of transparency stemming from the misrepresentation of the main objectives

of Canadian foreign aid policy under the Harper government. Second is that this lack of

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transparency has led to a decrease in the accountability of Canadian industries and institutions

operating abroad which has resulted in the reduced effectiveness of Canadian foreign aid. To be

clear, the purpose of this paper is not to discuss the positive or negative outcomes of foreign aid

or whether foreign aid has been useful in promoting development in developing countries.

Research on that topic has been conducted thoroughly and has shown that the effectiveness of

aid is reduced when there are conflicting or non-development objectives present in the

implementation of aid (Brown, Heyer, and Black, pg, 75, 2014). Furthermore, it has indicated

that the primary purpose of aid is often not to alleviate poverty; in fact “out of all of the foreign

aid flows, only 1.69% to 5.25% are given to the poorest twenty percent of countries in any given

year” (Qian, pg. 28, 2014). This paper however, seeks to address the issue of the recent changes

to the Canadian foreign aid industry and foreign aid policies, and the subsequent results and

consequences of those changes.

Background Information

The following section will provide a brief, but necessary, overview of the structure,

objectives and uses of foreign aid. There are two main types of foreign aid, humanitarian aid or

development aid, which are distributed by multiple donors including governments (through

official aid agencies), multilateral institutions such as the World Bank (WB), Non-Governmental

Organizations (NGOs), and individuals (through charities). Aid given out by governments (either

bilaterally or multilaterally) is measured by the Development Assistance Committee (DAC) of

the Organization for Economic Co-operation and Development (OECD) and is entitled Official

Development Assistance (ODA). Most ODA is given to developing countries by DAC member

countries, all 29 of whom are developed countries of the global north (including countries in

Western Europe, the United Kingdom, the United States, Canada, Japan, South Korea, New

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Zealand, and Australia). Of the two main types of aid, humanitarian aid is given in the immediate

aftermath of emergency situations, such as natural disasters or famines, and makes up only a

very small portion of total ODA. In the period from 1995 to 2013, humanitarian aid ranged

between only four and nine percent of total ODA (Qian, pg. 14, 2014). Development aid makes

up the rest of total ODA and is composed of debt relief, cash transfers, food aid, low interest

loans, technical assistance, project aid (often involves building infrastructure), and programme

aid (investments in sectors of government, such as education) (Qian, pg. 5, 2014). This paper

will be dealing specifically with development aid (ODA in particular), and therefore from this

point foreword any aid referred to will be development aid unless stated otherwise.

The long run objective of development aid is generally understood as “the alleviation of

poverty and promotion of welfare in low and middle income countries through budgetary

assistance and access to technology” (Arezki and Banerjee, pg. 48, 2014). Development aid can

quickly become complex however, due to the varied nature of the donors and the many different

ways in which aid can be used in developing countries. As such, it is important to recognize that

there are multiple catalysts behind the dispersal of foreign aid. These catalysts can be charitably

and altruistically motivated, with the intention of alleviating suffering and ending poverty. They

can involve the goal of increasing the economic growth of developing nations in order to

positively affect global growth and security. Or they can have to do with the strategic value

involved in a donor country creating a relationship with the recipient country through the

endowment of foreign aid. This strategic value is often leads donor nations to seek out

relationships with recipient countries for the reciprocal benefit they can offer rather than

providing aid for purely humanitarian reasons (Qian, pg. 5, 2014).

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Within this strategic value there is another subsection of motivational factors that drive

developed countries to pursue aid relationships with certain developing countries. It has been

noted in foreign aid literature that many of the top recipients of aid are countries that are

politically important to top donor countries; “Vietnam features in the top ten recipient countries

in the 1970’s during the peak of America’s war with Vietnam. China features in the 1980s and

1990s, during the early reform era; and Iraq and Afghanistan make it to the list after 2000, during

the war in Afghanistan (2001-) and the Iraq War (2003-2011) (Qian, pg. 10, 2014). Another

example of this is the Cold War. During this time aid was given out with foreign policy concerns

in mind rather than humanitarian criteria (Qian, pg. 17, 2014). This suggests that politics features

prominently as one of the main reasons that countries provide foreign aid. In addition to politics

however, economics is another driving factor behind why developed countries distribute their

foreign aid.

Over the years, providing foreign aid to developing nations has proven to be

economically and commercially valuable for donor countries in several different ways. One such

way is through trade, and more specifically, providing foreign aid opens up major markets for

export. An example of this is ‘tied aid’, which has existed for some time, but became very

popular amongst developed countries in the 1990s and 2000s. This type of aid is given

indiscriminately; however it does require recipient countries to open up to private foreign

investment and spend foreign aid money only on goods and services from the donor country (or

countries). In recent years however, it has become increasingly obsolete due to studies conducted

by various organizations and governments which concluded that the inflexibility of tied aid is

inefficient as well as costly for both the donor and the recipient (OECD, pg. 80, 2006). Another

example of the economic and commercial value of aid for donor countries is that it provides

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access to developing countries’ natural resources. This happens both indirectly (for example,

providing project aid that is used for infrastructure such as roads makes for easier physical access

to valuable natural resources), and directly (maintaining aid relationships with resource rich

developing countries facilitates donor countries access to those resources) (Arezki and Banerjee,

pg. 49, 2014). The third way in which aid can be economically and commercially valuable to a

donor country is through greater access to investment opportunities in a developing country for

the donor countries own domestic industries. In recent years, many developed countries, and in

particular the G7 countries, have begun partnering public financing with private capital (House

and McArthur, 2015). Governments provide funding, from public taxpayer money, for projects

and initiatives that partner private companies and institutions with development organizations,

NGOs or the recipient country directly, for the purpose of furthering development goals in the

developing country (House and McArthur, 2015). This type of aid relationship is largely

dependent on what commercial interests and industries the donor country has an interest in

promoting and whether or not a developing country has what they are looking for. If the recipient

country has a strong connection to these commercial interests and industries, they become a

priority candidate for receiving ODA. The consequence of this is that development goals often

become secondary to commercial objectives. This third type of aid relationship will be explored

further in this paper with specific regard to the Canadian foreign aid industry under the Harper

government.

I. Canada and Foreign Aid

The Canadian foreign aid industry has been relatively stable since the creation of the

Canadian International Development Agency (CIDA) under Pierre Trudeau in 1968. Canadian

aid levels were “consistent at around 0.5 per cent of national income throughout both the Liberal

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and Conservative governments of the 1970s and 80s” (McArthur, 2015). In the 1990s however, it

was a Liberal government that oversaw the “largest aid cutbacks in the country’s

history, falling to 0.22 percent in 2001, before joining a global trend to

rebuild over the 2000s” (McArthur, 2015). The current Conservative

government continued the upward course, “reaching 0.33 percent in 2010 (adjusting

for the accounting tricks of debt relief), before signaling plans to taper off to 0.25 percent in

2015” (McArthur, 2015). In spite of these steady trends, there was one

important change that occurred in Canadian foreign aid in 2005 when the

DAC enacted the Paris Declaration on Aid Effectiveness. The main purpose of

the Paris Declaration was to ‘untie’ aid. ‘Tied aid’, which was referred to earlier in this

paper, was proven to be highly ineffective and detrimental to development and economic growth

in developing countries, and so the DAC created this document which was ratified by 100

developed and developing countries (Paris Declaration, 2005). The declaration’s main stipulation

was that aid receiving countries be allowed to “set their own development strategies” (Paris

Declaration, 2005). In accordance with this, although a bit late, in 2008 Canada created the

Official Development Assistance Accountability Act (ODAAA).

The purpose of this act was two-fold: “(1) to ensure that all Canadian official

development assistance abroad is provided with a central focus on poverty reduction and in a

manner that is consistent with Canadian values, Canadian foreign policy, the principles of the

Paris Declaration on Aid Effectiveness of March 2, 2005, sustainable development and

democracy promotion and that promotes international human rights standards. (2) Canadian

official development assistance abroad shall be defined exclusively with regard to these values”

(ODAAA, 2008). The ODAAA is currently still in effect and any provision of Canadian ODA

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abroad is subject to these rules. Overall however, Canadian foreign aid has proven

to be relatively stable, and changes in government do not appear to have

had any significant influence over how much aid is being distributed to

developing countries.

With regard to Canada’s international aid standing, it is important to note that

Canada is not a major contributor of foreign aid in comparison with many other OECD countries.

Canada’s Official Development Assistance is one of the lowest among wealthy nations and is

only continuing to drop. “Only Portugal, whose economy has been through the ringer and just

emerged from recession last year, gave a smaller percentage of its Gross National Income

(GNI)” (Logan, 2014a). The DAC also conducted a study which showed that Canada’s global

ranking among aid donors continues to fall. “In 2014, Canada’s aid totalled approximately $4.2

billion (USD), which is down 22 per cent from 2012 when Canadian aid stood at $5.6 billion

(USD)”; and overall “less than one quarter of one per cent of Canada’s GNI was spent on aid in

2014” (Bhushan, 2015). This does not make the aid we do provide any less

significant, but it does indicate the need for Canada to step up to meet the

United Nation’s (UN) recommended minimum aid contribution for developed

countries of 0.7 per cent of national income (Blanchfield, 2015). Although it is

clear that the amount of foreign aid distributed has not been greatly affected through changes in

Canadian governments, whether or not the recipients and purpose of that aid have changed has

come into question in recent years.

Stephen Brown, an aid expert at the University of Ottawa, argues that trade interests are

increasingly winning out over development goals as the main objective in the Canadian foreign

aid industry (Brown, Heyer and Black, pg. 11, 2014). Overall, the Harper government “seems to

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have forgotten that Canadian law defines the purpose of Canadian foreign aid as poverty

reduction” (Mackrael, 2014). Even before the CIDA/DFAIT merger there was significant

emphasis placed on what Canada has to gain, and especially what Canadian private companies

have to gain, through aid relationships (Mackrael, 2014). CIDA itself, before its merger with

DFAIT, completed an overview of their bilateral aid programs and found that Canada’s

commercial interests have become a key consideration in determining how much aid a

developing country will receive (Mackrael, 2014). The report, titled Reviewing CIDA’s Bilateral

Engagements, does discuss the development issues of poverty, aid effectiveness, domestic

politics and regional security, but overall these issues receive less attention than the possibility of

opening new markets to Canadian goods and services (Reviewing CIDA’s Bilateral

Engagements, 2013). Gabriel Goyette, an aid expert at the University of Montreal, further argues

this point and states that Canada’s “increasingly commercially motivated foreign service and

foreign aid policies are problematic and risk further undermining the effectiveness of aid”

(Brown, Heyer and Black, pg. 11, 2014).

II. Economic Diplomacy

The Harper government’s prioritization of commerce above all else can be seen not only

in the Canadian foreign aid industry but also in the Foreign Service. As previously mentioned,

Canada recently merged the Canadian International Development Agency with the Department

of Foreign Affairs International Trade. The new DFATD now houses all three governmentally

operated departments, Foreign Affairs, Trade and Development under the same roof. One

consequence of this is that the three departments no longer operate independently from one

another, and thus the priorities of the department have changed as a whole. This can be seen in

the Economic Diplomacy strategy recently implemented by International Trade Minister Ed Fast.

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Economic Diplomacy is a plan of action developed by the Harper government that outlines a

new strategic direction for Canada's Foreign Service which puts commerce at the heart of foreign

policy and is implemented by the Foreign Service and Canadian diplomats abroad (The Canadian

Press, 2013). Thus, the priorities of the Department of Foreign Service have become inextricably

linked with those of the Department of Trade. This plan was put into action shortly after CIDA

and DFAIT merged and is another clear indicator of the direction that the Harper government is

leading Canada. The main priority of Economic Diplomacy is to improve Canada’s trade and

investment performance in emerging markets by providing strong government support for

Canadian industries operating abroad. Trade Minister Fast himself said that the Foreign Service

would accomplish the goals of Economic Diplomacy “through vigorous and continual trade

promotion, supported by ambitious trade policy. In short, this new plan will play to our strengths

and ensure that all of Canada’s diplomatic assets are harnessed to support the pursuit of

commercial success by Canadian companies and investors” (DFATD, 2013).

Economic Diplomacy however is just the concept that the Harper government has been

promoting of entrenching commercial success as the core objective for the Foreign Service, the

actual implementation of the strategy will be accomplished by the Global Markets Action Plan

(Ibbitson, 2013). This plan is the finished version of a previous commerce strategy that was

announced by the Harper government in 2007, which sought to harness Canada’s resources in

order to open new relationships with markets in Latin America and Asia, two quickly growing

regions of the world (The Canadian Press, 2013). However, since that time “the only major trade

deal that Canada has successfully established is with the EU, a developed common market with

painfully slow growth, and South Korea” (The Canadian Press, 2013).

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The plan targets three sets of countries. First, emerging markets where Canada could

make “broad gains because of rapid growth in the market and a natural fit between what the

country needs and what Canada sells” and include countries such as the BRICs (Brazil, Russia,

India, China and South Africa), among others; second, “emerging markets with specific

opportunities for Canadian businesses”, such as Mongolia, Uruguay, Ghana, and Kazakhstan;

and third, developed economies (Ibbitson, 2013). The questions that must then be asked are,

what are the practical applications of this new Global Markets Action Plan, and what does it

mean for Canada to be promoting commercial interests abroad through our foreign service? The

plan seeks to improve emerging markets access to small and medium size economies, known as

SME’s, which means that the job of our Foreign Service is now to increase the number of

Canadian SME’s that sell into emerging economies (Ibbitson, 2013). In order to do that,

Canadian diplomats are now wholly devoted to “opening doors, generating leads, and resolving

problems for SME’s and other Canadian businesses” and pursuing new trade agreements;

including “foreign-investment protection agreements, taxation agreements, air transportation

agreements, and science and technology agreements” (Ibbitson, 2013).

A good example of how this is implemented on the ground is that of Madagascar. In

Madagascar the priority for Canadian diplomats is to protect a mammoth $5.5-billion nickel-

cobalt mine, which is 40-per-cent owned by Sherritt International Corp. of Toronto (York, 2013).

In their visits to Madagascar since the coup, Canada’s diplomats have spent much of their time

lobbying the government to ensure that Sherritt secures an operating license for its mine. In

exchange for reconsidering its approval of the project, the post-coup government asked for

Ottawa’s cooperation and assistance – which it was provided in the form of government services

such as the issuance of letters of support, advocacy efforts in foreign markets and participation in

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government trade missions (York, 2013). Overall, this new Global Markets Action Plan has

converted Canadian diplomats into business people, and ensured that the primary activity going

on at Canadian embassies abroad is the promotion of commercial interests above all else.

The Economic Diplomacy strategy implemented by the Harper government provides an

example of how the new Department of Foreign Affairs and International Trade and

Development has now linked the priorities of Canadian Foreign Affairs to the priorities of

Canadian International Trade. What this shows is a larger pattern of the entire DFATD

department towards prioritizing commercial interests This paper will show that this trend not

only exists with two of three amalgamated departments but the third as well; foreign aid.

Specifically, two specific initiatives undertaken by the Harper government will be examined in

order to show this; the Corporate Social Responsibility Strategy, and the Development Finance

Institution. The following section will examine these two strategies in order to determine

whether or not commercial interests have taken over as the main priority of Canadian foreign aid

and whether that change has come at the expense of development goals.

Section One

I. Corporate Social Responsibility Strategy

The first of the three projects that this paper will be discussing is the Corporate Social

Responsibility (CSR) Strategy. In order to discuss this strategy it will first be necessary to

understand why and how it came to be established. In 2005 and 2006 there were a series of

recommendations made by parliament with regards to establishing legal frameworks for CSR

that would be tough on Canada’s extractive sector (Ravensbergen, 2014). When Canadian

mining company heavyweights Barrick Gold, Goldcorp Inc., and Rio Tinto Alcan became aware

of these recommendations they decided to act independently to establish their own standards of

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CSR, rather than have the order come down from above (Ravensbergen, 2014). Their response

was to organize a series of meetings with several NGOs, including the Canadian branches of well

known organizations such as World Vision, Save the Children, and Engineers Without Borders

(Ravensbergen, 2014). The result of these meetings was the creation of the Devonshire Initiative

(DI), which is a private group whose mandate is to “improve social and community development

outcomes wherever Canadian mining companies operate overseas” (Devonshire Initiative, 2015).

The mining companies involved in the DI banded together to lobby the Harper government for

public funding for the initiative. The mining companies wanted money that was “earmarked” as

Official Development Assistance to fund their CSR initiatives on the ground, “all without

submitting to new rules or regulations that would have been required under parliamentary legal

frameworks” (Ravensbergen, 2014). The subsequent result of this process was the creation of the

Harper government’s Corporate Social Responsibility Strategy in 2009. This original strategy,

which was implemented before the CIDA/DFAIT merger in 2013, was titled ‘Building the

Canadian Advantage: A Corporate Social Responsibility Strategy for the Canadian Extractive

Sector’ and its purpose was to provide public funding to the private sector, specifically the

extractive industry, in order to “enhance the sector’s entrepreneurial advantage in a competitive

world market” (DFATD, 2009). The strategy argued that “corporate social responsibility makes

good business sense since it enables companies to better manage the social and environmental

risks of their operations” (DFATD, 2009).

The official stance of the strategy was to utilize public funding in the form of Official

Development Assistance in order to “improve resource governance, transparency and

accountability in developing countries, which is critical to ensuring that the extractive sector

contributes to poverty reduction, and creates a business and investment environment conducive

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to responsible corporate conduct in countries where Canadian companies operate” (DFATD,

2009). However, as was stated previously, the strategy did not require companies’ in the

extractive industries to change their practices in developing countries. Additionally, although the

strategy did require them to partner with an NGO, it did not require them to coordinate with that

NGO on how the funding would be utilized or how the projects would be implemented

(Ravensbergen, 2014). Furthermore, the strategy only required that companies involved in the

initiative submit to “CIDA counsellor assessments, ongoing participation in CIFA’s Investors’

Panel, quarterly meetings, conference calls and field visits to projects” and that those managing

the public funds “promote CSR in a way consistent with the Building the Canadian Advantage

Strategy for the Canadian international extractive sector” (DFATD, 2009). Due to tremendous

amounts of criticism that this strategy “provided policy cover for the government to

put ODA directly at the disposal of the extractive sector,” the CSR strategy was reformatted in

2014 under a new name, ‘Doing Business the Canadian Way’ (Ravensbergen, 2014). The

purpose of the new strategy remains the same; the CSR strategy receives ODA funding and then

uses ‘programs’ to provide that funding directly to companies in the extractive industry, so long

as those companies are partnered with an NGO (Torrance, 2014). However, there are now

stricter consequences for companies that do not conform to CSR standards set forth by the

strategy. If companies do not adhere to these standards they will not have access to ‘Enhanced

Government of Canada Economic Diplomacy’, which as mentioned previously, includes

government services such as the issuance of letters of support, advocacy efforts in foreign

markets and participation in government trade missions (Torrance, 2014).

Unfortunately, these consequences are only enacted if companies do not take part in the

dialogue facilitation processes of Canada’s NCP and Office of the Extractive Sector CSR

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Counsellor (Coumans, 2014). The ‘NCP’ is the National Contact Point for the implementation of

the OECD Guidelines for Multinational Enterprises. Yet, both of these institutions have

“consistently failed to make a meaningful contribution to resolving conflicts instigated by

Canadian companies;” and merely requiring companies to participate in their processes is highly

unlikely to change this (Coumans, 2014). The outcome of this new CSR strategy is as yet

unclear; and there is a possibility, however small, that the changes that have been made will

prove to be successful in implementing on the ground Corporate Social Responsibility. This does

not change the fact however, that the purpose of the CSR strategy is to use Official Development

Assistance to support the Canadian extractive sector abroad. It is therefore clear that although the

development goals of eradicating poverty and improving economic growth in developing

countries is an objective of this strategy, it is not the main objective and any development or

growth that occurs through this program is a secondary effect from the actions of private

corporations in the extractive industry.

II. Development Finance Initiative

The third and final project that this paper will be examining is the Development Finance

Initiative. This is the most recent of the three projects, having been revealed in the Harper

government’s 2015 federal budget under the Economic Action Plan, and is an initiative that

provides public funding to the private sector for the purpose of development. Specifically, DFI’s

are meant to provide “government backed loans to private companies and entrepreneurs in

developing countries, a high risk investment sector, who would otherwise have no access to

investment capital” (Laverdiere, 2015). Before now, Canada was the only G7 member to not

have a Development Finance Initiative (DFI). The Canadian DFI announced by the Harper

government this year will be a five-year, $300 million DFI that will be located within Export

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Development Canada (EDC), an already existing crown corporation, for the purpose of cutting

down on set-up costs and enabling it to quickly get off the ground (House and McArthur, 2015).

This is different from the other G7 countries however as most DFI’s are independent and not

connected to other governmental departments.

The official purpose of the new DFI, as promoted by the Harper government, is to use

government funding to help finance private investment in emerging markets and thereby

stimulate economic growth and development in developing countries (Laverdiere, 2015). The

DFI will “provide a mix of financing, technical assistance and business advisory services to

enterprises operating in line with the government’s international assistance priorities” (House

and McArthur, 2015). The issue here is that, as we have seen in the Harper government’s CSR

strategy, the main priority of Canadian international assistance has shifted in recent years. Rather

than the main objective being to increase development in aid receiving countries, the goal of

Canadian foreign aid has become promoting Canadian industries abroad.

There is also little evidence showing that DFI’s have resulted in significant increases in

developmental growth in developing countries (House, 2015). Research has shown that DFI’s

that have been implemented in other G7 countries “do not place a high priority on poverty

reduction in their focus on profit generation, and some do not even monitor the impact of their

projects on development” (House, 2015). Furthermore, research conducted in 2010 showed that

“a large portion of DFI investments – roughly 50 per cent – go to the financial sector, which has

limited local knowledge of development issues, in comparison to local organizations”

(Laverdiere, 2015). Not to mention that “rather than catalyzing investment in dollar-starved

markets, DFI funding is most often funnelled into industries that promise lower risks and more

secure returns rather than the high risk sectors for which they are intended” (Laverdiere, 2015).

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Thus, the businesses and entrepreneurs that are most in need of investment, and that the DFI’s

are mean to be supporting, do not receive the government money that is provided for that

purpose. Using the financial sector as an intermediary for DFI funding makes it almost

impossible to ensure transparent and effective distribution of invested money to those that need it

in developing countries (House, 2015). Overall, the new Canadian DFI does not seem especially

promising for making advancements in development goals and, similar to the CSR and

Economic Diplomacy strategies, it seems more likely that it will prove to be another exercise in

private sector promotion by the Harper government.

Section Two

I. Motivations

The two projects examined above provide evidence that the shift towards prioritizing

commercial interests above all else is not only evident in the Foreign Affairs Department, as seen

in Economic Diplomacy, but also in the Department of International Development. It is apparent

that from these two strategies that the main priority of Canadian foreign aid under the Harper

government has shifted from that of facilitating development to promoting commercial interests

abroad. This section seeks to examine the possible motivations for this shift.

There is no question that foreign aid given by governments either bilaterally or

multilaterally has always had motivations outside of the realm of altruism (Bandyopadhyay and

Vermann, pg. 334, 2013). It is a common practice for donor countries to use foreign aid to ensure

either a political, economic, or military advantage in a developing country through the influence

that an aid relationship provides (Bandyopadhyay and Vermann, pg. 330, 2013). However, the

central motivation of aid has remained in facilitating development and any additional benefits to

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a donor nation have long been internationally understood as by-products of aid rather than as

main objectives. “As many poorer nations started on their path of development in the

postcolonial period, former colonial powers tried to facilitate this process through provision of

resources in the form of foreign aid. This motive was central in foreign aid flows throughout the

1960s and still today remains a main objective in determining aid” (Bandyopadhyay and

Vermann, pg. 334, 2013).

In Canada, this objective is still the main concern of aid according to the Canadian

Official Development Assistance Accountability Act. This paper’s examination of the two

projects above however, has determined that through their actions the Harper government has not

maintained the main purpose of aid as facilitating development. Rather, their actions suggest that

the main objective of Canadian foreign aid has become facilitating Canadian economic growth

through the use of foreign aid to promote national commercial interests. This shift can be seen

through the CSR strategies titled ‘Building the Canadian Advantage CSR Strategy’ and ‘Doing

Business the Canadian Way’, and the clearly articulated purpose behind the new DFI of

supporting private business that adhere to Canadian ‘priorities’, i.e. commercial interests, when

making investments. Each of these strategies indicates that the main objective of Canadian

foreign aid has moved from facilitating development goals to promoting commercial interests

abroad.

One explanation for this shift can be seen in the Rational Actor Model (RAM), which has

been used by numerous academics in discussions of the foreign policy decisions that nations

make and is based on rational choice theory. Rather than examining the preferences of

individuals, as rational choice theory does, the RAM uses the state as the primary unit of analysis

and argues that states make decisions based on preference ranking and profit maximization

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(Kafle, pg. 3, 2011). This model has been criticized for its realist perspective on foreign policy

analysis. However, in the case of the fiscally and economically conservative Harper government

and foreign aid, the RAM can be extremely useful in analyzing foreign aid policy decisions.

Several studies done by Tingley in 2010 indicate that the more economically conservative the

ideological orientation of the donor government, the less money there is in the overall aid budget

and the more that budget is used with the economic benefit to the donor country in mind

(Bandyopadhyay and Vermann, pg. 333, 2013). In the RAM, the decision maker aims to emerge

from the situation with the greatest value maximizing choice (Kafle, pg. 4, 2011). This is done

through a rational decision making process in which the first step is goal setting and ranking, the

second step is consideration of options, the third step is assessment of consequences and finally

the last step is profit maximization (Kafle, pg. 4, 2011). In the Canadian case, there are two

possible outcomes that could be reached by this decision making process; the first is to use

Canadian aid to promote Canadian industries and interests abroad, the second is to use aid help

facilitate development in developing countries.

What we have seen in the foreign aid policies that have been enacted by the Harper

government is that the choice has already been made to use aid for the first reason; promoting

Canadian industries and interests abroad. This decision has likely been made because it had the

greatest value maximizing results. When the industries that are being promoted are examined, it

becomes clear why this is the case. The Canadian extractive sector, specifically the natural gas

and oil industry and the mining industry, which has been vehemently promoted by the Harper

government, has grown to be particularly large and wealthy in the past few decades. Canada has

the third largest oil reserve in the world, is a world leader in hydroelectric power, and overall

“Canada’s oil exporting and other energy related products make up 2.9% of the country’s GDP”

P a g e | 21

(Groff, 2013). Additionally, mining and exploration companies based in Canada account for 43

percent of global exploration expenditures (DFATD, 2015). In 2013, “Canadian-headquartered

mining and exploration companies accounted for nearly 31% of global exploration expenditures;

and over 50% of the world’s publically listed exploration and mining companies were

headquartered in Canada. These 1500 companies had an interest in some 8000 properties in over

100 countries around the world” (DFATD, 2015).

The second choice on the other hand, using aid to help facilitate the development of

developing countries, has not had such a successful history. Many studies indicate that aid

distributions that have been provided by developed countries to developing countries have not

resulted in a significant increase in development. While aid programs have successfully targeted

health issues such as polio, malaria, tuberculosis, smallpox and other such diseases, there have

not been as many gains made in the areas of economic growth and development (McArthur,

2015). “Many of the world’s poorest countries still face a long road out of poverty that requires

long-term financial assistance focused on development. As a rough rule of thumb, countries

require aid to provide population-wide basic services until they graduate to middle-income

status. Today there are 36 countries below the World Bank’s technical middle-income threshold

of $1,025 in per capita income (McArthur, 2015). Using the Rational Actor Model in a

comparison of these two decisions, it is likely that the first option would provide the greater

value maximizing choice. This is therefore, one possible explanation for the shift in the Harper

government’s foreign aid policy away from concerns of development and towards prioritizing

commercial interests. Understanding the possible motivations behind this shift in foreign aid

policy is a beneficial exercise in helping to understand why an individual, or in this case a

government, makes certain decisions. This then allows for further examination as to why that

P a g e | 22

government would seek to hide those decisions, and in this specific case can help explain why

the Harper government would not be forthcoming about the changes being made to Canadian

foreign aid.

II. Transparency

The following section seeks to establish that the Harper government’s lack of full

disclosure about the main objectives of Canadian foreign aid portrays a lack of transparency

about their true intentions and motivations. In this case, we have seen that the Canadian

extractive sector is very lucrative for the Canadian economy, and thereby for the Canadian

government. This presents the issue of conflict of interest. “When a country such as Canada that

has powerful mining interests not only advocates foreign investment in mining as a path to

development, but uses ODA funds — legally committed to fighting poverty in developing

countries — in ways that benefit its own industry, there is a major conflict of interest” (Brown,

pg. 289, 2014). There are several examples of this prior to the CIDA/DFAIT merger; “CIDA

funds helped rewrite the Colombian mining code in ways that favour Canadian companies,

including by reducing the royalty rates that foreign companies have to pay. In Peru, Canada will

help ‘streamline’ the environmental impact assessments that proposed mining projects must

undergo” (Brown, pg. 289, 2014). Additionally, although it is as yet too soon to tell whether or

not the new DFATD will fall into the same patterns, prior to the merger there was a call in the

academic community for “close monitoring” of the newly amalgamated department (Brown, pg.

289, 2014). This was due to concerns that “CIDA’s absorption into DFATD would increase

political pressure for the use of ODA funds for commercial purposes” (Brown, pg. 289, 2014).

Recently, we have seen that “DFATD’s first post-merger policy blueprint mentions the

P a g e | 23

government’s intention to leverage development programming to advance Canada’s trade

interests” (Brown, pg. 289, 2014).

When a conflict of interest of this magnitude is present, such as is the case in the

Canadian government and the extractive sector, the question then arises about whether or not the

government is being fully transparent about their actions. In this case, the fact is that the

extractive industry is extremely lucrative for the Canadian economy but has also been criticized

in the past for their exploitative and unsustainable extraction practices in developing countries.

This likely results in the Canadian government being less forthcoming about the true motivations

and purpose behind their providing foreign aid to developing countries. What has been seen from

the examination of the CSR strategy and the DFI strategy examined above, is that what the

Harper government is doing and what they are saying are not matching up. The Harper

government says that the new foreign aid policies it has enacted are working towards a ‘win-win’

outcome for both developing countries receiving Canadian foreign aid and the Canadian

economy. What we have seen however, is that the main objective of this aid has not been to

facilitate development in these countries, but to push Canadian industries and investments onto

them in order to promote and improve those Canadian industries and thereby improve Canadian

economic growth. This disconnect between what is being said by the Harper government and

what policy changes are being enacted in reality indicates that they are not being forthcoming

about their main objective in distributing Canadian foreign aid, and this shows a very serious

lack of transparency. The next section of this paper will discuss how this lack of transparency

has affected the accountability of Canadian companies and institutions operating in foreign

countries, and what the consequences have been for the effectiveness of Canadian foreign aid.

P a g e | 24

III. Social License

As stated above, this section deals with what the result has been of the Harper

government’s lack of transparency concerning the main objective of foreign aid. The argument

will be made that the Harper government’s lack of transparency has led to a reduction in the

effectiveness of aid in developing countries by not holding Canadian companies and institutions

operating abroad accountable for their actions. First however, the question of why these

Canadian companies and industries are choosing to partner with the Canadian government as

well as development organizations and NGOs, rather than operating independently and free of

governmental and other restrictions needs to be answered. What benefits do Canadian companies

and industries operating abroad receive that make it worthwhile to do so?

There are several explanations for this. First of course is the monetary explanation. By

linking themselves to the Canadian government, Canadian companies and institutions receive

public funding for their private operations and investments. As discussed previously, this can

only be done if they have connected themselves to an NGO or a development organization, and

therefore is a mandatory step in the process of applying for government funding. There is

however, one other important reason why these companies and institutions would want to align

themselves with a government and development organizations and NGOs that often attempt to

impose restrictions on their actions in developing countries. That is the concept of the ‘Social

License’. This concept has not only been discussed by academic communities, but has also been

implemented by many companies and institutions as part of their mandate when operating in

foreign countries. The ‘Social License’ allows big corporations, which often have a history of not

taking local voices and communities into account, to include the locals in the processes that they

P a g e | 25

are trying to implement. “The Social License has been defined as existing when a project has the

ongoing approval within the local community and other stakeholders, ongoing approval or broad

social acceptance and, most frequently, as ongoing acceptance” (Common Ground Consultants

Inc and Robert Boutilier and Associates, 2014). A Social License is usually granted on a site-

specific basis, and the more expansive the social, economic and environmental impacts of a

project, the more difficult it becomes to get the Social License. For example, “an independent

fisherman who is member of an indigenous group will normally get an automatic Social License

from his community but a mining company wanting to relocate an entire village faces a much

bigger challenge” (Common Ground Consultants Inc and Robert Boutilier and Associates, 2014).

The reason that companies seek out a Social License however, once again links back to

the Rational Actor Model. Throughout the years there have been many incidents involving local

communities from developing countries who were never consulted when big corporations came

and set up projects that involved the tearing apart of local land, polluting waterways, and other

environmentally dangerous practices. Due to this, an issue that has arisen around the world,

including in South America, is local community opposition to mining projects or mining

company policies or aspects of these. In Peru, for example, “companies such as Barrick Gold and

Newmont have been subject to protests by local communities worried about water supply and

water pollution issues and/or demanding a greater say in mining policy, regulation and approval.

On top of this, mining operations can be “held hostage” in disputes that have nothing to do with

mining. Again, in Peru, early this month Canadian company Rio Alto had to temporarily suspend

some of its operations at its La Arena gold mine because the main road to the mine was blocked

during protests against the country’s police and judicial system” (Campbell, 2013). The Social

License therefore provides two important functions. The first is to make local communities feel

P a g e | 26

like they are being heard, and including them in the projects those companies are undertaking;

although this is often in a minimalist fashion and many times is only for show rather than

resulting in a true relationship between the communities and the companies. The second, is that it

allows companies and institutions to promote themselves as being socially responsible to their

stockholders, investors, and to the public back at home in the developed country. This means that

they face less lawsuits and legal actions taken against them, and also ensures public support for

their operations, both among communities in the developing country and back at home. The

Social License is a large part of the CSR strategy that the Harper government implemented in

2009 and renewed in 2014. It provides a safety net for both the Canadian government as well as

companies and institutions abroad, to say that rigorous measures were taken to ensure that the

principles of corporate social responsibility were upheld, and if those principles were not upheld

then the fault does not lie with them.

This concept of the Social License also relates back to the actions of the Harper

government. The Harper government promotes and financially supports strategies like CSR and

Development Finance Initiatives in order to maintain their own Social License with the Canadian

public. By doing so they not only protect their own image with Canadians, but they also enable

themselves to give financial support to sectors that they believe will benefit the Canadian

economy, such as the extractive sector. However, it is not in the best interest of the Canadian

government to promote commercial interests and industries abroad if the companies they support

are not holding up the principles of CSR that enabled them to give those companies money in the

first place. When this happens, it is not uncommon for the actions of those companies to go

uncommented on in the Canadian news, and for the Harper government to not hold them

P a g e | 27

accountable for their actions in order to protect their own image with the Canadian public at

home (Logan, 2014b). This will be discussed further in the following section.

IV. Accountability

There are several examples of how the Harper government has failed to hold Canadian

companies in the extractive sector accountable for their actions. A report by the Canadian

Working Group on Mining and Human Rights in Latin America linked Canadian mining

operations to “forced displacement, violence, and disregard for indigenous rights” as well as

argued that although Canadian companies control as much as 70 per cent of mining operations in

Latin America they are “reaping profits while leaving local communities to deal with an array of

problems in the aftermath” (Logan, 2014b). The same report argues that “the Canadian

government’s foreign policy in developing countries is fundamentally tied to the ambitions of the

mining sector” (Logan, 2014b). Furthermore, only two Canadian laws apply internationally to

mining practices. “One is against having sex with children and the other is against bribery and

corruption” (Paul, 2013). These laws however are “difficult to apply” and “although American

companies can be prosecuted for environmental and social policies abroad under the U.S. Alien

Tort Statute, Canada does not have any such laws holding companies accountable for their

actions” (Paul, 2013). A further example comes from a leaked report in 2012 that was funded by

the Prospectors and Developers Association of Canada which found that “of the 171 high-profile

incidents of pollution, human rights violations, and unethical behavior, 34 percent were

committed by Canadian companies” (Paul, 2013). These actions and the government’s inability

to regulate them have gained Canada a reputation as “the worst offenders in environmental,

human rights and other abuses around the world” (Paul, 2013). Mining Watch Canada also

argues that in addition to providing “loans, insurance, and an extensive range of diplomatic

P a g e | 28

services,” the recent changes made by the Harper governments’ foreign aid policy use Official

Development Assistance to “support mining projects abroad and promote mining code reforms

that are favourable to corporate interests and damaging to Indigenous and collective human

rights” (Mining Watch Canada, 2014).

These are only a few examples of many which clearly show that by shifting the priority

of Canadian foreign aid to the interests of the commercial sector rather than focusing on

development goals, the Harper government has enabled the companies and institutions it

supports through ODA programs to avoid being held accountable for their actions. The result of

this lack of accountability is that the public funding being provided by the Harper government in

the form of ODA for projects that is provided in order to improve the practices and corporate

social responsibility of Canadian companies operating abroad has had little to no effect. These

companies operate with the same exploitative and unsustainable practices as they always have

and yet continue to receive government support despite not having to submit to any further

government regulation. The reason this has been able to occur is that the objective of Canadian

foreign aid has changed under the Harper government; and the result has been that the foreign

aid given out by the Harper government has been used not to promote development goals, but to

further the interests of the commercial sector. This redirection of resources means that foreign

aid is not being provided to NGOs or development organizations that could be using that money

to directly contribute to the goals of foreign aid as laid out by the Canadian Official

Development Assistance Accountability Act; i.e. poverty reduction, sustainable development and

democracy promotion. This redirection of resources, which has been the direct result of the

government making commercial interests the main priority of foreign aid, has resulted in a

significant reduction in the effectiveness of Canadian foreign aid.

P a g e | 29

Conclusions

Overall, the world has seen a significant reduction in global poverty; “nearly 1 billion

people have been taken out of extreme poverty since 1990. Between 1990 and 2008 (the last year

a global figure can be calculated, over 660 million people had been taken out of extreme poverty

and it is estimated that in 2010 this number rose to nearly one billion” (Menon, 2013). However,

what this number means literally is not that those people are out of poverty, but just that they

have risen above the extreme poverty line, which according to the UN is when people live on

less than $1.25 USD per day (Menon, 2013). Therefore there is still an extraordinary amount of

work to be done globally to improve the lives of the world’s poorest people. Foreign aid has the

potential to be an extremely valuable contributor to that process, and to make big gains in

fighting global poverty. However, this will never come to pass if foreign aid is only used as a

means to improve the lives of those already living in wealth. By shifting the main priority of aid

to focus on Canadian commercial interests rather than on facilitating development in the world’s

poorest nations, the Harper government has not only reduced the effectiveness of aid, as shown

in this paper, but seriously inhibited the good work that aid can do globally.

Despite the many negative conclusions that this paper has reached, there is a potential for

the merging of public funding and private interests in the aid sector to bring about development

in developing countries. Certainly the two sectors cannot function completely independent of one

another. The public sector needs the private sector to provide “important innovations in service

delivery”, and the private sector “needs public partners in health, education and infrastructure in

order to reach low-income populations at scale” (House, 2015). However, the research I have

revealed in this paper indicates that in order for this potential to be reached, and for this merger

P a g e | 30

to be successful, it is vital that in the future commercial interests take a back seat to development

goals in the distribution of foreign aid to developing countries. There is a way forward for aid

that does not focus solely on self-interest and self promotion. However this can only be achieved

by making the decision to prioritize the needs of others rather than seeking to improve one’s own

situation. If Canada can re-align their foreign aid in the interests of developing countries rather

than using it as a tool to make economic gains domestically we will likely see a vast

improvement in the distribution and effectiveness of Canadian foreign aid in the future.

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