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Foreign aid and natural resources: Allies or enemies?

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In a continuing series of articles motivated by Madeline Drohan's The nine habits of highly effective resource economies: Lessons for Canada  published by the Canadian International Council (CIC), I've been exploring issues of Canada's resource economy. Drohan's study serves to highlight that despite the fulsome resources that Canada has been blessed with we often have failed to develop them in a long-term, sustainable manner, and also failed to leverage this resource wealth for Canada to become an economic, environmental, and social leader. There are risks and opportunities associated with being the custodians of one of the world's greatest reservoirs of energy, water, land, timber, crops, minerals, fisheries, and biodiversity and Canada's performance and policies are failing to move us from a paradigm of resource extraction to one of long-term, environmentally sustainable, and ecologically pro-active coexistence with our planet.

In this, the sixth article in the series, we will examine Habit # 7: Use your aid to help strengthen good governance overseas.

On the face of it, it might be surprising to find this issue even included in a study of the "nine habits of highly effective resource economies." What relevance does international aid policy have in regard to how effectively we utilize natural resources? Its inclusion is a testament to Drohan's far-sightedness in understanding not only the importance of foreign aid, but also, that how it is directed is a critical component in its effectiveness.

An old (but unfortunately not defunct or discredited) paradigm is that of "tied aid", in other words foreign aid, which is tied to the purchase of goods and services from the donor country. While economically advantageous, such a self-serving approach too often morphs into a transfer of wealth from public coffers into private ones. The resulting "aid" may be of marginally useful assistance to the recipient country, reflecting the desires of corporations to off-load surplus goods more than on-the-ground needs in the destination country. Even if useful, if sufficient attention is not paid to developing good governance structures at the receiving end, the aid may end up in the coffers or warehouses of political cronies, militias, gangs, or other non-state forces who sell it to the highest bidders or use it to grease the wheels of local corruption.

Why is this issue even salient in regard to Canada's resource economy? As the CIC study notes: "By one estimate, there are 1,000 Canadian resource firms with operations in more than 100 countries. …  Because of the size of their investments, Canadian oil and mining firms almost always have a higher profile and more impact in the countries where they are working than any Canadian government aid project. Their visibility and presence means there is intense pressure on them to supply goods and services that should more properly be delivered by the local government."

It's for precisely these reasons that Canadian foreign aid is important in our relationships with countries in the developing world, and why it needs to be carefully considered in advance, so as to be efficient and effective, not prone to being siphoned off by corrupt interests, and that it not irremediably harm the environment or distort local governance structures. Hence Drohan's recommendation that, "The focus (of aid) should be on poverty alleviation through strengthened resource governance in the recipient country."

Poverty alleviation helps to address the issue of "social license", i.e., the need for a state to be seen to be making a tangible contribution to the welfare of the country in which their foreign resource enterprises operate.  As importantly, developing resource governance in the host countries helps to diminish corruption, incompetence, inefficiency, and needless bureaucracy -- all tangible benefits to the countries themselves and qualities that might bleed over into other sectors and areas of governance.

As the CIC report points out, there is dangerous ground here that needs to be carefully traversed: "There is a line -- somewhat blurry at times -- between government-funded programs aimed at helping whole societies and thus, indirectly, Canadian resource firms that benefit from a more stable and prosperous environment, and government-funded aid targeted at specific communities where Canadian companies have operations and thus benefit directly from their government's aid." It seems, however, that current federal government policy is preparing to propel Canadian aid precisely across this line.

In a recent speech, International Cooperation Minister Julian Fantino announced that the Canadian International Development Agency (CIDA) would increasingly emphasize corporate partnerships and would be directed to work more explicitly promoting Canada's economic interests abroad. He suggested that CIDA could help Canadian firms while making countries and people "trade and investment ready."

However, as the Globe and Mail reported:

"Many non-governmental organizations question CIDA's decision to fund the work with the mining sector, particularly at a time when the agency is facing significant cuts. 'If CIDA's budget were growing year over year, you could be more forgiving in saying, "Let's try it and see,"' said Robert Fox, executive director of Oxfam Canada. 'But in the context of shrinking resources, it's very important that we ensure that our aid dollars are supporting our priorities.'"

Pascua Lama
It's in this context that the CIC report recommends that Canada fully implement the Extractive Industries Transparency Initiative (EITI), which aims to curb corruption and foster transparency by having resource companies reveal what payments they have made to governments, and governments reveal the payments they have received from resource companies. By committing to transparency, both companies and governments take a substantial step towards accountability to the citizens of host and donor nations.  At the moment Canada is a "supporter" of EITI, a general commitment that entails no reporting requirements -- in other words, a measure completely bereft of substance. Norway has fully implemented EITI, Australia is preparing to do so, and the USA is examining the possibility. If Canada wants to make a commitment to encourage the elimination of the "gray zone" where nepotism, corruption, and cronyism exist, it should move on the implementation of EITI forthwith.

It's important to remember that Canada is a comparatively small player on the international stage. As the CIC report points out, Canada spends roughly $5.3 billion a year in official development aid. That's less than the $8.0-8.5 million that Toronto-based Barrick Gold is spending on developing its gigantic Pascua Lama open-pit mining operation on the border of Chile and Argentina. In comparison, the USA spent $52.7 billion ($15.0 in military aid; $37.7 billion in economic aid) in 2010, ten times that of Canada's commitment.

Prime Minister Lester PearsonCanada's foreign aid currently stands at 0.31 per cent of Gross Domestic Product (GDP), and has fallen since 1991 when it stood at 0.49 per cent. This is despite the commitment Canada made at the United Nations in 1969 as a result of the Pearson Commission that recommended target contributions of 0.70 per cent of GDP for developed nations. Given that it was former Canadian Prime Minister Lester Pearson who spearheaded this initiative, it's a continuing shame that Canada has never lived up to its terms. Furthermore, the provision of Canadian foreign aid is becoming more politicized. Non-Governmental Organizations (NGOs) like the Montreal-based KAIROS Canada has had its five-year budget request to the federal government cut by two-thirds.

"(Funding is) very ideological. If you have a vaguely progressive or left wing approach to doing development, this government is not going to support you," says Edward Jackson, a development consultant and professor of public policy at Carleton University.

Foreign aid could be an important vehicle for Canada to establish its progressive bona fides to the world community. Instead, at the moment, what it establishes is our miserly international commitment to poverty alleviation and the development of good governance (resource and otherwise). Rather than being a leader, as we were in 1969, Canada has become a laggard on the international development stage.

[Part 5 in this series is Superpower or Supermarket? The folly of foreign investment.]

Christopher Majka is an ecologist, environmentalist, policy analyst, and writer. He is the director of Natural History Resources and Democracy: Vox Populi.

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