March/April 2010

MAC Economic Commentary

An inefficient system: A need to improve the effectiveness of foreign aid

By P. Stothart

The Canadian development aid community, like many aid providers around the world, is often described as slow, inefficient and disorganized. In a recent article in the Globe and Mail, aid consultant Ian Smillie noted that it takes Canada’s official agency CIDA an average of almost four years to move an aid project from concept to approval, while projects sent to the CIDA Minister for approval are often returned for revision a dozen times.

It is important to note that the criticism levelled at Canada’s aid agency is not particularly new, nor is it restricted to the present government, or indeed to Canada. Many past studies and evaluations have lamented the inefficiency of global aid delivery. A recent report provided to Australia’s foreign minister concluded that the performance of AusAID suffers from having no clear objective.

Globally, western democratic countries have spent $2.3 trillion on foreign aid over the last five decades, with minimal progress. Aid systems seem incapable of delivering cheap medicines to children or inexpensive bed nets to families to prevent malaria deaths. Extreme poverty and preventable diseases continue to kill thousands of men, women and children each year in developing countries despite these trillions of dollars in aid flow.

Several factors contribute to this ineffectiveness. Certainly, overseas aid has typically been directed towards countries with poor governance and limited transparency, with the result that funds can be diverted and performance outcomes can lack scrutiny. As well, aid delivery often relies upon a preponderance of non-governmental organizations — this can result in overlaps, lack of scale and an inordinate amount of time spent on fundraising, advocacy and paperwork. In response to natural political pressures, aid agencies also have a tendency to “spread the wealth” — it is not unusual for Canada to send aid to over 50 countries, divided into dozens of categories, resulting in minimal scale and impact. Finally, the world’s aid systems and workers generally have a social bent with disdain for the business role, often minimizing the importance of economic development in the broad array of aid priorities.

For its part, Canada has traditionally kept business involvement in aid delivery to a minimum. There are differing schools of thought regarding the efficiency of tying aid to donor country exports. Regardless of the direction of tied aid, however, a core vulnerability of CIDA lies in the fact that it does not have a reporting relationship with the trade side of the Department of Foreign Affairs and International Trade. CIDA’s ties have traditionally been to the foreign affairs side of the portfolio — with its culture of diplomacy, memoranda, officialdom and paperwork. Unfortunately, CIDA’s direct reporting links to the deputy minister responsible for trade, exports, investment and overseas business promotion are non-existent.

The massive level of Chinese investment in the mining sector in Africa calls into question the core structure and culture of the traditional western aid delivery model. The implications of this trend are reverberating throughout the global aid community.

In recent years, Africa has become China’s leading source of imported oil. The Chinese state oil company has invested billions in Nigeria and Sudan. China recently provided $2 billion in aid/loans to Angola that included funds to build railroads, schools, bridges, hospitals and communications networks. A $2.5 billion iron ore project in Sierra Leone is being funded by China. Chinese firms have invested in mining off-take projects in Zambia, Congo and Zimbabwe. In recent years, China has cancelled $10 billion in bilateral debt from African countries. Exchanges of teachers, doctors and civil servants are growing rapidly. These China-Africa aid and trade interactions are not clouded by a culture of disdain for business involvement; on the contrary, the commercial role is of central importance. No one is denying the obvious — that aid and infrastructure is being provided to Africa in return for the right to develop projects and patriate minerals to China.

A second mining-related reality also raises questions for the traditional western aid culture. Investment abroad by the Canadian mining industry has grown five-fold, from a stock of $13 billion in 1990 to $67 billion today. Leading Canadian companies have operations in Argentina, South Africa, Tanzania, Indonesia, the Dominican Republic, Turkey, Peru, New Caledonia, Brazil and elsewhere. Almost 5,000 mining projects financed through the Toronto Stock Exchange are actually located outside Canada. These companies are creating jobs, taxes and supply linkages in developing countries, and are investing directly in schools, roads, electrical grids, hospitals, clinics, school breakfast programs, community meetings halls, child health and nutrition programs, and a range of other social investments. Teck Resources Limited, for example, is at the forefront through dietary and fertilizer supplement programs in addressing zinc micronutrient deficiency and malnutrition, which contributes to an estimated 800,000 child deaths per year in developing countries.

Canadian mining companies, like those in other sectors, are fully aware that strong community relationships and socio-environmental investments are essential for a productive, profitable and sustainable mining operation. Canada’s aid delivery systems and central agency would be more effective if they recognized this reality and worked to help lead and support business engagement in global economic development.

Visit www.mining.ca.


Paul Stothart
Paul Stothart is vice-president, economic affairs, at the Mining Association of Canada. He is responsible for advancing the industry’s interests regarding federal tax, trade, investment, transport and energy issues.

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