Nearly three years after announcing $1.5-billion in new financing programs for foreign aid, Ottawa has disbursed only a tiny fraction of the promised money: just $120,000 so far.
The Trudeau government won praise from aid agencies in February, 2018, when it announced $1.5-billion for two new financing tools – an International Assistance Innovation Program (IAIP) and a Sovereign Loan Program (SLP).
Ottawa touted the new programs as groundbreaking approaches to development assistance, allowing the use of private-sector methods such as equity investments, guarantees and conditionally repayable contributions to bring new funding to developing countries.
Today, however, the Global Affairs department acknowledges that the programs have been stalled by “operational constraints” and other factors, including the COVID-19 pandemic.
Independent analysts say the financing programs were well-intended but were hindered by poor strategies, inadequate preparations and a lack of bureaucratic appetite for risk.
“Two years without disbursing any funds is a gross underperformance,” said Boris Martin, chief executive officer of the Canadian branch of the non-profit aid group Engineers Without Borders, an early supporter of the programs.
“It is a shame that while support is most dearly needed, these programs aren’t ready to deploy anything,” he told The Globe and Mail.
Stephen Brown, a University of Ottawa political scientist who studies international aid, said it seemed that Global Affairs had “bit off more than it could chew” in the new financing programs – or was given a responsibility it was not ready for.
“Innovative approaches are a lot easier to announce than to implement, especially in a very bureaucratic and risk-averse institution such as Global Affairs Canada,” he said.
The government, unveiling the two new programs in its February, 2018, budget, proclaimed that they would ensure that Canada “remains at the leading edge of development financing.”
The financing tools would “increase the impact of Canada’s international assistance by allowing the Government to explore new and innovative ways to engage internationally,” the budget said.
The money for the two programs, to be reallocated from existing foreign-aid funds, would become an “essential part” of the government’s feminist international assistance policy, it said.
The promise of $1.5-billion for the new programs over a five-year period, combined with a separate increase of $2-billion in Canada’s foreign-aid spending in the same federal budget, was enthusiastically welcomed by advocacy groups and aid agencies.
Irish pop star Bono, founder of the anti-poverty advocacy group known as the ONE Campaign, praised the 2018 Trudeau budget as “smart, women-centred policy” and “leadership in action.” He added: “Words alone can be cheap, but words written into budgets are worth their weight in lives saved.”
Engineers Without Borders said it was “thrilled” by the new financing programs. The Canadian Council for International Co-operation, a coalition of development organizations, said the programs would “add a new tool” to the government’s “development financing toolbox.”
But after the budget announcement, delays soon began to creep into the two programs.
The IAIP, with about $900-million allocated to it, was not formally launched until July, 2019, and has spent almost nothing since then.
“In this early stage, limited funds (approximately $120,000) have been disbursed,” said John Babcock, a spokesperson for Global Affairs Canada, in an e-mailed response to questions from The Globe.
“Given that this is a new line of business for the department, it has taken time to develop and test these tools, build internal capacity and refine the governance and processes needed to responsibly administer them,” he said.
The SLP, with about $600-million allocated to it, has not disbursed any funds at all, the department says.
“Developing this new line of business has taken more time than anticipated,” said Patricia Skinner, another departmental spokesperson, in response to questions from The Globe.
Potential sovereign loans have been identified for the program, but they are “still under consideration for approval,” she said.
The department identified “early lessons” and refined its processes during the first six months of operations, Ms. Skinner said.
“However, beginning in March 2020, the COVID-19 pandemic forced a significant and additional re-think that further slowed down implementation – both because of operation capacity limitations, and because of new macro-economic realities and market disruptions.”
Despite the delays, innovative financing tools such as IAIP and SLP are “more relevant than ever, given global post-COVID recovery needs,” she said.
Asked about possible future IAIP spending, Mr. Babcock cited Ottawa’s announcement of $12.5-million for the African Guarantee Fund for African women, announced at the Group of Seven summit in August, 2019. “Due diligence and approvals are currently being finalized,” he said.
Prof. Brown noted that the G7 summit took place only a month after the IAIP was formally launched and therefore the guarantee fund announcement could not have gone through the IAIP’s regular approval process.
Another source of delay was the department’s request for “concept notes” from IAIP funding applicants. “To date, a majority of concept notes have not met the criteria established for the IAIP,” Mr. Babcock said.
“Operational constraints, as well as adjustments related to the COVID-19 pandemic, have led to delays in both assessing concept notes submitted to the IAIP and in proactively seeking out investment opportunities,” he said.
At the top of the IAIP’s official website, a note warns that there could be “significant delays” in decisions on the latest submissions by applicants.
But the IAIP still “remains a priority” for the department, Mr. Babcock said.
Prof. Brown, commenting to The Globe on the delays in the IAIP, questioned why it took nearly 18 months to formally launch the program after the budget announcement.
“It could be that the government’s expectations and criteria were unreasonable or based on some faulty assumptions,” he added.
“To what extent can investments be profitable while also promoting gender equality, helping the poorest, etc.? These are not normally private-sector priorities. The evidence from blended finance elsewhere is not encouraging in terms of poverty reduction or empowering women.”
Mr. Martin, from Engineers Without Borders, said the IAIP made a “serious mistake” by signalling “a risk appetite and ambition for innovation that was way higher than the actual level of risk it ended up being allowed to take.” This led to the rejection of most applications, damaging the fund’s credibility, he said.
“If IAIP ends up doing safe investments that every other investor is making, then what’s the point?” he asked.
Creating the IAIP was a bold and crucial step, but the program was stalled even before COVID-19 arrived, with applicants often waiting nine months for responses, Mr. Martin said.
For example, he said, the program is reluctant to invest in funds with inexperienced managers, but this makes it difficult to create funds with female managers in Africa, despite Ottawa’s gender-equality goals.
Mr. Martin’s organization had proposed a seed-stage fund, managed by a Kenyan woman who would have been among the first African women to manage such a fund. But after deliberating for nine months, IAIP declined the proposal. “Canada lost a great opportunity for impact and partnership,” he said.
AFRICA BUREAU CHIEF
The Globe and Mail, October 7, 2020