Today, Canada announced that it will set aside budgetary resources to establish its own development finance institution (DFI). With the creation of a Canadian DFI, Canada expands its ability to invest, catalyze, and facilitate private sector driven growth in the developing world. This move will contribute to Canada’s economic future— growth in key Canadian industries including telecom and mining will be driven forward by opportunities in emerging markets.
Canada is a major contributor to the global liberal order through its security, diplomatic, and development contributions. This announcement only enhances Canada’s leadership in global development by providing it another critical tool for engaging with emerging economies— for years, Canada was the only G7 country without a DFI.
As I’ve written before here on Forbes, DFIs have a dual mandate to yield profitable investment while also delivering economic growth and development impact. By providing investment at rates or term lengths that are preferable to private offerings, DFIs help catalyze investment into sectors or regions that would otherwise be unable to attract capital. DFIs have been critical for a number of development achievements, including financing the groundwork for the (now massive) African telecom market. The numbers show that donors have seen clear value in increasing their DFI investments—total annual commitments from DFIs to the private sector have quadrupled since 2003 from just over $10 billion to $44 billion in 2012.
This important step by Canada is a recognition of the private enterprise’s central role in development. This decision should be seen in the light of the upcoming Financing for Development Conference in Addis Abba where much of the discussion will be focused on the private sector. It should also be seen in the context of the emergence of the Asian Infrastructure Investment Bank (AIIB) and the increasing demand for infrastructure around the world. Under Minister Paradis, Canada has been leading a major initiative on blended capital with the World Economic Forum. A Canadian DFI would likely build off of this experience. In the language released today, Canada indicated it would establish a DFI to “support effective international development by providing financing, technical assistance and business advisory services to firms operating in developing countries.”
I recently hosted a conference at CSIS in partnership with Canada’s Department of Foreign Affairs, Trade, and Development (DFATD) which featured discussion on a potential Canadian DFI. I was honored to be asked to testify in front of Canada’s parliament on the role of the private sector in development in 2011, and I recommended then that Canada create its own DFI. At CSIS, I’ve also written about the need for a Canadian DFI.