Diplomacy, trade and aid: searching for "synergies".

Author:Richards, John
 
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The death of over 1,100 workers in a collapsed Bangladesh garment factory--and the inadequate host-country governance it reflected--provides lessons for making Canada's foreign aid work.

THE STUDY IN BRIEF

In the 2013/14 budget, the Minister of Finance made a surprise announcement: the decision to merge CIDA with the (renamed) Department of Foreign Affairs, Trade and Development. A sensible move? If the intent is to link CIDA projects to Canadian resource developments overseas, probably no. If the intent is to respond to widespread criticism of CIDA's past performance--by the Auditor General among others--probably yes.

In a seemingly unrelated event, in April 2013 a garment factory collapsed near Dhaka killing over 1100. This event highlighted the poor level of governance exercised by the government of Bangladesh over safety standards. There is a prominent Canadian connection to this tragedy. Loblaw Companies Ltd. buys most of its Joe Fresh stock from Bangladesh--and some items came from the collapsed factory. Major importers in Europe and North America have decided the status quo is no longer viable. Loblaw has joined other major importers in accepting financial and supervisory responsibility for factory remediation. This is a major, if belated, exercise in corporate social responsibility.

Bangladesh has for decades been a "country of focus" for Canadian aid. Beyond that fact, the link between these two decisions is the problem of "weak governance" in many low-income countries, Bangladesh included. How can aid be made to work in countries with weak governance? How can firms engage in trade with such countries in a responsible way?

The Commentary discusses several tactics for more effective aid delivery and the potential for corporate social responsibility in a context of weak host country governance. The potential for a "win-win" outcome from Canadian investment in developing countries is much greater in the manufacturing than the resource sector. The Commentary also includes an Appendix on recent trends in development economics.

In tabling the 2013/2014 federal budget, Finance Minister Jim Flaherty mentioned the government would integrate the Canadian International Development Agency (CIDA) into the (renamed) Department of Foreign Affairs, Trade and Development.

The Budget Plan (Canada 2013, 240) offered only a brief rationale for this surprise move, based on the assertion that integration will offer foreign policy and trade "opportunities for synergies with our development assistance."

A month later, in April, a seemingly unrelated event took place. Over 1,100 garment workers died in the rubble of a Bangladesh garment factory that collapsed in Savar, near Dhaka. Among the firms purchasing garments from the collapsed factory was Loblaw Companies Ltd., a major Canadian importer of ready-made, low-cost garments manufactured in Bangladesh for its Joe Fresh brand. Loblaw subsequently signed the Accord on Fire and Building Safety in Bangladesh, a document drafted following the disaster by a coalition of European union federations and the International Labour Organization) Signatories to the Accord have undertaken to organize inspection of Bangladesh factories and finance necessary improvements for the manufacturers with which they contract.

Over the last decade, in response to criticism that CIDA was spreading itself too thin in too many places, the agency constructed a changing list of approximately two dozen "countries of focus." Bangladesh has been on all versions of the list. (2) Beyond that, is there a link between the government's attempt to redefine CIDA's role and corporate concerns about Bangladesh garment factories? The answer, I suggest in this Commentary, is yes. The link lies in the problem posed by "weak governance" in many of CIDA's focus countries. Admittedly, the quality of a country's governance or its institutions (I use the terms synonymously) is an ambiguous idea, which deserves a separate discussion. In the Appendix, I attempt to unpack the concept.

The decision to bring CIDA directly under Foreign Affairs may reflect the present government's desire to link aid spending to securing advantages for Canadian firms engaged in international trade, in the resource sector in particular. More on that theme later. However, the decision also reflected frustration among many observers in Ottawa--independent of political persuasion--that CIDA in its former configuration had been unable to demonstrate in its countries of focus whether Canadian development aid has been generating benefits that would not otherwise have been realized. (See Box 1, a summary of the Auditor General's critical evaluation of CIDA conducted in 2009.) For example, a CIDA grant may lead to the training of additional nurses in a developing country. But they may have been trained without the grant. Perhaps the quality of their training is poor, in which case they do not materially improve health services. Maybe the cost per nurse is exorbitant due to corruption, which the presence of aid may exacerbate.

Box 1: The Auditor General's Critique of CIDA Frustration has been widespread among many, both in and out of government, at CIDA's inability over the past decade to demonstrate results or provide a coherent account of its strategy in the countries in which it is concentrating its development aid. The following observations contained in the latest Auditor General's review of CIDA, in 2009, are still today representative of thinking among many parliamentarians, senior government officials and Canadians engaged in development activities: 8.50 CIDA's priority sectors have always been broadly defined, which further complicated its attempts to focus. Identified priorities such as health, governance, or private sector development can encompass a wide range of overlapping programming areas ... 8.51 In the years immediately following the release of its 2002 Policy Statement on Strengthening Aid Effectiveness, the Agency did not develop a specific action plan to help it focus its aid in specific sectors. Nor did it set precise and measurable targets for country desks to achieve. In 2005, the Agency began an initiative to assess its intervention in a number of sectors, beginning with a stock-taking exercise. By the end of March 2006, the Agency had produced draft strategic direction papers intended to provide clear and consistent policy guidance for six priority sectors. The initiative as a whole was never completed. We note that yet another stock-taking exercise was taking place at the time of this audit [in 2009]. 8.52 Our analysis of data the Agency provided us did not reveal any meaningful trends that would indicate that the Agency as a whole has been achieving a narrower focus since 2002 ... 8.53 The lack of clear direction and action plans, coupled with broadly defined and shifting priorities, has led the Agency to a situation where, in our view, it is not realizing the benefit of its intended goal to focus its aid more narrowly. That goal is to create a more meaningful Canadian contribution to a country or region. Instead, the lack of direction has confused CIDA staff, recipient governments, and other donors, effectively undermining the Agency's long-term predictability. Changes in priorities have little impact on projects that are already under way and have often meant that project wording, but not project design, is changed to fit the priorities of the day (OAG 2009). Throughout, the Auditor General's report intersperses brief responses by CIDA. In response to the above, CIDA stated: To achieve greater sectoral focus, the Minister of International Cooperation announced new thematic priorities in May 2009. These thematic priorities are: increasing food security, stimulating sustainable economic growth, and securing the future of children and youth.... (OAG 2009.) It is hard to envision any project that these "thematic priorities" proscribe. This was not a response likely to satisfy skeptics desirous of focus and assessment of CIDA's impact. The second decision, a newfound corporate commitment to improving social and working conditions in Bangladesh, recognizes that business leaders have in the past ignored consequences of the country's weak governance.

Whether inside or outside Foreign Affairs, CIDA should retain its core goal of enhancing the social and economic development of whatever are the selected "countries of focus." However, CIDA's tactics must evolve. Canadian diplomats should play a larger role in tackling political obstacles to effective aid, whether in negotiating trade agreements or assuring the success of development projects. Canadian corporations could play a role in improving the host country's legal and regulatory environment. And CIDA could be more open with Canadians about the obstacles to development-aid success posed by weak governance. Perhaps, having done this, there will turn out to be "synergies" that enhance Canada's trade.

Following this introduction, the Commentary proceeds as follows. For readers interested in the evolution of development economics and its attempt to incorporate institutional analysis, I suggest reading the Appendix first. Readers primarily interested in the policy implications for aid agencies in the regulatory failure evident in the Bangladesh garment sector may choose to proceed directly to the next section. Following that is a discussion of options for CIDA in its new configuration within Foreign Affairs. The section discusses the potential of corporate social responsibility (CSR) and several tactics for more effective delivery of aid.

REGULATING BANGLADESH'S GARMENT SECTOR--THE POTENTIAL FOR BETTER GOVERNANCE

In 1971, when Bangladesh seceded from Pakistan, it had no garment industry. Four decades later, Bangladesh is, after China, the world's largest exporter of garments, proof that the threshold quality of governance needed for labour-intensive manufacturing to take off is not demanding....

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