FinDev Canada looking to invest in the world’s poorest countries
Agency shows boldness to go where money could do good, Kevin Carmichael says.
It must be the wrong place.
Google was supposed to guide me to the door of FinDev Canada, the new federal agency that will invest $300 million in some of the world’s poorest countries. Instead, I’m looking at a nameplate that says “WeWork,” the global provider of shared office space.
A woman appears and introduces herself. It is the right address. FinDev’s future offices were being built on another floor of Montreal’s Place Ville Marie, so Paul Lamontagne, the managing director, and a few early hires were getting to work among the young entrepreneurs and freelancers that frequent WeWork.
“Had they wanted to set up a conventional organization … they would have hired one of their own,” said Lamontagne, a former banker who made his name as a “social impact” investor in Africa.
This is new terrain for Canada; or at the very least, mostly new. FinDev — officially, Development Finance Institute Canada Inc. — is what is known as a financial development institution, or FDI. That means it’s supposed to make money, not simply give it away.
Most rich countries long ago established development banks to leverage their foreign aid budgets. For whatever reason, Canadian governments could never bring themselves to do it, even though politicians and mandarins talked about it for decades.
Stephen Harper came close, but failed to execute before he lost the 2015 election. Prime Minister Justin Trudeau took the Conservative blueprint and decided to proceed, directing Export Development Canada (EDC) to put up the seed capital and treat FinDev as a subsidiary.
The world’s poor need help corralling private finance.
Brett House, assistant chief economist at Bank of Nova Scotia, reckons that if all three dozen members of the Organization for Economic Cooperation and Development increased their international assistance budgets to 0.7 per cent of gross domestic product — the aspirational target in the late 1960s — they would spend about US$400 billion a year.
That’s not enough. The United Nations’s latest Sustainable Development Goals (SDGs) likely will require at least an additional US$500 billion annually between now and the target date of 2030, while plenty of estimates put the number in the trillions.
“We have to get to a much higher quantum,” Lamontagne told me in an interview in May.
FinDev and agencies like it can help by leveraging private money that might otherwise remain stashed in government bonds earning minimal returns. Few pension funds have the expertise — or the courage — to venture into frontier markets on their own; partners, especially those backed by governments with “AAA” credit ratings, can help strengthen their resolve.
To be sure, the profit motive doesn’t guarantee a boldness to go where the money could do the most good.
EDC returned about $1 billion to the federal treasury at the end of its most recent fiscal year, so it’s not hurting for cash. But Canadian politicians have made a virtue of parsimony for going on three decades. That raises questions about their willingness to tolerate a Crown that loses money.
And FinDev Canada is one of those agencies over which lots of people are going to think they have some control: The head of EDC, the international development minister, and the trade minister all supplied comments for the press release that announced Lamontagne’s appointment. Managing that many bosses could demand caution when the opposite is what it required to make a difference.
“One of the consistent findings of review of existing DFIs is that they tend to invest in sectors that are already receiving foreign investment: the fifth cellphone provider in Ghana, the 12th luxury hotel in Nairobi,” House said in testimony at the Commons foreign affairs committee in May 2017. “This is not the way to have impact nor to justify the expense and the effort of creating a Canadian DFI, which needs to be focused on higher-risk lending in places where no other investors will go.”
Sometimes, those places will be where even governments backed by armies are unwilling to go.
Earlier this year, I met a Texas State Trooper called Michael Guidry at an infrastructure conference in Montreal. Guidry took an interest in hostage negotiation in the 1970s and started his own security firm in the 1980s. His work takes him to some of the world’s most dangerous countries, including more recently Libya.
“The second time I was there, they just had killed Christians and thrown their heads in the river,” Guidry told me in an interview.
There are fewer places more desperate, yet there aren’t many people who are willing to help. Canada’s ambassador, Hilary Childs-Adams, presented her credentials to the government on March 25, but the embassy remained in Tunis, not Tripoli, even though other countries, such as the United Kingdom, had returned. EDC, which ranks countries by their riskiness, has assigned Libya its highest rating.
Guidry decided to take advantage of his experience in the country and diversify his business: Despite what he called an uncompetitive bid, he beat out companies from China, Russia and Europe to win a contract to build a deep-sea port. Now he’s looking for investors. The project will cost several hundred million dollars and “it will be dangerous,” he conceded. But the port, when built, “will be a Crown jewel for all of Africa.”
FinDev Canada won’t be chasing big infrastructure projects, at least not yet.
Lamontagne has chosen to focus on smaller companies in Africa and Latin America because he thinks they are being ignored. And since Canadian foreign policy emphasizes gender equality and climate change, he will do the same. His first transaction was to take a US$10 million stake in a Kenyan company that uses batteries to generate power for homes that lack a connection to the electricity grid.
That’s rare. Most development agencies prefer debt to equity because it’s safer.
“We’re trying to instil in our organization this boldness,” Lamontagne said. “At some point there will be a problem ... Instead of putting our heads in our hands and crying about it, we should be celebrating it because we will know we can’t go past that point.”
That’s not an sentiment you hear that often in Ottawa. Maybe the entire public service should rotate through WeWork?