Canada’s Development Finance Institution
Prime Minister Justin Trudeau announced on May 5, 2017 the Government's decision to establish a new Development Finance Institution (DFI) in Montreal. With an initial capitalization of $300 million, the DFI will draw upon a range of financing instruments to support private sector investment in developing countries, with a particular focus on clean growth as well as women and youth-led businesses.
While Official Development Assistance has helped produce significant development gains, meeting the 2030 Agenda for Sustainable Development goals will require more resources than Governments can provide. It is estimated that achieving the Sustainable Development Goals will require a combined global investment of as much as US$7 trillion by 2030—a level of investment that will require a coordinated international effort—as well as the directing of resources to where they are needed most.
There is growing consensus in the development community that the private sector has a key role to play as the main driver of economic growth and development. Developing countries are turning their attention to increasing private investment, rather than additional development aid grants. Foreign direct investment and other private financial flows now dwarf development aid by roughly 5 to 1. Yet the private sector is very often unable or unwilling to make what are seen as risky investments in such countries without support.
DFIs are a visible form of support to optimize the contribution of private investment to development. DFIs respond to the specific challenge faced by companies operating in developing countries in getting access to the finance necessary to grow their businesses.
A DFI will address this challenge by providing Canada with an innovative, cost effective financing tool to support economic growth in developing countries. According to some estimates, $1 invested by a DFI can leverage an additional $12 in private sector investments. DFIs are self-sustaining over time given their focus on sustainable business ventures. A DFI would complement, not substitute private investment and ODA.
The new Crown Corporation will be established as a subsidiary of EDC to enable quicker implementation. Canada’s new DFI will be operational by January, 2018 with a view to concluding transactions that same month.
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