:
I'd just like to give you a little of my background and how Brandaid Project came into existence.
I have spent the past 25 years working in the developing world, mostly in Haiti, on a number of mostly not-for-profit NGO sector projects. During that time, I noticed that poverty wasn't improving with the usual models of philanthropy and aid. In 2009, I founded a company called Brandaid Project. The other co-founder is the president of JWT Canada, a branch of the largest advertising agency in the world.
The Brandaid Project came into being from my observations that poverty needed marketing. It needs a lot of things, but it certainly needs marketing. Brandaid Project is a company that brings the high-powered marketing assets of Madison Avenue—big business advertising and marketing—to bear on the production export problems that producers have in the developing world.
We modelled the company in Haiti on a Haitian matrix, but it has replication in many other countries. We belong to the UNESCO's Global Alliance project, sharing best practice in the creative Industries, and intend to take the model that we created in Haiti to the 60 least-developed countries.
I will give you a brief history of what the Brandaid Project has accomplished in its brief time. We launched the company publicly in 2009 with two major events in the United States, sponsored by Vanity Fair magazine and Dior. This is very much in keeping with what the Brandaid Project does. We bring large corporate sponsorship interests and expertise in marketing into partnership with small and medium enterprise producers in the developing world. In this case, it's Haiti.
One of these two events was launched during Oscar week in Los Angeles, and the other during fashion week with Diane von Furstenberg in New York. We created collections of home decor products, and we showed those products in these two venues, with corporate celebrity and business guests in attendance. The model is intended to create marketing opportunities for small, otherwise anonymous, producers in developing countries. This went very well.
Then, the earthquake happened. Brandaid Project was about to become a UNESCO vehicle for this model to work in the 60 least developed countries. When the earthquake happened in Haiti, we decided, for company and personal reasons, to focus our attention in 2010 on Haiti. That's what we did.
What we did exactly was to look for purchase orders for the producers we had been working with. The purchase orders we found were with Macy's department store chain in the United States. Macy's is a 900-store chain. We brought Macy's buyers and designers to Haiti. They intervened with Haitian artisan producers in the home decor line, and produced 18,000 units of product in about six to seven weeks, three months after the earthquake, and during hurricane season. These products were finished and exported to the Macy's warehouse in New York, and events were convened by Macy's in 25 flagship stores.
This led to a purchase order in excess of $200,000. While we didn't do a baseline study on this particular project, we could see that this money and the portions of it that went directly back to these producers improved their lives substantially. It also created a brand called Heart of Haiti, which continues to be sold in Macy's stores, and is, in fact, expanding into more of their stores.
The Macy's order taught us many things. One is that there is a certain price point at which small producers in emerging economies can make money, and there is a certain price point beyond which it becomes a question of diminishing returns. Due to that Macy's order, Brandaid Project and Macy's received a good deal of media coverage in the United States as well as Canada. In fact, the story made it onto the front page of The Globe and Mail, where Minister Bev Oda saw what Brandaid was doing and noticed that it was a Canadian company—but mostly activated in the United States. We were contacted. We already had a proposal in with CIDA to launch several brands from Haiti. We felt that it was time to scale our model up, and that we could do a lot more with more resources.
The proposal that we had in with CIDA was subsequently approved, and for the last six months we have now been operating on a TFO CIDA grant project to launch 10 brands into the global market from Haiti. Four of these brands are community artisan brands. The other six are small to medium enterprises. That is to say, they are small to medium sized factories. The product line is home decor and home furnishings.
I'll bring you right up to date, and then I think that will be the 10 minutes.
This has led us to make some direct sales calls in Canada. We have subsequently acquired The Bay—The Hudson's Bay Company—as a customer. They're going to launch an integrated program based on the Brandaid project model sometime in 2012—I think in spring 2012. I just returned from London, England, the night before yesterday, where we had meetings with Selfridges, one of the biggest department stores in Great Britain. They have also agreed to an integrated program, which they're going to launch during design week next September in London. We also have secured a contract with Cirque du Soleil for product from Haiti, and for deeper collaboration with Haitian artisan communities.
That's our activity to date. I think things are going well with this CIDA contract. It runs through to 2013, and the commitment is that Brandaid Project will create a dollar number of export value for products from Haiti for these 10 brands. I won't give you the figure, because it hasn't been ultimately decided. So we're working hard to make that come true.
I think that's enough background. I'm happy to relinquish the floor, take questions, and whatever.
[Translation]
Mr. Chairman, I thank you for giving us the opportunity to present our organization's point of view this morning on the important topic of the role of the private sector in international development.
I have the honour to represent Results Canada. Our organization is devoted to fostering the political will needed to eliminate abject poverty on our planet. We are part of an international network of like-minded organizations that are all independent, but have the same general objective.
Our organization is non-partisan and has no religious or ideological ties. Somewhat like the private sector, our organization seeks to identify and promote the most cost effective solutions to poverty. We are interested in solutions that save lives and give families the opportunity to create a small source of stable income.
[English]
So if we look at the private sector, the first thing that must be said is that the private sector's mission is profit, and it's a legal duty of the board of directors to actually uphold that mission of profit. So there's no room for purely altruistic missions. However, investment in social issues can be useful for branding purposes. That's important, of course, from a private sector perspective to attract customers, to perhaps get better conditions from certain suppliers, to attract employees who are looking for more meaningful work or workplaces, to attract investors--especially socially conscious investors--or perhaps to get more cooperation from local government.
So there is a place where the realities of both the public interest and the private interest can actually meet. But economic theory teaches us that the public sector is better equipped to create public goods, especially things like good health on a planet that is free of infectious disease, or good education levels that all benefit from. In those areas of public goods, the private sector really plays a complementary role.
The same economic theory shows us that the private sector is probably better equipped to do the actual process of wealth creation, whereas government plays more of a supporting role, establishing the necessary operating and background regulatory framework.
With your permission I'm going to look at those two areas, social development and wealth creation, and specifically at two subsets of those. One is micro-enterprise development, where the private sector has the lead; and the other one is infectious diseases, where the private sector has a complementary role and the public sector has the lead.
Let me start with micro-enterprise development. In the developing world, most of the population is not employed by formal businesses or by government. There are just no jobs to go around, so the population has to offer its labour for casual work or has to be self-employed. In this context, of course, the development of microfinance has had a tremendous impact on the very poor over the past 30 years, given the demand for that self-employment opportunity by those populations.
[Translation]
When we talk about microfinance, what do we mean?
Essentially, we are talking about very small loans granted to very poor people who want to start up a business. These loans are generally granted at business interest rates. Moreover, experience has shown that the rate of reimbursement is often above 90%.
The microcredit movement was founded by Professor Yunus. This won him the Nobel Peace Prize a few years ago. What are the results of that movement?
Today, 138 million very poor women have access to credit, whereas only 8 million people had access to microcredit when Results Canada launched the Microcredit Summit in 1997. So we have seen phenomenal growth.
Does this mean there are no challenges? No, there are challenges and they are of some magnitude. First of all, we have to reach the poorest of the poor. Too often, those who are not as poor are at the head of the line to obtain a loan, whereas the poorest people, those who are marginalized, are excluded from the microcredit expansion efforts. And yet, it is by reaching the poorest ones that we further development.
The second challenge is that we have to ensure that the poorest people do indeed get out of poverty. It is not enough to see if the loans are reimbursed. We also must ensure that the microbusiness generates profits on a regular basis.
The study of the social impact of microcredit is fundamental, and that is precisely one of the things that public agencies like CIDA should fund.
[English]
Now, what is the role of the private sector in micro-enterprise development?
First of all, microfinance in and of itself is almost exclusively a private sector led endeavour. Very few government-owned entities do microfinance. It can be private sector for profit, or not for profit. Both systems exist, but what is important is that profit not trump the social mission of the microcredit provider.
This is a difficult line of demarcation to trace. There's been a big debate, for instance, in the case of Compartamous Banco, a microfinance provider in Mexico, which was and still is offering loans carrying an interest rate of over 90% per year. Of course that is high, but at the same time this microfinance provider is present in virtually every impoverished community of Mexico, and serves mainly women, with very small loans, and their rate of penetration is unparalleled. So it's difficult to give a hasty judgment on that. It's a subject of controversy and probably further discussion.
When you go about operating a microfinance institution, of course you are in the private sector, but the private sector can also assist microcredit providers in various manners. First of all, they can provide the capital that is required for onlending. Actually, this is an area that public authorities are not good at; they don't have instruments. CIDA does not have instruments for providing capital for onlending. It's good at providing technical assistance, but for the actual capital loaned to micro-enterprises or micro-entrepreneurs, that's a good place to go.
One of the areas that capital can come from is from Canadians. Canadians, as very few people know, have an opportunity to invest in micro-enterprise in the developing world through RRSP-eligible organizations like the Canadian Worker Co-operative Federation, through Oikocredit, which is one of the big microfinance providers in the world.
Another example of a private sector contribution is technical assistance for microfinance. An illustration is Développement international Desjardins. They provide support and capacity-building for le Réseau des coopératives des caisses populaires in Burkina Faso, which in turn collects savings from those who are not so poor in Burkina Faso. With those savings, it lends to very poor peasants through a network called Caisses Villageoises. So it's very much a win-win, a big success story.
Beyond this general technical assistance, the private sector can also provide very specific assistance of a specialized nature, for instance, accounting software apps for smart phones for people who actually go into the villages and collect savings or offer credit and things like that.
It is really important to understand the complementary role that the financial sector can play here, in addition to all of this. The formal financial sector can assist graduating clients from the microfinance world to actually move into the formal finance world. For instance, Scotiabank in Central and South America has various programs, with average business loan sizes of $2,000 to $3,000, which are actually ideal for clients who have successfully grown their micro-enterprises from nothing to almost market size with loans of $200, $300, $800. Then they can graduate to the formal sector.
Beyond microfinance itself is the world of micro-insurance, which I want to speak about perhaps a bit later.
Before I finish, I want to make sure I speak about two important alliances that show the role that the private sector can now play in a complementary fashion with public efforts in the world of public health. The Global Alliance for Vaccines and Immunization, called the GAVI Alliance, is a perfect example of that partnership between public and private interests. The alliance brings together a wide range of partners: its donors, developing countries, governments, and also pharmaceutical companies, civil society organizations, and private foundations. All these people have a common goal of providing cheap immunization to the developing world.
What the alliance does is this. It really reinforces and strengthens existing systems on all levels. Here it is also worth underlining a very specific private sector initiative of the Government of Canada, the advanced market commitment for pneumococcal vaccines that made vaccines affordable to millions of children worldwide. What the Government of Canada did was this. It actually provided a guarantee to those pharmaceutical companies that were willing to provide vaccines at a cheap cost around the world. That drove the cost of the pneumococcal vaccine to 5% of its original U.S. market price.
Let me just finish by talking about the global fund, which, since its inception a decade ago, has basically brought together private sector businesses, corporations, business federations, etc., with the public sector and civil society in a huge alliance to fight the pandemics of tuberculosis, malaria, and AIDS. The private sector contributed, for instance, $182 million to that partnership in 2008. The most famous examples are consumer marketing initiatives like RED, which, through co-branding with partners like American Express, Nike, Apple, Starbucks, etc., have raised more than $150 million U.S. to fight AIDS in Rwanda, Ghana, Lesotho, and Swaziland.
I could also speak later about initiatives in the banking sector, where Canada has some strength, and also the mining sector.
[Translation]
In summary, for Results Canada, it is clear that the private sector can play a paramount role in economic development, in particular in the microfinance sector.
Moreover, the private sector can also play an important accessory role with regard to health, in particular as concerns immunization and prevention, in the context of the fight against widespread pandemics.
There only remains to thank you for this opportunity to present our viewpoint. Thank you.
[English]
Thank you very much, Mr. President.
First of all, I want to thank you for coming before us today and making your presentations. They are very informative. I've learned a lot about Brandaid today, and I didn't know too much about the work you did, so I want to thank you for that.
I also want to acknowledge the work your organization does. I had the pleasure of attending your conference with your volunteers along with my colleague Dean a few weeks ago. I was so impressed by the commitment of your volunteers who came from right across this huge country and were willing to give up their weekend to do the important work your organization does. Not only that, but I also have to commend you for doing what must have been an amazing job with them, because their lobbying sessions with the MPs that followed your conference were really very focused and very good.
We're here today to talk about microfinance, our foreign aid, and the role of the private sector, but I also want to talk a little bit about the fact that a lot of your campaigns are centred on the Global Fund to Fight AIDS, Tuberculosis and Malaria. I met with your groups that came around and really appreciated the fact you did it zonally, because the people who came around to meet with me were from Vancouver Island and the Vancouver area. So I could actually relate to the work back there, and we could have a connection that way.
The work you're doing in the area of AIDS, malaria, and tuberculosis is absolutely amazing. Since being on the Hill, I've learned a lot more about tuberculosis and its connections and impact than I knew before. The global fund saves millions of lives. We know that. But it is going through a very difficult time right now. I've been looking through the newspapers, seeing some of the headlines saying that the global fund for world health is halting new programs and beginning to scale back even on some of the programs it does.
I have to commend the Canadian government for its very generous pledge to the fund. We know that in your own communications recently, you actually said:
Tell Canada's Government that you support a bold pledge for the global fund that will support cost-effective programs that save lives from these deadly infectious diseases.
You've acknowledged that in your communications.
However, when I start digging into this, I'm getting a little bit concerned about the programs that are being cut and the programs that are not being started. Really, from the information I've been able to gather, even though we have pledged what I would say is a good amount of money, I'm not sure how much of it has actually been given to global fund. The last time I looked at the website, I saw that we hadn't transferred any money over yet. My fear is that we're putting lives at risk, if the global fund is in that kind of a critical condition.
So what is your sense—
:
First, could I make one point that I think is relevant? Here's a book called
Brand Aid: Shopping Well to Save the World. It's not about my company; it's about brand aid. It's highly critical of Product Red and the global fund. I'd highly recommend it to everybody who's interested in this debate and this issue.
I can answer your questions now. The kind of problems we face in developing nations, especially Haiti, with regard to infrastructure are very complex and don't seem to be improving. With infrastructure that helps producers, especially small producers, get their products to market, you face several obstacles, from no road for getting get your product into the capital and to the airport, to regulatory practices that simply make it so complicated to export product that an artisan or a small producer in a country like this wouldn't even attempt it on their own.
Brandaid Project sees a business opportunity here to partner with small producers in developing countries and to give them the kinds of resources and know-how and savvy of the global market that they simply don't have. That partnership works very well.
One assumption we made that I think we have to revisit is that, after a year or two of this, of course they'll know how to do this themselves. The great example of fantasy thinking was that when the Internet came along and e-commerce, this would automatically transform the global economy of small producers. They would all become their own marketers; they would all have access to global markets. Nothing like this happened.
The IDRC, the International Development Research Centre, did a landmark study a number of years ago on e-commerce and its effect on small producers. It concluded that less than 5% of market potential for small producers had been reached in the e-commerce revolution. It's an intricate subject but it speaks to the need for professional branding and marketing.
Last year, $500 billion was spent on advertising globally—just on advertising, not including marketing. To give you an idea of how big that is, in a good year, maybe $35 billion is spent on making movies, and we know how big an industry that is. Advertising creates a kind of soup that we don't even understand. It's like explaining water to fish. We're in it so much that we can't even acknowledge its presence. The vast majority of small producers in developing nations are completely excluded from this necessity, if they want to sell into the global market.
Brandaid Project came into existence based on two very solid beliefs. One is that global poverty is a business opportunity. For some people it can be a moral obligation to display their charitable nature, but it's really a business opportunity. Properly approached it can make money for business, including small, medium, large, and multinational businesses. The other very strong belief of Brandaid is that to solve infrastructure problems—all of these problems—takes business. Business is invented to create prosperity where poverty used to be, and only business can do this.
I don't know if that helps.
:
Thank you, Mr. Chairman.
Thank you to the witnesses for coming this morning and for making your presentations, which I think all of us find very interesting and worthwhile.
I had three specific questions, and one, to Mr. Brohman,
[Translation]
and two for Mr. Tardif.
[English]
I find the concept of Brandaid very interesting. I certainly share a lot of what you said on the importance of taking things that, to us, might seem basic private sector advertising and marketing principles and opening the door for developing economies and local artisans to a path they wouldn't have dreamed of being able to touch. Done properly, it can have great effects for them.
You talked about some obstacles. Haiti, perhaps, is an example of a place where you're very active. I'm curious to see what other projects, complementary to Haiti, you might look at. You talked about infrastructure and other obstacles. My experience in some of these developing countries is that the government bureaucracies can be riddled with corruption. For someone trying to get a container full of home furnishings to Macy's from the port in Port-au-Prince, it's not as simple as arriving with a truck and loading it onto a boat. There must be endless bureaucratic obstacles, some of which open an opportunity for corruption.
I wonder whether that is the case and what you can offer as help to those artisans who would be victimized by local bureaucracies, police, and other businesses. The whole chain of getting product to market leaves them very vulnerable, I would think, to predators along the way. I'd be curious to hear about that.
[Translation]
Mr. Tardif, I'm going to ask all of my questions one after the other, and perhaps I will have time then to hear your answers.
You said two things that really got my interest, specifically that Canada has certain assets as well as a certain leadership in the financial and mining sectors. You ran out of time to give us more details on that. I would like to hear more.
[English]
The other interesting thing you said when you were talking about micro-credit is that profit must not trump the social objectives. You began by saying that one of the important elements of business—and this was Mr. Brohman's take on it—was profit, and that we had to recognize that.
I'm wondering how you propose to balance those two. I'm not disagreeing with you, but I'd like you to expand on that, because this may be the crux. Hearing of a 90% interest rate, we all reacted. It seems appalling. Mom Boucher and the Hell's Angels might operate that way; you don't think of it as some social objective. But you came close to saying that there may be a social objective to that kind of loansharking. I'm curious to hear you expand on that.
Thank you.
:
Let me try to explain the importance of branding, because I think it's often something that we take for granted in our society. It's a word we only assume we know the meaning of.
In an emerging economy context, branding is crucial, because it refers to the issue of intellectual property. I can give you the on-the-ground example in Haiti of Donna Karan, the DKNY brand, a huge global brand. Donna Karan went to Haiti, as Macy's did, and began doing business with very small producers, atelier-level producers, micro-entrepreneurs, or one person who perhaps had three to five employees. What they did, of course, was simply revert to business as usual with large players coming in to small economies and taking advantage of the desperation of those small players' need for any kind of purchase order. So what they did was buy product, had product produced under the Donna Karan brand, or under the Macy's brand....
Brand is something that captures value. That's why people have brands. That's why if you put Nestlé's brand or Tim Hortons' brand on your doughnuts, you will get sued by many, many lawyers and lose a lot of money. The brand protects value. It does the same thing with micro-producers. I'd like to quote a study done by Light Years IP, a major organization in Washington, D.C., which did this work in West Africa. They studied the effect of big branding on small producers in the coffee industry and, I think, in the cacao industry in West Africa. What this study concluded was that small producers were retaining less than 3% of the value at the source, because they sell their coffee to Nestlé, the biggest coffee buyer on earth, and the Nestlé brand captures that value.
This has led to some very interesting developments. Divine Chocolate is a product that was created in partnership with some Europeans and 20,000 cocoa farmers in Ghana in West Africa. Prior to this brand coming into the market, those 20,000 cocoa farmers sold their chocolate to Hershey's. Hershey's has a brand, so Hershey's made the money. Hershey's was then setting the price for cacao, and that was getting lower every year to the point where, like in the coffee business, farmers were harvesting their cacao and losing money, because they had no control over the value chain. They couldn't capture any value at source.
Divine Chocolate came along, a brand that is a 50-50 partnership between some very smart European marketers and the farmers themselves, a co-op of 20,000 cocoa farmers, and they created their own brand. They took it to market. It's highly successful in Europe, and that value returns to the owners of the brand, the cocoa farmers.
This is what Brandaid Project practises. The baseline studies that we've completed for this CIDA project are for four communities, and they're baseline studies at the front end of this project. What we intend to demonstrate is that when we create brands that protect the intellectual property--in this case, designs that artisans originate for products--those products will go into the market under a brand name that those artisans own, and the value captured at source will be something like 20% to 25%. Currently, as I said, it's less than 3%. In some cases it's less than 1%. Of products that are exported, five to ten cents of every dollar stays in Haiti—and that goes for apparel, commodities, mangos, coffee, everything.
So branding is crucial to capture value, and it's crucial also to security in the market and market share.
Am I making myself understood?
:
That's a great question. It's music to my ears, because that's really what we're interested in doing. We're really committed to that.
I'll tell a little story about where I've been. I've been to London talking to Selfridges. Selfridges, for anyone who doesn't know—and you can go to its website—bills itself as the coolest department store in the world. And it certainly is. It's an amazing place. As well as selling products, they have in-store events designed to draw people into the store, to collect media attention, and be involved with the culture. They're looking for things, new ideas, for this.
We presented something to them called Voodoo Nouveau, New Voodoo. They said yes, to make a long story short. Voodoo Nouveau really speaks to what you're asking about, the problem of country brands and the impact this has, if they're negative, on the economy of a country.
I first went to Haiti in 1977. I was young and looking for adventure, and it was the scariest place on earth. I wanted to go there to see what was so scary, and I certainly found out. I saw over the subsequent 25 years how that scary reputation completely frightened everybody away from investing in Haiti, and from even going there for a holiday. That impact isolated the people, the culture, and the country. Obviously, it didn't bring any dollars into the country for people. It just contributed to an ever-declining economy and extreme poverty. Haiti got poorer over the last 25 years because of this.
Changing Haiti's brand is something Brandaid Project has really cut its teeth on. I think it has culminated in identifying what the real problem is. It's voodoo. Thanks to Hollywood's demonization program, which has been going on for decades, people think of voodoo as.... Well, we know what people think of voodoo. Voodoo, in fact, is the heart and soul of a people. It's an incredibly courageous religious tradition. In the 20th century, Haiti was occupied twice. During both of those occupations, voodoo was outlawed. It was against the law to dance or beat drums. Temples were razed, and sacred artifacts were burned. Finally, President Aristide, whatever you may think of him, created voodoo as the national religion of Haiti, by presidential decree, and all Haitians breathed a sigh of relief, because they no longer felt ashamed of this great spiritual tradition.
To take that brand problem head on and try to do something about it in an economic context is really the very exciting program we're going to launch with Selfridges during design week in London, England next September.
:
Thank you very much, Mr. Chair.
For the record, Mr. Chair, I want to reinforce the fact that Canada has doubled its aid to Africa since we took government. We have also done the most important thing, of untying our aid. That allows far more efficient use of the money so that more help can go to emerging economies, developing countries, and putting more money into the hands of organizations to purchase vaccines at the best possible prices so that more people can be assisted. In the past, when our aid was tied, fewer people could get access to vaccinations because of the cost. That's important for Canadians to know.
Mr. Brohman, we had as a witness a couple of weeks ago, a gentleman by the name of Hernando de Soto. I don't know whether you're familiar with his work.
I'm glad you are. I don't have to give you a synopsis of it.
One of the most important things he talked about was property rights, and how emerging economies have such difficulty because people who want to be entrepreneurs are extralegal; they're outside the legal boundaries. He talked about that in light of the people, entrepreneurs, who are setting up shops and don't have access to capital because they don't have any assets in real property.
My question is about these artisans you are assisting. Haiti is having a very difficult time with property rights—as in real property and the ownership of property—and their judicial system is also very limited at this point. How are you protecting them?
If I could just add another question: how many women are part of these artisan groups?
And in helping these people become profitable, how are you then taking pressure off the aid that needs to go into these countries for the future?
Those are a lot of questions.