Productive Partnerships for Transition: An Innovation and Effectiveness Guidance Note

Purpose

This document provides an overview of how and why Canada delivers international assistance in Middle-Income Countries (MICs), and sets out its approach to engagement in Productive Partnerships for Transition. The guidance is focused on providing direction to Global Affairs Canada staff on how best to reinforce the effectiveness of its international assistance engagement in these contexts.

Introduction

With the launch of the Feminist International Assistance Policy in 2017, Canada clearly laid out how its international assistance will contribute to eradicating poverty and building a more peaceful, more inclusive and more prosperous world. Outlined within the Policy is the Canadian approach to geographic engagement, entitled “Where we Work”. This new approach includes four context-based, responsive and flexible partnership pathways:

1. Stronger partnerships for sustainable development – Canada delivers longer-term development assistance for low-income countries that reduces poverty and vulnerability and creates the conditions for more inclusive growth.
2. More effective engagement with fragile states and countries in crisis – Canada delivers integrated support that helps developing countries facing crisis situations or protracted humanitarian challenges.
3. Productive partnerships for transition – Canada provides targeted assistance that supports more democratic, inclusive and accountable governance, and that supports sustained economic growth in middle-income countries, helping countries transition into fuller, more self-sufficient economic partners.
4. Targeted and shorter-term assistance – Canada maintains an ability to provide targeted and shorter-term assistance.

Given that MICs are a diverse grouping of countries, they require differentiated approaches to delivering international assistance and appear in all four of Canada’s Where we Work partnership pathways.

What are MICs?

MICs are defined by the World Bank as countries with a gross national income  per capita between $1,006 and $12,235 (2018). MICs account for approximately 75% of the world’s population, one-third of global gross domestic product , and 62% of the world’s poor. MICs are found on every continent and region. Some MICs are in prosperous neighbourhoods where intra-regional trade and investment provide a stable foundation for economic growth. In other cases, MICs face the social and economic strain of refugee flows and regional instability. Their governance systems reflect a variety of political models, from authoritarian to democratic, some more stable or respectful of human rights and freedoms than others. Across the spectrum, poverty exists and varying degrees of gender inequality, discrimination and other forms of exclusion hamper success.

Where do 1.3 billion multi-dimensionally poor people live?

Source: Oxford Poverty & Human Development Initiative (OPHI)

Two-thirds of all multidimensionally poor people live in middle-income countries.

46 percent of those who are multidimensionally poor live in severe poverty, meaning they are deprived in at least half of the weighted indicators in health, education and living standards.

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• Latin America and the Caribbean (32 million)
• Arab States (66 million)
• Sub-Saharan Africa (560 million)
• Europe and Central Asia (4 million)
• East Asia ns the Pacific (118 million)
• South Asia (546 million)

• Latin America and the Caribbean (32 million)
• Arab States (66 million)
• Sub-Saharan Africa (560 million)
• Europe and Central Asia (4 million)
• East Asia ns the Pacific (118 million)
• South Asia (546 million)

MICs in Transition are middle-income countries with relatively stable governance systems and capable institutions that have demonstrated a willingness to sustain economic and development gains and transition into fuller more self-sufficient economic partners. They often face challenges in addressing economic and gender inequality, in addition to divisions rooted in long-standing ethnic, religious or racial prejudice. They are vulnerable to external shocks, such as the impacts related to COVID-19, forced migration, natural disasters and climate change. MICs in Transition are often less reliant on aid and are looking to expand diplomatic, trade and investment relationships.

Canada’s current engagement with Middle-Income Countries (MICs)

Canada engages in MICs through a wide variety of partnerships and programs depending on the local context and our historical relationship with the country. In general, engagement in these contexts seeks to foster a coherent approach to its diplomatic, trade and development efforts in partner countries.

In delivering international assistance in MICs, Canada ensures coherence with its Feminist Foreign Policy and the Feminist International Assistance Policy. Engagement in some MICs aims to address long-term sustainable development challenges in countries where large portions of the population remain poor and marginalized. Canada also has successful partnerships with fragile and conflict affected MICs including support for humanitarian, development, and peace and security initiatives, as part of an integrated approach. In some circumstances, Canada delivers targeted and shorter-term technical assistance to a range of MICs and regions. In all of these contexts, Canada delivers international assistance through various channels including bilateral funding; multilateral organizations such as UNDP, the World Bank, and regional organizations; and through a range of Canadian partners.

Case for Action: Why Canada Invests International Assistance in MICs in Transition

Through the Productive Partnerships for Transition pathway, Canada is tailoring its approach to the needs and opportunities of MICs in Transition. It recognizes the sophisticated relationships Canada has with these countries, and that their needs are different and evolving.

As a result of higher per capita income, significant progress in economic and social development, and greater potential for private sector partnerships, countries in transition are more capable of sustaining their own development progress without international assistance. MICs in Transition are often keen to see donor support in the form of technical assistance, innovative financing, trade and foreign direct investment.

Moving toward a transition partnership does not signal an immediate end to delivering international assistance in some countries. Canada has and will continue to partner successfully with MICs in Transition to target key development challenges linked to national Sustainable Development Goals (SDG) priorities.

Sustaining Success

An important reason to engage in MICs in Transition is to safeguard the long-term development gains Canadian assistance has helped achieve to date. Mindful of the challenges they face, Canada can support MICs in Transition to avoid the so-called Middle-Income Trap and strengthen local efforts to achieve the SDGs.

Efforts to support gender equality, inclusive governance, and growth that works for everyone is particularly relevant as countries can fall into the middle-income trap as a decline in ODA flows contribute to reduced public investment. As the cost of development finance increases, MICs in Transition can face challenges in maintaining the fiscal space to safeguard delivery of necessary social services. Corruption in these contexts can also undermine the conditions for private sector engagement in the country, and reduce the benefits of trade and development for the poorest.

Canadian engagement in MICs in Transition also has the potential to build and deepen bilateral relationships and alliances in countries where Canada often has long-standing international assistance, political, security and trade interests. With the world experiencing increasing geo-strategic competition around governance and development models, it is essential when framing the strategic objectives of Canada’s international assistance in MICs in Transition to give due consideration to Canada’s current and future trade and foreign policy priorities.

Complementing the Feminist International Assistance Policy’s thematic priorities, targets and commitments, local SDG priorities should inform international assistance programming, trade activities and diplomatic policy engagement. It is important to keep in mind that although many MICs in Transition have significant potential as trade and investment partners for Canada, their development progress may not be steady, nor is it assured.

Gender Equality

Gender inequality is pervasive in many MICs in Transition across many issue areas, including education, employment and earnings; social, cultural and political participation and representation; and sexual and gender-based violence. Gender inequality intersects with and is compounded by other dimensions of exclusion, such as discrimination on the basis of ancestry, ethnicity, religion, belief, ability, social status or sexual orientation, and gender identity or expression.

Opportunities to sustain development gains through promoting gender equality is a demonstrated economic necessity and is crucial for social justice. As in other country contexts, Canada is well placed to assist in strengthening stakeholders’ capacity and accountability in MICs in Transition to advance inclusion, diversity and an intersectional approach to gender equality and the empowerment of women and girls.

Inclusive Governance

Many MICs in Transition face common challenges as they seek to become more economically self-sufficient. Where corruption is rampant, it may undermine the conditions for private sector engagement, and reduce the benefits of trade and development for the poorest. Effective, inclusive and accountable public institutions and an enabling environment for the private sector and civil society help create the conditions for sustainable development.

Partnerships with countries in transition offer an opportunity for Canada to share experiences in addressing root problems of exclusion. Canada has made promoting inclusion and respect for diversity a policy priority. Canada’s post-war approaches to inclusion, pluralism and diversity have led to social policy innovations such as official bilingualism, multiculturalism, anti-racism and a commitment to Truth and Reconciliation with Indigenous Peoples. Although Canada’s own record at inclusion has been historically uneven, it is also widely respected internationally.

Growth that Works for Everyone and Inclusive Trade

Middle-income countries in transition often struggle to create the policy and social conditions necessary to distribute the benefits and opportunities of economic growth fairly. Canadian international assistance can be effectively deployed to help build local economies and boost the local private sector, including by supporting the business development skills of women and other under-represented entrepreneurs. Innovative approaches to inclusive trade and development can involve trade partnerships that empower the poor, particularly women and Indigenous peoples.

As a trading nation, Canada’s economic strength depends on diversifying trade and securing new markets for its goods and services. MICs in Transition present potential opportunities for new, mutually beneficial and inclusive trade agreements. As part of its Export Diversification Strategy, Canada’s inclusive approach to trade seeks to ensure that the benefits and opportunities that flow from trade are more widely shared, including with under-represented groups such as women and Indigenous peoples. Trade diversification will also contribute to improving Canada’s economic resilience during times of economic uncertainty.

It is particularly strategic for Canada to better integrate its development and trade objectives to create positive economic effects for developing countries and for Canada. By helping MICs in Transition expand international trade opportunities, Canada can open the door to more export opportunities for diverse groups of Canadians and help promote and strengthen an international trading system that is open, fair and inclusive.

International education programming in MICs in Transition provides another clear example of mutually beneficial results that go beyond the aid relationship. Another is the Canadian International Innovation Program, which works in MICs in Transition to foster and support collaborative industrial research and projects with high potential for commercialization between Canada and partner countries. As the economies of MICs in Transition strengthen and become more stable, there is an opportunity for Canada to enhance or form new, mutually beneficial trade and investment, innovation and education partnerships.

Safety and Security

In an interconnected world, Canada’s interests favour the democratic stability and economic prosperity of MICs. The security of Canada and Canadians in a world where international relations are increasingly unstable is a top foreign policy consideration. With established institutions, alliances, and practices being challenged by a shifting balance of power, new technological, economic and social forces, and ideological competition, sustainable development for many middle-income countries is coming under threat. Currently, in all regions of the world, progress made in MICs is threatened and development gains are being undermined by xenophobia, populism, isolationism, hate speech, incitements of violence, conflict, climate change, and cyber insecurity, all of which have the potential to impact Canada’s prosperity and security. Canada recognizes that it must adapt its tools and approaches, including by forging new partnerships and strengthening existing alliances with diverse stakeholders to thrive in the current global context.

Due to the economic impacts of the COVID-19 pandemic, there are real risks that many MICs could slide back toward lower-income status and experience an increase in poverty rates. Canada has a stake in our partners’ success. Continuing to provide international assistance is one element in maintaining strong and supportive partnerships with MICs in Transition. Canada’s experience providing and adapting universal, inclusive social programs and protections can be a touchstone for building resilience.

Canada’s Approach to Productive Partnerships for Transition

Canada engages with MICs in Transition using its full range of foreign policy tools, including diplomatic engagement, trade promotion and agreements, security cooperation, and its international assistance. As levels of bilateral aid to MICs in Transition eventually decline –  ideally under well defined, sequenced, and responsive timelines – there is an opportunity to increase our collective focus on supporting greater local self-reliance through new and innovative approaches, and partnerships. The importance of a structured approach to this transition, guided by principles, evidence and objectives cannot be emphasized enough.

Considering how international assistance in MICs in Transition is delivered is important. Canada’s technical support to improve regulations and develop appropriate policies, as well as to strengthen inclusive governance can have wide-ranging impacts, such as curbing pollution, growing the tax base, reducing resource-based conflict, supporting greater integration in the global economy, and helping deliver vital services such as water and electricity, improving law-enforcement and people’s access to justice. Complementing government-to-government technical assistance is Canadian support to local civil society organizations, Small and Medium Enterprises (SMEs), and other local actors to help direct the benefits of economic growth toward the poorest and most marginalized in society.

MICs in Transition may be more open to and capable of scaling-up innovative approaches to service delivery with their own resources. Canada’s experience demonstrates that its international assistance can achieve significant results in MICs in Transition with relatively modest investments. Canada’s international assistance can catalyze private investment and support institutions needed for well-functioning markets. This can include initiatives that reinforce policy and regulatory frameworks, and support blended finance approaches. In some cases, catalytic support can help to bring locally-driven innovations to scale, or lead to innovative initiatives for mutual benefit, for example leveraging Canadian pension fund investments to address the needs of the poorest and most marginalized.

© Cuso International

Colombia’s Social Impact Investing Ecosystem: The Government of Canada takes a whole-of-government approach to its bilateral relations with Colombia through its political, commercial, development, and peace and security programming.

In developing the overall vision and strategy for the Colombia program, Canada set 2030 as the target to transform its role from donor to a productive partner. Canada’s engagement in Colombia is catalyzing sustainable and inclusive investments and building the capacity needed to address inequality and poverty.

Combining relatively small amounts of international assistance with its convening power, Canada is investing in strengthening the Social Impact Investing Ecosystem in Colombia. This engagement could unlock millions of dollars of private capital to support Colombia’s middle-income transition, and leave a significant legacy that builds on Canada’s experience reflected in the work of, for example, MaRS SVX in Toronto’s Discovery District.

© SURGe Project

Inclusive Governance in Ukraine: In MICs in Transition, development challenges often stem from a lack of government capacity to manage available resources fairly, effectively and efficiently. At the same time, local CSOs often lack the capacity and resources to hold their governments accountable.

Recognizing this, through the 5-year Support to Ukraine’s Reforms for Governance (SURGe) project, Canada is helping the Government of Ukraine deliver governance and economic reforms that respond better to the needs of its citizens. Local experts support and build the capacity of the Government to plan and analyze, including applying GBA+, in order to design and implement inclusive reform programs.

For example, the project has contributed to reforming Ukraine’s top-15 administrative services by applying Canada’s citizen-centric approach to improve service delivery. It has led to an improved healthcare delivery model by building and rolling out a comprehensive IT e-health system that is more transparent and efficient.

Paths to Innovation and Effectiveness

What does a productive partnership for transition look like? Internationally agreed development effectiveness principles guide Canada’s approach to all its partnership pathways, including Productive Partnerships for Transition. These include country ownership, focus on results, inclusive partnerships, and transparency and mutual accountability.

More specific effectiveness principles for productive partnerships for transition include:

• Actions informed by evidence, including disaggregated data that can reveal patterns of exclusion based on those impacted by historic inequities
• Be deliberate and structured
• Plan ahead
• Consult, listen, collaborate
• Engage in effective partnerships with all stakeholders, government, private sector, private capital and civil society, paying close attention to those traditionally excluded from public consultations
• Be flexible, responsive, and open to innovation and experimentation

Building on the principles outlined above and in accordance with Canada’s feminist approach, the following six paths to innovation and effectiveness provide guidance based on experience and current global best practices in delivering international assistance in MICs in Transition.

1) Look for success

Canada is committed to regularly examining indicators of success and analyzing the

commitment and capacity of partner governments. Important indices include the

Multidimensional Poverty Index and the Gender Inequality Index. The following questions can help guide Programs in determining how programming in MICs in Transition should evolve:

• How has need, utilization and demand for aid changed?
• What is the donor landscape and is it shifting?  
• Have there been changes in government direction?
• Has the enabling environment for civil society changed?
• Are there linkages with Canada’s foreign affairs and trade priorities that allow for greater international assistance impact?
• Are there other Canadian government departments engaged in country?
• What are the risks and opportunities associated with leaving a particular sector?
• Are historically marginalized groups being incorporated in the design and delivery of projects and how are their perspectives being incorporated?

2) Plan the transition to targeted SDG implementation with a feminist approach

© SVX Mexico

In MICs in Transition, targeting international assistance to support specific SDGs can be a particularly important factor in strengthening bilateral relationships. It is important to safeguard development gains, and transition programming requires working closely with partner governments (e.g. representatives from the Ministry of Finance, line ministries) and other stakeholders, while expanding partnerships with non-traditional stakeholders. Canada is committed to working through a whole of Global Affairs Canada approach and with other government departments, as appropriate. In planning programming in a transition country, Canada will:

• Consistently apply an intersectional feminist approach that emphasizes the participation and empowerment of stakeholders affected by the transition, and considers the full diversity of women and girls and others who face exclusion, discrimination and marginalization. This involves gender equality and human rights analysis that seeks to identify and address the underlying causes of all forms of discrimination and inequality. 
• Set clear goals to target key SDGs with the country government through a multi-year whole of department transition approach. Other government departments should also be engaged as appropriate. The overall goal is to build consensus on interests and objectives.
• Envision and articulate with partners what success looks like using an intersectional analysis and considering Canada’s comparative advantage. In particular, focus international assistance where Canada has already built strong relationships, contributed to effective policy or regulatory frameworks, and where Canadian commercial interests are present.
• Align plans with the Feminist International Assistance Policy Action Areas that respond best to a country’s SDG priorities.
• Consider handing over projects or programs to other development partners or the multilateral system, where appropriate and in close coordination with the country government, while avoiding the “herding effect” where many donors leave a sector at once.
• Increase policy advocacy and engagement efforts, facilitating dialogue with diverse groups of affected populations, particularly women and girls and the most marginalized people.

3) Engage through an expanded set of instruments and innovative approaches

MICs in Transition provide Canada with opportunities to invest in relatively low-cost innovative programming, with the potential for increased impact for poverty reduction and SDG implementation. The following list provides a menu of options available to country programs:

• Technical assistance (e.g. Technical Assistance Program, Expert Deployment Mechanism (EDM), Canadian Trade and Investment Facility (CTIF))
• Support for triangular cooperation
• Increased trade relations
• Innovative financing instruments and partnerships (e.g. International Assistance Innovation Program (IAIP), Blended Finance, FinDev)
• Sovereign Loan Program
• Incentivizing private capital for development (e.g. results based financing)
• Support for scaling up local initiatives (e.g. the Whistler Principles to Accelerate Innovation for Development Impact)
• Inclusive Governance and Growth that Works for Everyone programming

4) Listen, invest in and support coordinated action among stakeholders

Canada is committed to coordinating decisions and actions. Before Canada seeks to change direction in a partner country, Canada will make transition a participatory process. The following questions will guide efforts:

• Who are the key stakeholders? Who has been excluded in the past? How will the action or decision impact these stakeholders?
• How can inclusive participation and empowerment be supported?
• How does the plan take into account the objectives of Canada’s Feminist Approach and the Feminist International Assistance Civil Society Partnership Policy? 
• Have you considered how to support public goods, such as a favorable international trade and investment environment, combatting climate change, protecting biodiversity, regional peace and security, and sharing the burden of refugees?
• With which stakeholders are you assessing progress and needs? Do they reflect gender parity and diversity? Have you consulted with civil society, especially women’s rights and equity-seeking organizations and movements?

5) Communicate plans

Canada is committed to clearly communicating and acknowledging the evolution of programming in transition countries. Often exposed to external shocks without the cushion of regular and consistent ODA flows, many countries in transition require flexible and responsive support. Canada is often looked to as a reliable partner. Regularly communicating with government partners helps to ensure a successful long-term partnership. In communicating, Canada will:

• Frame transition as an award not a punishment, recognizing successful country-led development.
• Reach out to the appropriate interlocutors or stakeholders at the appropriate time.
• Avoid surprises when communicating decisions.

Canada is also committed to communicating with Canadians about our work in MICs to raise awareness about the breadth and scope of Canada’s international cooperation, and to highlight innovative programming. These communications efforts will be aligned with the broader Where We Work communications approach.

6) Mitigate risks of the Middle-income Trap

Canada is committed to regular stocktaking aimed at foreseeing and mitigating development risks associated with the middle-income trap. Based on examples where MICs in Transition have navigated the challenges of the middle-income trap, the following policy and program initiatives can help secure investments and future results:

• Integrate inclusive governance considerations and apply a GBA+ analysis to the risk assessment
• Prioritize support for domestic tax revenue mobilization
• Strengthen domestic civil society, if necessary by supporting rights and freedoms, including media freedom, enabling regulations and financing systems, in order to foster sustainable localization of civil society activities
• Support the country’s efforts to maintain fiscal space for social sectors (e.g. education, health)
• Plan ahead for and be flexible and responsive to, for example, climate, health and conflict related shocks

Implementation and Monitoring

Global Affairs Canada has practical implementation, monitoring and evaluation guidance tools for staff and partners centred on results-based management. Working across the department and in collaboration with foreign affairs and trade professionals, the department will systematically track, measure and disseminate results of the delivery of international assistance to MICs in Transition.

Conclusion

Through coordinated, cross-departmental efforts, Global Affairs Canada will seek to create productive partnerships for transition for MICs to address the complex challenges of building the institutional, social and economic foundations for inclusive and sustainable development. Addressing challenges and barriers to achieving the SDGs for the poorest and most marginalized is the foundation of our Feminist International Assistance Policy. Engaging in MICs in Transition is a key way for Canada to ensure we leave no one behind and reach all marginalized people, and those in situations of vulnerability living in poverty, regardless of where they are. Global Affairs Canada will continue to encourage its partners to seek inclusive and innovative solutions to build a more peaceful, just, inclusive and prosperous world.