You have a business project that will create jobs in Quebec, but find yourself short on cash and credibility with few sales prospects? No worries. There has never been a better time to knock on the provincial government’s door.
Sound too good to be true? Not exactly.
In recent days, Pauline Marois’s government has been hastily revamping the province’s investment arm, Investissement Québec (IQ), which has $7.4-billion in assets. By boosting the province’s private investments, it hopes to reverse its own fortunes, as its popularity ratings lie in the gutter. But in the process, it has assembled the ingredients for reckless financial aid, a recipe for disaster in which Quebec has too often indulged.
To understand what prompted this reshuffling, one must return to the last election campaign. The Parti Québécois, in a reinventing-the-wheel commitment, promised to create the Quebec Economic Development Bank as a one-stop shop for businesses.
Never mind that it already had one, as IQ had just swallowed the state-owned Société générale de financement (SGF) for that very reason. But with the hundreds of Finance Department civil servants that would have joined the 450 IQ employees, this new structure was quickly denounced by opposition parties as bloated and bureaucratic. Faced with threats that they would vote against the new bank, the minority PQ government was forced to retreat.
This public defeat did not sit well with the minister who was supposed to oversee the bank, Élaine Zakaib – the bank’s name is even in her official title. She replaced IQ’s CEO, Jacques Daoust, a former National Bank and Laurentian Bank top executive who had been named by the Liberals, just as he was about to board a flight to the Paris Air Show. Unlike many of his predecessors, Mr. Daoust did not make many waves at IQ in his eight-year tenure, even if he oversaw the merger with the SGF, which generated $15-million in annual savings.
Mr. Daoust’s interest in the PQ’s new bank was rumoured to be lukewarm, but his real undoing lay in the fact that he was a banker. In a scrum during the Paris Air Show, Ms. Zakaib pushed banker-bashing to new heights as she said that IQ needed a president that would be “more interested in an economic development role than that of a banker.”
True, to have a banker run a bank would have been shocking. But what she meant by this is that she expects IQ to take on greater financial risk, to develop Quebec’s regions.
“It is not only about returns; we want to be more active,” she said. A change so urgent Ms. Zakaib severed Mr. Daoust’s contract six months before it was set to expire, at taxpayers’ expense.
How much risk does this represent? It is unclear, as IQ shoots for a mere 2-per-cent return in its three-year strategic plan. Moreover, 89 per cent of the more than 1,500 financing deals that IQ authorized in its last financial year were committed to projects in Quebec’s regions.
But the choice of IQ’s new chairman, Jean-Claude Scraire, reveals a lot about Ms. Marois’s intentions.
Mr. Scraire had almost entirely disappeared from the public eye since he left the Caisse de dépôt et placement du Québec in 2002 after seven years at the helm of the pension fund manager. Under his tenure, the Caisse invested $3.1-billion in Quebecor Media so that its cable company Vidéotron Ltée would not fall into the hands of Rogers Communications. This was long held up as an example of political meddling gone wrong. Even if Vidéotron’s acquisition proved strategic to Quebecor, the Caisse still hasn’t recouped its 2000 investment. But Mr. Scraire’s mistakes, both large and small, were largely upstaged by the Caisse’s calamitous loss of $40-billion in 2008 under then-chief executive officer Henri-Paul Rousseau.
Mr. Scraire is of the school that Quebec needs to use all of the levers at its disposal to promote its economy. This philosophy is much better suited to IQ, whose official mandate is economic development. Unfortunately, the province’s investment arms have a long history of well-intended but botched interventions, from the movie business, to the petrochemical industry to the paper sector.
For a minority government bent on being re-elected as a majority, the temptation to use IQ for political rather than purely investment purposes might prove to be too attractive.