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Finance Minister Chrystia Freeland gets standing ovation, as she delivers the 2022-23 budget in the House of Commons on Parliament Hill in Ottawa on April 7.


Prime Minister Justin Trudeau is doubling down on one of his government’s biggest – and so far largely unmet – economic promises: that new, arm’s-length federal agencies can entice global investors to spend hundreds of billions of dollars on Canadian projects.

It was the core premise behind the 2017 creation of the Canada Infrastructure Bank (CIB), and now Ottawa is pushing ahead with two similar institutions that were unveiled in Finance Minister Chrystia Freeland’s April 7 budget.

The government says it will create a new $15-billion Canada Growth Fund that will attract at least $3 of private capital for every public dollar invested. The budget also promised a new Canadian Innovation and Investment Agency that would “pro-actively work” with Canadian companies to boost investment in research and development.

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But the Liberal government’s track record since winning power in 2015 shows it has fallen short in attracting the private investment windfalls that were initially promised.

Fiscal policy experts say the government needs to explain clearly what it has learned from previous missteps.

“The government trying to act as a catalyst for private investment isn’t as easy as it sounds,” said Sahir Khan, executive vice-president of the University of Ottawa’s Institute of Fiscal Studies and Democracy.

The institute, which is led by several former senior federal government officials, flagged structural concerns with the CIB at the outset, including that it could lead to higher overall costs to taxpayers and failed to show a clear plan for ranking projects based on Canada’s most pressing needs.

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Mr. Khan said the bank appears to have made adjustments of late, but it’s hard to know whether they will lead to improved performance.

“Unless we have clarity around the lessons learned on the CIB, I want to ask the government: What’s different here? Prove to me what’s different. How are you going to do this?” he said, in reference to the new growth fund.

The Trudeau government’s splashiest display of its plan to woo global investors took place in the fall of 2016 at Toronto’s high-end Shangri-La Hotel.

There, behind closed doors, the Prime Minister and nine of his senior cabinet ministers made their pitch to some of the world’s largest institutional investors.

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Billed as the Long Term Investor Summit, it was a who’s who of global finance, with representation from BlackRock, the world’s largest asset manager, and other massive funds from Hong Kong, Qatar, Saudi Arabia and elsewhere.

The message was clear: The Canadian government was ready to welcome global capital – such as pension funds – as investing partners to get big infrastructure projects approved and built.

“The meeting with BlackRock, which gathered together about $21-trillion Canadian worth of potential investments in this country, went very, very well,” Mr. Trudeau said that November day. “We have a mix of pension funds, sovereign wealth funds, of financial portfolio holders, and I’m very excited about the opportunity that we’ve had to showcase the Canadian story.”

The government said at the time that the CIB would be the main vehicle for this kind of investment. Like this year’s announcement of the growth fund, the government said the infrastructure bank would multiply the impact of federal cash by joining forces with private capital. The premise was that the bank would go beyond traditional P3s – public, private partnerships – by having the government and private investors work alongside as equity holders who would reap financial returns from their investments in projects such as toll roads and bridges.

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More than five years later, those large funds that sent representatives to the Shangri-La have largely remained on the sidelines. To date, the CIB has approved about $6.8-billion in projects from its approved budget of $35-billion over 10 years, and announced $7.2-billion from private and institutional investors for joint projects.

The federal government has narrowed the bank’s initial focus in favour of smaller projects. Many of its recent announcements have involved purchases of electric buses for municipalities.

When the Liberal Party first promised an infrastructure bank in its 2015 election platform, it was promoted as a public entity that would provide loan guarantees and small capital contributions to provinces and municipalities to build affordable rental housing for middle and low-income Canadians.

The scope of the bank later shifted considerably based on the advice of the Liberal government’s Advisory Council on Economic Growth, chaired by Dominic Barton, who simultaneously headed the global consulting firm McKinsey & Co. until 2018.

In addition to Mr. Barton, another key player on the advisory council was Michael Sabia, then the head of Quebec’s pension plan, the Caisse de dépôt et placement du Québec. Under Mr. Sabia’s leadership, the Caisse approved a major investment in the massive “REM” light rail line that is now under construction in Montreal. The REM would later be one of the infrastructure bank’s first major investments, replacing a traditional infrastructure contribution from the federal government.

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Mr. Sabia has long been an advocate of the idea that institutional investors are an underutilized source of economic growth and infrastructure dollars.

As the infrastructure bank faced criticism in its initial years, the government appointed Mr. Sabia as chair of the Crown corporation in April, 2020. Just eight months later, he was named deputy minister of finance, one of the most influential positions in the federal public service. Deputy ministers of finance traditionally are deeply involved in discussions related to budget announcements of new investment programs.

In her opening message to the April 7 budget, Ms. Freeland said the new Canada Growth Fund “will help attract the billions of dollars in private capital we need to transform our economy at speed and at scale.”

Details, however, were few. A description of the fund took up about one page of the 280-page budget.

“Today, other countries are moving to position themselves in the international competition for capital and investment. Canada’s peers have begun to launch growth funds to attract the trillions of dollars in private capital that are waiting to be invested in the good jobs and new industries of today and tomorrow. Canada must keep pace,” the budget said.

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It also said the fund would focus on reducing greenhouse gas emissions, diversifying the Canadian economy and supporting the restructuring of critical supply chains. The budget said further details would be announced in the 2022 fall economic and fiscal update, after consultations with experts. While billed as a $15-billion fund, the budget said it would have a fiscal cost of $1.5-billion over five years and that the amount would be covered by previously announced funds, essentially meaning it would have no fiscal cost.

When asked for an explanation, Finance Canada spokesperson Anna Arneson said the $1.5-billion is meant to cover the occasions when the fund does not earn back its initial investment. The department declined to answer when asked what existing funding has been cut to cover the $1.5-billion cost.

“Sourcing from the fiscal framework refers to the reallocation of amounts provisioned that have similar objectives, and/or the application of unused amounts set aside in past budgets,” Ms. Arneson said in a written statement.

Both the Conservatives and the NDP pledged in the last election campaign to scrap the infrastructure bank. The Conservatives called it wasteful, while the NDP and public sector unions viewed it as opening the door to the privatization of public assets.

One section of the budget specifically linked the CIB and the new fund. It said the CIB will invest $500-million in large-scale infrastructure for charging zero-emission vehicles, and that it “will complement the Canada Growth Fund to reduce emissions, fight climate change, and build Canada’s net-zero economy.”

A senior government official who briefed reporters on budget day acknowledged the bank faced challenges in its initial years, but insisted it is making progress by focusing more on climate change. The official said this new direction means the bank is in fact a positive case study that can be expanded upon.

The Globe and Mail is not naming the official because the government won’t allow them to be publicly identified, even though they were made available to media during the budget lock-up.

Desjardins economist Randall Bartlett said the budget did not provide a lot of detail on the growth fund and he wondered whether the government will apply any lessons learned from its experience with the CIB.

“There were a lot of questions as to whether or not it would be able to meet the very ambitious goals that were drawn up for the Canada Infrastructure Bank. I would say broadly, the view is that it hasn’t met up to the ambitious expectations that were that were set out for it,” he said.

Mr. Bartlett said the mandate of the new growth fund “seems very, very broad” and suggested clear metrics are needed to explain what it is expected to accomplish. “One of the things that might be really helpful is to get clarity on a more focused mandate for the Canada Growth Fund.”

Mr. Bartlett also noted that other countries have launched similar investment programs to varying degrees of success.

“Hopefully, some of those international lessons, as well as the lessons from the CIB, are learned this time for this new growth fund,” he said.

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