The chief executive officer of Canadian Imperial Bank of Commerce is sounding an alarm over falling levels of foreign investment in Canada, warning that the country needs clearer rules to shore up investor confidence.
During a lunchtime speech in Toronto on Tuesday, Victor Dodig said he is increasingly hearing from the bank’s clients that opportunities for investment returns are better south of the border. He cited several reasons, from U.S. tax cuts and regulatory changes, to trade uncertainty. But he also said Ottawa’s criteria for approving large deals involving foreign companies are not always clear, creating uncertainty for potential investors. And he pointed to the debate over the Trans Mountain pipeline expansion project as a prime example of Canada sending the wrong signals.
“That, to me, should be a siren call that that money is here. It will leave," he said. “And I can’t see any upside to it leaving."
He called for action to make Canada’s approval systems for foreign investment “work better, and to work more predictably.” In doing so, he joined a growing chorus of CEOs raising concerns about investor confidence in Canada’s business climate, most notably in the energy sector, which has suffered from the flight of foreign capital. Last week, Suncor CEO Steve Williams told investors in New York there is “clearly a question of confidence in Canada,” echoing Imperial Oil Ltd. CEO Rich Kruger, who said this summer that regulatory uncertainty and concerns about competitiveness are causing investment decisions to be delayed.
Foreign direct investment in Canada declined for a third consecutive year in 2017, plunging 26 per cent, according to Statistics Canada.
Foreign investors “need confidence," Mr. Dodig said. “They need an element of certainty. They need to know the rules. They need a clear understanding of how things get approved."
Greater clarity on foreign investment is just one way Mr. Dodig said Canada should be preparing for a possible global economic downturn. After a decade of “tremendous growth” in debt markets fuelled by ultralow interest rates, global debt levels continue to rise and “cracks are starting to appear in certain areas,” he said.
Low rates introduced to speed the recovery from the most recent global financial crisis are only now beginning to rise, and Mr. Dodig said history will judge that they were left “too low for way too long.” As the U.S. dollar has strengthened, emerging economies in Turkey, Argentina and Indonesia – which have borrowed heavily in U.S. dollars – are now struggling with weakened currencies. That makes it more difficult for them to pay back their foreign debt as rates rise, and Mr. Dodig said he worries that problems in such economies could ripple around the world through interwoven financial markets.
“It sounds counterintuitive, but that same debt that helped the world recover is actually infusing risk into the global financial system today,” he said. “I think there’s a real serious global challenge of this low-interest-rate party developing a big hangover."
Economic conditions in Canada are still strong, and Mr. Dodig said there are many reason to be optimistic. Yet, as the global economy enters the later stages of a decade-long expansion, he proposed measures he believes would make Canada more resilient in darker economic times.
He called for more immigration, asking the government – which has already set higher targets for the coming years – to open its arms even wider, to fuel economic growth and bolster the work force. In particular, he highlighted pilot projects such as the Global Talent Stream, a federal program that helps speed the hiring of highly skilled workers from abroad, as worthy of expansion.
“I think we need to increase the number of people that we welcome to our country," he said. “We need to lean in at this moment in time. This is not a policy that can wait.”
And he urged governments and employers to work more closely with universities and colleges to match graduates' skills to companies' needs, promoting what are known as the STEM disciplines – science, technology, engineering and math – as well as skilled trades. “There’s a gap today. We know there’s a gap," he said. “There’s a war for talent going on out there.”
Mr. Dodig also called for an end to interprovincial trade barriers, which he said are “an embarrassment to our country." And he pressed the federal government to let companies write off the cost of capital investments for tax purposes in the year they make them, mirroring U.S. rules, to make Canada more competitive.
“We need to be attracting that capital, we need to be attracting those people to our country to help cushion us during the downturn – and there will be a downturn," he said. "And that’s how we begin to prepare ourselves. So time is of the essence.”
James Bradshaw