David Chaundy is interim president and chief executive officer, Atlantic Provinces Economic Council.
Several times over the past six months, I have heard business leaders make comments to the effect of, “Why would I invest in Canada?” It seems that Canada is losing its appeal as a place to invest.
U.S. tax cuts have eliminated Canada’s long-standing corporate-tax advantage, forcing firms to look more closely at other investment drivers. Federal Finance Minister Bill Morneau may use the coming Fall Economic Statement to respond to Canadian corporate concerns regarding the cost of investment.
Uncertainty surrounding access to the U.S. market has caused firms to put some investments on hold till they have greater clarity on what the future holds. This week’s announcement of a United States-Mexico-Canada Agreement (USMCA) is a welcome step in this regard. The 16-year renewable term is certainly better than earlier U.S. proposals for a five-year sunset clause, which Canada rightly resisted. The new “joint review” of the agreement every six years will hopefully allow it to be regularly updated, improved and extended, reducing the risk of termination or withdrawal by one party, as the requirement for six-months notice for withdrawal still remains.
As businesses digest the implications of this new proposed trade agreement, it will help them move forward with greater certainty on the overall U.S.-Canada trading environment. However, it remains to be seen if this new agreement leads to improvement in the practical issues firms have reported getting goods and people across the border.
But Canada’s sagging business climate is not just attributable to actions south of the border.
Before firms will invest millions of dollars in multiyear projects, they need to know there is clarity, certainty and consistency in the business and regulatory environment. Canadian governments are falling short on these 3 Cs.
Lack of clarity in the rules of the game creates uncertainty and poses huge risks for businesses. For example, there is now less than three months to the beginning of 2019 – when the already-delayed implementation of carbon pricing across the country is supposed to take effect. How are firms supposed to plan ahead when they don’t know what carbon-pricing scheme will apply in the provinces in which they operate?
Changing the rules in the middle of a game undermines consistency and creates uncertainty for other potential players. TransCanada Corp. dropped its Energy East pipeline proposal after “significant changes to the regulatory process” were made by the National Energy Board. The recent debacle over opening up the clam fishery – in which Ottawa first issued and then cancelled a licence to a First Nations group that reduced Clearwater Seafoods Inc.'s allowable catch – comes only a few years after Clearwater committed $70-million for a vessel replacement to enable it to catch 100 per cent of its quota.
These are not just considerations for the federal government, but apply to all governments and regulators.
For example, New Brunswick banned hydraulic fracturing (fracking), despite this technology being used by Corridor Resources Inc. to produce natural gas from its existing wells.
Although the Canada Free Trade Agreement is in force, provincial regulatory standards differ across the country, creating a fractured rather than a consistent, national operating environment.
On the positive side, after years of minimal investment, Halifax has seen a wave of new investment in its downtown core after it streamlined and provided greater certainty to its development-approval process. The city still has work to do and is taking further steps to improve its regulatory interface.
Governments have a right to change the rules of the game to respond to changing needs or priorities, such as increasing minimum wages. But firms need lots of lead time to adjust their business model and governments need to be mindful of the effects on existing investments and operations.
The Bank of Canada continues to look for evidence that the drivers of growth are shifting from consumer spending and the housing market to investment and exports. But expanding export capacity and improving competitiveness will require new investment.
If we want firms, large and small, to create new jobs, and higher-paying jobs in Canada, they need a clear, certain and consistent regulatory and business environment. Its time for all levels of government to get back to basics: The 3Cs, clarity, certainty and consistency, are a good place to start.