Egyptian billionaire Naguib Sawiris has vowed to never again invest in Canada. The telecom mogul, who bankrolled Wind Mobile and then tried and failed to acquire Manitoba Telecom Services Inc.'s Allstream division, regrets ever investing here. In fact, he advises other international financiers not to do so either.
“Anybody who asks me, I tell him, ‘Look, we are the stupid investors that poured a billion dollars into Canada here and created 1,000 new jobs, please don’t do this mistake. Don’t come here,’” Mr. Sawiris once told The Globe and Mail’s editorial board. “They take our money and they leave us to the dogs.”
Mr. Sawiris was furious about what he said were Canada’s excessive regulatory hurdles and its general hostility to foreign investors. While he has been one of our most outspoken critics, he is far from the only one who’s been made to feel unwelcome.
For more than a decade, Canada has blown hot and cold on the issue of foreign investment. We need international capital because it is a real engine of economic growth that creates jobs, increases productivity and improves our standard of living. But instead we spend most of our time worrying about losing our economic sovereignty through the hollowing out of corporate Canada. And successive governments have dithered to the point where they’ve made Canada less attractive to foreign investment than other developed countries because of our outdated rules and penchant for regulatory flip-flops in key sectors, including telecom and energy.
In an era marked by U.S. protectionism, Brexit and strained relations with China, it would seem urgent for Canada to get over its fear of foreign money and regain its edge with international investors. But foreign investment has seemingly become an afterthought in the federal election campaign. None of the major parties is saying anything of substance on it. But they should. And the next government in Ottawa needs a plan.
“It’s not like Canada is doing fabulously in terms of attracting foreign direct investment,” said Daniel Schwanen, vice-president of research of the C.D. Howe Institute, in an interview. “It’s a bit [of] a symbol of how the Canadian economy is perceived [by the business community].”
Last year, foreign direct investment (FDI) stock in Canada rose by 5 per cent to $877-billion. Although that’s an improvement over 2017, Canada’s inflows continue to lag other industrialized countries. For instance, Canada attracted 3 per cent of global FDI inflows in 2018, compared with 4.7 per cent for Australia and 19.4 per cent for the United States.
“Australia has been powering along and they’re a much smaller economy than ours. But they have less public compunction about attracting investment,” Mr. Schwanen added.
More troubling, however, is that Canada remains a long way from matching its own past performance. Canada’s most recent peak was in 2013, when this country attracted 4.9 per cent of global FDI inflows. Our share was even higher prior to the financial crisis, hitting 6.2 per cent in 2007.
And as Canadians prepare to head to the polls, the major political parties don’t have FDI on their radar. Still, many of the issues that are taking top billing during this election campaign, including carbon taxes, pipelines and now corporate taxes (the NDP is pledging to hike them), will undoubtedly affect Canada’s appeal to international investors.
For his part, C.D. Howe’s Mr. Schwanen contends that Canada should streamline its foreign investment rules. Specifically, he recommends replacing the current net-benefit test for foreign takeovers with a less “nebulous” requirement that would put the onus firmly on the federal government to prove that a foreign takeover would hurt Canada’s national interest.
Such a change would not preclude Ottawa from blocking transactions that would lessen market competition or threaten Canada’s national security, but it would make this country’s FDI process more transparent.
There are also some other sector-specific changes that Canada should implement. In the airline sector, for instance, the current wave of consolidation affecting Transat A.T. Inc. and WestJet Airlines Ltd. is a clear signal that the federal government must further relax foreign-investment rules to improve competition.
Last year, the Trudeau government raised the foreign-investment limit for airlines to 49 per cent from 25 per cent, but it’s clear that those changes didn’t go far enough. The next logical step would be to allow foreign investors to own 100 per cent of airlines that solely fly domestic routes in Canada. Australia and New Zealand have embraced that policy for years.
In the energy sector, the solutions are obvious. Canada needs a national strategy to attract foreign investors back to the oil and gas sector – a recommendation made by Brian Porter, Bank of Nova Scotia’s chief executive officer, earlier this year.
“We have to get big projects done. There has to be expedited treatment for some of these things in a fair, transparent way where environmental, regulatory – everything – is done in a transparent fashion,” Mr. Porter told reporters in March. “But we can’t take 10 and 12 years to do some of these projects. It just doesn’t work.”
The Trans Mountain pipeline expansion, for instance, must be built as expeditiously as possible, and the Energy East pipeline project resurrected as part of that strategy to show that Canada is serious about building its energy sector.
“The global investment community is waiting on the sidelines to some extent and trying to understand: Is there going to be a case to continue investing in the industry?” Alex Pourbaix, CEO of Cenovus Energy Inc., told Globe journalists earlier this year.
As for Canada’s telecom sector, Ottawa should bite the bullet and allow 100-per-cent foreign ownership of large telecom companies to create meaningful competition. (At present, international investors are only allowed to wholly own telecoms with a market share of 10 per cent or less.)
Perhaps then, deep-pocketed telecom investors such as Mr. Sawiris will return to the Canadian market.
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