The Harper government is trying to get a message across: Canada is open for business, but we're not dupes.
The point is a risky one. It threatens to brand Canada internationally as hypocritical, loudly advertising that the country welcomes foreign investment, even as it rejects that proffered investment time and again – as it did this past weekend with the proposed acquisition of Progress Energy Resources Corp., by Malaysian state-owned firm Petronas.
It also threatens to undermine the Conservatives' reputation for competent economic stewardship, Prime Minister Stephen Harper's greatest political asset.
The frustrating thing, for both the Conservatives and for potential investors, is that the government believes it has no other choice. The Conservatives consider maximizing the country's resource potential, especially in energy, one of their highest economic priorities. Doing so requires capital, hundreds of billions of dollars worth, which is far more than can be raised at home.
But as a senior figure in the government, speaking on condition of anonymity, explained Sunday, the concept of globalization before the latest recession did not envision state capitalism – especially as practised by developing economies – emerging as a major source of foreign investment in developed countries.
While ivory-tower economists insist investment is investment, other governments have acted to protect strategic assets from falling into what they consider the wrong hands. The Harper government's approach has similarly evolved. The door isn't shut to foreign investment from state-owned companies, the government official said. But those companies must be transparent in their dealings and, to put it bluntly, there must be something in it for Canada: head-office jobs retained, or new money for research and investment, or the like.
Each case, the Conservatives believe, must be analyzed individually. The ad-hoc approach is messy and frustrating for all sides, but any alternative is worse.
The final decision boils down to two questions, Finance Minister Jim Flaherty told CTV's Question Period on Sunday: "Is the proposal in the net benefit of our country and (b), are there any national security concerns?"
Answering those questions appears to be a moving target for any company trying to invest in Canadian energy resources, especially state-owned companies from countries with a less-than-stellar reputation for democracy and rule of law. The surprise rejection of the Petronas-Progress deal is bound to increase demands that the Conservatives make the rules of engagement for foreign investment more clear.
"The next message they have to send out is that: 'We are still open for business, but here are the terms in which we are open for business,'" Martin Pelletier, a portfolio manager with Trivest Wealth Counsel, told Reuters.
The Conservatives had promised exactly that, by offering greater clarity in laying out the criterion for determining what constituted "net benefit" after the Harper government rejected the takeover of Potash Corp. of Saskatchewan Inc. in 2010 by BHP Billiton Ltd.
But the senior official insisted any formal new rules would only make the situation worse, if a company met its commitments even though there was good reason not to let them in.
The Conservatives prefer ad hocery to Cartesian symmetry. The next great test will arrive in the coming weeks, when the Harper government finally decides whether to permit the Chinese state-owned company CNOOC Ltd. to acquire Nexen Inc., a Canadian energy firm. The government is relentlessly courting Chinese trade and investment. But how is the CNOOC proposal any different from the Petronas offer, other than being far larger? Ad hocery may be the best approach as far as the Tories are concerned, but a rejection of CNOOC/Nexen could deal a blow to Canada's relations with China, to future foreign investment in Canada, and to the government's own reputation for competence. That's the potential downside for taking what the Conservatives see as the worst possible approach to approving foreign investment proposals, except for all the others.