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Hey, Canadian CEOs – listen to the man from Cisco

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Cisco Systems Inc. CEO John Chambers wants to invest in Canada, calling our country "the easiest place to do business." A shame for the national economy that a lot of other companies doing business here don't, for now, share his enthusiasm.

As Mr. Chambers contemplates environs where he feels comfortable putting some of Cisco's absurd $46-billion (U.S.) mountain of offshore cash, he sees Canada as a stable business environment with a well-educated work force and a relatively attractive corporate tax regime. Most Canadians take a certain amount of pride in agreeing with that assessment, including most business executives.

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But when it comes to putting their money where their mouths are, it's not happening. Not this year, anyway.

Statistics Canada's survey of business investment intentions showed that Canadian public and private businesses intend to increase capital spending by a thin 1.7 per cent in 2013. If they follow through on these plans, business investment in this country will barely keep pace with inflation this year.

This at a time when Canadian companies have an estimated $600-billion (Canadian) of cash on their balance sheets. This is the "dead cash" which Bank of Canada Governor Mark Carney has been lamenting.

Without doubt, it would particularly help the Bank of Canada's economic efforts if companies were to loosen the purse strings this year. The bank is in the midst of orchestrating a slowdown in the housing market and in household debt; a pick-up in corporate spending would fill the economic void left by the slowing household sector quite nicely.

But for some of the country's most capital-intensive businesses, the timing couldn't be worse.

Statscan's numbers show that mining and energy producers, who collectively account for more than a quarter of Canada's private-sector capital spending, expect to reduce their spending by nearly 3 per cent in 2013. The current oversupply, weakening prices and global demand are simply incompatible with big spending programs. (Indeed, many of these companies are booking big writedowns for previous ill-conceived spending sprees.)

And the anemic Canadian economy is a source for caution, if not outright discouragement, for business investing in many other sectors. The last nasty recession taught businesses that an economic downturn is not a wise time to blow through your cash; the winners were the ones with the best-stocked balance sheets.

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That's not to say Mr. Chambers is wrong about Canada. He's got the right place. It just looks like the wrong time.

David Parkinson is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights.

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About the Author
Economics Reporter

David Parkinson has been covering business and financial markets since 1990, and has been with The Globe and Mail since 2000. A Calgary native, he received a Southam Fellowship from the University of Toronto in 1999-2000, studying international political economics. More


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