Opportunity Ahead as Canada Enters Investment Supercycle
By Michael Darch
With both the United States and Europe showing definite signs of entering a period of continued growth, companies are once again looking to the investment potential in developed economies. The global financial crisis caused many companies and investors to delay investment decisions or to look at developing economies including the BRIC countries, the Middle East and Africa. The potential was there, but so were the risks including political, economic and cultural.
One North American economy that is often overlooked is Canada. Policies first developed in the early 1990s and continued by successive governments have placed Canada in an enviable position among developed economies. The standard criteria are all there: Canada enjoys the world’s most stable financial system, offers the lowest corporate taxes in North America, and has a highly skilled labor force.
What is not understood is that Canada is entering into an investment supercycle. The Canadian Manufacturers & Exporters have identified a minimum of nearly $800 billion of oil and gas, mining, defense and shipbuilding and municipal infrastructure projects during the next 10 years. These are not pipe dreams but involve solid commitments with many projects already underway.
Canada has long had energy self sufficiency and today is the largest supplier of energy to the United States. As the Asian economies grow, so does their appetite for energy. Early 2013 saw two major Asian investments close, representing a total investment of $21 billion. A visit to the Canadian Association of Petroleum Producers’ (CAPP) website outlines the numerous projects underway, not only in western Canada but also offshore on the East Coast.
The Conference Board of Canada produced a report in December 2012 on the natural gas activity in Canada that outlined $386 billion in projects. The demand is being driven by Asia and domestic consumption to generate electricity and the production of bitumen in the Canadian oil sands. A $4.5 billion liquefaction and export facility in Kitimat, B.C., is but one example of the projects being developed.
Several large Canadian hydroelectric projects are also underway. These include Muskrat Falls, phase I of the Lower Churchill Falls project in Labrador, expected to generate more than $4 billion in employment and procurement opportunities. A visit to the Hydro-Quebec website outlines the many billion-dollar projects underway in the neighboring province of Québec.
Among these Canadian opportunities, recent headlines have been dominated by mega deals such as the China National Offshore Oil Corp.’s $15.1 billion purchase of Nexen and the Malaysian company Petronas’s $6 billion purchase of Progress Energy Resources Corp. There’s more to come.
For example, the new Canada’s Oil Sands Innovation Alliance is accelerating the pace of improving environmental performance in four areas: tailings, water, land and greenhouse gases. Other opportunities exist throughout the oil and gas supply chain including finance, advanced manufacturing, environmental technologies, information and communications technologies and engineering, procurement and construction. On the defense side, Halifax, N.S., will be the center of a $25 billion project to upgrade Canada’s fleet of naval vessels.
The Canadian Manufacturers & Exporters, Mining Association of Canada and various provincial government websites detail billions of dollars of infrastructure-related projects that offer opportunities to potential partners around the world.
Opportunities Beyond Natural Resources
Investment opportunities go well beyond those associated with Canada’s natural resource sectors. Canadian innovation industries are major global players. Canada has one of the most highly skilled populations in the world. It has one of the most highly developed research and development infrastructures integrating corporate, government and university activity. Two Canadian cities, Waterloo and Ottawa, Ont., rank second and third, respectively, on OECD’s list of top number of patents per capita.
Taking just the Information and Communications Technologies (ICT) sector, recent global investments demonstrate its strength. In June 2013, Ericsson announced that it would invest $1.2 billion to build an expanded R&D center in Montréal. This was followed by the September 2013 opening of its new R&D facility in Ottawa, which serves as its primary wireless access R&D center for North America.
Also in September 2013, Ubisoft announced a further investment of $373 million to expand its online infrastructure and gaming hub in Montréal. This is in addition to previous investments by Ubisoft in both Montreal and Toronto. Namco Bandai Studios, a gaming company from Japan, announced in April 2013 that it was setting up in Vancouver, B.C. Canada has more video game developers per capita than any other nation in the world. A report by the Entertainment Software Association of Canada in June of 2013 found that one quarter of Canadian video game firms expect to grow by as much as 25 percent in the current year.
September continued to be a solid month for Canadian innovation. Google announced that it had chosen Waterloo as one its seven tech hubs designed to foster entrepreneurship and startups. Previously, Google has invested heavily in its R&D center in Waterloo.
In October 2013, Chinese giant Huawei announced a commitment of $600 billion to efforts in fifth generation networks. It also announced that its R & D center in Ottawa would play a pivotal role in that development.
And in December, Cisco capped ICT investments in 2013 with an announcement of a $4 billion, 10-year investment that is expected to create a minimum of 1,700 new jobs in Ontario. The investment is expected to be in the areas of high-end routing, mobility and cloud computing. Cisco’s principal facility in Ottawa, as well as its smaller centers in Toronto and Waterloo will see most of this investment.
2013 also witnessed a clear demonstration of Canada’s international strategy. In October, Prime Minister Stephen Harper of Canada and President of the European Community Jose Manuel Barroso, signed an agreement in principle on the Comprehensive Economic and Trade Agreement (CETA). The agreement sets a new standard in bilateral relationships moving beyond tariffs to address many non-tariff barriers including immigration, health regulations and procurement. It also recognizes that increasingly economic growth is in services not goods.
CETA creates a critical bridge between North America and Europe. Canada is already one of the three partners in the North American Free Trade Agreement (NAFTA). This addresses a market of 460 million consumers with a GDP of $18.6 trillion. CETA, when final negotiations are complete and approval of respective parliaments is received, will address a market of 500 million consumers and a GDP of $16.6 trillion.
In November, the Consider Canada City Alliance and its 11 members teamed with Canada’s Department of Foreign Affairs, Trade and Development for an investment mission to three European cities; Madrid, Amsterdam and Milan. Between the three cities, more than 325 potential investors attended the seminars and 350 B2B meetings were held. Members were pleasantly surprised at how well the companies were prepared on opportunities and the strengths of the individual regions. Based on initial results, so far 15 visits to Canada have been identified by potential investors in the first quarter of 2014.
Critical to investors are the policy changes being made by Canada to facilitate investment and trade. The ongoing commitment to lowering corporate taxes has been accompanied by several other investor policy changes. Canada has one of the world’s most open foreign investment review policies. Transactions less than $350 million from WTO countries are exempt from review and that limit is to rise to $1 billion by 2015. Projects from state-owned enterprises and with national security implications are the most likely to be reviewed.
Canada’s immigration laws are undergoing major investment-minded changes. Policies are increasingly being developed to encourage skilled workers. Canada has introduced preferential policies for entrepreneurs wanting to start their business in Canada. An Expression of Interest program is being developed that will fast track immigration for workers with skills needed by Canadian companies. Faster accreditation for foreign skilled workers is also under review.
In November 2013, Canada’s minister of International Trade, Ed Fast, released the Global Markets Action Plan. This clearly lays out Canada’s priorities with respect to both geographies and industrial sectors. It reaffirms Canada’s commitment to the negotiation of bilateral trade agreements and to the removal of barriers to trade and investment. It also introduces a commitment to economic diplomacy.
Investors from around the world should be taking a serious look at Canada. The business opportunities over the next decade have never been greater. Canada has emerged from the global financial crisis with the strongest banking system and the strongest national finances in the developed world. Canadian policies continue to remove barriers to trade and investment. Consider Canada City Alliance Inc. members facilitate investments across the country and are committed to delivering “one stop shopping” and faster access to the country’s multitude of infrastructure supercycle and innovation projects.
Commenting on the CETA agreement, The Economist declared that “Canada doesn’t get any sexier than this.” I would suggest that this comment applies equally to “the Canada opportunity” for at least the next decade. Come join us.
Michael Darch is the founding president of the Consider Canada City Alliance. Learn more by visiting www.considercanada.com.
Illustration by suphakit73 at Free Digital Photos.net