TORONTO—Corporate Canada is getting some flak about its lack of investment in innovation and capital improvements from a growing chorus that includes Finance Minister Jim Flaherty and Bank of Canada Governor Mark Carney.
Industry Minister Christian Paradis spoke at an Economic Club of Canada breakfast on Tuesday about the government’s efforts to spur innovation, but reporters were more interested in the status of controversial takeovers, especially that of Calgary-based Nexen by the China National Offshore Oil Corporation (CNOOC).
Paradis confirmed the next day that the deal was under review.
“CNOOC has filed an application for review of its proposed acquisition of Nexen under the Investment Canada Act and I am conducting a review of the proposed investment,” he said in an email.
In his remarks Tuesday, Paradis touted the government’s economic success in an oft-repeated formula. While the global economy is shaky, “Canada benefits from a strong and stable government,” a great credit score, and a plan to put the economy on ever stronger footing, he said.
After trotting out the accolades Canada has received from groups like the International Monetary Fund, the OECD, and Forbes Magazine, Paradis noted that Canada needs to create high-tech jobs in the digital economy.
“For Canada to succeed, we must fully engage in this new world. We must create its technology, capture its potential, and reap its benefits.”
But Canada’s growing productivity gap with other developed countries has many economists worried that natural resources will continue to grow as a portion of the GDP.
With Canadians shipping more raw materials abroad rather than more developed products and services, GDP per capita is falling, making Canadians less productive economically speaking than workers in other countries.
Paradis laid part of the blame for Canada’s lack of innovation at the feet of reluctant private-sector investors. While Canada’s risk-averse business community fared well when the global economy tanked in 2008 due to sketchy financial products, that same wariness means the government has to foot most of the bill when it comes to funding research and development.
Flaherty echoed a similar point Monday.
“At a certain point, it’s not up to the government to stimulate the economy, it’s up to the private sector, and they have lots of capital,” he said, referring to some $500 billion companies are holding on to.
Carney had also criticized businesses for holding on to those significant cash reserves.
“If companies can’t figure out what to do with it, then they should give it to shareholders and they'll figure it out,” Carney told reporters days earlier.
That lack of investment leaves Canadian businesses stagnating in a rapidly developing global economy and leaves the government frustrated about the snail pace of economic growth.
Encouraging Private Sector Investment
It’s a situation Paradis said the government hopes to turn around with a special fund aimed at encouraging the private sector to take some chances on creating innovative new goods and services.
“Industry must bring forward more private investment, particularly in early-stage risk capital and support larger-scale venture capital funds,” he said.
He pledged a new digital economy strategy by the end of the year to drive innovation.
Liberal Industry critic Geoff Regan was quick to slam that promise in an email to reporters soon after Paradis made his remarks.
“This morning, Minister Paradis made it very clear that despite more than two years of public consultation, his government still has no digital strategy for Canada.”
Regan then launched into a critique of the lack of broadband Internet in Canada’s rural communities and the government’s failure to solve the issue.
For his part, Paradis highlighted moves the government has already made to spur investment and mentioned a new venture capital fund based on consultations Finance Minister Jim Flaherty is holding across the country.
That fund aims to create leverage for private sector investors, encouraging them to put money into innovation by reducing the risk.
“The private sector does not invest enough compared to the public investment that we make when we compare to the other countries,” he said.
CNOOC Proposal Expected Soon
Taking questions from reporters afterwards, Paradis was tight-lipped over the controversial CNOOC-Nexen deal. At the time, he said he did not have the proposal for the takeover yet, and so could not comment. On Wednesday, he said he received CNOOC’s proposal
Now the government will examine the details of the takeover proposal and measure it against the Investment Canada Act to so see if the deal meets the net benefit requirement which has been frequently criticized as vague and arbitrary.
While the act has been criticized in the past for keeping secret the details of how a foreign company’s takeover of a domestic firm provides a net benefit to the country, Paradis said that has since improved.
“I have more tools now to be transparent,” he said.
But he could say little about the deal on the spot because of “commercially sensitive information.”
He said the government clarified its guidelines on dealing with state-owned companies in 2009 to provide more clarity. “There are a lot of criteria to be taken into account.”
When asked if there was a distinction between companies owned by countries like Denmark with strong rule-of-law vs. China, which is known for its authoritarian regime and rampant corruption, Paradis could not say, referring again to the guidelines in the act.
He said the government has to look at the long- and medium-term impact on the Canadian economy.
“We go on a case by case basis and this is why I am very cautious here.”
Paradis would not comment on how CNOOC’s potential involvement in the South China Sea dispute between China and other countries in the region could play into how the government regards the company.
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