Good morning, ladies and gentlemen. My name is Ian Russell and I am the president of the Investment Industry Association of Canada in Toronto. I am happy to have this opportunity to submit our recommendations to the Standing Committee on Finance.
In my remarks this morning I want to briefly sketch the background in the small business capital markets and describe in particular the capital-raising process in Canada and our policy recommendations.
Clearly, the challenge for your committee, Mr. Chairman, is to look at ways to reignite the growth in the Canadian economy. We've just heard a fairly pessimistic view of the economic outlook. The one fortunate element that Canada has is a little more fiscal manoeuvrability than our trading partners to find selective tax measures and spending measures to promote growth.
I want to talk about the capital-raising engine of the Canadian economy, which is essentially the marketplace that small businesses tap to raise capital. It's very important for the committee to understand that this marketplace is very successful, is envied around the world, and is probably the key reason why the London Stock Exchange was interested in merging with the Toronto Stock Exchange four years ago. It's a marketplace that's sophisticated, diversified in terms of the participants, very leading-edge and innovative in terms of the financing structures that have been in place, and also very diversified in terms of the size of companies that have been able to come to the market, even companies that one would describe as emerging companies in the Canadian corporate sector.
At the moment that infrastructure is under siege from two factors in particular. The obvious one is very slow growth in the Canadian economy and in the capital markets, but in addition to that, there's been a rather depressed sentiment among investors, particularly for speculative investments. As a consequence of all that, Canadian companies have had a very difficult time raising capital. In fact, this year we estimate in total—these would be small business capital raisings in the public market and in the private placement market—something in the order of $2.5 billion to $3 billion. That compares to roughly $10 billion pre-crisis period. And it has fallen pretty dramatically over the past two years. Two years ago those companies raised about $6 billion. So it's very difficult for companies to come to the market.
The other point that is important for the committee to understand is that this public marketplace is the prime source of capital raising for small companies. We have a venture capital sector. In 2012 it raised about $1 billion for small Canadian businesses, mainly emerging businesses. Half of that came from U.S. venture funds. We also have a vibrant angel network, which is difficult to get estimates on, but it probably would be in the order of $2 billion to $3 billion a year. That runs under the radar screen. That's important for small businesses, but it does not in any way compare to the size of our public and private marketplaces.
From a policy perspective, we need to find ways to assist companies to bring those issues to market, and also to encourage investors to invest in speculative risk investment. We have argued for selective tax incentives to promote that capital-raising process, which are outlined in my submission.
The last point I want to raise is that the other factor that is putting pressure on that marketplace is a very heavy regulatory burden that the securities industry, the capital markets at large, have faced over the last five years.
This is not to argue that all of that is not well intentioned or in fact needed. But our view is that it's moved very quickly, and it's been very extensive, in our industry in particular, and I think that has, in a way, contributed to the likelihood of excess costs and unintended consequences.
The solution to that is for more effective regulation. In our view, one of the ways that can be achieved is through the proposed cooperative securities regulator that's on the table now, put forward by the federal government. We're supportive of that for two reasons. One is that it will significantly strengthen the accountability and oversight of the regulator, which will provide a discipline to improve the effectiveness and efficiency of securities regulation.
The other is that it will clearly streamline regulation and lower costs that way. This is certainly a vehicle supported by the federal government, but I would like to see the House of Commons finance committee take up its support formally. It is something that would provide a benefit to this marketplace I've talked about.
Those are my remarks, Mr. Chairman.