Finance Committee on Oct. 27th, 2016

[Michael Denham]

We do.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

You do finance real estate. Okay. I was somehow under the belief that—

[Michael Denham]

We don't finance residential, obviously.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

No, but from a business standpoint, you will finance if a business owner wants to move from leased space to buying a building.

[Michael Denham]

Yes.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

I wasn't aware of that.

I was interested in a comment you made earlier in your opening presentation, around a study that BDC did relative to how small businesses, compared to those some 15 years ago, are not expanding. In that study, did you get any sense that government continued piling on things, whether they be increases in minimum wage, or taxes, or CPP benefits? What role did those factors play in small-business owners deciding whether to expand?

[Michael Denham]

Those things didn't come up, per se.

To take a step back, the starting point for the research is that we think it's very important for Canada, as a country, to have more of what we call mid-sized companies, those that are 100 employees plus, because those are highly correlated with more spending on R and D, more hiring, more international expansion, and more innovation. So the research is on how Canada is doing in that regard.

We started the research over the course of the 2000s and we found that we're at about two-thirds the level of the U.S. on a size-adjusted basis, and the gap is even bigger now.

We looked into examples of those companies that have actually grown to get to that threshold. What we found they had in common—and this is correlation not causation—is that they invest their top core productivity and they have operations in more than one jurisdiction, either more than one province or more than one country.

What didn't come out of that were the points you were making around regulation, tax, etc. That said, I do know that our entrepreneurs, the clients we have, value simplicity. One of the reasons that this AGS effort has been relatively well-received is the fact that it gives entrepreneurs simple access to multiple federal organizations, including EDC and ourselves. So simplicity matters. But I can't give you any perspective on the extent to which regulation, tax, etc. have been impediments.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

I have a quick question on EDC. I'm not sure I understand how you're funded.

[Benoit Daignault]

The way we fund ourselves is through capital markets and through bank lines. We run a U.S. dollar business and we issue bonds. Based on our financial plan, we would issue approximately the equivalent of $4 billion's or $5 billion's worth of bonds in the international markets.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

But companies don't pay for your services, do they?

[Benoit Daignault]

Like BDC, we essentially run self-sustaining operations. Essentially, our clients pay market rates for our insurance and all our financing and equity investments we are making. And that's very important, from our perspective, because otherwise we would not be compliant with WTO requirements.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

Okay. Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you.

Mr. Champagne.

We'll split Mr. Sorbara's time with you.

[François-Philippe Champagne, Liberal, Saint-Maurice—Champlain, QC]

Thank you, Mr. Chair.

Mr. Daignault, Mr. Denham, welcome to the committee. It is a great pleasure to have you here.

As my colleagues said, you are both doing essential work for our Canadian SMEs that export or that need funding.

I represent a riding in Quebec. Now, as we know, the Quebec economy is largely based on SMEs. I often hear SME representatives talk about funding, marketing products and developing markets. I fully agree when you said that entering into international agreements requires guidance for our SMEs. Indeed, a free-trade agreement provides access to a market, but it requires a lot of support. Having done this for 20 years of my life, I can tell you that getting into or expanding certain markets requires a lot of support, especially in emerging economies.

Could you tell me, from your respective fields, what more we could do in this regard in terms of programs in five or 10 years, so in the short, medium and long term, to help small and medium enterprises with funding, marketing and exporting?

[Benoit Daignault]

Thank you, Mr. Champagne, for your question.

The current environment is one where growth is slow and technologies significantly change the situation. The traditional business model—take Canadian company Nortel, for example, which has a local supply chain, produces locally and exports a finished product—will be less and less common. In fact, this trend will continue. I think that the supply chains will continue to fragment.

Which means that today, a small company that wants to take advantage of international opportunities rather than stick to a local company, must find a foreign company to sell its products and services. Obviously, everything related to support, market recognition and free-trade agreements makes a significant difference because it simplifies the work of the entrepreneurs.

As for knowing whether we currently have the capacity at EDC to meet this need, I would say that we have the flexibility to do so. We think we are able to serve these clients, even though the world is increasingly complex and we need to take action more and more quickly to stay relevant for these companies. But I think we can do it.

[The Chair, Liberal, Wayne Easter]

Mr. Sorbara.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Thank you, Chair.

Thank you, gentlemen, for being here this morning. My first question and comment are for BDC.

In my riding of Vaughan–Woodbridge, there is a regional BDC office. I was invited to chat with some of the representatives. Actually an ex-colleague of mine from Scotiabank who works downtown came up as well. It was great to see everyone.

I was wondering if you could comment on any regional differences that BDC is seeing in terms of companies applying economic activity that you think would be interesting to the group.

[Michael Denham]

Interestingly, on my last visit to our office up in Vaughan, I was hot on your heels. As I was entering the building, your colleague from downtown was leaving. They really appreciated your interest and your time. So thank you for popping by to visit us.

Your question relates to things that we see that are different across the regions and that could be worth reflecting on and learning from. I think the biggest differences we see across the regions do relate to two things. One is that with respect to our traditional lending business, we do find that Quebec is noteworthy in the sense that it has a lot of provincially focused sources of capital, be it Investissement Québec, La Caisse de dépôt, Fonds de solidarité, or others, all of which play a very useful role with respect to ensuring that liquidity is available within the province. We work closely with them.

The biggest differences we see regionally are more around venture capital and the different levels of maturity of the local ecosystems, if you don't mind my using that word again, across the regions. I think there's a lot we can all learn from those that are most successful in Vancouver or Kitchener-Waterloo most notably, and from some of the lessons learned. Canada can't have 85 or 90 successful incubators and accelerators to support tech firms. We just don't have the scale. We encourage folks to be quite thoughtful when picking spots, to make sure we have the right ingredients to make these work. I think we can learn a lot of good things from places like the Kitchener-Waterloo area, Vancouver, Montreal, and so on that we should be trying to learn from and extending to other regional areas.

[The Chair, Liberal, Wayne Easter]

We're going to stop there. I do have one question.

First for committee members, the next meeting this afternoon is in 253D. It's our last meeting on pre-budget consultations at 3:30. We will not have a full committee meeting next Thursday, but would members be okay to have a steering committee meeting perhaps Thursday morning if we can arrange it? We have a lot of stuff coming up and we need to plan on this. Are we okay for Thursday morning?

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Let me just broach that this afternoon with our critic.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

What time are we talking about on Thursday?

[The Chair, Liberal, Wayne Easter]

I can give you a call and we can find a time that's agreeable.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Just for family reasons, it's much easier for me if it's past 9 o'clock; 8:30 in the morning is not good.

[The Chair, Liberal, Wayne Easter]

We can handle that, Guy.

I'd like a quick response if you could give one. We are looking at what we can do to achieve better economic growth. You both deal with the business community all the time. What can the federal government do to enhance the ability to create economic growth?

To be honest, when I talk to business, whether they're dealing with CFIA, Canada Border Service Agencies, or any of these services that government provide, if the bureaucracy were interested in results rather than paper, it would be a heck of a lot easier for the business community. I go to some of the borders and there are 10 booths, and four of them are closed. That's not exactly great for moving traffic, whether it's commercial or public.

Does each of you have one point you think the federal government could emphasize to achieve better growth?

[Benoit Daignault]

From an export perspective, I will say that the theme of export infrastructure is very important whether we are talking about ports or otherwise. Everything that can help move goods and people is very important, and you need to make it easy to do so.