Finance Committee on Oct. 27th, 2016

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

Thank you.

You touched on part of the attraction of private investment being policies for matching so that investors feel it's a stable investment, and you mentioned how important that is. There are things like carbon pricing and a commitment by governments to ensure they really are interested in renewables so that investments go into that sector. It's not just having the projects available but also having the overall policy commitment so that investors feel secure. Am I understanding that correctly?

[Dominic Barton]

You are.

By the way, we heard that also from some of the round tables we did with energy companies. A lot of people think that energy companies don't want this. It's interesting—the ones we saw in Canada do. They're saying there's an opportunity for them to do more on clean tech on the R and D and the business-building sides.

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

Thank you.

I just want to get one last topic out there. If you can't answer it, that's fine, but it's something to at least take note of and to come back on with a policy on infrastructure and infrastructure banks.

I come from the municipal world. I did finance for my region. I was on that committee. One of the things that frustrate me—and I'm a full believer in allocation funding for municipalities—is that the application process for funding can be difficult, so how this infrastructure bank is rolled out is important, if the government moves forward on it. As much as I'm a supporter of allocation, I'm also a huge supporter of controls, because no two infrastructure projects are the same. I know municipal governments, and I know how they can take a project that is a pet project for the municipality but not really an economic growth type of project. They can find a way to make it fit, so to speak, so if we're focused on infrastructure that is truly to grow the economy.... There's not always just an economic impact. You mentioned social housing. There's not always a fiscal impact, except that people with stable housing tend to have stable employment. The point is that if there were to be some type of infrastructure bank or focus, municipalities need to have fairly strict parameters to ensure that projects meet those objectives, because sometimes—

[The Chair, Liberal, Wayne Easter]

You'll have to tighten it up.

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

Okay. I'm sorry. I could go on forever on that, but the point—

[The Chair, Liberal, Wayne Easter]

I think you get the drift. Could we get a quick answer on that, Mr. Barton? We're going to run out of time.

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

Thanks, Mr. Chair.

[Dominic Barton]

Sure. I fully agree. I think again the idea is that the ideas come from the municipalities and the provinces, and not just from the federal government putting them through. but they're going to get funded in this infrastructure bank only if there is commercial viability, as you were saying.

The other thing just quickly is that we also think roughly 25% to 30% of infrastructure projects go way over cost and way over time. We hope with this infrastructure bank there will be a capability to ensure that the projects that are done on both sides are done in a much more efficient way than they normally are. That's another element we hope is in there.

[The Chair, Liberal, Wayne Easter]

Mr. Liepert.

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

Thank you, Mr. Barton, for your presentation this morning.

I'm not going to ask you to comment on my first couple of comments, but as a Conservative from Alberta, I want you to know that there's just about nothing that I agree with in what Mr. Caron said, other than the fact that the Liberals did not campaign on this agenda. In fact, their agenda in the election campaign was trying to out-NDP the NDP. I actually think, Mr. Barton, that your committee has thrown this government a real hot potato, because they did not campaign on the kinds of things that you're talking about, almost all of which make sense.

I don't expect you to comment on that, but I do want you to comment on this. As I said, I'm from Alberta, and I'm sure you're familiar with AIMCo. I know that AIMCo, which manages about $80 billion in Alberta pension funds, has difficulty in trying to find the appropriate investments in Canada. They're investing in infrastructure in Australia, in Chile, and in Argentina.

Here's what I think we need to take into account. Given the right opportunities, I'm sure these Canadian pension funds would like to invest in Canada and make the Canadian pension dollars work for Canadians. I'd like your response to that.

[Dominic Barton]

Again, I think the win-win, if you will, is being able to identify and structure these projects—which we are 100% convinced are there because of this $500-billion gap—so that we get more of what we call “bankable” projects. That probably doesn't sound very good politically, but that's what we call them. We say it's a bankable project and people would put money into it.

If it's a Canadian pension fund, that's a win-win, because it's Canadians who are benefiting from that. It's perfectly circled. They're actually ideal. Again, going back to the diversification side, yes, they are going overseas, and that's good, but there's so much more from an asset class requirement to be an infrastructure need that I think it would be a very big benefit. I'll shut up there. I'm talking too long.

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

I did want to ask you one other quick question. I had the opportunity a number of years ago to work outside the country for a provincial government trade organization. I absolutely agree with what you say, which is that our foreign diplomats are just that: they're diplomats, not investment types.

Now, when you talk about a new agency, would it not make more sense to have a new focus by External Affairs to have the right people? We already have all these consulates and embassies around the world. Start to staff them with some of the appropriate people, who can actually go out and do more than just encourage tourism or sign immigration papers or whatever. We need salespeople out there, which we don't have today.

[Dominic Barton]

Yes. I think we're hoping that this new FDI agency will actually be quite small to start with, just to get the DNA of the hard-core marketing, if you will, to figure out where to target, which companies, and for those 45 companies on the IT side, to figure out who they are, how we go after them, and how we put a package together. Once we build that up, I think we'll have a platform to do what you're saying, which is to then have those types of resources in the right parts of the world.

We haven't talked about this in the council. My sense is that in Canada we're still too pivoted to the old world and not the new world. I think cities in China such as Chongqing and Xiamen are where.... I have nothing against Vienna, because I think it's a wonderful city and there's a lot...but I would be thinking, too, about how we allocate those resources. We didn't get into that. We're saying let's start with a small core, and then they can go from there.

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

Thank you.

[The Chair, Liberal, Wayne Easter]

Thanks to both of you.

For the last series of questions, we will go to Mr. Ouellette.

[Robert-Falcon Ouellette, Liberal, Winnipeg Centre, MB]

Thank you very much.

Thank you very much for being here, Mr. Barton. I very much appreciate it.

I'm glad to hear that some of my colleagues are for the sale of public infrastructure, like roads and hospitals, but as a university professor, I would say my simplified Economics 101 says that we pay now or we pay later, but the taxpayer will eventually be paying. I fail to understand why private investors such as BlackRock would invest in infrastructure projects unless they could make a profit. Even an infrastructure bank seems like a means of ensuring that investment money—you've mentioned the $13 trillion that is getting negative yields—will be making a profit on the backs of Canadians. It also almost seems like a massive transfer of public funds towards the private funds in order for them to make money—a subsidy towards business.

I have two questions related to this. I was wondering if you could describe asset recycling and how it would apply to Canada. I was wondering if you could also describe how many indigenous communities you've actually met over the course of your mandate and how many times you might have had discussions with indigenous leaders.

Thank you.

[Dominic Barton]

Sure. To the point of it being on the taxpayers' back, first of all, we have a $500-billion infrastructure gap, and as for what we're seeing with the first nations, at least $30 billion to $35 billion is on that front. The question we have is how we are possibly going to fund that. You cannot do that with government money. At least that's our view at the council. To borrow the money, which by the way the taxpayer would eventually have to pay for, would lead to a very significant deficit.

I'm just saying there's a conundrum here, and we're also trying to create growth, so that's where.... I'm not trying to argue; I'm just trying to give you a sense of how we came at it.

[Robert-Falcon Ouellette, Liberal, Winnipeg Centre, MB]

At the end of the day someone's going to expect a profit somewhere, so the profit from that system will have to be had somewhere. Those private bankers aren't simply doing this out of the goodness of their hearts, and they're not going to be investing in infrastructure unless there is a profit.

To get back to the asset recycling, they use it in Australia, and the federal government in Australia was using it to force local state governments to sell off assets like hospitals and roads, creating toll roads and creating private hospitals.

Could you describe that and how it might work here in Canada, even with indigenous communities?

For instance, we could have a situation, as in the 1980s, in which we're indebting African countries through the International Monetary Fund and forcing them into massive amounts of debt in order to build infrastructure. Then, they are somehow so impoverished they can't pay back those debts in the long term.

[Dominic Barton]

Right. I think the first thing is that there are not enough infrastructure projects being done; there simply aren't. That's the first point.

The second point is that we think there's a benefit to the taxpayer of having more infrastructure being built.

The third point I make is that Canadians pay far less in terms of fees, tolls—however you want to put it—or availability payments, than anyone else does. We're on the far extreme side of that.

In terms or recycling, all we're saying is that some infrastructure projects may have been built—because a lot of private investors don't want to invest in pure greenfield projects—that could be made available for private investors to invest in if they are not looking for outrageous returns. That would free up money to allow more infrastructure to be built. That was the basis for the asset recycling, looking at things like airports. We think there would be a net benefit to taxpayers. They're run better, and again, doing this frees up more capital to invest in these other areas.

We had two round tables with indigenous groups. Carol Anne Hilton is a member of the council from Vancouver, and she is very involved. We've had a number of one-on-one sessions with groups. I was involved in about six of them. We have been engaging, and to your point, I think we are probably not doing enough, but if I look at what regions and so on are doing, it's very much.... We are trying to make sure that we have that lens where we are, but if there are other things you think we should be doing, I would love to hear about them, because we are probably missing some things. We're trying. That's what I would say on that.

[The Chair, Liberal, Wayne Easter]

Thank you both. Before we close, I do have one question. I chair the Canada-United States Inter-Parliamentary Group, and one thing that always strikes me when I'm at Council of State Governments meetings all across the U.S. is the integrated production and supply chains and the amount of work happening between the provinces and states in terms of energy grids and so forth—though not so much between the government in Washington at the moment and Canada.

In terms of your infrastructure bank proposal, some people have suggested a North American infrastructure bank to me. Has anybody ever broached that?

[Dominic Barton]

That's a very good idea. Of 100,000 areas where there are differences, I think the demand, the desire for an infrastructure bank in the U.S. is probably the one area where there is commonality. As you know, the Obama administration tried but couldn't get it through Congress. They wanted to have it.

I think that could be a very big idea, because when you think about the decay in our infrastructure across the borders, not only, by the way, between Canada and the U.S., but also between the U.S. and Mexico.... We would love to try to get one built, because a lot of people have talked about this but it hasn't been done. The economics are there. Maybe we could get this and they could then broaden out. I'm not sure.

[The Chair, Liberal, Wayne Easter]

Okay. Thank you, Mr. Barton.

We're about 15 minutes over time. I think all committee members appreciated your straightforward answers. Certainly as a country, we appreciate the work that you're doing with the advisory council. With that we thank you for your testimony. It is much appreciated.

We will suspend for five minutes and then go to the Business Development Bank of Canada. We're going to have to tighten up the next discussions with BDC and EDC because we have to vacate the room now at about 10:50 a.m. instead of 11 a.m.

[The Chair, Liberal, Wayne Easter]

We'll reconvene. I think we have most members here and our witnesses.

Just so the record is clear, I know that both witnesses know that we are doing pre-budget consultations in advance of the 2017 budget. The theme we've been working towards is how we can achieve better economic growth within this country.

We have two very important agencies before us this morning. With the Business Development Bank of Canada, we have Mr. Denham, who is president and chief executive officer, and with the Export Development Corporation, we have Mr. Daignault, who's the president and chief executive officer.

I believe you each have a short presentation to start with, and then we'll go to questions.

Welcome, both of you. The floor is yours.

[Michael Denham, President and Chief Executive Officer, Business Development Bank of Canada]

We'll do it alphabetically, I guess.

Thank you, Mr. Chairman.

My name is Michael Denham, and I'm the president and CEO of the BDC. I was appointed to the position recently after a 27-year career in the private sector.

I would like to start by congratulating the committee for its consultation work with Canadians in preparation for the 2017 federal budget. This is important and demanding work, especially given all your other work and all your other responsibilities.

So thank you.

My staff tells me you've had at least 16 meetings, and you've heard from over 160 organizations. I can only hope you find something new and unique in what I have to share with you today.

BDC has one overall aspiration, which is to make Canadian entrepreneurs among the most competitive in the world. We have more than 2,000 employees located in 100-plus business centres across Canada. We have over 2,000 interactions per week with entrepreneurs. We receive over three million visits per year to BDC.ca. As a result, we feel we have a good sense of what's going on with entrepreneurs in the country.

We seek to tailor business solutions according to the circumstances of entrepreneurs. We take financial risks that other financial providers do not. Our financing portfolio stands at $24 billion. We're a bank, and we make credit decisions within given parameters. The most important parameter is an expectation that the enterprises we lend money to will prove economically viable so that money lent will be repaid with a return reflecting the risk taken. This means we're self-sustaining and not dependent on the taxpayers of Canada.

It also means that we can reinvest profits in initiatives aimed at satisfying business needs that others cannot meet. We're Canada's small business development bank and we're immensely proud of the role we play. Most of all, we're proud of the 42,000-plus businesses we support from coast to coast.

I'm often asked how Canadian businesses are faring in the face of economic uncertainty, global challenges, massive disruption, and significant technological change. There's one word that comes to mind—“resilient”. As the Governor of the Bank of Canada indicated in his progress report on the Canadian economy which he gave in Whitehorse this past June, there's flexibility among Canadians. For the governor, this creates confidence that Canada will get through the current adjustment period and that the economy will return to natural self-sustaining growth.

Let there be no mistake about the fact that Canadian businesses are facing tremendous challenges and opportunities. Let me take you through some of those and tell you about how we're addressing them at BDC. The first challenge is access. We know there are still financing gaps, particularly for certain entrepreneurs: young entrepreneurs, new Canadians, entrepreneurs with thin or little credit history, fast-growth firms, indigenous businesses, and cyclical sectors. These are just some examples of those experiencing difficulty accessing financing.

The second concern relates to scaling up the size of businesses in Canada. Canada has made good progress in the start-up space; however, we struggle in building large firms able to punch above their weight in terms of economic impact. A BDC study released in September confirms that there are dramatically fewer businesses expanding in size than there were 15 years ago. Many firms wanting to grow continue to face financing issues, and, compared with other jurisdictions, this leads to deal sizes that are relatively small. Moreover, the greater presence of foreign investors in later stages may result in stronger pressure for early exits and foreign ownership in foreign markets. BDC has responded by increasing its lending volume from $4.8 billion in 2016 to an all-time high of $5.2 billion for the current fiscal year. This is in addition to the $250 million in venture capital we'll be investing this year in technology start-ups. We're also providing leading-edge business advisory services, including to so-called high-impact firms that have the potential to really move the growth needle for the country.

The third issue, which everyone knows, is that too few Canadian companies export, and of those that do, not enough are expanding into emerging economies where growth opportunities abound. In this regard, BDC focuses on export readiness, equipping small companies to expand into new markets, including choice of the market to which they seem particularly well suited. This go-to-market strategy is being developed hand in hand with EDC, with whom we already enjoy excellent relations.

A fourth dimension of business performance in Canada concerns productivity, that is, how efficiently goods and services are produced. Canada's labour productivity growth slipped in the decade ending in 2014 from an average of 1.4% per annum, over the prior eight years, down to 0.9%. Although this statistic is alarming for people who study Canada's economy, more than half of the 1,500 Canadian companies we recently surveyed don't formally measure their productivity. This finding prompted BDC to introduce, just last week, a free diagnostic tool for all Canadians, developed in partnership with Statistics Canada. In less than two minutes, by filling in seven data points, a business can find out exactly how it compares with peers and receive a link to sources for making improvements in its productivity.

I could talk at length about Canadian companies and the situation they are in, but it would be preferable for me to do so as I answer your questions.

If, after this meeting, you have other questions in terms of developing your recommendations on the competitiveness of small and medium-sized businesses, I will be happy to help answer them for you.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Mr. Denham.

We will now turn to Export Development Canada.

Mr. Daignault, go ahead, please.