Industry Committee on Nov. 25th, 2009

[Richard Rémillard]

I'm coming to that. You have to have a goal first, and then strategy.

There's my wish list and our wish list that I put down in my opening remarks, but a number of other discrete steps could be taken.

You ask how you define success. Well, one very small indicator of success will be this: the next time the Minister of Finance or the Prime Minister goes out to China and sits down with the head of the trillion-dollar Chinese sovereign wealth fund, Mr. Tom Hayes is right next to him in the photo.

That's my version of success. We'll be able to get more capital from abroad than we're getting now.

That's the key. And that's what we're going to do.

[The Chair, Conservative, Michael Chong]

Thank you very much, Madam Hall Findlay.

Mr. Van Kesteren.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

As we're talking about these things, I'm thinking of the $5,000 tax free savings fund. Has that helped at all? I'm looking at the lure we need for investors. Have you seen a little bit of an increase with that, or is there possibly something there? Any money made from that tax free interest, of course, is not taxable. Have you seen any interaction there? Is that a spot where we could maybe start to encourage people to invest their money?

[Thomas Hayes]

It's early days, but in fact what we found last year is that retail venture funds, with the exception of Solidarity in Quebec, can't sell directly to clients. You have to work through independent third-party investment advisors. In fact, the tax free savings account wasn't meant to, but in some ways it competed with our ability to raise money into the retail venture capital funds.

What I wanted to say a moment ago is that we've had a lot of movement at the provincial government level in the last year to enhance the retail funds and add to the supply of capital. British Columbia increased the annual contribution amount--we call it the ticket size. Saskatchewan increased the tax credit from 15% to 20%. Nova Scotia, Newfoundland and Labrador, and New Brunswick increased the tax credit to 20%. Quebec, for one fund, has increased the tax credit to 25%. Manitoba has increased the contribution amount to $12,000. All of these things are helpful, but unless the federal government can match, to complement the initiatives the provinces have taken, they won't be as effective.

I'm back to this message: there are two quick things you could do if you really want to affect the supply of capital in the short to medium term, and that is to revert the tax credit back to what it was, 20%, and increase the annual allowable contribution amount.

[Jean-René Halde]

Can I add to this for a second and come at it from a slightly different angle? Right now, money to venture capital funds comes either from pension funds--and they're looking to maximize returns, so they're looking at the returns now of B.C., and they're not putting money in B.C. It comes from governments, various provincial or federal, and it comes, in some cases still, from the retail sector, as Mr. Hayes has indicated.

The challenge in all cases is for these funds--thus for the companies in those funds--to be profitable and to make decent returns. So I would say we need to be careful, before we open the floodgates, that we're pretty comfortable we'll do so in a way that increases the chance of those funds being profitable. That means size; it means expertise. There are a lot of caveats that you want to have in place, or else you'll end up basically taking a lot of money from the public, and unfortunately they'll be disappointed.

It's not a bad idea to raise money on the supply side, but you need to make sure it has a structure around it that increases the chances of success.

[Thomas Hayes]

Rest assured that if those emerging companies run out of capital, they'll never be successful, so it's a double-edged sword.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

I like the way you think, Mr. Halde. I want to compliment your organization as well. The BDC has performed well in the past, because it is a crown corporation, and as a government we expect you to treat it as such.

In the past you've always shown a little bit of return--actually, a pretty decent return--with those statistics you've shared with us today, some of the delinquencies and that. Where do you see us with our next year-end? Are we looking at a loss this year? Are you still on target to do what you've traditionally done?

[Jean-René Halde]

We have been profitable since BDC was created back in 1995, every year, and in every year we've returned a dividend to Ottawa.

I have to say that we forecast a loss in our corporate plan this year simply because we thought our losses from write-offs of bad loans would be high. I suspect we'll still end up in the red, but thankfully, a lot less than we had forecast in our corporate planning.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Halde.

Mr. Lake, did you have a brief question?

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

No, that's okay.

[The Chair, Conservative, Michael Chong]

Go ahead, Mr. Sweet.

[David Sweet, Conservative, Ancaster—Dundas—Flamborough—Westdale, ON]

I have a brief question to follow up on something.

Help me understand why the TFSA would actually... The TFSA is simply an instrument, and you can use it in any way. Why would it compete? Once somebody has a few years in a TFSA, they could move that into a venture capital fund, couldn't they?

[Thomas Hayes]

They can, but not in all provinces. Remember, when a client goes into an investment advisor, the investment advisor is going to pitch him on a variety of alternative investment vehicles. This year, with the kind of money that was...I think it was CIBC that had a huge advertising campaign and the TFSA was a very popular instrument.

[David Sweet, Conservative, Ancaster—Dundas—Flamborough—Westdale, ON]

The TFSA could very well be funds that could be used for venture capital. Of course it's just the first years of it.

[Thomas Hayes]

It's early stages, and some provinces haven't amended their income tax legislation to allow TFSAs to be eligible for labour funds.

[David Sweet, Conservative, Ancaster—Dundas—Flamborough—Westdale, ON]

I'm certain you'll encourage them in an appropriate way.

[Thomas Hayes]

We've been trying.

[The Chair, Conservative, Michael Chong]

Thank you very much.

Monsieur Paillé.

[Daniel Paillé, Bloc, Hochelaga, QC]

I'd like to take up where Ms. Hall Findlay left off on the issue of solutions. You stated in your presentation, Mr. Robillard, that businesses that secure government contracts should be encouraged, pursuant to the terms of the contract, which remain to be determined, to invest venture capital in Canada and Quebec. This is an especially innovative suggestion.

Would you care to say anything more on the subject? Furthermore, would it not be the appropriate time to launch a proper business start-up program on the heels of a recession? Some have already opted for this approach.

[Richard Rémillard]

Thank you very much for your question, Mr. Paillé. Regarding programs that involve large companies, that is multinationals like Sikorsky, Boeing or Pratt & Whitney that are generally awarded federal aerospace or defence contracts, they allow these companies to invest in venture capital funds. The current system doesn't exactly encourage or facilitate this type of investment. According to our research, only two agreements of this nature have been concluded, one with Boeing and one with Sikorsky. The agreement between Boeing and the venture capital corporation was three years in the making!

A number of people believe that we are on the cusp of a major expansion in terms of defence and aerospace procurement that will play out over the next decade. Several people have quoted a figure in excess of $200 billion. So then, if we want to make it easier for high-tech or cutting-edge businesses to access capital, one possible solution is to facilitate, encourage and promote investment by Boeing and other companies.

[The Chair, Conservative, Michael Chong]

Mr. Vincent.

[Robert Vincent, Bloc, Shefford, QC]

On the same note, do you believe that government contracts awarded to Canadian or Quebec companies should in fact be carried out here, and not transferred to firms operating outside the country?

[Richard Rémillard]

I'm not sure that I understood the question correctly. The bulk of current venture capital investments, that is between 80% and 90%, are made here in Canada.

[Robert Vincent, Bloc, Shefford, QC]

Let me be more specific. All types of government contracts are awarded to companies. However, certain companies opt to transfer the contract to China or some other country, instead of giving the work to people here at home.

Do you think companies might benefit if federal government contracts were awarded to companies that carried out the contract here in Canada, that gave the work to Canadians and Quebeckers instead of exporting that work elsewhere?

[Richard Rémillard]

Unless I'm wrong, according to the rules that currently govern major defence and aerospace contracts, companies are required to invest in or to subcontract a portion of the work to Canadian companies.