Industry Committee on May 10th, 2016

[Chandra Arya, Liberal, Nepean, ON]

A lot of good points have come from both of you, which is great. Thanks a lot.

For me there are three things. Number one is soft skills for executives and entrepreneurs, which they need to improve to get to know their international market and to position their product. They should also have the skill set to grow from small regional companies to large international companies. Number two is talent. We need skilled labourers, like CNC operators. We need a movement from social sciences to STEM, and maybe some apprenticeships. Number three, there is a growing manufacturing segment in pharma, food, robotics, etc.

Is there anything you can add to this?

[Scott Smith]

The only thing I might add is that we need to expand our horizons of what manufacturing actually is. This came up a couple of times in agrifood. We don't traditionally think of that as manufacturing. We had a pretty large place in ICT for a long time. How do we translate that into something new when some of those industries are in a bit of decline right now? I think those are points that we should probably capture.

[Michael Burt]

My one comment in response to that, like my last comment in my opening statement, would be not to forget services. A key part of being globally successful as a manufacturing firm is knowing that you're not just selling a product, but all of the services that go with it, maintaining it, and all of these other sorts of things.

[Chandra Arya, Liberal, Nepean, ON]

If you have any relevant information, you can send it to the clerk. That would be great. Thank you.

[The Chair, Liberal, Dan Ruimy]

Mr. Nuttall.

[Alex Nuttall, Conservative, Barrie—Springwater—Oro-Medonte, ON]

I'd like to ask Scott some follow-up questions, because I'm finding some of the answers difficult to swallow—or maybe to understand.

Paragraph (b) of our study is about is “reviewing the causes and consequences of manufacturing job loss”. My work with manufacturers has always shown that energy costs are going up, and that this is being driven by a change in approach by government and the types of energy its been generating. Someone said that the cost of renewable energy is the same as the cost of everything else. I don't see this in a 44¢ per kilowatt hour in Ontario for solar and 3¢ for hydro.

[Scott Smith]

I will qualify that. The price of solar generation is higher than it is for something like wind or new hydro, which are both renewable energy sources. The costs of developing new generation is around 11.5¢. That's about what new contracts are being allotted for those sources. Solar is the outlier there, but it's also a very small part of the overall capacity in the province. That said, energy prices are absolutely rising in Ontario. You've gone from an average of 5.5¢ a kilowatt hour in 2005 to almost 18¢ a kilowatt hour at peak demand today. That's a huge increase, and for companies that are high users, it's prohibitive.

[Alex Nuttall, Conservative, Barrie—Springwater—Oro-Medonte, ON]

I have one other question, and Mr. Burt from the Conference Board of Canada almost went toward saying this. One of the things that was in the minister's mandate letter, and that was also said by the Prime Minister before coming into office, was about transitioning away from manufacturing in southwestern Ontario. Do you guys agree with that, or do you think it's not a direction we should move in? It didn't really say where it was going, but one could assume it's the service sector, as there's not much else there. Do you agree with that? Do you think that's a bad approach, to give up on the manufacturing sector?

[Michael Burt]

I don't necessarily say that we should give up on it. I'm not exactly familiar with the passage you're referring to, but one possible interpretation would be that that since we have people who are not being fully employed in that region as a result of some changes that have happened in the manufacturing sector, can we find ways to employ them gainfully in other sectors than manufacturing? I guess what I'm saying is that it's not necessarily the wording of making a strategic decision to move away from manufacturing, as opposed to the fact that if manufacturing is not growing for these people, let's see if we can find other ways to employ them.

I do think there are opportunities in manufacturing, but as I said in my opening comments, services are 80% of the economy. It's where a lot of the growth has been, so it's something that's worth looking at as well.

[The Chair, Liberal, Dan Ruimy]

Mr. Jowhari, you have three minutes.

[Majid Jowhari, Liberal, Richmond Hill, ON]

I want to acknowledge the fact that the statement in the mandate letter was that we need to reinvest in manufacturing, not divest from it. So I want to thank you for qualifying that.

I want to go back to the chamber's report—another great one—on “How to Boost Canada's Venture Capital Industry”, September 2015, which talks about stimulating Canadian innovation. That report talked specifically about the North American venture capital rating and how Ontario is now eighth as of 2014, Quebec is ranked twelfth, and British Columbia is ranked sixteenth. Combined, Canadian provinces or the focus area has come to about $2.3 billion as compared to somewhere like California that's about $30 billion. As part of your solution, the chamber recommends that we need to make Canada an adventure capital powerhouse. Can you expand on that or shed some light on how we can close that gap, and what are some of the barriers to our being able to close the gap from $2.3 billion to about $30 billion for us to become a powerhouse?

[Scott Smith]

There was a lot of talk a few years ago about Canada, particularly the Waterloo region, as being Silicon Valley north, which is still a viable way to look at things. The challenge there is that there are not enough companies at that start-up level to attract the attention of U.S.-based VCs. We actually have the opposite problem, where a lot of those start-ups are now going to the U.S. to look for capital. It's easier to do. One of the things we should probably be looking closer at is developing a larger or central hub for that start-up community.

[Majid Jowhari, Liberal, Richmond Hill, ON]

Specifically, your industry report talks about low rates of returns for venture capital funds as one of the issues keeping our VCs lower than what's happening in the U.S. Can you expand on that one in the short time I have left?

[The Chair, Liberal, Dan Ruimy]

You have 30 seconds.

[Scott Smith]

One of the challenges is that the number of companies that scale up in this country is a lot lower than what comes out of northern California, where there are a larger number of companies that are making more money. How do we deal with that? Well, it's finding ways at the end of that venture capital series and about what's the next step, how do you bring us to that next level where we're building a global company that's worth several billion dollars?

[The Chair, Liberal, Dan Ruimy]

Thank you. Well done.

It is now over to Mr. Boulerice for two minutes.

[Alexandre Boulerice, NDP, Rosemont—La Petite-Patrie, QC]

Thank you, Mr. Chair.

I'll try to keep it brief.

CED has a role to play in helping small businesses get off the ground and grow. Export Development Canada helps them invest in international markets. In your opinion, Mr. Burt, what should the next decisions of these two agencies be in terms of helping SMEs get started, grow, and export? These are, after all, two rather important organizations from the federal standpoint. They already do a lot, but what more could they do?

[Michael Burt]

They already have a fairly large role. We were talking about venture capital. BDC is the largest venture capital player in Canada. You're already at risk in some ways of their crowding out private investors.

I don't know if I have a quick answer. I'd say that probably the biggest role they can provide is that of lender of last resort. BDC did an excellent job in the last recession of funding companies that were perfectly viable but just had cash flow issues. They were able to help them get through that rough period during the recession.

[Scott Smith]

I'd concur with that. There have been occasions where the BDC, as an example, would be directly competing with venture capitalists.

To the question about returns on investment, maybe BDC should be looking at ventures that potentially, in the short term, have more risk.

[The Chair, Liberal, Dan Ruimy]

That takes us to the end, with a couple of minutes to spare.

I'd like to thank our guests for coming in today. There was lots of great information. Thank you very much. We may have to bring you back again. You guys are good to go.

Before we go, we have a point of order from Mr. Nuttall.

[A voice]

Thank you for having us.

[Alex Nuttall, Conservative, Barrie—Springwater—Oro-Medonte, ON]

Mr. Jowhari.... I'm sorry, I'm not going to say your name right.

[Majid Jowhari, Liberal, Richmond Hill, ON]

That's okay.

[Alex Nuttall, Conservative, Barrie—Springwater—Oro-Medonte, ON]

Forgive me, please.

[The Chair, Liberal, Dan Ruimy]

We call him M.J.