Industry Committee on Oct. 24th, 2016

[Bob Masterson]

I think the draft is ready now and will be released this week in Alberta.

[Frank Baylis, Liberal, Pierrefonds—Dollard, QC]

Could that be provided to the clerk?

[Bob Masterson]

Yes, as could other information we have that would be similar.

[Frank Baylis, Liberal, Pierrefonds—Dollard, QC]

You also asked us to reduce the tax rate from 15% to 13%. Could you elaborate on that?

[Bob Masterson]

Again, we're trying to make recommendations about what we could do that might move the needle from where we are now, where we're not getting nearly enough investment, to what we could do differently.

One suggestion is to make ourselves.... We have to send a signal that we're open for business and that we want this investment. That's another recommendation.

[Frank Baylis, Liberal, Pierrefonds—Dollard, QC]

These are all to do with—

[The Chair, Liberal, Dan Ruimy]

Thank you. Sorry, your time is up.

The last question goes to Mr. Masse, for two minutes.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Mr. Chair.

Thanks for your testimony here today.

It's a little frustrating when I listen to a lot of the debate about having the proper trade agreements. At the end of the day, I don't think I've ever had anybody come to my office from business who didn't ask for a subsidy or a cut from something. This is the challenge that we face.

A small business person would argue that they would like the same deal to open up another restaurant or another business. In the auto industry, it's the same thing; if you're not in the game, then you'll never win. The big issue that has been pushed is the advantage for Canada being not as attractive because the United States most particularly—

[Bob Masterson]

And municipal governments—

[Brian Masse, NDP, Windsor West, ON]

Yes, and municipalities do that, which is outside of our trade agreements and so forth.

What about the environmental standards, say, for example, between us and the United States? What are the differences there?

[Bob Masterson]

Funnily enough, if you listen to our critics who have also appeared before the Standing Committee on Environment and Sustainable Development, their message is that Canada's laws aren't nearly tough enough and that the Americans outperform us even in places like Louisiana and Texas. They think we're environmental laggards. We don't happen to believe that to be true at all, and we think we have the evidence that says otherwise.

Other than this, I don't hear anybody else saying Canada is lagging in environmental protection, and I don't hear people saying that Texas or Louisiana or Pennsylvania are lagging in their environmental protection in order to attract these investments.

That's a key message. Someone mentioned we've reduced emissions by 69%. How did we do that historically? We made really big investments in new plants. That's how we're going to crack the next nut and go even further on that climate change journey: by making the big investments in new plants to get better jobs and a better environment.

If we sit with what we have, we're living on borrowed time, folks. They all have a lifetime. There are 15 years or 20 years left. There won't be major investments to help them get where we want to go in terms of environment. When we can attract that big new investment, we're all better off.

[The Chair, Liberal, Dan Ruimy]

Thank you very much for quite an enlightening hour.

With that, we are done with the first round. I think we are looking for our other witnesses somewhere in the hall.

Thank you, again, to our guests today.

We will take a break and come back with our next panel of witnesses.

Thank you.

[The Chair, Liberal, Dan Ruimy]

Welcome back, everybody.

We have the BDC back. Actually, they have two questions that were asked of them from last week that they want to address.

You have four minutes to do it, and then we'll get into our line of questioning.

[Susan Rohac, Vice-President, Growth and Transition Capital, Ontario and Atlantic, BDC Capital, Business Development Bank of Canada (BDC)]

Thank you, Mr. Chairman and committee members. It is good to be back for a second round of questions.

Before we begin, there were two questions last week that we wanted to answer a little more completely.

[The Chair, Liberal, Dan Ruimy]

I'm sorry to cut you off. We have a technical issue.

[Susan Rohac, Vice-President, Growth and Transition Capital, Ontario and Atlantic, BDC Capital, Business Development Bank of Canada (BDC)]

Would you like to sing us a song while you're waiting?

We would be guaranteed not to be called back if I did that.

[The Chair, Liberal, Dan Ruimy]

Do you know that Wednesday's meeting is in Centre Block? It's been changed. I just got an email. The room is 237-C.

[The Chair, Liberal, Dan Ruimy]

Okay, I think we are good to go. It's on now.

I can go, therefore you can go. Go ahead.

[Susan Rohac]

Thank you. Merci, Mr. Chair and committee members. We're pleased to be back here today to answer your questions.

Before we begin, there are two questions that were posed last week that we didn't answer fully. I'd like to take this opportunity to quickly answer those. Mr. Nuttall and Mr. Lobb asked a question about what particular sectors within manufacturing are seeing growth. We went back and looked at our numbers.

In terms of dollars authorized and numbers authorized, we break our systems down into 17 subsectors. Since 2010 the trend has been up in all 17 subsectors of manufacturing, except for a few. Those few are wood products, printing, paper, and machinery manufacturing. Those are down, while the subsector of construction products is flat. The sectors where we've seen the most growth in numbers of deals authorized and dollar amounts authorized are the automotive industry, fabricated metal, food, medical equipment, and tech equipment.

There is a second question that we want to address. Mr. Arya asked a question about our activities to finance start-ups in the manufacturing sector. He seemed a little underwhelmed with our response, so we did a little more research and digging and, according to Statistics Canada quarterly estimates of business entries and exits, in 2015 there were 3,645 manufacturing start-ups in Canada. Of those we financed 220. That's 6% of the total. While that result may sound low, keep in mind that our overall market share of BDC to start-ups nationally is 3%, so in fact we're doubling our national average for manufacturing start-ups.

It was also noted that the average size of our deal was only $150,000, which to the committee appeared small. There are two points I wanted to make to that.

First of all, BDC does partner with other financial institutions, including chartered banks, that have access to the Canadian small business financing program that guarantees up to a million dollars for businesses with under $10 million in sales. We partner on many programs with them. The use of that SBF program can only be for tangible assets, mostly equipment, while the $150,000 that we provide is working capital for soft costs or start-up costs. It's a very complementary offering that we offer with the SBF that's delivered through the chartered banks.

The second point I want to make is that while the $150,000 first round may seem small, we do grow with our clients, and we offer multiple rounds of financing, often larger, as clients continue to grow. For example, in the growth and transition capital group, our repeat business is over 40%. We have a lot of growth companies in that portfolio, and as they continue to grow, we continue to lend to them and support the manufacturing base.

I hope that additional information is clear and helps finalize those two questions that we didn't answer fully last week.

Thank you.

[The Chair, Liberal, Dan Ruimy]

Thank you very much.

We've passed that to our analyst, who looks very excited to see it.

We're going to jump to Mr. Baylis.

You have seven minutes.

[Frank Baylis, Liberal, Pierrefonds—Dollard, QC]

Thank you.

What I'd like to do is focus in on one of your business lines that is now called BDC Advantage, which was your consulting business. I know it has changed over the years significantly in two ways. Would you, first of all, describe how it is now structured?

[Karen Kastner, Vice-President, Partnerships and Government Relations, Business Development Bank of Canada (BDC)]

Thank you.

We call it BDC Advisory, and it is structured around three main areas.

The first one is more of a traditional consulting business, one where we do one-off mandates. Basically, the themes are companies that want to increase their revenue, want to improve their efficiency, or want to improve their management capabilities. We'll do mandates around those. They're tailored toward smaller businesses. The average mandate size is about $10,000 to $15,000, so they're quite small relative to other consulting firms.

The second part, which is fairly new for us, is what we call the high-impact firm initiative. This is an offering that is a very, very high-touch offering. It's intended to provide this high-type service to companies that we feel really have the potential to move the needle from a GDP standpoint, so they are bigger companies with $15 million in revenue and over. We assign an executive adviser to that company to help them craft a growth plan. What we envisage with that offering is a two-year to three-year relationship. We just launched that in the last year or so, so we're still building that up.

Then the third kind of pillar of the advisory offering is called BDC Academy. That is one in which we're providing learning to entrepreneurs. It will range from online learning to much more intensive classroom learning.

Those are the pillars.

[Frank Baylis, Liberal, Pierrefonds—Dollard, QC]

I know you use external consultants and you have internal people. Do you have the ratio? How many are internal and how many are external?

[Karen Kastner]

I believe we now have about 400 external consultants on our roster across Canada, but I don't have the ratio.

[Frank Baylis, Liberal, Pierrefonds—Dollard, QC]

How many internal people?