International Trade Committee on Feb. 13th, 2007

[The Chair, Conservative, Leon Benoit]

I call the meeting to order.

Good morning, everyone. We're here today to examine an appointment under Standing Orders 110, 111, and 32(6): “...during a period of thirty sitting days provided pursuant to Standing Order 110”, the committee “shall, if it deems it appropriate, call the so named appointee or nominee to appear before it during a period not exceeding ten sitting days.” That's what we are doing here today.

It goes on to say in Standing Order 111(2) that: “The committee, if it should call an appointee or nominee to appear pursuant to section (1) of this Standing Order, shall examine the qualifications and competence of the appointee or nominee to perform the duties of the post to which he or she has been appointed or nominated.”

So that's what we're here for today. And we have with us today, as you all know from the agenda sheet, Eric Siegel, who is president and chief executive officer of the Export Development Canada under the international trade responsibility, which is the responsibility of this committee.

We'll go to the questioning.

Mr. Siegel, if you would like to make a short opening statement, I'm sure you've been advised you're welcome to do that. If not, we'll go directly to questions. It's entirely up to you.

[Eric Siegel, President and Chief Executive Officer, International Trade, Export Development Canada]

Mr. Chairman, thank you very much. Good morning to you all. Maybe I'll just make a very brief opening statement and then go to questions.

In my 27 years now at EDC, I've been witness to many changes in our clients' needs, in the norms of our marketplace, in the expectations of customers around the world, and in our own ways of doing business. That was always the basic assumption to any discussion in global commerce, that change is inherent to it. The real difference, however, that we're experiencing today is the pace of change. Things move faster, things evolve much more quickly, new players arise. If we cannot keep pace, there are a lot more alternatives out there that probably can and will. International trade, as we know, offers Canadian business more opportunity than ever before, but there is also more and there is fiercer competition than we have ever faced before.

Throughout what is now a 60-year history of EDC—we're beginning our 61st year—EDC has been a relevant player, I'm proud to say, internationally for Canada. As a key element of the government's trade agenda, EDC has been a strong contributor to building prosperity, jobs, and growth in Canada. At the same time, none of us can take it for granted that the models, be it the products, the services, the theories, that have served us well in the past will serve us well in the future, and I include EDC in that assessment. I am committed to ensuring that we at EDC will know our clients well. If we're going to understand their needs, we're going to have to understand intimately their plans. I will ensure that we are fully engaged with Canada's investors and exporters from every industrial sector, from every corner of the country, and indeed for every size of business.

My EDC career has been focused on delivering the financing of risk management solutions that Canadian businesses really need to succeed abroad. I would say that during my tenure as president I want to ensure that through EDC the Government of Canada will have an organization that's not just efficiently delivering what's needed today, but is able to anticipate what's needed tomorrow.

Thank you. I look forward to your questions.

[The Chair, Conservative, Leon Benoit]

Thank you very much.

I'll just explain to the committee that we've allocated 45 minutes for the review of the appointment. I believe Mr. Siegel has agreed to stay on for the second part of the meeting.

You have sitting at the table Stephen Poloz, who is from EDC, a senior vice-president and chief economist of corporate affairs. Stephen won't be involved in the first 45 minutes, but he will be involved in the last part of the meeting. That is just for clarification.

We'll go now directly to questioning from the official opposition side. Mr. Bains.

[Navdeep Bains, Liberal, Mississauga—Brampton South, ON]

Thank you very much, Chair.

Again, congratulations, Mr. Siegel, on your appointment. It's great to see an individual join an organization and work their way up the organization. I think it says volumes about EDC. It says volumes about you and the contribution you make to the organization as well.

The appointment, I just want to confirm, was made in June 2006. Is that correct?

[Eric Siegel]

Actually, in June I stepped up as the interim president and acted in that capacity until the end of the year. My appointment has taken effect as of January 1, 2007.

[Navdeep Bains, Liberal, Mississauga—Brampton South, ON]

You were just working in an interim position before that.

[Eric Siegel]

Correct.

[Navdeep Bains, Liberal, Mississauga—Brampton South, ON]

With respect to your opening remarks, I think you hit the nail on the head in saying that Export Development Canada plays a critical role in our international trade and is a very important component of how we compete internationally.

I'll be sharing my time with my colleague Monsieur LeBlanc, who has some questions on some regional issues as well.

The question I have essentially is this. In your capacity as interim president and now being appointed to that position, going forward, what are some of the areas on which you plan to really focus?

One area that many people I've met with have a great level of concern about is small and medium-sized enterprises. They feel that EDC really hasn't necessarily catered to their needs to the extent they would have liked, and hasn't built that relationship with them. Can you elaborate a little bit on that? And going forward, what are some of the areas you plan to address in your capacity in this new appointment?

[Eric Siegel]

Mr. Chairman, I thank the honourable member for the question.

Let me go first to small and medium-sized enterprises, because they actually form the core of EDC's client base. In fact, more than 90% of EDC's overall customer base, which is approximately 7,000 customers, are small and medium-sized enterprises, and have been for some time.

In terms of aggregate support, last year we supported some $15 billion of insurance and financing just at the small and medium-sized level. So it is, and will continue to be, a very important component during my term of presidency.

What we have done to increase our reach, and ultimately to increase the size of the customer base, is to restructure the organization. Actually, during my interim presidency I commenced what we call an integration project, in which we were now separating the business development function from our underwriting function, and we were actually moving more people into the business development side of the business. We increased the size of our complement by over 50 people.

We have increased the number of people who are out there in the regions, actually. We have also introduced dedicated account management, not just at the large customer end but at the mid-market and at the small end of the market. So we're really increasing our overall customer interface capability.

The other aspect that we're increasing is our delivery channels through the financial institutions. Over 50% of EDC's products and services are delivered through Canadian financial institutions, or where the financial institution is actually the beneficiary of the coverage. And of course they have a tremendous reach out there to their client base. So we are working to tap that delivery channel as well as our own direct delivery channels in order to be able to reach out to more of those customers. Some of that will be a function of actually designing products specifically for each bank and/or combining that with technology to be able to reach those players more effectively.

[Navdeep Bains, Liberal, Mississauga—Brampton South, ON]

Thank you very much.

[Dominic LeBlanc, Liberal, Beauséjour, NB]

Thank you, Nav.

Thank you, Mr. Siegel. Congratulations on your appointment as well.

In my time as a member of Parliament working with local businesses in my constituency in New Brunswick, I've had a chance to see first-hand some of the good people who work for Export Development Canada. The people in the regions whom I've met, without exception, have been outstanding people trying to fit what tools they have to meet the needs of clients, often in industries and in a region of the country where sometimes it's not obvious to see where they fit in. So my experience with your regional staff has been, frankly, very positive, and that's why I would like to ask a question that builds a bit on what you said a minute ago.

Often financial institutions use the products and services you're offering as comfort when they're entering into a business relationship or a transaction with some small company, for example, that exports seafood. In my part of New Brunswick, exporting shellfish and seafood is a big industry and it's fraught with complicated transactions and dependent on a whole bunch of factors that often the small-business person himself or herself can't control. That's why tools offered to them by EDC can be very valuable--in fact, even having a financial institution look at an application that they may have, be it for a line of credit, be it for export purposes.

I'm wondering if you have any specific plans to try to make EDC a visible presence in small communities and small-market economies. You talked about that a minute ago. I'm wondering if you could expand on that.

For example, in New Brunswick I think many business people don't understand the advantage, in many cases, of dealing with EDC or meeting with EDC officials to see if there are places where you could help and offer appropriate services. Are you going to aggressively look at that? They see EDC, in some cases, as an Ottawa institution that services large companies in Toronto or Montreal or out west, and they don't realize that in many cases a very complementary relationship can develop.

I'm asking you to promote that more and to give the people you have in places like New Brunswick more resources so that they can try to get more clients for your company, because I think in the end they'll benefit from a relationship. Both sides will, both EDC and the client.

[Eric Siegel]

Yes, you're absolutely right.

There are a couple of things. One is that EDC already enjoys--and we measured this--fairly high brand awareness. So the general awareness of EDC as it relates to trade, finance, or trade-related matters is very good. When we start to test the knowledge, particularly of the medium and smaller end, as to what the product base of EDC is and what you can do with the products, we're not as satisfied with the knowledge there. So we are going to continue to build in that area.

Now, part of that is through various forms of education, whether it's advertising or through a trade education from the Forum for International Trade Training, which is something EDC has been a strong sponsor of, which is clearly training new or burgeoning exporters on EDC products as it relates to their trade activity. I mentioned working through the banks as a very important delivery channel, not just for our products but actually for designing products that are operating on a risk-sharing basis with the banks. I mentioned as well the change we've made internally, which is not only to put more into the business development area but to become less product-siloed within the organization, but rather, to face the customer with the full array of products, so that they can see in many cases that although they're familiar with one product, actually other products could be brought to bear that would be beneficial to them.

An interesting statistic is that of EDC's customer base. Before we started the integration project, fewer than 4% used more than one EDC product. We specifically targeted these changes to increase the multi-product usage EDC has. And we're beginning to see that. We've increased that to close to 6% this year, and our target is to take that much higher. So that's also getting at that issue of knowing EDC by one product but not realizing it could do other things, things that would be very beneficial to their overall business operation.

[Dominic LeBlanc, Liberal, Beauséjour, NB]

Thank you.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. LeBlanc.

Monsieur Cardin, from the Bloc Québécois, for seven minutes.

[Serge Cardin, Bloc, Sherbrooke, QC]

Thank you, Mr. Chair.

Good morning. First, I want to congratulate you on your appointment. I have to say you look younger in person than in your pictures. We hope you will stay a long time at EDC, even though you have already been there for 27 years. I guess you do not intend to retire soon.

It seems EDC operates like a private sector enterprise since it charges interest and underwrites insurance policies. You have an income and you say that EDC is financially independent. So it is recovering its costs and even making a substantial profit.

What is the situation of the organization in terms of number of employees and net income? How does it stay viable without needing any contribution from government? Can you give me a snapshot of its present situation?

[Eric Siegel]

Mr. Chair, I want to thank the honourable member for his question. If he does not mind, it would be easier for me to answer in English.

The member is quite right. EDC is set up as a corporation, so we are intended to be self-funding. EDC has in fact been profitable in every one of its 61 years of operation. More recently, EDC has actually had a more significant profit. Last year it was some $1.2 billion, roughly equal to the same profit we reached in 2004. We expect a profit level somewhat comparable to that this year.

Basically, in size, EDC has a little over a thousand permanent employees, about 90% of whom are based here in Ottawa. The balance of them are spread through regional offices across the country, along with ten representatives that we have outside of the country in specific markets, such as emerging markets where Canadian activity is very important and building.

The corporation runs a series of insurance products and services, as well as financial services or lending services. It's actually the lending that generates the principal revenues of EDC. Insurance contributes to that, but it's about a 90% contribution from the lending side of the business in terms of general revenues, and about 10% comes from a variety of insurance products.

Out of those revenues, EDC not only pays its administrative expenses but sets aside all of the provisions for future operations. It sets aside a loan provision and it sets aside a claim provision, in order that in the event that we have loan losses or something against the insurance claims—which is part of the business—we draw that out of the claims and we do not have to go back to the shareholders for any equity.

The government has a paid-in equity position of just slightly less than a billion dollars. The cumulative equity now, if you take the equity paid in, retained earnings, and then you take the provisions that exist, is in excess of $8 billion against a total asset base of about $20 billion. Now, that $20 billion is basically the loan assets, and over and above that $20 billion, we have contingent liabilities that relate to all of our insurance operations. Last year those totalled about $55 billion in insurance and about $10 billion in new financing underwritten.

[Serge Cardin, Bloc, Sherbrooke, QC]

Does my colleague want to share my time?

[Guy André, Bloc, Berthier—Maskinongé, QC]

I want to follow up on what my liberal colleague said.

Companies in the manufacturing sector or in softer sectors now face a fierce competition from Asia. For example, furniture manufacturers could export more to emerging economies like China, Taiwan and India where a middle class is developing, creating new trade opportunities.

However, I think EDC is not known locally. Often, the main local organizations that companies get in touch with are Canada Economic Development and the Community Futures Development Corporations, or CFDCs, on the federal side, and the local development centres or CLDs locally.

I think you should increase awareness among businesses which are still reluctant about exporting to emerging countries. In the furniture sector, trade is essentially between Canada and the United States. We have a free trade agreement, so we are not exporting to emerging economies because we have concerns.

Perhaps EDC should play a bigger role in smaller communities through structures like the CFDCs or the CLDs in order to promote its services and to explain how they can complement services provided by the CFDCs, which also loan money to small businesses.

I feel EDC is far from my community which has an important manufacturing sector. In the Mauricie area, people feel EDC is very far. Recently, I referred to EDC a microbrewery that wanted to export. The company did not get any answer from EDC even though it met the conditions. Small and medium-sized businesses feel that EDC is very far from them.

[Eric Siegel]

Again, this follows on the question of how we increase the reach of EDC from what we have been able to achieve at this point. I go back to the fact that small and medium-sized enterprises are a very important part--in fact, they're in excess of 90%--of EDC's customer base. As we set our sights on increasing the size of that customer base, we're obviously looking at ways we can increase the reach and knowledge of those players.

I mentioned a number of things we were doing. Indeed, Quebec is a very important and very large part of our customer base, so we're constantly looking at how we can increase that.

In addition to some of the things I've already mentioned, I would add that we have recently brought together a national industry stakeholder panel. In this, we have 18 industry associations from across the country. Some of them are more regional by nature and some of them are cross-regional by sector. They have formed, with EDC, an industry stakeholder panel. The purpose of that is for us to be able to identify ways that, in working through those industry associations, we can actually get more effectively down to their membership, to reach players who are actually quite small or who are in many cases quite regionally based or clustered around a specific industry. We really look at the industry associations as being the first and a highly credible source of information as to where those players can get services with respect to trading activity.

EDC is also working very closely with the government in terms of investing and bringing together the government online services. Someone who is looking for information and support in terms of their trade activity can then more easily, in a one-stop type of approach, come into the government online and actually get access to all of the services, as opposed to having to go independently through a number of different channels.

You will see that EDC is a partner in the development of the virtual trade commissioner service that is operated by the Department of Foreign Affairs and International Trade. Right now, we are also a strong proponent of bringing together the government online service as a whole in a one-stop shopping arrangement.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. André.

We'll now go to the government side, and Mr. Allison, for seven minutes.

[Dean Allison, Conservative, Niagara West—Glanbrook, ON]

Thank you, Chair.

Congratulations again, Mr. Siegel, on your appointment.

I understand that, as you mentioned, SMEs represent about 90% of what you guys do in terms of business. I'm an SME owner myself, so I understand the issues in terms of capital. Thank goodness I'm not trying to export anything. I can only imagine the additional challenges that come with trying to see capital...certainly looking at developing markets.

I have two questions for you. You talked a bit about what you guys are looking at doing in terms of...financing does generate a lot of the money that you engage in what you're doing. Could you just give me your thoughts in terms of your vision for the future?

You've now been an EVP for 10 years and have been with the company for 25-plus years. You talked about markets and transactions being more complicated, etc. You're going to continue, I would assume, to look at e-business and all these other kinds of things. What type of vision do you have for EDC over the next five to ten years in terms of where you are? Do you see the availability of capital for SMEs, as your largest stakeholders, as something you'll continue to try to expand? I think that would probably make sense. That's probably what you're trying to do, but how does that fit in with what your vision is going to be in relation to SMEs as well?

[Eric Siegel]

My vision has been for some time that EDC has to operate as a globalized type of entity, which means that EDC can't be just a sole provider of service directly. EDC has to be partnering with a number of players internationally in order to ensure that we're getting the kind of coverage we need.

My vision has also been that while EDC is really needed in all markets, both developed and developing markets, probably the sweet spot, or the area that is most mandate-rich for EDC, is what it can do in emerging markets. We have always set, and will continue to set, very strong objectives for having a disproportionate amount of our penetration, particularly relative to Canada's export profile, coming from emerging markets.

What we have also seen of late is the growing importance not just of supporting export but of actually supporting investment abroad. I think we're seeing a world in which borders mean less and will continue to mean less and less.

My colleague will speak about integrative trade and the impact that has, but it really means that we have to look at markets in terms of how Canada benefits from those markets and how we get into those markets in order to benefit, not necessarily as just an exporter to those markets but as a beneficiary of what those markets can do for our overall competitiveness. So more and more of our thrust will now be placed on helping players invest abroad and on actually supporting their affiliate in that market with the same sorts of services they could get if they were an exporter here. To do that, however, means that in some cases we have to deal with regulatory hurdles in those particular markets, so we need to partner with players on the ground.

Also key to that is the reputation that EDC has as a very credible international financial player. So included in that will be an expansion of EDC's on-the-ground presence in those markets. While we have 10 players right now who actually reside outside the country--in China, in Brazil, in India--we see that doubling in the next two to three years, and potentially growing beyond that. EDC can use its credibility to actually target the companies and the key sponsors in those particular markets who are going to have the most interest and the most to gain by developing relationships in Canada. So EDC becomes a facilitator of connections on behalf of companies of all sizes. We're doing that now.

We engage in a lot of what we call pull-strategy deployment, where we go into a particular emerging market, identify the key business players in that market, and attempt to establish a financial connection with them, provided that they will allow us to ultimately introduce Canadian capability of all sizes to them. And then, teaming up with industry associations and teaming up with our government partners and colleagues, we try to bring in actual missions and reverse missions to really draw the connections between those two countries in order to lever up Canadian capability.

Get people really invested on the ground, and really get some core capability. Then you just build upon that. You try to expand, or thicken, what you've already been able to establish there.

Clearly partnerships are going to be a much more important part of EDC's future going forward, not just with Canadian financial institutions but with international financial players. And we have been actually engaging in some strategic secondments with players who we think will be important to know in the future. They have to know us and we have to know them so we can truly partner on a mutually beneficial basis in order for us to get greater access to some of these markets.

I would also say that while small and medium-sized enterprises will continue to be very important in our overall thrust, we also have to ensure that we have more successful transnational corporations. That means we need to take the players who are currently out there. Some of them are larger firms. From time to time there's a sense that they don't need us, but actually, they're the ones who need even more backing from us to ensure that they have a very solid footing and that they can expand. And with that, they become a draw for smaller and medium-sized players to actually come into the market, either as part of their supply chain or just because they have created the on-the-ground presence of Canada and have therefore encouraged those players to come into that market.

[Dean Allison, Conservative, Niagara West—Glanbrook, ON]

Thank you.

[The Chair, Conservative, Leon Benoit]

Mr. Lemieux, you have two minutes.

[Pierre Lemieux, Conservative, Glengarry—Prescott—Russell, ON]

Thank you. I'm going to keep the question short, so the answer can be longer.

I was looking at some of the products and services you offer. I notice that you offer political risk insurance. That's very interesting. Could you elaborate on that? What kind of factors fall under political risk? Could you perhaps paint for us low-risk, medium-risk, and high-risk scenarios?