Remarks delivered by Brian Kingston, Vice President of Fiscal and International Policy, to the House of Commons’ Standing Committee on Industry, Science and Technology
Madam Chair, committee members, thank you for the invitation to take part in your consultations on the Investment Canada Act.
The Business Council of Canada represents the chief executives and entrepreneurs of 160 leading Canadian companies, in all sectors and regions of the country. Our member companies employ 1.7 million Canadians, account for more than half the value of the Toronto Stock Exchange, contribute the largest share of federal corporate taxes, and are responsible for most of Canada’s exports, corporate philanthropy, and private-sector investments in research and development.
I would like to begin by underlining the critical importance of foreign investment to the Canadian economy.
Prior to COVID-19, advanced countries around the world were already experiencing slower growth prospects driven largely by demographic forces and weak productivity growth. In addition to these challenges, the Canadian economy faced heightened trade uncertainty, ongoing tensions with China, crippling rail blockades and a deteriorating investment climate due to regulatory uncertainty.
The already weak outlook for the economy pre-pandemic has now reached previously unthinkable lows. According to the PBO’s analysis released today, the Canadian economy is expected to shrink by 6.8 per cent this year, the weakest on record since the series started in 1961.
As we start to think about the economic recovery, trade and investment should play a central role. We are a trading nation that depends on open access to the world. Foreign investment not only produces jobs, but enables new technology adoption, promotes innovative management techniques, and creates market access opportunities. Canada has a clear interest in providing for stability, transparency, predictability, non-discrimination and protection for Canadian companies and individuals that invest abroad, as well as for foreign investors wishing to invest in Canada.
Attracting foreign investment to Canada is critical to our shared prosperity and we need to ensure that changes to the rules governing investment in Canada are as consistent and stable as possible. We cannot afford as a country to be perceived as a difficult place to invest.
Unfortunately Canada could do better when it comes to attracting investment. While global FDI stocks have increased dramatically over the past 25 years, Canada’s share of global investment has been on the decline.
In 2018, Canada’s share of total world inward investment stocks fell to 2.8 per cent, the lowest level in nearly twenty years. Meanwhile, countries with more competitive business environments have witnessed an increasing share of global inward investment stocks. We must do better.
Turning to the ICA specifically, we support the government’s recent policy statement enhancing scrutiny under the ICA and believe it is a prudent move given extraordinary circumstances. The COVID-19 pandemic and associated economic fallout could create opportunities for acquisitions by companies that are motivated by non-commercial factors, putting Canadian interests at risk.
However, as a country that depends on trade and investment, the government must be careful not to discourage commercially motivated foreign investment activity. Markets have rebounded since the depths of the crisis and the opportunity for predatory acquisitions by state owned enterprises is diminishing. That is why measures like this should be temporary in nature.
Finally, on the question of strategic industries and the ICA, the legislation already contains provisions to protect Canadian national security. What I believe requires more thinking is identifying exactly which industries should be considered strategic and ensuring we have the economic framework in place to support those sectors.
For example, the pandemic has underlined the importance of a strong manufacturing base as companies like CAE, GM and Linamar pivoted quickly to produce equipment used in the fight against COVID-19. Many businesses are re-examining their supply chains with emphasis on improving resiliency to insulate them from future disruptions. This includes shortening supply chains and diversifying input sources.
We have an opportunity now to incentivize these companies to investment and produce more in Canada by addressing long-standing competitiveness challenges. Improving the regulatory environment or addressing the tax system would be a good start.
Thank you for the opportunity to speak. I look forward to your questions.