fpinfomart.ca

We need greenfield investment, not
takeovers
The Toronto Star
Sat 21 Aug
2004
Page: C2
Section: Business
Byline: David Crane
Source:

This week we were treated to yet another report
complaining that Canada is not getting its share of foreign investment. This
latest report is from the C.D. Howe Institute, and is written by Yvan Guillemette and
Jack Mintz.

But Canadians should treat reports of this sort with caution.

"Canada has become a relatively less appealing location for foreign capital
because of a general reluctance to ease foreign investment restrictions and
especially because of a more punitive tax system compared to other developed
countries," the report contends.

It ignores the fact that Canada already has one of the highest levels of
foreign ownership of its economy than almost any other country in the world.

Instead, it suggests that Canada should make it easier for foreign
companies to take over our banks, television networks, newspapers and
magazines, insurance companies and airlines, for example, and we should slash
corporate taxes as well. Then foreigners would send in billions of dollars and
Canada would be awash with new jobs and investment..

It cites, for example, a 1996 study for Industry Canada that claimed that
every additional $1 billion of foreign investment would increase Canada's
Gross Domestic Product by $4.5 billion and result in 45,000 jobs by the fifth
year.

This is an extraordinary claim. In 1999, Weyerhaueser Inc. of the United
States acquired a major Canadian forest products company, MacMillan Bloedel,
for $2.45 billion (U.S.) or, at the exchange rate at the time, about $3.8
billion in Canadian dollars. Five years later, does anyone believe that this
takeover has increased Canadian GDP by $17 billion or that 170,000 new jobs
have been created?

There's no doubt that foreign investment in Canada can create jobs, as we
can see with the auto industry plants in Ontario, IBM Canada's software labs
or Pratt & Whitney Canada's aircraft engine plant.

So what Canada should be seeking is greenfield investment of this sort,
where companies come in and create new businesses here. But much of the
foreign investment we get consists of takeovers of Canadian companies, which
tends to reduce head office functions in Canada and can mean fewer jobs.

The report, though, suggests that Canada attract more foreign investment by
enabling even more takeovers of Canadian companies, such as our banks, phone
companies, TV networks, magazines and airlines.

This would certainly increase the level of foreign investment in Canada.
But it's hard to see how Canadians would be better off. Would we want the Fox
Network, for example, with its xenophobic hysteria, to acquire CTV? Would we
really be better off if RBC Financial was a branch plant of New York-based
Citicorp?

If we are to have a country, we need the means to express our ideas and
inform one another through our own media, just as we need a financial system
with decision-making in Canada.

Nor do our tax laws appear to be driving away foreign investment. They have
certainly not constrained Wal-Mart, Home Depot, Costco and other U.S. big box
chains from expanding from one end of the country to the other. Nor did they
impede Weyerhaeuser's takeover of MacMillan Bloedel or Duke Energy's takeover
of Westcoast Energy.

A real barrier to the expansion of foreign-owned businesses in Canada is
the continued threat of politically-driven U.S. anti-dumping and countervail
duty trade actions against shipments from Canada.

Since the United States is a much bigger market than Canada, it makes sense
to locate production in the United States if the threat of U.S. trade actions
is a consideration.

Likewise, Canada has to compete against massive U.S. subsidies designed to
attract investment. For example, state governments have in recent years
provided subsidies of about $1 billion (U.S.) to attract automotive
investments from Japan, Europe and South Korea that might have come to Canada
if there had been a level playing field.

There are things we can and should do to encourage companies operating in
Canada, whether they are Canadian-owned or foreign-owned, to invest in new
technology and training to improve productivity and competitiveness, such as
faster depreciation for investments in new technology or an investment tax
credit.

But if we want to have our own country, we should also have the goal of
building up Canadian companies, not selling off our banks, media,
telecommunications companies and airlines for the sake of a fast buck. While
economic analysis is useful, the decisions on what kind of country we want are
more than just economic.

David Crane's column appears on Wednesday and Saturday. He can be reached
by fax at 416-926-8048 or at crane @ interlog.com.

Edition: ONT
Length: 757 words