Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue No. 21 - Evidence - May 30, 2017
OTTAWA, Tuesday, May 30, 2017
The Standing Senate Committee on Banking, Trade and Commerce met this day at 2:03 p.m. to examine the subject matter of those elements contained in Divisions 3, 8, 18 and 20 of Part 4 of Bill C-44, An Act to implement certain provisions of the budget tabled in Parliament on March 22, 2017 and other measures.
Senator David Tkachuk (Chair) in the chair.
[English]
The Chair: Welcome. Before I get into the formal part of the meeting, I'd like to welcome Senator Maltais, our new member. Thank you for coming back again, because he was a member for a while.
I know there was some concern among members about making sure we get to the Senate previous to adjournment so that we get marked present just like in school. I don't think we're going to be so long that we won't be able to get back. We've got this group and then we have a single witness, and then we're done for today.
Senator Wallin: If we have chamber approval, are not we considered as there?
The Chair: No, we're not. We're considered here, but not considered there until we're actually there. I don't think we'll have a problem with that.
Good afternoon and welcome to our invited guests and members of the general public who are following today's proceedings of the Standing Senate Committee on Banking, Trade and Commerce either here in the room or listening via the Web. My name is David Tkachuk and I am the chair of the committee.
Today we are continuing our subject matter examination of Bill C-44, An Act to implement certain provisions of the budget tabled in Parliament on March 22, 2017 and other measures, and in particular Divisions 3, 8, 18 and 20 of Part 4 of the bill. Honourable senators will know that our committee must report our findings to the Senate by Wednesday, June 7, 2017.
During today's first portion of our meeting, we welcome before us witnesses that we had to cancel a couple of weeks ago due to an already very lengthy meeting that went late. I am therefore pleased to welcome you gentlemen, and thank you for joining us today. We appreciate this very much.
From the Business Council of Canada, Brian Kingston, Vice President, Policy; from the Canadian Chamber of Commerce, Hendrik Brakel, Senior Director, Economic, Financial and Tax Policy, and Ryan Greer, Director, Transportation and Infrastructure Policy; and from the C.D. Howe Institute, Benjamin Dachis, Associate Director, Research.
Please proceed with your opening remarks and then we will go to our question and answer session. Who wants to kick this off?
Hendrik Brakel, Senior Director, Economic, Financial and Tax Policy, Canadian Chamber of Commerce: Thank you very much. We're pleased and honoured to be here with you today. We appreciate the opportunity to talk about the federal budget. We hear from our members all the time that it's of vital importance to Canadian businesses across the country, so we want to make three quick points.
First, we're very concerned about the competitiveness of Canada. We've had nine consecutive quarters of falling business investment in Canada, and we've had two years of zero export growth. Back in 2015, we would have attributed the weak investment to declining natural resource prices, but now we're seeing weakness spreading into a variety of investment sectors including machinery and equipment, software and research and development. It may be that the renegotiation of NAFTA is having a chilling effect, but we think it's absolutely critical to improve our competitiveness and to bring down the cost of doing business in Canada.
Our members tell us all the time that Canada is a great place to do business, but it's an expensive place. Wages are high and rising. Taxes are rising — provincial corporate taxes, CPP contributions, carbon levies — and EI premiums are stuck at high levels. What's worse is that many countries are lowering tax rates right now, including Japan, Spain, Israel, Norway, Italy, the U.K. and, most importantly, at some point the United States. Our concern is that our competitiveness challenges will become acute if and when the U.S. is able to lower corporate income taxes, and this could impede our ability to attract and retain foreign investment so we think urgent action is needed.
The second item we wanted to mention is good news for the attraction of foreign investment. We think raising the review threshold for the Investment Canada Act to $1 billion generally, and $1.5 billion for trade agreement partners, is something we completely support and have been asking for for a long time. Among the high-income OECD countries, these types of formal investment review and approval processes are rare. Only Canada and Australia have these types of processes.
In our view, the review process under the Investment Canada Act is quite complex and it adds a significant regulatory burden. The foreign investors we've heard from point to uncertainty about how to interpret the requirements. The criteria for Canadian benefit are so vague, looking at everything from employment to supplies to supply chains; it's complicated. It increases the time and cost of investing in Canada for a large transaction and it creates the perception — which is an unfortunate perception — of a regulatory and political environment that discourages foreign investment.
We strongly support the increased thresholds. We think it's a great idea and is something we've been recommending for years.
With regard to infrastructure bank, I will turn it over to Ryan Greer.
Ryan Greer, Director, Transportation and Infrastructure Policy, Canadian Chamber of Commerce: I will add a few points on the infrastructure bank. We're cautiously optimistic about the CIB and its potential, while acknowledging the caveat that we still don't know how the bank will function, the leadership and the types of projects it will be diving into first. But we think the biggest benefit of the bank could come from its intelligence function.
Right now, the federal government and Infrastructure Canada have little to no strategic infrastructure policy capacity right now so if, as this new institution develops, its data and analysis function can take a national view on helping policymakers identify some of Canada's long-term challenges, it could prove very valuable in the long run.
Certainly, Infrastructure Australia is an example we have heard cited and, if it does some similar work to Infrastructure Australia, it could prove more valuable over the long term, I think, than the financing component.
I think the initial mandate of the bank is a bit narrow when it comes to data analysis, but as the bank matures and as governments figure out how it will function and how to use it, it could prove an important policy function as we more ahead. Anything the bank can do to help make it easier to move large projects forward faster in Canada will be beneficial.
An example is the Via Rail high-frequency rail proposal. The proposal is for Via to own their own tracks which will require them to raise private equity. The government has been sitting on this proposal for some time. It's been a "go slow'' approach. If the CIB could help structure a deal in finance and help move along this project and others like it, that would be beneficial.
Broadly, bringing different levels of government and other stakeholders, including First Nations, together for public projects often takes long delays. Even many successful projects — we can look toward major bridge projects and even successful projects such as the Canada line out in B.C. — take a long time to bring all the public-private stakeholders together and find agreement.
If the bank can be a bit of a clearinghouse for certain P3 projects like these to bring them together quickly and get these projects moving forward quicker — projects that are important to the national economy — we think that would be very beneficial as well.
I'll stop with my last point, which is that the chamber will continue to note that if the federal government wants to make it easier for the private sector to invest in infrastructure, then they should make it easier for the private sector to invest in infrastructure. Creating an attractive investment environment is more than just the government taking a risk share; it's actually about ensuring that some of the regulatory paralysis and permit delays and challenges the private sector faces are addressed to truly encourage private investment in Canada.
Brian Kingston, Vice President, Policy, Business Council of Canada: Thank you for the invitation to take part in your consultations on Bill C-44. I will start with a few reflections on Budget 2017. I will specifically comment on the infrastructure bank, the invest-in-Canada hub and raising the investment threshold.
The Business Council of Canada represents the chief executives and entrepreneurs of 150 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 investment in R&D.
In our pre-budget submission, we urged the government to adopt a laser-like focus on competitiveness as the key to generating long-term economic growth and ensuring a better life for all citizens. You'll hear similar themes between my comments and those from the chamber. You will hear some similar themes between my comments and those of the Chamber. Canada needs a focused strategy to encourage new business investment, attract international capital and enhance our ability to compete in the global economy.
Among our recommendations, we called on the government to streamline the approval process for private sector infrastructure projects, develop a comprehensive plan to broaden the tax base and bring down rates, and set out in detail a fiscally sustainable path to balanced budgets with a commitment to an explicit debt-to-GDP target. Acting on these recommendations would, among other things, help to position Canada as a global trade and investment hub. We believe this is increasingly important in the face of growing protectionist and competitiveness threats.
We applaud the government's efforts to establish the Canada infrastructure bank to attract private sector and institutional investment to new revenue-generating infrastructure projects. Targeted spending on productivity and trade-enhancing projects would bolster Canada's long-term competitiveness. In our view, the infrastructure bank should be designed to stimulate, through open and competitive bidding, projects that would not otherwise be pursued by federal, provincial or municipal governments.
But injecting new capital alone will not improve the Canadian infrastructure environment. The federal government can lay the groundwork for new major infrastructure projects by ensuring that regulatory approval processes are transparent, predictable, fact-based and capable of rendering decisions in a timely manner.
Turning to foreign investment, the Business Council of Canada has long called for the creation of a single window to attract major investments to Canada. For that reason, we welcome the creation of the invest-in-Canada hub in Bill C- 44.
Canada's ability to attract foreign investment has diminished. In the early 1980s, the stock of inward FDI as a share of GDP was higher in Canada than in countries such as Australia, Norway, Sweden and the U.K. Today, unfortunately, that situation is reversed; we lag all four of those countries as a destination for foreign investment.
Over the same period, our country's share of global FDI has fallen from almost 8 per cent to 3 per cent. According to the 2016 World Investment Report compiled by the United Nations Conference on Trade and Development, Canada does not even rank among the top 15 prospective host economies for multinational investment for the 2016-18 period. That survey is based on a survey of multinational executives.
We believe that the invest-in-Canada hub and the adoption of a streamlined single-window approach to facilitating new investments could help reverse these worrying investment trends.
Finally, our council generally believes that foreign investment is, except in unique circumstances, beneficial to Canada. For that reason, we support raising the Investment Canada Act review threshold to $1 billion.
With that, I conclude my remarks. Thank you.
Benjamin Dachis, Associate Director, Research, C.D. Howe Institute: Thank you very much. For those of you not familiar with the C.D. Howe Institute, we're a national non-partisan public policy think-tank.
I will be discussing some of the recent research I've done on the case for private infrastructure and the infrastructure bank particularly and is available on the C.D. Howe Institute website, as well as work that we're going to be publishing in a couple of weeks by my colleague Steve Robins of Harvard University.
The key message from our work is that the government's move to create an infrastructure bank is very much a step in the right direction. It's now time to get the details of it right. We think the bank requires independent governance, a deep commitment to evidence-based decision-making and less political involvement in negotiating with potential private sector and local and provincial partners.
First of all, it's really important to remember the benefits of using private investment in place of taxpayer-supported debt. Government funding for infrastructure has two hidden costs on the economy. The first is a greater risk on the taxpayers, and the second is the economic harm of taxation.
One of the common arguments you will hear favouring government infrastructure investment is a lower rate of interest for the government compared to pretty much everyone else. It sounds like the government should take on the borrowing, right? Not so fast. This lower borrowing rate is the result of lenders viewing taxpayers as the guarantors of any cost overrun or late delivery. Sharing risk with institutional investors instead can be a better deal for everyone.
Second, every taxpayer dollar the government uses for infrastructure has to come from someone's taxes, and those taxes mean some businesses don't make an investment and some people work less. Governments can reduce the economic harm of this by relying on users instead of taxpayers to pay for infrastructure, with institutional investors providing the financing in place of governments. That is the case for private sector investment.
The question now is, how do we do it right? First of all, where necessary, Ottawa and the provinces should be creating independent regulatory bodies overseeing the infrastructure assets to ensure that their owners, either governments or private sector owners, act in the public interest and for long-term sustainability. Importantly, that should not be the role of this infrastructure bank.
Our forthcoming work will point to a number of key design elements of the proposed infrastructure bank that I will finish on. The first is on governance. The bank should have a single objective in its mandate, clearly defining what projects the bank should pursue. Its independence should be enshrined in the legislation in a way that protects it from day-to-day political interference, and it should have an independent board with fixed terms.
Second, the federal government is going to need to create standardized project planning and create consistent cost, benefit and risk metrics. It should also require the collection of this data for any projects receiving federal funding and having more than, say, $100 million in the capital costs. Budget 2017's commitment to better data collection in infrastructure is definitely a positive step in this direction.
Finally, for the bank to be viewed as credible, rigorous and fact-based, it must be seen as independent of the political needs of the government of the day. Australia's experience with Infrastructure Australia is very instructive. When it was first established, it operated with a board with limited independence and even had members from government departments on the board. That discouraged states and municipalities from participating. They saw the bank as being insufficiently independent.
As a result, in 2014, the Australian government amended its mandate to create a truly independent board to address the concerns of states and municipalities. Board members there now can only be replaced for cause, and one quarter are appointed on the advice of other levels of government.
Statutory independence means that the minister may not give direction to the bank on the content of any analysis, nor require the bank to proceed with projects with negative net benefits. Any initial deployment of public resources should be approved by the minister of infrastructure and communities or together with the cabinet. That's absolutely needed to have the appropriate level of democratic oversight, but that kind of ministerial approval should happen at the very beginning of the process. Once the bank begins to procure with private or other government partners, the bank should have the ability to proceed to close a transaction without further ministerial approval because that will ensure market confidence in the procurement process.
In sum, the government's proposal for an infrastructure bank is an excellent idea if done correctly, and the broad strokes of a good proposal are in the legislation. More institutional safeguards are necessary. The best way to do so is an important question that this committee is going to need to look at and consider as it investigates this bill.
With that, I look forward to your questions.
The Chair: Thank you very much. Does the budget legislation that we presently have before us meet your definition of proper governance?
Mr. Dachis: No, it's definitely lacking in sufficient safeguards for governance. One of the key things we don't see in the governance right now is the independence of the board. You want to see things like fixed terms and the ability to terminate only for cause.
We also don't see a lot in the legislation as is, and this is something that's questionable as to whether it should be in the legislation because really that hard-wires us into the legislation, is the process of how the bank goes back and forth with the government. There has to be that back and forth but it's not enshrined in the legislation right now as to when exactly the minister can intervene, and whether the legislation should in fact say that is a good question.
Questions about board governance absolutely should be in the bill. Other aspects of the independence of the bank might be best left to the corporate plan and the day-to-day practice and informal institutions as to how the bank works.
The Chair: I have one more question before I get to my list. The bank itself, the infrastructure bank as it's called, is it really a bank? As one newspaper columnist clearly stated, it's only a bank because the federal government can use that term "bank'' but it doesn't take deposits or meet with the public. It deals with these large projects much like an authority would. But we also heard witnesses here say basically what it will do is subsidize projects so that they would become investment opportunities. In other words, without the government subsidy, they're a bad investment, but with a government subsidy, it's a good investment. Is that what we should be doing? Why do we need an infrastructure bank for that?
Mr. Dachis: Yes, so first of all, I wholly agree. Bank is a terrible name. This is really just a legacy name that makes it look like it's following through on an original campaign commitment during the last election. If you go back to the original campaign proposal, what they had then was very different from what they have now.
I was critical of the original proposal, which was that the federal government would effectively be loaning out to lower tiers of government based on its lower interest rate, which, as I mentioned earlier, is a terrible argument and terrible reason for the government to take on any type of expenditure.
But you're absolutely right, and the next question is whether this is a really now just a method for subsidizing projects, and it probably is. Now that said, subsidization of some infrastructure is a good thing. The very presence of infrastructure has a wider effect on the economy that, in some cases, has a bigger benefit than what an individual private operator would experience in its bottom line.
So this infrastructure bank, if designed correctly, can be used to encourage infrastructure that wouldn't otherwise be created, which has a broader public benefit than that which any private owner of, say, a pipeline or electricity transmission would experience, so things that have broader economic benefits, such as transportation. Transportation infrastructure has wider economic benefits. That's exactly the kind of project, as long as there is a revenue tool attached to it, that the bank can and should support.
The Chair: I will go though our list starting with Senator Massicotte.
Senator Massicotte: I have a lot of questions but will try to be focused.
This question is addressed to the gentlemen here physically. You heard Mr. Dachis of the C.D. Howe Institute. He has improvements to make to recommend to the infrastructure bank. All of you are supportive of the bank. You think it's good for the economy and efficiency and competitiveness, but you don't make a comment on the need for greater independence. As you know, there are two schools of thought. Some people say we should not do this thing and we should invest public money and forget the private sector, and others say we should leverage whatever money we have to get a bigger bang for the buck. Are you okay with the governance as proposed in the act and, if not, what specifically would you recommend to make this work?
Mr. Kingston: As it stands now, we're comfortable with the legislation and how it outlines governance for the bank. We believe time will tell whether or not it's operating without day-to-day political interference. Our hope is that that would be the case, and we believe, at least in the broad stokes of the legislation, that it will be possible, but I don't want to say definitively that it will because we will have to see once it's fully established and operational if that's actually the case.
Senator Massicotte: The act as is provides for approval of projects by the minister, and he has publicly since declared that he would review every project. When you continue with the answer, consider that.
Mr. Greer: To echo Brian's comments, the act right now is very much a blank canvas, and until we have bank leadership and we see the operational details, having a good sense of how it will operate is difficult.
Going back to my comments on some things we think the bank could do a good job of down the road that are not currently narrowly lined up in its mandate around intelligence and analysis will be how this evolves, so it could very well be that we find that if governments are clearing the board and it becomes a vehicle for politically driven projects that will have swung too far in one direction, vice-versa a government could find the bank of little strategic use and maybe not provide the upfront capital or otherwise prioritizing projects through the bank if it felt like it wasn't advancing the overall strategic direction of the government. It depends upon seeing this thing in operation, how it's really working, to pass judgment on the canvas they've lain out.
The Chair: This is the bank. As far as we know, there is no further legislation. The legislation for the bank is what's in front of us now. Do you think that's sufficient to ensure independence?
Mr. Greer: Sorry, my comment was to note that we're not going to know how well it's functioning until we have it up and running. The bank and the act are so broad, we still are having a little bit of trouble telling exactly what kind of projects and private funding it will crowd in, and I don't think there is much they could spell out in the act to give us a clearer picture until this thing is operational. For us, it's wait and see, correct and evaluate as we go along, to make sure we end up with the best institution possible.
Senator Massicotte: Let me jump a little bit. Everybody is in favour of the Investment Canada hub, including the C.D. Howe Institute. I am having a little difficulty. I agree with the single-window efficiency; you know who to call and get information. Maybe I'm missing something. I don't know why we're creating a corporation with a separate board, an organization of that significance, of that complication, and trying to cause it to be a separate company, and yet there are a lot of people, all the counsellors in the current scheme helped immensely. What are your thoughts on that?
Mr. Brakel: We had round tables across the country with business people, and we asked them about the FDI and what they wanted. They said they wanted something specialized, not just another government department writing papers about how Canada is a nice place and Canada has a lot of opportunities. They wanted specialists who are really good at individual decision-making.
If you go to South Carolina because you're thinking about building a manufacturing plant, there is a person who will meet you at the airport and say, "You need to talk to this municipality. This is the zoning you need. This is the person you have to talk to get an electricity connection.'' They are a really specialized concierge person who knows.
I think that's what business people were saying would be more helpful than just tacking another set of tasks onto the Trade Commissioner Service or something like that. That's why we like the idea of having specialists in Canada knowing which level of government, which office and who to call to give you help as a foreign investor.
Senator Massicotte: Any comments from the C.D. Howe Institute?
Mr. Dachis: Not on this part of the bill, no.
Senator Tannas: Sometimes you get ideas that are vague enough and perhaps everyone can impute your own wishes on it. Some of you talked about independent governance and that it should be enshrined in the legislation. Here is the legislation. It's not enshrined.I come back to the question of, is there enough detail here?
Now, I'm going to drag you into the political considerations that we have. This is a budget bill. It has to get passed for lots of urgent reasons. It's seemingly familiar. I recall a campaign promise from this government that they wouldn't do this because this was a cardinal sin of the previous government. Yet here we are, the middle of June before this gets its way through to being presented, and we're being asked to rush this.
So we have a political consideration, which is this: Should we, as the Senate, carve this out, send the rest of the budget bill off so that everybody gets paid and things happen over the summer, and then we take the time to study the legislation as it then exists in a little nugget and try to be helpful? Is this important enough, in your view, that we should take the time to make sure we get it right, or is there an urgency that you can tell us about that would maybe make us think we ought to let it go, that it is good enough?
Mr. Greer: I guess it would be difficult for the Chamber to comment on whether this group and the Senate has enough time to fully study and consider what's before it. All I would say is that when the commitment was first made in the Liberal platform, when the government announced they were proceeding, when they provided some more detail in the Fall Economic Update and when we saw this bill, we were happy to contribute and give our two cents to the department, the minister and their staff and the interim team putting this together at all stages and will to continue to do so, but it would be difficult for us to suggest whether there has been enough time here for your to study it.
Senator Tannas: Are you saying good enough, or are you saying there is a lot more work to do? I think it was actually you that did say something about legislation, that there needed to be enshrined in the legislation the independence.
Mr. Greer: I would leave that to this committee to determine whether it has had enough time.
Senator Tannas: Okay. Thank you. Anyone else?
Mr. Dachis: I think Ryan had a good idea, namely that when you think about what to do with this act and the bank itself, one valid approach would be to let it go ahead but look at it carefully.
There are a couple of simple and potentially uncontroversial things you want to propose. One is that maybe in a year or two, you have a second look at this to ask, "Did we get this right? Is the independence right? Does the board structure need to be looked at.'' Rather than have this go ahead as is and it's written in stone forever, do you want to impose minor tweaks like that, such as not necessarily a sunset clause but a review clause.
Senator Tannas: That is interesting.
The Chair: That's worked really well in the past. It seems to me that government institutions never go away — at least I can't think of any. I suppose there are some, but none I can think of right now.
Senator Wetston: My experience in this particular area, having dealt with infrastructure from a regulatory perspective, suggests that it's a positive development to proceed with infrastructure development in this country. I think it's absolutely necessary. I would hope that we're able to proceed more expeditiously rather than less. That's not an answer, however, to some of the issues that are being raised here.
Mr. Greer, didn't we see you recently on the corridor study?
Mr. Greer: You did.
Senator Wetston: You're making a habit of appearing here, I see. You're welcome any time, but I do recall your testimony.
I have a question for Mr. Dachis and perhaps one to the panel here. When I speak to individuals outside of the Senate about this project, the biggest concern that they raise is independence. Governance. I think it's being addressed here, but I was a little bit surprised, Mr. Dachis, by your thought about introducing another regulatory element to this by having independent regulatory bodies that would also be responsible for oversight of these particular projects. Can you elaborate on that and why you feel we need to introduce more oversight in this area?
Mr. Dachis: It depends on the area. In some areas, competition is perfectly sufficient to ensure that any private actor acts in the best interest of the overall economy and isn't acting like a monopolist. A good example would be any potential rail investment, where any private rail investor operating between, say, Toronto, Ottawa to Montreal would be in pretty fierce competition with airlines, with individual drivers and that sort of thing. However, when it comes to private investment in everything from electricity, to water, to a number of areas that are, by their nature, very much a natural monopoly, we have to be careful about making sure these sectors have that regulator in place.
With your experience in the Ontario Energy Board, Howard, you know a strong regulator like that can absolutely protect public interest when it's a private or a public operator. That's an important thing to emphasize; that is, an independent regulator is going to be very effective in protecting the public interest, regardless of whether the owner is the private sector or the public sector. In fact, it would be more effective to have more private money put into infrastructure because that regulator is going to be seen as being able to go after these entities much more clearly if they're not meeting environmental standards or acting in the public interest because if it's a government regulator and a government operator, it's really just going to be going after the taxpayer, at the end of the day, to finance new infrastructure improvements.
Senator Wetston: This is the subject matter of a longer debate. We could have the debate but not here. The bottom line I'm suggesting is there is already a lot of oversight. When you try to build something at the municipal level, whatever it might be, an infrastructure project, you're going to have a lot of municipal involvement in the approval process. There is no question about it. I know what you're concerned about here. I'm just raising this issue with you to say that you want an efficient least-cost process rather than adding more regulatory oversight to these particular projects. We can have that discussion at another time.
I raised that, chair, because I think it's a matter that I would question from the point of viability or necessity. I see your point.
Perhaps the panel might want to address this next issue. When you're talking about independence here, you can't really look at this independence in the same way as you might in the independent appointment of a regulatory body that has both potential compliance, enforcement and quasi-judicial responsibilities. This is not what this is. This is expected to be an expert board bringing its expertise to projects that might be supported on the government side as well as on the private sector side. The question I have — and any of you can respond to this — is that I see the importance of independence and of good governance structure, but I'm not quite sure why it is that the necessity of having an independent institutional model to the point that's being recommended is absolutely necessary in this case. I wonder whether any of you could comment on that a bit more.
Mr. Kingston: I would be happy to start. From our perspective, the independence relates to the bank's ability to analyze and structure projects. That's where we see a desire to have no political interference there. The bank needs to be able to operate under the direction of the CEO and choose projects it believes are viable and in the interests of the country. As long as there is total independence there, that's most important to us.
The Minister of Finance having approval over loan guarantees is completely reasonable when you're looking at the sums of money that are involved here. It's a balance in terms of independence. The bank needs to operate independently, but when public funds are involved, there has to be some accountability.
Mr. Greer: We'll see from investors whether that balance is struck. Capital will flow if investors think it is depoliticized at this operational level, and the capital won't flow if they feel there's not that independence. The investors and the private money that's crowded in or not crowded in will be the telltale sign.
Senator Wetston: You want to avoid political meddling, is really what you're getting at.
Mr. Greer: Yes.
Senator Wetston: And the expert board will provide that kind of expertise.
The other question is the selection of the products, because these are not the otherwise readily identifiable projects. These are the ones that are not readily identifiable, and if they come forward, who makes the decision on these projects? Obviously, a lot of money will be spent on them.
Mr. Greer: We'll have to wait and see, because as per the mandate of the bank, proposals will come from different levels of government. It will accept unsolicited proposals from the private sector. It's not clear to me how those will be evaluated operationally. Any loan guarantees or capital risk from the government will need to be approved by the Minister of Finance. We're still waiting to see what that approval process will look like.
Mr. Dachis: We want to have political involvement in some capacity early in the process, but once that project is decided on in broad strokes, the bank has the independence within that final decision-making to go forward.
This goes back to the early question about governance, which is in a paper we're going to be putting out very soon. We're going to recommend the bank not be as independent as the CPPIB or the OTTP or an independent regulator. The definition of what this bank is dealing with is a political activity. Taking people's money from Toronto or Timmins and reinvesting more of that somewhere where those people are not is a redistributional aspect that is inherently political. That does require political oversight, unlike the CCPIB, which is taking one person's money and giving it right back to them without that redistribution.
Senator Ringuette: My first question is a good follow-up to your current comment, Mr. Dachis. On page 3 of your document, you say that the key design element of the proposed infrastructure, and then you go on to 1 and 2.
In number 2, you say that the federal government is going to need to create standardized project planning and create consistent cost benefit and risk metrics, and yet your recommendation number 1 on governments says that the bank should have a single objective in its mandate clearly defining what projects the bank should pursue.
You're wanting both worlds at the same time. You're saying that the federal government needs to standardize the project planning, the cost analysis and the risk metrics, but on governance, this bank needs to be the sole decider of which project they will pursue. It's pretty hard for me to determine exactly where you stand in regard to federal government involvement in the planning and execution versus independent governance of the bank.
Mr. Dachis: Let me be more specific. What I mean in that second proposal about consistent metrics is it's going to be flooded with applications for potential investment proposals, from Ontario, British Columbia, cities, you name it. It's going to need to come up with a way to compare all those different proposals. It should lay out what that proposal template is, and that way it can decide, out of those innumerous proposals it's going to get, which it should pursue, because it's not going to be able to pursue every single project it receives an application for.
That's what we mean by its mandate. Its mandate should be that, once it gets these applications, it has to have a clear idea as to which ones it will put real money toward. Does that clarify your question?
Senator Ringuette: Yes. But last week we had a group of experts saying that they were hoping that the bank would have extensive project requests, but there was some doubt.
The second thing is that Infrastructure Canada, for the last almost two decades, has been receiving and compiling infrastructure requests. There is already a slate of proposals for the bank to look at without this deluge of applications.
Mr. Dachis: It needs a clear criteria as to which ones it will choose. Why will it choose those? Will it choose the ones that are most in the public interest based on how you define whatever public interest might mean? Does the public interest define whatever a politician wants to do at the end of the day? Does it mean something that is going to cover its costs? Does it mean something that has the widest economic benefit or widest economic and social benefit? You have to have a clear criteria as to which ones you want to pursue.
Senator Enverga: Thank you for the presentations. It looks like our business sector is buying into the idea of having an infrastructure bank. I heard something mentioned that is a good idea. You mentioned that we should go ahead, but time will tell; it's unsure.
There's also the question of independence. There's even a recommendation that says that it might not be related, but it could be related too, with regard to developing a comprehensive plan to broaden the tax base and bring down rates, setting out a detailed, fiscally sustainable path to balance budgets with a commitment to a debt-to-GDP ratio.
With all this uncertainty and questions about independence, will the business people invest their money at this time, or would you be waiting for more information?
Mr. Brakel: The challenge we've always had is there is no shortage of money in Canada. We have huge banks, pension funds and insurance companies. When we've asked people whether they would invest in an infrastructure bank, they say that as a pension company, their fiduciary responsible is to maximize the return for the risk they're taking. They are saying the infrastructure bank can help with that.
An infrastructure project like a water treatment plant or a bridge is a 25-year project, and it's very hard for a bank to do the analysis, is it going to make money? They'll do it for very large projects. There's not a credit rating or a balance sheet, so it is very difficult for them to analyze the risks, and because by nature these are projects of a long duration, it's sometimes difficult for the private sector to invest in these long-term things.
An infrastructure bank that is set up by the government and is capitalized by the government would be a better risk for a Canadian business or an investor than would just be some municipal infrastructure project in Saskatoon.
Senator Enverga: So you're investing here because there is a guarantee that the public will pay just in case?
Mr. Brakel: In some ways, yes. That's certainly a possibility, if there were guarantees and the bank is selling bonds. Again, it comes back to, we're not sure what sort of projects this infrastructure bank is going to be offering. They could offer infrastructure bonds. They could combine a whole bunch of smaller projects together and then sell those, or they could be looking at big, strategic, gigantic $2 billion bridges and things like that so that a Canadian investor would come in and take a piece of it, but it would be credit-wrapped or back-stopped by the government. That's kind of the idea.
If you look at the reports from the Federation of Canadian Municipalities or associations of engineers, the infrastructure needs in Canada are so enormous, $800 billion, that we really want to get more dollars there that don't come from our taxpayers. If the infrastructure bank can help in that regard, that's why the business community supports it.
Senator Enverga: The conclusion is, you want it done; businesses will do it because there is no risk for business people other than the fact that our taxpayers are on the hook just in case the business fails.
Mr. Brakel: In the case of a loan guarantee, then the guarantee is coming from the government, so that does reduce it, but there are other ways . The business community could invest in equity. The idea is that the infrastructure bank pulls more money into the infrastructure deal. There are many ways to structure it.The private sector would share in some of the risks, yes.
The Chair: With loan guarantees, what kind of risk is that? Let's be serious here. If you want to build a bridge, why wouldn't a municipality just build a bridge and charge a toll? Why would they need the infrastructure bank?
Mr. Brakel: The cost of borrowing for municipalities is higher.
The Chair: Really?
Mr. Brakel: Canada is triple A.
The Chair: Almost all borrowing is backed by the provincial governments; at least in our province it is.
Mr. Greer: If I can add, the real benefit is bringing in the private sector builder or operator to find out, as Ben was alluding to in his opening remarks, the true cost of the bridge, the lifecycle cost of the bridge. In terms of building and maintaining it in the most efficient way, that's where bringing in the private sector as that partner brings the real benefit, not just to the community, not just the taxpayers but to the overall economy by having an asset that is managed in a manner that keeps it not only as a revenue tool but maintained over its lifespan of 20 to 30 years.
The Chair: So it's expertise, not risk.
Mr. Greer: I think it's some of both.
[Translation]
Senator Maltais: I will give you time to put on your earpiece. You see, that's the benefit of living in a bilingual country.
I listened carefully to your testimony; I am not going by your submissions. All three of you said that establishing an infrastructure bank seemed like a good idea. We could also call it an investment company, basically it would be the same thing. But the kicker is that you do not know how it will work. You're waiting for regulations.
My main question concerns the governance of such an agency. As Mr. Dachis rightly said, the institution must be non-political, the government must not be able to intervene in its governance. Initially, the loan guarantees will be approved by the Minister of Finance, who, as far as I know, is not a public servant. The Minister of Infrastructure will then decide which projects will be included. He is not a public servant either. But you forgot someone: the Minister of the Environment. He or she will be the one making the decisions with respect to the final phase of the project. Ask some senators here, they will have a lot to say about it. That's already a lot of fingers in the pie.
Is your understanding that the bill provides us with a guarantee against this risk right now?
Mr. Brakel: You are right. That is yet another question we have. We are concerned about some of the measures in the bill, but we are waiting to see how it will play out. Political influence can be positive, if it is to ensure strategic projects in Canada, such as a huge bridge or projects that are in the order of billions of dollars.
For the bank to work and for the project to attract private sector funding, it must have some independence. However, as Mr. Dachis said, we believe that there must be some government influence. Implicitly, the bank's objective is to create infrastructure in Canada. It is a political objective.
Senator Maltais: You can actually draw a parallel with a child's first day in kindergarten: the parent holds the child by the hand. That is what you are telling me, and that is also my understanding of the bill.
However, Mr. Dachis said something important: if there are losses in a project, the bank will be the one absorbing the deficit. But the bank is the government.
In real life, if the Royal Bank, for example, invests $100 million in a project and loses it, not all Canadians will suffer the loss, but all the shareholders of the Royal Bank.
The Champlain Bridge had a public-private partnership structure, which included a toll. The government decided to withdraw the toll. Who will compensate for this loss of profits? Is it the infrastructure bank? Can it reconsider?
Mr. Brakel: All banks have reserves. A large bank or large institution that makes investments will suffer losses; that's normal. It is expected that the bank will have the capital and reserves necessary to suffer any losses that may arise from time to time.
Senator Maltais: Yes, I understand, but in this case, the reserve of the future infrastructure bank is all Canadian taxpayers.
Thank you, Mr. Chair, that's all.
[English]
Mr. Kingston: I'd just like to make a point. Canada has a very long and I would argue very successful track record of undertaking P3s, so I think we're well positioned in that space and in our infrastructure community to proceed with projects like that.Over the last 22 years or so, there have been over 200 projects with a total spend of nearly $100 billion. Of course, there will always be risk in large-scale infrastructure projects. I think Canada has some real expertise here in that, and I expect that some of those people would be brought into the infrastructure bank. We're optimistic. I don't want to speculate on the structure, the various deals, as that will depend on the project itself, but I think Canada is well positioned given our track record with P3s.
The Chair: Would the infrastructure bank mean the end of P3s?
Mr. Kingston: Absolutely not. My understanding is that P3s could still be funded through the bank. They may not be, but it's not the end of P3s.
Mr. Dachis: It's really important to distinguish what the bank is going to do versus what P3s are. P3s have traditionally meant what you see here in Canada, especially Ontario. They have really just been private investment as a way to offset a lot of the risk on the taxpayers through construction. If the project goes over budget or is severely delayed, P3s as they're structured in Ontario leave taxpayers whole. At the end of the day, for a lot of these projects in which we see P3s in Canada, demand risk is still on taxpayers. If there aren't enough people using a road or a subway, it's taxpayers who pay.
The bank is a great idea for moving that risk one step further, putting less of that risk on the taxpayers and putting it on to private developers for, say, a new subway line or new revenue-raising project. That's an important innovation that this bank can offer.
Senator Marwah: I want to go back to the concept of governance. Mr. Dachis, the point you made is that one of the criteria of good governance is that you have a board with fixed terms. I've been in private enterprise all my life and I've yet to come across a board with a fixed term. No board has a fixed term in the private world. Shareholders have a right to remove board members if they don't perform or don't meet certain criteria. Why do you think they should have fixed terms here?
The second point is that shareholders can remove a board member. In this particular case, the only shareholder is the government, so why shouldn't they be allowed to remove board members if they don't meet certain tests?
Mr. Dachis: Obviously, for cause, that's a very clear criteria. That's the kind of criteria that you see in the governance structure for directors of, say, the CPPIB, and that's a standard thing and absolutely should be a criterion for them being fired.
When it comes to public versus private companies, this is where you get into the question of political interference versus shareholder interference. They are two different fundamentally different things. We have many concerns about political interference with infrastructure projects all across the country and for a very long time, so that's where that motivation comes from.
Senator Marwah: Who removes the director? If the government can't remove them, then who can?
Mr. Dachis: The government can remove them for cause, for sure, but this goes to the fundamental governance of the bank and the right sort of parameters of governance. When it's proposing a project and wants to go through with it, it has to get that type of approval from the government. That makes a ton of sense, but day-to-day interference in the bank can be insulated with this independent board.
Senator Marwah: I don't think anyone is disagreeing that they can't interfere with the concept of the risk analysis, which projects they can and can't take, and which projects meet the economic objective. But surely they can decide to remove certain directors if they aren't meeting the test. Your only question, then, is one of cause. You think they should have a cause that should be predetermined as to how you can remove a director? Is that the only thing?
Mr. Dachis: This is something the committee should feel free to look into some more as to whether that's the right test or if that is too high of a test that they propose back to the government.
[Translation]
Senator Carignan: My first question is for Mr. Brakel. You responded to Senator Maltais by saying that, in your opinion, the project had other problems. You have raised other issues, other disadvantages, or concerns. Could you name those other concerns?
Mr. Brakel: Our concern is about the bank's independence in decision-making. The fact that the loan guarantees must be approved by the minister was the main concern. How will that work? Will it be cumbersome to present the projects to the minister? That was the point.
Senator Carignan: Speaking of the bank's independence, you have seen in the bill that it is an agent of the Crown. Have you considered the legal consequences of the bank being an agent of the Crown?
Mr. Brakel: In terms of —
Senator Carignan: In terms of jurisdiction, in terms of environmental studies, in terms of the projects in which the bank could invest, for example, as well as in terms of prosecution and immunity from prosecution against the bank.
Mr. Brakel: That is a very good question. I am not a lawyer. I do not think we have studied that aspect of Crown corporations.
Senator Carignan: You are talking about the bank's independence, but you have not covered the provision that says that the bank is an agent of the Crown. You talk more about the oversight, the appointment, the terms and conditions, and that's enough for you to worry about the bank's independence.
Mr. Brakel: That is not a concern. For example, Export Development Canada and the Business Development Bank of Canada are Crown corporations with some influence and government mandates, but they operate quite independently. We have some concerns about the bill. However, if the bank works really well, like EDC or BDC, we will be happy. For now, it is difficult to predict how things will unfold.
Senator Carignan: You say that the bank will absorb the losses, that the bank will have to bear a project's losses, and that this will encourage the private sector to invest. Should we not change that in order to create infrastructure insurance rather than an infrastructure bank?
Mr. Brakel: There is a difference between a guarantee and insurance.
Senator Carignan: Comprehensive insurance means the same thing: you invest, and if there is a loss, you assume it; if there is a profit, it will come back to me.
Mr. Brakel: As Mr. Kingston explained, in our experience, there are very few losses in those types of infrastructure projects. However, it can happen and, in this case, the bank needs the reserves and capital to absorb those losses.
Senator Carignan: If there are very few losses, why does the federal government not retain responsibility for infrastructure? Would that not be preferable for taxpayers?
Mr. Brakel: It's just to attract a lot more money in infrastructure. We often hear that pension funds in Canada invest in ports in Australia or airports in Latin America. We would like the money to be invested here. We would rather see the private sector pay for those expansions than taxpayers. If we look at the massive amounts of money that we need to invest in infrastructure in Canada, we are talking about over $800 billion over the next decade. Those are huge amounts.
If the chamber of commerce recommended that the government spend $200 billion on infrastructure, we would be caught off guard. Those are huge amounts. That is why we want to attract the private sector.
Senator Carignan: That is nothing for the Government of Canada's budget, which will have a $30 billion deficit.
Mr. Brakel: We would rather see lower deficits, and the infrastructure costs assumed more by the private sector than by the government and taxpayers.
[English]
Senator Massicotte: Basically, my question will be one of interest. We've had witnesses in this respect earlier, a couple of weeks ago. They always talk about P3 and the success of privatization of infrastructure projects, and they often mention Highway 407 in Toronto. I'm not from Toronto, so maybe someone from Toronto can help me. What is it that was so successful about Highway 407 that we can learn from? My attitude is a little bit different. If they were so successful and made so much money, I get the feeling it wasn't a very good project for the taxpayer and somebody got shafted there. Maybe it was so good the other side decided there must have been something wrong when they planned the thing and structured the investment. Can someone help me out? Why is it so successful, and why isn't it? Maybe we have something to learn from this project.
Mr. Dachis: I am happy to tackle that, as I am currently in Toronto. Thanks again for letting me video conference in.
The fundamental political problem with the Highway 407 sale was that the government built the thing itself and then sold it as a whole to a private construction consortium, which ended up being eventually being sold to CPPIB and other partners. The fundamental issue was that the value of it, after the fact, was much higher than what the government got in the initial sale.
But second of all was the sort of lack of understanding of the terms upon which the operator could increase tolls, and tolls went up a little bit more than people were expecting initially. So that's the political concern.
But, at the end of the day, this project got built, and it's a very successful highway for travellers in the 905. In fact, we've seen more toll road extensions being built. This goes back to what I've said before to the House committee on this, which is that the lack of road pricing, the lack of user fees, is why we can't have nice things in Canada. If we relied more on user fees like we see on the 407 for more highway projects, more appropriate user fees for everything from water to electricity to transit even, we'd have a lot better infrastructure all across the country.
Senator Ringuette: Well, at the end of the day, I guess we can speculate on whatever and however we want, either the financial issue or the political issue or whatever, but I think, Mr. Greer, you had it right, and, Mr. Dachis, you wanted a review process. There is a review process in the legislation at clause 27. Every five years, there will be a review of this legislation by the minister. That review will be tabled to both chambers, the Senate and the House of Commons, to also review, so there is a double review every five years of what is going on.So, if there's any adjustment to be made, I guess then at least the opportunity will be there every five years.
Mr. Greer: I would just add: The best evaluation of the political risk with the bank is going to come from investors themselves. If the balance hasn't been struck, we're going to know sooner than five years from now whether how we've set this up is the right balance or not.
Senator Ringuette: Exactly. Thank you.
Senator Wetston: Just a brief question: I just want to follow up a bit on the risk associated with these projects. I'm going to categorize these as projects that might not otherwise get built. It's my understanding that the infrastructure bank is to encourage the construction of infrastructure projects that are not being built either by government or by the private sector but are important, whether it's wastewater treatment or bridges or roads.
I know user fees is a bit of a challenging issue. We had one recently in Toronto with the Don Valley, in which there was a potential opportunity there, but, unfortunately, that didn't proceed. I use Highway 407 a fair bit, being in Toronto. I can't answer your question completely, except I agree with Mr. Dachis, if you don't mind my saying, chair, that the early construction and financing and sale was the problematic area. Today, I would say — and I can't confirm it — that I think it's a very successful highway and fills a very important need in the GTA today. But its early history was a bit challenging.
The question I would have for Mr. Dachis or, potentially, Mr. Greer, is: Who takes the construction risk in these projects? Who takes the operational risks, and can you distinguish for me, because we have a lot of this in our society, between taxpayers and ratepayers? Because these are revenue-generating projects. Can you elaborate on that concept generally and how you see it in the way that I've just described it, either Mr. Dachis or Mr. Greer or anyone else who feels that they can respond to that question?
Mr. Greer: When it comes to P3 projects generally and then the types of projects that can be considered under this bank, there's all kinds of flexibility to how to structure a deal and where that risk flows, but, really, the benefit is, I think, as Ben was alluding to in his previous remarks, the ability to share the risk, to spread out the risk, to transfer risk from the public sector to the private sector often. When it comes to construction and operation, depending on the deal — design and build; design, build, operate — there are ways to distribute that risk. So I think the flexibility within different P3 deals and within the bank is a chance to distribute that.
The added wrinkle of the bank is that, with taxpayer equity, there will potentially be revenue-generating projects, but there will also be taxpayer contributions alongside the ratepayer, depending on the revenue tool that's associated with it and how the deal is structured and how the government provides assistance. There is a great deal of flexibility within current P3 structures and even more within this bank to structure those kinds of deals.
Mr. Dachis: To be specific with one example of what the bank might look at, you can look at the most recent Quebec budget in which they kind of jumped the gun on the infrastructure bank's design when they laid out a proposal for what's called the REM, which is the light transit project all across the island of Montreal, in which they laid out specific recommendations, the specific idea of how the federal government could own a partial equity stake along with the Caisse de dépôt. The Caisse de dépôt would get a certain rate of return, the federal government would get a different rate of return, and you can structure this based on some kind of subordinate equity. But, again, if you want to look at a specific proposal as to how this might work in terms of that subsidization, where there is still that user fee component, the REM model is very unique in having both a user-free component and also a very innovative land- value-capture component, which are really just user fees by another name. That's a great model to look at for how this might work.
Mr. Brakel: Just one very quick example of how it could be structured: Look at Via Rail's proposal for passenger rail. When you take the train from here to Toronto, it takes five hours because the train goes at 50 miles an hour because it's sharing the track with cargo trains. They could build their own dedicated passenger rail. Trains will go twice as fast, so you'd get to Toronto in two hours. The total cost of that is about 2 and a half, maybe 4 billion all in. Who should pay for that? The infrastructure bank could come in, and Via Rail could issue bonds. The infrastructure bank could buy them all up. The infrastructure bank could provide a guarantee because Via Rail doesn't have a credit rating. It's completely government, so how does it get structured? Via Rail could sell shares to the infrastructure bank, or the government could give $2 billion to Via Rail. So we'd love to see the infrastructure bank come in and do a big project like this in a way that pulls private sector money in. Things like that are where the infrastructure bank could make a big difference.
The Chair: Okay, well that is interesting. This whole thing has been very interesting.
Senator Massicotte: Last question, Mr. Dachis: David Dodge, previous Governor of the Bank of Canada, issued a letter to the Minister of Finance, which is public; we all got a copy. He was so negative on the inefficiency of political decision-making, whereby municipal leaders often choose projects that are political and give them profile and are not necessarily consistent with the long-term interests, strategic interests, of Canada. He was recommending that not only should there be the $35 billion that you're currently talking about but this form of structure should also be applicable through the other $90 billion being spent in conjunction with the municipalities. Do you have any comments on that proposal or that suggestion?
Mr. Dachis: I have a number of problems with the perverse incentives created by a number of federal grants to local tiers of government. That's a topic for another day. I like to think of the infrastructure bank as sort of like training wheels for thinking about getting more private infrastructure money together. Then we can start thinking about how it would work elsewhere.
The Chair: Thank you, witnesses.
I am pleased to welcome by video conference Mr. Colin Hansen, President and CEO of AdvantageBC. I understand you will speak to us about Division 20, the invest in Canada act. Please proceed with your opening remarks. It will be followed by some questions from our members.
Colin Hansen, President and CEO, AdvantageBC: Thank you very much. I appreciate the fact that members have to be back up on the Hill fairly soon, so we can make this as short or as long as the committee would like.
First of all, it's great to be back presenting to Standing Senate Committee on Banking, Trade and Commerce. I had that honour a little over a year ago with regard to the interprovincial trade barrier report that was produced, which I commend the committee for.
To reiterate and remind members of my own background and that of AdvantageBC, my involvement in international commerce and Canada's international relationships goes back to the 1980s when I served as vice- president of the brand new Asia Pacific Foundation of Canada. In 1996, I was elected to the B.C. legislature, where I served for 17 years, including 10 years in cabinet, three and a half year of those as the Minister of Finance and three years as the Minister of Economic Development.
The issues around attracting foreign direct investment into Canada is something that has been a big part of my life. That is what led me to my role as president of AdvantageBC three years ago.
AdvantageBC is an organization that is non-government, non-profit and funded entirely by our members, which are primarily corporate members. The mandate is to reach out to companies around the world and promote British Columbia as a place from which they can do international business, particularly in the financial services sector, the idea being that if you want to build a robust international business environment in a community like Vancouver, you have to have a solid base of financial services in order to attract those companies. We have done that with some success over the years.
A lot of our focus is Asia-Pacific. Vancouver being Canada's gateway to the Pacific, I always remind people that East Asia is our near west, not the Far East. We're working with companies and investors that are keenly interested in Canada as a place for investment. They recognize there are tremendous opportunities, but a lot of it is being able to show them where those opportunities are and how they can best explore how they can benefit from investments in Canada. We try to work with these companies.
I think the idea behind the FDI hub that is provided for in Division 20 of this legislation is a very excellent concept and, I think, will meet a gap in Canada if it is put together the right way. I have no reason to believe, at this stage, that it's not on the right track. I have had good meetings with departmental officials in Ottawa and Vancouver, and they are definitely sensitive to some of the concerns. I can just reiterate what those concerns would be to the business community in British Columbia in particular, but I think it's a common concern in other parts of Canada as well.
First of all, it has to complement the existing activities we already have. It would not be well-spent taxpayers' money to be duplicating existing efforts. I know in some of the communications about the hub they talked about the role that municipal economic development commissions and also provincial governments play in attracting foreign direct investment, but we have to go broader than that because there are a lot of non-government organizations, like AdvantageBC, who play a very important role in this outreach and welcoming of foreign direct investment. I'm thinking of the sister organizations that I work with very closely: Finance Montréal, for example, on financial services; the Toronto Financial Services Alliance; and Calgary Economic Development, which we work very closely with when it comes to building Canada's brand in the area of international financial services.
The other point is that as this organization is set up, it has to be a very decentralized model. Canada is a big expansive country, and the stronger that the outreach is based in each region of Canada to serve that region, I think the better off the public interest would be served.
I want to close by giving an example of the kind of collaboration that I think helps build the Canada brand internationally, and that's with the four city organizations that I mentioned early: Finance Montréal, Toronto Financial Services Alliance, Calgary Economic Development and ourselves.
We built this collaboration, first of all, with the idea that instead of us going out and trying to promote Vancouver, Calgary or Toronto at the expense of other Canadian cities, we're far better off to work together to build a Canada brand and fly the Canadian flag rather than trying to solely promote our own parochial interest. We put together the funding from our four organizations to have a substantial presence at the Asia Financial Forum in Hong Kong a year ago last January, which was very successful in promoting that Canada brand and why foreign direct investment into Canada would be desirable.
The second thing that we did following up on that is we commissioned the Conference Board of Canada to do a study looking at the relative strengths of those four financial centres in Canada. It had never been done before. There have been national studies done looking at the aggregate numbers, but if we want to market Canada internationally, we need to understand the makeup and how the strengths of each of these cities complement each other. The way I look at it is our strengths are greater than the sum of our parts.
That Conference Board report that came out last summer, entitled Stronger Together: The Strengths of Canada's Four Global Financial Centres, is a great addition to how we can understand that sector so we can better build our reputation internationally.
The Chair: In testimony earlier on in our hearings, there were a number of questions regarding the fact that we already have, through our embassies and trade officers, plenty of representatives around the world doing this very thing. Are they not doing this work? If not, what are they doing?
Mr. Hansen: We work very closely with the Trade Commissioner Service around the world, but particularly in East Asia. I can tell you that I am very proud, as a Canadian, of the kind of service that we get from our Canadian staff at our embassies and our consulates. They are enormously helpful to the work that we do, and I hear that from the business community generally.
But the niche where there is a gap is in terms of once you identify a company or investor that has a particular interest in Canada, we'll often get questions such as, "Do you know of any operating mines that are for sale? We are interested in buying one.'' The new thing is technology companies. There is a growing interest of investing into Canadian technology companies, either at the start-up stage or with mature companies that have well-established business operations.
We have the strength of our Canadian staff on the ground in these companies, but they also need to have somebody to pick up the thread on the Canadian side to actually do the kind of hand-holding and to coordinate the interest of some of the municipal, provincial and the non-government organizations such as AdvantageBC. That is where I think this FDI hub can be a significant benefit to Canada.
The Chair: From what I gather, this federal investment will be like a Treasury Board Crown — they call it a departmental Crown — that will be fairly independent, outside of the public service and will be hiring people to promote investment. Why wouldn't we just hire someone in the embassy whose sole job would be to promote investment from that country in which the embassy is to Canada? Why would we need a separate organization and all this stuff?
Mr. Hansen: As I say, I have great respect for the work done by our public servants in Canada and abroad, but with the hub and the direction it's going, from the feedback I've got, they want to recruit some entrepreneurial individuals who have business experience and understand where an investor is coming from so that they can anticipate the needs and make sure that those efforts are as fruitful as possible.
This is an organization that's going to have to be very flexible and resilient. They're going to have to be prepared to be available to assist, whether it's on weekends, evenings or putting in long hours. That's not to say that our public servants don't do that, because they do, but in addition to that, we need individuals who have the practical entrepreneurial business experience.
The Chair: That's kind of interesting.
Senator Enverga: It looks like you are basically doing what the infrastructure bank is being proposed to do right now. Am I right about that? What would be the advantage of having a bigger organize like the infrastructure bank as opposed to your organization right now?
Mr. Hansen: I'm not going to pretend that I understand the background on the infrastructure bank. I have not followed it as closely as I have the evolution of the FDI hub, but the FDI hub is looking to attract investors to come in and support Canadian activities in a very broad sense, whether it's in agriculture, technology or the resource sector. From my understanding, that will have a much broader focus than the specific infrastructure focus that the infrastructure bank would have.
Senator Enverga: In your organization, are the taxpayers at risk at all, or is it a totally private organization?
Mr. Hansen: No. AdvantageBC is a totally private organization. We are member-funded. We receive no government funding. We serve a marketing role for the province when it comes to attracting international business into British Columbia.
Senator Enverga: Can you attract something in a bigger scope, like for the whole country, like the infrastructure bank would?
Mr. Hansen: Our mandate is very specific to British Columbia, but we certainly collaborate very closely with our sister organizations in other cities across Canada. We have seen much greater benefit from us working together on some of these marketing initiatives rather than trying to be parochial in our outlook, especially when we're working internationally.
Canada has a very strong brand, and anyone who is trying to attract investment and business to come to Canada, first and foremost, if they're not flying the Canadian flag first, they will not be as effective.
[Translation]
Senator Carignan: As I listen to you, I'm wondering whether our brand is strong enough. What organization, what investment would it take to strengthen Canada's brand? My question is more specific. Practically speaking, you said that a foreign investor wanting to know which companies are for sale in Canada should be helpful to us. However, I do not see that in the mandate of the bill. Do you see that?
[English]
Mr. Hansen: As I've looked at the bill, it's the framework for setting up the operations. As most things are in legislation that are being proposed by governments, they become frameworks, and the devil is often in the detail. I enjoyed listening to some of the discussion with the earlier witnesses with regard to the infrastructure bank. It's sort of a similar case where the framework is here, but really a lot comes down to how it's implemented. That's key to the success of both of these organizations.
[Translation]
Senator Carignan: In that example, if Invest in Canada simply refers to the brokerage company, which has information about the companies that are for sale and their sector, brokerage companies already exist. The question may be about how we should establish a code of ethics for members who want to invest in Canada so that they do not use their preferred brokerage company over another. We may well have some problems.
[English]
Mr. Hansen: That's a very valid point. In the operations of this initiative, as I said at the outset, they have to be very careful not to duplicate effort and, frankly, not do what the private sector is already doing and can do more effectively. But when it comes to filling a gap that is there, they can play an important role.
The other thing is to recognize that it's not just individuals from around the world who are getting on airplanes and coming to Canada and saying, "I want to invest.'' We have to do more to take advantage of the very positive brand that Canada has internationally to reach out and make sure that Canada is, in fact, on their radar.
As an example, there was a FDI forum that was held in Shanghai. It's a world forum that is annually in different parts of the world. It happened to be in Shanghai this particular year. I wasn't there, but my colleague from AdvantageBC was there, reaching out to investors to say, "You should come to Canada. You should look at the opportunities there.''
The posts abroad can do some of that, but they have very limited budgets in terms of how they could do that kind of outreach. My hope is that part of the money that's being invested in this FDI hub will also facilitate some of that outreach to make sure that Canada is, in fact, on the radar of these international investors.
[Translation]
Senator Carignan: During your meetings with the officials, you said that they assured you that the organization would be complementing what is already in place. What did the officials tell you about the content of the legislation? What the officials say is not the law. Did they refer you to specific sections?
[English]
Mr. Hansen: I did not get into conversations with them about the specific legislation —
Senator Carignan: I will just finish my question, and you will see.
[Translation]
What provisions in the legislation allow you to say that the organization will be complementary and will not be replacing what is already being done? You said that AdvantageBC is doing a great job. Instead, should we not be giving more money to AdvantageBC, for example?
[English]
Mr. Hansen: First of all, AdvantageBC does not receive government funding and has not received any government funding in many years. I am quite proud of that, because this is supported by the private sector, which benefits from our work.
When I made the statement about making sure that this initiative complements existing efforts, that's not based on what I see in the legislation but, rather, what I read in terms of the pronouncements that have been made of the intent of government in setting up this organization. As I say, from the discussions I have had with officials, I think they recognize the importance of making sure that this does not duplicate existing effort.
The Chair: There being no further questions, the meeting is adjourned. Thank you very much, Mr. Hansen.
Mr. Hansen: Thank you.
(The committee adjourned.)