Over the past few months, the Canadian government has been working to establish a source of financing for several infrastructure projects across the country. These projects include public transit initiatives, green infrastructure, social infrastructure, and smaller tailored projects for our rural and northern communities. What makes this interesting is how Canada is sourcing the money.
Infrastructure bank to be established
The government is in the process of establishing an infrastructure bank, wherein $35 billion in public funds will be used to get the projects off the ground. The hope is that the private sector will respond with around $140 billion. Much of this is expected to come from abroad.
Private investment needed
It has never been more true that attracting private investment from abroad is crucial to ensuring Canada's economic growth. In late 2016, a report by the Advisory Council on Economic Growth specifically addressed that Canada may be falling behind its peers in bringing in foreign cash. Interestingly, it was not long ago that foreign direct investment (FDI) in Canada was viewed with reservation. Studies have shown that many of the fears, such as the "hollowing out" of Canadian management when a Canadian corporation is acquired, is in fact misplaced and overstated. On the contrary, investment brings with it increased competition at home and technology transfer, among other benefits to all Canadians.
Canada attractive cross border target
What is clear from the Advisory Council report is that the government is less concerned with Canada's cross border M&A activity than it is with greenfield investment. The report refers to the fact that Canada lags what it calls "best practice" FDI nations in the ratio of greenfield to M&A investment. The countries it uses as benchmarks include France, Hong Kong, Ireland, Mexico, Singapore, and the United States. That trend, however, may be the result of Canada punching above its weight class in M&A activity. The 2016 Deloitte Year-end report on M&A Trends showed that Canada is currently positioned as the most attractive target market for US companies, with 40% of firms citing it as such. By comparison, the UK and China are the second and third most desirable markets with only 31% and 25% of responding firms citing them as target markets, respectively. While greenfield investment brings with it compelling benefits such as the promise of new jobs, Canada should not discount its comparative advantage in cross-border M&A.
The author would like to thank Peter Georgas, Articling Student, for his assistance in preparing this legal update.
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