Montreal-based Secor Consulting reported last week on the incredible ease with which foreign investors can buy Canadian companies. Their detailed study of global acquisitions since 2000 confirms that Canada is selling itself off faster than any other industrial economy. A total of 12 per cent of the market value of corporate Canada has been sold to foreigners so far this decade — and the pace of conquest is accelerating.
Secor points the finger at Canadian securities laws, which reinforce the fire-sale mentality of many Canadian business leaders. Surely other government policy — in particular the fact we don’t seriously review most takeovers, even in crucial resource industries — is also relevant.
For example, Investment Canada was established in 1985 to ensure that foreign takeovers generate “net benefits” to Canada. Since then its scorecard is 1529-to-0 in favour of approving buyouts (not one has been turned down). Whenever a takeover is being pitched, Investment Canada won’t even publicly confirm that it is examining the case, let alone reveal the parameters of its phony benefit test.
The Secor study comes on the heels of more shocking data on foreign investment from Statistics Canada. Buried in its most recent review of Canada’s net investment position was a stunning (and so far unreported) nugget that speaks volumes about what’s happening to our country.
During the third quarter of 2007 (most recent data available), Canada suddenly slipped back into net debt on its foreign investment account. In other words, for the first time in over a decade, foreign companies once again own more Canadian business, than the other way around.
Even as late as end-2006, Canada was still $75 billion above water. But last year’s rash of takeovers made quick work of that, and by the end of September we plummeted back to $5 billion in the hole.
Since 2003, when soaring commodity prices ignited global interest in Canada’s super-profitable resource companies, a net $150 billion in new foreign investment has flooded in — and the stampede shows no signs of abating.
For a country’s international accounts, this zinger is the equivalent of a government slipping back into deficit after 11 straight years of surplus: it ought to be front-page news. But in the context of a country that seems content to sell its economic heritage to the highest bidder, the StatsCan data is apparently just another dog-bites-man story.
There are many long-standing reasons to slow down this grand national sell-off, now being reviewed by Ottawa’s competition policy panel (set up last year in response to public concern over disappearing Canadian companies). Takeovers tend to eliminate high-value jobs (in head offices, in research and development, and even in secondary manufacturing and processing). They mean that fewer important decisions affecting Canada’s economy are made in Canada. And they commit us to an ongoing payment of profit and dividends to foreign owners that imposes a long-term drain on our balance of payments.
But in my books there’s an even more important problem associated with the foreign capture of so much of our economy — one that goes far beyond the particular companies, and particular industries, which are being sold.
The inflow of foreign money to finance those takeovers has been a dominant cause of the take-off of Canada’s currency, which also began in 2003. All that money rushing in to buy our companies pushes the loonie higher and still higher. It soared well above par again last week.
It is hot foreign demand for our companies, not our products, that is pricing us out of world markets for manufacturing, tourism, and tradable services. Our trade balance is eroding, our non-resource industries are imploding, and our national productivity is stagnating. This is all the result, directly and indirectly, of us being the only major country in the world to offer our oil and other resources up to the highest bidder — no muss, no fuss, no strings attached.
It’s time to take down the ‘For Sale’ sign that neoconservative governments have hung on our national door. Simply committing to seriously review foreign takeovers, and reject those that do nothing more than transfer control to foreigners, would knock our loonie back twenty cents. And it would assist us mightily in building a country that is more than just a resource-rich branch plant for the rest of the world.