- Investment activity in terms of number of deals, average deal size and the number of mega-deals in Canada increased significantly in 2017, with foreign investors now insisting that Canadian start-ups remain in Canada.
- While the market chooses which sectors in Canada are successful, it is the government’s responsibility to accelerate their growth. The Supercluster Initiative and Canada Strategic Infrastructure Fund are positive examples of this.
- Recent changes to Canada’s immigration policies have cemented Canada’s position as a magnet for global talent and graduate retention, which is another bonus for investors.
Although investment attraction platforms exist at the provincial level, Canada needs a cohesive brand offering and value proposition for global investors.
Why has Canada fallen behind in terms of FDI attraction and what needs to be done by the public and private sectors to reverse this trend?
In terms of the causes of the recent decline of foreign direct investment into Canada, there are a couple of factors. Firstly, a number of our competitors within the Organisation for Economic Co-operation and Development (OECD) or the G20 have really upped their game and developed very focused, targeted and robust platforms to direct more global capital to their countries. Countries like Singapore, the United States and Ireland have developed models to position themselves in a very competitive world for global investment. Canada has only recently taken the enlightened decision to create a foreign direct investment platform, which I am now leading. So the competition has been ahead of us and we are going to catch up in a meaningful way. In terms of what needs to be done, we need to present clearer data and information to the investment world and other decision makers, in order to help them make decisions quicker on why they should invest in Canada.
What will Invest in Canada’s strategy be in terms of promoting the competitiveness of Canada’s ecosystem?
First of all, I think there has never been a better time to promote Canada as an investment hub. Given that Canada’s brand has probably never been as strong as it currently is, it is really important to leverage it and provide more clarity and definition into what Canada represents to the world. Canada has a number of attributes that are probably not well known enough to the investment community.
A few initiatives at the federal government level are going to highlight some of Canada’s offerings and will be game changers for Canada’s ability to recruit investment. First, the Canada Strategic Infrastructure Fund (CSIF) is a fund of about $1.25 billion administered by the federal government to partner with private sector investors in order to accelerate and create the infrastructure required to receive investment. That investment could be in the advanced manufacturing sector, bioproteins, or tech.
“We need to present clearer data and information to the investment world and other decision makers, in order to help them make decisions quicker on why they should invest in Canada.”
The significant overhaul of the immigration framework in Canada is another game changer in terms of our attraction of FDI. Since Canada is virtually at full employment, there is a burgeoning need for skilled talent in our companies. As of June 2017, the government has started the Global Skills Strategy platform, through which a high growth company operating in Canada can hire people for key positions from virtually anywhere in the world and have a work permit for them ready within about 10 to 14 days. That puts Canada at par with the best models in the world and it is a drastic improvement over the 6, 8 or 10 months it would take to get permission to hire a foreign recruit. In addition, Canada had just under 500,000 international students coming to study at Canadian universities both at the undergrad and the post-grad level in 2017. International students are now able to get fast-tracked for permanent residency, which was a problem previously. So the ability for international students to have a clearer path to permanent residency is another part of our arsenal to succeed in the talent war.
“The significant overhaul of the immigration framework in Canada is another game changer in terms of our attraction of FDI.”
The other initiative that was announced last year was the Supercluster Initiative. The Government of Canada has identified five existing clusters – that is, centers of excellence – in Canada and has set aside just under $1 billion to partner with the private sector to accelerate their evolution and growth. They are digital technology, bioproteins, advanced manufacturing, artificial intelligence, and ocean sciences.
Finally, the trade component of Canada’s foreign outreach is significant. People consider us to be a country of 36 million people where in fact, a Canadian company has unfettered access to a consumer market of 1.7 billion people through our trade partnerships. We are the only country in the world that has free trade with every G7 nation.
“A Canadian company has unfettered access to a consumer market of 1.7 billion people through our trade partnerships.”
A huge part of Invest in Canada’s mandate is to be a concierge service. We identify all the activities and government programs across the country with respect to FDI attraction and coordinate those efforts to put a more cohesive face on them. This is so that foreign investors can understand how to interact with those particular programs and have a one-stop shop for investment in Canada. We have so many extraordinary platforms at the municipal level for FDI recruitment and all the provinces have significant capacity in particular markets that they are interested in. But, the bigger picture is a little too diffused and we need to work with all those partners, and develop a more cohesive brand offering and value proposition to investors about the economic benefits of operating in Canada.
What should the government’s role be in accelerating the growth of emerging sectors? Should it pick winners or let the free market decide?
I do not think the two are mutually exclusive because the marketplace has determined that Canada has extraordinary success in certain areas, such as artificial intelligence. That is just a function of the people that are coming out of the universities, the researchers that have located here and the clusters that have been developed in cities like Vancouver, Edmonton, Montreal and others. So the market might determine our initial success in an industry, but it is incumbent upon the government to help accelerate its growth. The Supercluster Initiative is an example of that mindset. These are clusters that have been successful in the market and the government wants to make them global centers of excellence.
“The market might determine our initial success in an industry, but it is incumbent upon the government to help accelerate its growth.”
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Since Canada’s cleantech start-ups and ecosystem are gaining acclaim globally, is the sector a priority for Invest in Canada?
Absolutely. The reason that Canada has such an extraordinary cleantech and renewables sector is because over the past four or five decades our resource-based companies have been investing in research and start-ups that are coming up with more sustainable resource extraction processes. These resource-based companies had the foresight decades ago to plant the seeds of the cleantech innovation we are enjoying today. So Canada’s cleantech clusters is a four-decade overnight success story. Mining, forestry, shipping and other Canadian industries have all in their own ways contributed a lot of foresight and strategic investments to the creation of a pretty dynamic cleantech and renewable cluster.
Private equity is growing all over the world, however the US has 24 times the number of PE firms Canada has. What role will PE play in Canada’s future economy?
The first questions global investors will ask are, “What is happening on the street level? What is happening in the domestic venture capital and private equity space?” I would agree that for much of the past decade, Canada was lagging by a number of metrics, but a 2017 report by the Canadian Venture Capital and Private Equity Association (CVCA) has shown that 2017 has perhaps been Canada’s best year ever in terms of these investment metrics. The number of deals, average deal size and the number of mega-deals have all increased substantially. For example, Q3 2017 activity was about 45% higher than Q3 2016. There was much more activity and many more funds being set up in Canada’s major cities.
“Current funders, no matter where they come from, are almost insisting that Canadian start-ups stay in the ecosystem in which they grew up, whether that be Waterloo, Vancouver, Calgary, Toronto, Montreal or other areas.”
It is important to understand that a successful start-up in Canada probably has funders based in the US, who in the past, would insist that it pick up and move to New York, Silicon Valley, Boston, Dallas or somewhere else. That dynamic is changing dramatically. Current funders, no matter where they come from, are almost insisting that Canadian start-ups stay in the ecosystem in which they grew up, whether that be Waterloo, Vancouver, Calgary, Toronto, Montreal or other areas. There is a real positive shift in how investors are viewing the start-up ecosystem in Canada.