Federal government must focus on bricks and mortar projects to boost foreign investment, economic growth

‘Let’s build something,’ Coalition co-chairs tell Senate Banking committee

When it comes to foreign investments in Canada, it’s a “hard sell” for many CEOs of global corporations because of the regulatory environment but also because they don’t see governments taking action on infrastructure projects, say Coalition co-chairs Lisa Raitt and Anne McLellan.

“We’re not building anything. We say we will invest, and we make a lot of announcements, but we’re still not to the point where we can show the world that what we say we’re going to do is actually what we’re going to do,” Raitt told the Senate Banking, Commerce and the Economy committee on May 3. “This government has to focus, specifically federally, on showing that they can do a project from bricks and mortar. They have to be able to show that so the investment comes back to Canada.”

The committee is conducting a study on business investment in Canada and its barriers to growth. Conservative Senator Elizabeth Marshall noted that the regulatory regime in the country is “so restrictive” that it’s preventing companies from investing. “When you get the clearance, the regulatory clearance, once you start the project, government imposes more regulations, so businesses are shying away,” she said. 

McLellan said she would argue that companies don’t want to invest in Canada. “People in the trade world have been in China and South Korea. They are dying to invest in Canada,” she said. “The question they ask is, ‘Can you actually build anything?’ Right? They have money …  that they would like to invest in Canada. But the question is, ‘Can you get it built?’”

The co-chairs offered a potential solution: Empower four deputy ministers to choose one project and work together to get it done. That means giving them all the resources they need and prioritizing it through the current regulatory process in a timely way. 

“I believe it can be done. I think that it’s just a matter of putting the focus on one particular project and building it and using that as a showcase and a testament that we can get stuff done,” Raitt said. “That is the fact, that we've got to build something, folks.”

McLellan agreed. “I think it’s a proof point. As Lisa says, let’s build something.”

Complacency a big challenge for Canadian businesses

Independent Senator Colin Deacon, the committee’s deputy chair, asked Raitt and McLellan about the Coalition’s Scorecard metrics around the investment of IP per worker, investment in tangible assets, business investment and R&D.

“What are the big lessons learned, places where you would like to see our recommendations to help move the needle very far on those items? Do you have some examples and suggestions for us? We want to do what’s necessary in our report,” he said. 

McLellan said the innovation file has been “a long-standing” issue for governments. As a former minister for 13 years, she said she “spent an awful lot of time talking” about how to make Canada more innovative.

“We have some of the most generous R&D credits in the world for the private sector. The question is: Why isn’t the private sector taking up that tax space? Or are they? That’s an important question. Are they currently, in fact, properly constructed to encourage that investment?” she said. “As well, Canadian businesses must have confidence that the rules are not going to change on them: they know what the rules are and what the framework is for economic growth; they know what the plan is, and they can count on our governments to help execute on those plans. It is an ongoing challenge.”

The Scorecard shows that GDP per capita remains below pre-pandemic levels. It also shows business spending on research and development continues to stagnate, and Canada lags behind its international peers.

As a share of GDP, business R&D has hovered at just under 0.7 per cent over the past 15 years and shows no signs of hitting the Coalition’s target of 1.8 per cent by 2030. And that’s well below the United States, which suggests that Canada’s weak private-sector contribution to innovation is actually threatening our ability to build a competitive advantage.

It’s the same story for investment in intellectual property and the struggle to break beyond the two per cent-of-GDP threshold. There’s little change from where it was two decades ago.

The reason for all of this, McLellan said, is complacency.

“In fact, we’re just good enough to live a good quality of life; and that makes us complacent because we’re not hungry enough to take the risks, make the investments and find the capital,” she said.

Raitt agreed, noting that once the businesses are here, it’s extremely difficult to keep them here.

“That is also something that we need to look at. Keeping industry, clean tech and people in Canada comes down to other things, such as how are we on immigration, health and education? Those are the things that keep businesses here and growing,” Raitt said. “Otherwise, you have entrepreneurs out there who get to a certain level — $5 million probably — and then say, ‘Okay, who’s going to buy us?’ Or someone comes along and wants to acquire them or their intellectual property. Encouraging them to stay and build in Canada has a lot to do with the soft things as well as tax credits and incentives that we have for start-ups.”

More competition in Canada needed

In response to the innovation question, Progressive Senate Group Senator Clément Gignac asked whether the government’s creation of a Canada Innovation Corporation is the right approach. 

“I don’t know if creating some corporations like that will fix our problem in Canada,” he said.

McLellan said the one thing she and Raitt have heard often in their discussions with members is that the government’s programs are too difficult to navigate. “The Government of Canada has put a lot of money out there, whether it’s the growth fund, the innovation fund, the Strategic Innovation Fund, or SIF — all sorts,” she said. “People wanting to access those funds have to figure out whether they can even apply for those funds. They find it hard.”

She added that when they speak to ministers, they tell them the problem is not a lack of funding. “A problem is that you have got, in a sense, confusion among people as to what all these funds are. What are the outcomes you want from these funds so we can deliver those outcomes on behalf of Canadians?” she said. “I think our members see value in the funds that the government has created. What they would like is some kind of long-term plan built around those funds so they know where they fit and how they can access the money — again, with confidence and certainty — to then achieve their objectives.”

Committee chair Pamela Wallin responded by saying, “I think you have just summarized our report for us. That’s what we have been hearing for four months now, so thank you very much.”

Raitt pointed out another problem for the lack of investment and innovation is the lack of competition in Canada. 

“Competition is what will drive business investment. When you have these very large -- especially federal -- businesses that have pretty much the playing field to themselves, there is not a great incentive for them to compete with one another by being more efficient, investing in their companies and training their people better for better customer service,” she said. “I think we need to look more competitive inwardly as a country. One of the things we do talk about from a competitive point of view is free trade among our provinces.”

McLellan agreed, saying it was an important aspect of business innovation. “Competition is what moves that bar. If you know you have to invest and be smarter to stay in business and get more market share because your competitors are out there pushing you, that probably will, in fact, stimulate investment, and people will make appropriate use of whatever credits are available,” she said.

Traditional carrots and sticks are also important, but both need to be effectively combined, Raitt said, adding having the ability to measure progress is also key.

“That’s the new thing we bring to the table,” she said, pointing to the Coalition’s Scorecard. “We think this is a really important tool for governments to see where we are as a country on some really important policy areas and where we need to go. We believe that if we meet these targets by 2030, Canada will be one of the most competitive, inclusive and sustainable economies in the world.”