It’s been just over a year since Foreign Affairs Minister John Baird made it clear that the days when Canadian foreign and trade policy meant ‘going along, to get along’ are over and that Canada would now be putting Canadian principles and interests first. The federal government quickly punctuated this policy shift by withdrawing Canada from the Kyoto protocol on climate change and, when President Barack Obama decided to postpone the Keystone XL Pipeline, pivoting its trade policy toward securing more business with China.
One year later, the government is sending another similarly powerful message, this time to state-owned enterprises (SOEs) around the world: If you are interested in investing in Canada’s natural resources, we will take your money, but on our terms. Canada may be open for business, but each transaction will be carefully scrutinized as to its structure and net benefit to Canada.
Under this new policy, there will now be a preference for foreign SOEs to invest in Canada through joint ventures or as minority shareholders, particularly when it comes to Canada’s strategically important oil sands. Moreover, according to federal Immigration and Citizenship Minister Jason Kenney, who initially led the opposition to the recently approved takeover of Nexen Inc. by the China National Offshore Oil Company (CNOOC), the more tightly controlled a stated-owned enterprise is by a national government, the more difficulty it will have getting approval for a Canadian acquisition. According to Kenny, if an SOE investment has a disproportionate influence on a Canadian industry, “you probably shouldn’t even bother making the acquisition here.”
While most media and political pundits have congratulated the Harper government for its elegant solution of approving the Nexen/CNOOC transaction while introducing new tougher SOE guidelines for future transactions, this new policy was about more than getting the government out of a political jam. Much of the concern that was created by the Nexen deal was over the issue of reciprocity. Simply put, can Canadian investors make the same type of investments abroad as foreign investors can in Canada? When it comes to most new world economies, that answer is most certainly no – not just in China, but in most other Asian economies, too.
Canadian natural resource companies are in need of capital to develop their assets, and it’s generally accepted that that some of this capital is likely to come from foreign state-owned enterprises. But this no longer needs to put Canadian companies ‘in play,’ because the government’s new SOE guidelines mean Canadian businesses won’t have to give up control if a foreign SOE wants to invest. Now, if state-owned foreign investors are interested in Canadian businesses, they had better be prepared to come in more as partners than owners or have a very creative deal structure.
Canadian businesses are largely pleased with this outcome because it strengthens their hand in negotiating with SOEs and creates a reciprocal investment environment that Canadian companies face abroad. (For example, entry into China by a foreign investor almost always requires a Chinese partner, with equity stakes by the foreign investor usually limited to 20 per cent of a Chinese company.) The Chinese understand this type of policy better than most and, even though some have said Canada’s new SOE guidelines could hinder investment in Canada, the recent $2.2-billion joint venture deal announced between PetroChina and Encana to develop the Duvernay property in Alberta shows they will continue to invest in Canada.
Governments with an eye on the national interest pursue policies that enhance the power and wealth of their citizens. That’s what the new SOE guidelines are designed to do. They’re not anti-China or anti-foreign investment as much as they are pro-Canadian.
What is really happening here is that Canada is growing up and putting its national interests first. The demand for Canada’s natural resources is not going to go away. As this country increasingly develops the confidence to chart its own path on the world stage, feel-good clichés such as ’open for business’ will matter less than aggressively advancing Canadian business interests – which, in turn, advance the interests of all Canadians.