There is nothing like economic uncertainty for practical reality to trump political ideology. That’s just what we witnessed last week during Prime Ministers Harper’s interview with Bloomberg. The Prime Minister made it clear that any further attempts to “liberalize” foreign investment in Canada would not come at the expense of head offices and jobs. “As much as I am an advocate of free markets,” he said, “I don’t think governments realistically can just make the assumption that everyone else is operating on the same basis.”
The Prime Minister’s comments give us a sense of where he is headed this fall with respect to impending changes to Investment Canada. I don’t believe that we will see any changes that will make it easier to take over the icons of Canadian industry. Indeed there will be a new reciprocity test applied – “allow unto others as they allow unto you” will be the key measure.
I expect there will be a cautious liberalization of reviewable transactions. By this I mean that the ceiling for transactions that need to be reviewed should be raised to only those over a billion dollars. New guidelines should also allow ministers to comment publically on the review process, to better explain decisions. Expect a new burden of proof on companies that want to change their undertakings and a commitment to transparency when these undertakings are negotiated.
Finally, I expect the changes to Investment Canada polices will be the impetus for adjusting the current ownership restrictions in the telecommunications and airline industry. There may well be a removal of restrictions on firms which represent less than 10 per cent of their respective industries.
My assumption is that the Prime Minister feels he learned some important lessons from the BHP-Potash experience. Canadians generally have little appetite for the loss of Canadian control over major operations.
They will, however, encourage foreign investment in startup operations or cash starved “going concerns” The government now understands this distinction and to be much tougher on major acquisitions of companies like Inco or Potash. The Prime Minister is clearly aware that the market is speculating about what will happen with RIM and he is laying down a marker: in the absence of a distressed sale, this would be a very difficult acquisition from a political standpoint.