Despite the Trudeau government’s repeated pledge that Canada will “build big things here,” a worrisome stew of regulatory uncertainty, high taxes and what’s seen as an unwelcoming economic policy environment means Canada risks alienating the business investment needed to do all that building, even as the near-term outlook for the economy worsens, according to a Globe and Mail survey of Canada’s top chief executive officers.
More than six in 10 CEOs believe Canada is on the wrong track when it comes to being a place for business to invest, according to the first-of-its-kind survey of Canadian chief executives conducted by Nanos Research on behalf of The Globe’s Report on Business magazine.
The anonymous survey, carried out by Nanos between March 15 and April 12, drew responses from 30 CEOs overseeing public and private companies from all sectors of the economy with combined annual revenues of more than $225-billion.
Their responses tell a story of corporate leaders who are uneasy with the state of the economy and the multitude of challenges facing companies, such as cyberthreats, climate change and interest rates, but who also signal cautious optimism on a number of critical fronts such as the job market.
Among the survey’s findings:
- Only one-third of the CEOs rated Canada as a good place to invest right now, a deterioration from 55 per cent who said they held that positive view five years ago. One CEO cited a “lack of clarity on overall industrial and business policy” for that sentiment, while another accused the federal government of being “hostile to business in general” with “little or no consultation or collaboration with large businesses.”
- At the time the survey was conducted, close to 60 per cent of CEOs saw the economy weakening over the next six months, with most saying they believed a recession over that time frame is likely or somewhat likely.
- Almost three in five CEOs plan to increase the number of employees at their companies during the remainder of the year.
- Three times as many CEOs rated cybersecurity as a “major threat” to their business compared with interest rates, with half of chief executives believing rates will remain unchanged a year from now, and 43 per cent expecting rates to fall.
The full methodology on this research study is available here.
The anxiety about Canada’s business climate found in the survey is in line with what Goldy Hyder, the CEO of the Business Council of Canada, is hearing from the organization’s members, the largest companies in the country.
“This is an era when public policy matters and yet we couldn’t be further away from having an adult conversation about economic policy in this country,” he said.
Mr. Hyder praised the recent federal budget for what he described as a surprisingly strong response to the U.S. Inflation Reduction Act, the US$400-billion package of spending and tax credits aimed at developing low-carbon energy and boosting the manufacturing sector there. But he said Ottawa’s bets on low-carbon energy, critical minerals and cleantech manufacturing only count if projects go through.
He pointed to the decade-long consultation process to develop the mineral deposits in Northern Ontario’s Ring of Fire region that are key ingredients for electric-vehicle batteries, but for which no transportation infrastructure has been built, as well as the uphill battle any company investing in carbon capture and storage facilities would face to lay the necessary pipelines.
Just this week, The Globe reported Andrew Forrest, the Australian owner of the largest mining stake in the Ring of Fire, sent a letter to Prime Minister Justin Trudeau in December warning the drawn out timeline is “placing the viability of the project at risk” since, at the current pace of approvals, development of the mine wouldn’t begin before the mid- to late 2030s.
Mr. Hyder said the federal and provincial governments need to “start putting points on the board so that if a company puts down $5-billion on a project it has confidence that it can get regulatory approval before a decade passes.”
Nik Nanos, the chairman of Nanos Research, said the Inflation Reduction Act has “made industrial policy sexy again” and that CEOs “want to see what the federal government is doing to make sure Canada is as good or potentially even a better place to invest than the United States.”
In Finance Minister Chrystia Freeland’s budget speech in March, she repeated the “build big things” pledge, citing projects such as the liquefied natural gas export terminal in Kitimat, B.C., and, more recently, the Volkswagen EV battery plant in St. Thomas, Ont., to which Ottawa will provide up to $13-billion in subsidies over the next decade.
Yet while the federal government has touted its “investments” in projects such as the Volkswagen plant, it and the Ontario government have found themselves in a subsidy spiral as rival automaker Stellantis NV has threatened to pull out of a battery plant project in Windsor, Ont., unless it gets a bigger handout.
Despite the jostling over corporate handouts, CEOs say too much emphasis is being put on the size of incentives when what matters more is having a stable policy environment when it comes to choosing where to invest. “We need policies that provide certainty that projects can be approved and executed,” one CEO told Nanos.
That was a message François Poirier, the CEO of TC Energy Corp., delivered to a meeting of business executives in Washington last week, in the wake of a bill introduced by Senator Joe Manchin to dramatically shorten the environmental review process for U.S. energy projects. The proposed law would set a two-year limit for environmental reviews of large projects, and one year for smaller projects. The White House has backed the legislation.
“While Canada and Mexico are pondering how to achieve parity or close to parity with the U.S. to attract capital to be invested in energy, the U.S. has already moved on to the realization that permitting reform is critical,” Mr. Poirier said. “My advice to our Canadian government and to the government in Mexico would be to provide as much certainty as possible with respect to permitting.”
Natural Resources Minister Jonathan Wilkinson has acknowledged it “cannot take us 12 to 15 years to permit new mines in this country if we want to successfully advance the energy transition.” Yet Ottawa isn’t expected to pursue a two-year limit as it looks for ways to reduce permitting timelines, a pledge made in the latest budget.
On the climate front, roughly one-third of CEOs said they view climate change as a major or minor threat to their businesses, while 37 per cent see it as a major or minor opportunity to, as one CEO said, “show leadership in innovation to combat climate change.”
Ottawa’s net-zero ambitions to make Canada’s economy carbon neutral by 2050 raised concerns from some CEOs, with one calling on Ottawa to “create clarity on Canada’s net-zero future.”
“Government has gone all in on net zero, but we have to ensure it doesn’t end up being another impediment to investment,” said Dennis Darby, CEO of the Canadian Manufacturers & Exporters.
Mr. Darby said his industry is also closely watching the government’s critical minerals strategy as a gauge of whether the investment environment is improving, since he said a manufacturer can’t justify the cost of building a new battery or component plant if it doesn’t have ready access to key minerals.
Not surprisingly, taxation was a common area of concern among the CEOs surveyed by Nanos. A 2019 Deloitte study found Canada has the fourth-highest marginal income tax rate among its peers, and corporate tax rates that put Canadian companies at a disadvantage compared with their U.S. rivals.
Since then the Trudeau government has introduced a number of new taxes, including a bank tax, a tax on dividends from financial services companies and a share buyback tax. The new taxes “aren’t helpful” to helping their business stay competitive, one CEO said, while another called on Ottawa to review personal taxes to keep young professionals from leaving the country.
Those CEOs who did tell Nanos they feel Canada is on the right track when it comes to attracting business investment generally cited attributes such as Canada’s stable political environment, its proximity to the U.S. and its “fast-growing, diversified population” as positives.
Even so, many CEOs still see Canada’s economy weakening over the rest of the year as the impact of high interest rates takes its toll on household finances, the geopolitical picture remains fraught with the war in Ukraine and volatility grips financial markets. Roughly eight in 10 CEOs see it likely or somewhat likely that Canada’s economy will tip into recession in the second half of the year, though less than a quarter of that group believe a recession would be severe.
The survey found CEOs have been pro-actively preparing for a downturn by managing costs and fortifying their balance sheets, while also viewing it as an opportunity to steal talent.
“CEOs know they need to be prepared, but in a really competitive market they have to keep hiring, too,” Mr. Nanos said.
Another area where many CEOs agreed, regardless of their industry, was on the danger posed to their businesses from cybercrimes. Recent months have seen a number of high-profile attacks on Canadian companies that exposed customer and employee data and left companies scrambling to repair the breaches and regain trust.
In February the website of Indigo Books & Music Inc. went offline because of a ransomware attack and took more than a month to return to full operation. More recently, a data breach, including the release of client social insurance numbers, hit Mackenzie Investments.
It doesn’t surprise at Cat Coode, a data privacy consultant in Waterloo, Ont., that CEOs expressed more fear of cyberattacks than high interest rates. “If you’re raising a family you might be worried about your mortgage rate, but if there’s imminent crime in your neighbourhood and people keep breaking into homes, that is going to suddenly become a bigger concern, and it’s the same with companies,” she said.
CEOs are becoming aware that reputational impact is just one danger from cyber incidents, but the impact on the company behind the scenes can last longer, since it can take anywhere from six months to two years to fully recover from an attack. “It’s a bottom-line concern in a way it wasn’t that long ago,” Ms. Coode said.