Condo and office towers are seen in downtown Vancouver in April, 2023.DARRYL DYCK/The Canadian Press
John McKenzie is chief executive of TMX Group, which operates the Toronto Stock Exchange.
We’ve heard it almost too many times at this point. Canada has all of the ingredients to be an economic powerhouse: rich natural resources, a highly educated work force, a healthy spirit of innovation and entrepreneurship, political peace and stability. And yet, we can’t seem to combine them into a recipe for success.
Recent economic indicators are far from inspiring: Canada’s GDP growth for most of last year was barely positive, narrowly avoiding “technical recession” rates. Labour productivity, a critical metric for evaluating our economic health, has declined for six consecutive quarters; even before turning negative, it had trailed the U.S. since the beginning of the century.
To turn these uninspiring numbers around, we need to take immediate action to unlock the flow of investment capital into our country.
Canada has the best capital markets in the world: fair and liquid, deep and diverse, and continuously evolving. But we have fallen short in attracting levels of investment sufficient to fund economic growth and maintain a competitive edge on the global stage.
Investment hates friction and loves certainty: Money will flow down the path of least resistance and where risk can be best mitigated. And currently in Canada, our policy and regulatory environment is creating too much friction and providing too little certainty.
Canada needs to take decisive action now to create the conditions that investors are looking for – and avoid being left behind during a pivotal time when global economic forces are being reshaped.
We have a fantastic growth opportunity in front of us. All stakeholders, including governments and regulators, financial institutions and operators, share in the responsibility not to squander it.
Canadians have a reputation for patience, caution and diligence. However, these qualities that have served our markets well in the past are now holding us back. We must get out of a cycle of endless “talk,” with research and consultations, and start acting by implementing solutions we already know to be effective in reducing friction for investors. As a starting point, here are three effective measures we can take today:
Expand the flow-through share program
This highly successful, made-in-Canada policy tool helped to vault us to global dominance in the natural resources space. This is a vehicle Canadian investors know and understand, and has proven successful in spurring investment. Canadian companies in new and emergent industries such as life sciences and innovation can reap immediate benefits.
Expand Scientific Research and Experimental Development (SR&ED) tax incentives to include public companies
The most beneficial elements of this program, designed to encourage entrepreneurs and businesses to invest, are exclusively available to privately-held companies. This restriction reflects a fundamental lack of understanding of our country’s business landscape, in which public companies are not large.
In fact, two thirds of the companies that trade on TMX exchanges are small and medium-sized enterprises. And public companies play a vital role in the success of our nation’s economy: They grow faster and create more jobs and intellectual property than private companies, and are more likely to remain Canadian in the long run. Making SR&ED available only to private companies limits the ability of great businesses to prosper.
Pick a lane on disclosure standards related to climate and sustainability
The International Sustainability Standards Board has set a baseline for global standards to provide both companies and investors clarity on climate-related disclosures. Canada has committed to adopting these standards but has yet to determine how or when – leaving investors in regulatory limbo. While we stare blankly into the lights, other world markets move ahead.
Because many of our public companies are small, what works for other jurisdictions will not work here without adaptation. Also, our marketplace is integrated with the U.S., and we must ensure the steps we take do not compromise our ability to compete. These unique factors require careful consideration and a customized solution, but the time to move is now.
An approach that gives smaller issuers the flexibility to opt-in and report where that disclosure is beneficial to both the issuer and their investors will serve our markets well, ensuring reporting is consistent while remaining market-driven. And crucially, provide the certainty we need to create an attractive investment environment.
The reality is harsh, but undeniable: If Canadians want to afford the quality of life we enjoy today into the future – and pass on that quality of life to our children and grandchildren – we need more capital. Canada is a great investment, so let’s start looking at ourselves that way, and providing the environment that investors look for: regulatory certainty and clear, globally competitive incentives for entrepreneurs, workers and investors to share in the success of Canadian companies.