These are the deals and financings that caught our eye this week
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A green investment wave is washing over Canada. Canadian cleantech financing surged 335 per cent, setting the sector up for a record year. The growing sector secured $3.09 billion in equity financings during the first six months of 2021.
The Ontario government is making good on its promise to help hospitals across the province recover from historic working funds deficits compounded by the COVID-19 pandemic. The province is providing up to $696.6 million to help strengthen the financial stability of public hospitals, with a focus on small and medium-sized hospitals. This funding includes a $8,432,300 investment in the West Parry Sound Health Centre and a $7,712,500 investment in Muskoka Algonquin Healthcare.
“I am very pleased to see the Ontario government provide this funding to support small and medium-sized hospitals throughout the COVID-19 pandemic,” said Parry Sound – Muskoka MPP Norm Miller. “This funding will help to financially stabilize our hospitals, which in turn will allow them to prepare for the future.”
This funding is a part of the over $1.2 billion investment previously announced to help hospitals recover from financial pressures created and worsened by the COVID-19 pandemic, while ensuring they can continue providing the high-quality care Ontarians need and deserve. This funding will also help to ensure that Ontario’s hospitals are able to respond to any scenario as the COVID-19 pandemic evolves.
“Ontario’s hospitals have been on the frontlines of the COVID-19 pandemic and our government is using every tool at our disposal to support them,” said Christine Elliott, Deputy Premier and Minister of Health. “This funding will ensure Ontario’s hospitals can continue to provide high-quality care to all Ontarians and that our hospital system is ready to respond to any scenario this fall.”
Since the onset of the pandemic, Ontario has been working with its hospital partners to create unprecedented capacity to respond to any scenario. The government remains committed to supporting hospitals so that they can continue to care for Ontarians today and in the future.
Natalie Bubela, President & CEO of Muskoka Algonquin Healthcare, says this working capital increase will stabilize operations, erase the long-standing capital deficit that MAHC has faced and will put MAHC on solid financial footing moving forward. “A financially stable health care organization is vital now more than ever and we are very appreciative of this recognition from the provincial government and the ongoing support of MPP Miller.”
“West Parry Sound Health Centre is grateful to MPP Norm Miller and the government of Ontario for this significant funding announcement that recognizes a historic working capital deficit that has challenged our hospital for many years,” said Donald Sanderson, CEO of WPSHC. “Just as hospitals improve the health of our community, this investment will improve the financial health of our hospital and position us for continued success as we provide vital health programs and services in a post pandemic world.”
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But, they’re also part of a global trend to reduce mutual fund fees and expense ratios around the world, and he’s hoping to see more of that – given that Vanguard’s fees are “roughly a third of what you’d see in the industry in categories where we compete today.”
Huver attributed that to Vanguard’s structure and history. Its parent company, Vanguard Group, is a mutually-owned company in Canada. Its investors own it, so build economies of scale and reinvest in the business to return lower expense rations to the fund shareholders. It’s also the world’s third largest active manager, so has brought its best managers and flagship funds to Canada.
“Because of our structure and our global scale, we are able to provide these known institutional mangers and mandates at institutional pricing for advisors and retail investors,” said Huver. “That’s really a differentiator for us in the marketplace.”
Vanguard entered the market with its ETFs and passive mutual funds, offering them at lower expenses ratios, and Huver said it has seen competitors move toward lower costs. It’s now taking the same approach with its active funds.
“We think this is really disruptive to the market here in Canada and would expect to see more and more competitors move in this direction as well,” he said. “It’s great for the investors because they keep more of their returns, and that compounds over time and creates a better investment outcome.”
“WE’RE WORKING at the limit,” says Apostolos Tsalastras, treasurer of Oberhausen, a town in the Ruhr valley. Like many places in this region, Oberhausen sits on a vast debt pile, mostly accrued when the mines closed and the steel jobs went. Unemployment stands at 10.6%, almost twice the national rate. Last year Olaf Scholz, the SPD finance minister (and its chancellor-candidate), sought to relieve municipalities like Oberhausen of their old liabilities, but was thwarted by his CDU coalition partner. “It’s time for a fresh start,” pleads Mr Tsalastras. His town is locked in a vicious circle of declining investment, slumping tax revenue and a shrinking population.
A federal bail-out meant most municipalities avoided disaster last year. But by 2023 many will face a fiscal crunch, says Jens Südekum, economics professor at the University of Düsseldorf. The commercial taxes that are their main independent source of income are volatile, and covid-19 creates new demands. National laws limit their ability to cut current spending, one of Mr Tsalastras’s bugbears. That puts capital investment in the firing line.
The country’s 11,000-odd municipalities are responsible for a big chunk of public investment. The KfW, a state-backed development bank, puts the municipal-investment backlog at €149bn ($172bn), a number that has risen even as tax revenues pour in. School buildings account for nearly a third of the shortfall; roads just under a quarter. Endlessly delayed mega-projects like Berlin’s airport may have made the country a laughing stock, but it is rusting bridges, shaky phone signals and decrepit school toilets that are the staple of daily conversation.
Ask anyone in local government what the problem is, and the answer is always people. A report by the Friedrich Ebert Foundation, which is linked to the SPD, finds a huge decrease in municipal staff over 30 years. Immigration has helped, but a quarter of posts remain unfilled, says Henrik Scheller, one of the authors. Planning and engineering are especially affected, and local governments struggle to compete with private firms. Two-thirds of municipalities expect it to get even harder to find town planners. Surveys find construction companies working at capacity. With such supply constraints, spending more without proper planning merely risks stoking inflation.
Bureaucracy and nimbyism play a role. Companies struggle with a patchwork of planning and building rules. Opponents delay public-infrastructure projects with endless litigation. The number of projects blocked by citizens’ initiatives has doubled since 2000. This is problematic for roads, railways and bridges. But it is a “real hurdle” to climate transformation, says Mr Scheller. The recently revised climate law mandates a reduction in carbon emissions of 65% from 1990 levels by 2030, and their net elimination 15 years later. The share of renewables in electricity production must also reach 65%. And overall demand for electricity for batteries to power electric cars, for heat pumps in buildings, and for “green” hydrogen to help decarbonise industry may rise by a quarter.
Agora Energiewende, a think-tank, estimates that Germany will have to install an extra 5GW of onshore wind power every year until 2030, and 7GW a year after that. In 2020 it managed just 1.4GW. A visit to Schleswig-Holstein shows how hard it will be. As far back as the early 1990s, wind power in this northern state began to revitalise what had been some of the poorest communities in western Germany. Today turbines dot the landscape. Schleswig-Holstein has 8.5GW of installed wind-power capacity, and produces 160% of the electricity it consumes from renewables. It can export the excess via new power lines, including to Scandinavia.
In December the state government published new rules for wind-farm construction, after a five-year moratorium imposed amid growing local tensions. The new rules set aside 2% of land for wind energy, but this may not be enough to meet wind-power targets. Add long waiting times for permits and other restrictions and these targets seem unattainable, says Marcus Hrach of the Kiel branch of Germany’s Wind Energy Association. Industry insiders despair at all the hoops they must jump through. “Few people here oppose wind power, but those who do have loud voices,” says Anton Rahlf, a frustrated wind-farm owner on Fehmarn, an island in Schleswig-Holstein.
Other states are even more restrictive. Rules to protect endangered species vary from state to state. A few years ago litigation, regulation and complex tendering slowed the construction of wind farms to a crawl, although 2021 has offered flickering hints at a revival. The mismatch between the federal government’s ambitions and the reality of local regulation, says Mr Hrach, will make it impossible for Germany to reach its commitments under the Paris climate agreement.
Another difficulty, says Alexander Reitzenstein from Das Progressive Zentrum think-tank, is constructing the power lines needed to transport electricity from the windy north to southern industrial states like Baden-Württemberg and Bavaria. Local communities can be given a financial stake in wind farms, but that is harder to do for power lines simply transporting electricity. And under Germany’s federal system, states cannot be bossed around by the government in Berlin. “Lots of politicians who agree on climate in Berlin act differently when a line comes to their local community,” says Tim Meyerjürgens, chief operating officer of TenneT, an electricity-transmission operator, adding that the “salami-tactics” of regular legislative changes harm trust.
There is a near-consensus that the next government must do more to satisfy vast public-investment needs. The debate is over how. For some, tackling the country’s austerity bias is a priority. The debt brake now in the constitution limits opportunities for deficit spending. Critics of German tightfistedness are legion. The European Central Bank has long urged countries with “fiscal space” to exploit it. But all such suggestions have tended to run into an austere wall of fiscal orthodoxy.
Since 2013 the annual public-investment budget has risen from around €93bn to €137bn. This, argues Jens Weidmann, head of the Bundesbank, suggests the debt brake is “a bit of a straw man”. Better to tackle bureaucracy, capacity constraints and municipalities’ volatile revenues by changing the federal structure. But Sebastian Dullien at the IMK, a union-linked research group in Düsseldorf, counters that a guaranteed, long-term income stream of just the sort the debt brake inhibits might give municipal authorities, construction firms and engineers the planning certainty they need to reduce bottlenecks and increase staff.
Last year the government invoked an escape clause in the debt brake to finance corporate-support, furlough and other schemes during the pandemic, running up a deficit worth 4.2% of GDP. It will be bigger this year. The CDU/CSU wants to reimpose the debt brake once circumstances allow, probably in 2023. So does Mr Scholz, who presents himself as a safe pair of hands (plenty in his SPD would like a more expansive approach). The most interesting proposals come from the Greens, who want to add a “golden rule” allowing a debt-funded ten-year €500bn investment programme, focused on climate and digital infrastructure.
Yet the two-thirds parliamentary majority needed to change the constitution is a formidable hurdle. A more likely prospect is the establishment of public-investment companies, essentially off-budget special-purpose vehicles (SPVs), devoted to capital spending on, say, broadband provision in schools or upgrading railways. SPVs are legally complicated and democratically iffy, frets Mr Südekum. They would incur borrowing costs at a time when investors actually pay to lend to the federal government. But by not adding to the public-debt stock they offer a way of getting round the debt brake. The CDU/CSU chancellor-candidate, Armin Laschet, has flirted with what he calls Deutschlandfonds.
More radical ideas are afoot, notably a proposal by Dezernat Zukunft, a think-tank led by Philippa Sigl-Glöckner, a former finance-ministry official who calls SPVs “a declaration of defeat to silly fiscal rules”. Dezernat Zukunft wants to shift the fiscal debate away from arbitrary debt limits towards the goal of full employment. Low headline unemployment, the group notes, masks low labour-force participation rates among women and part-time workers seeking more hours.
Although the debt brake limits deficits to 0.35% of GDP, the calculations rely on a complex estimate of “potential” output. In the short run, Dezernat Zukunft reckons tweaks that require legal but not constitutional tampering could allow more deficit spending worth €50bn-60bn a year. In the long run Ms Sigl-Glöckner hopes to see off the debt brake for good. That such ideas now get a serious hearing suggests the fiscal debate has at last begun to shift. ■
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