Connect with us

Investment

Jack M. Mintz: Weak investment is economic problem number one – Financial Post

Published

 on


Ottawa needs to recognize that Canada’s economic potential depends on private investment, not government spending

Article content

Canada’s business investment is the weakest it has been in years, though you wouldn’t know it from the pre-holiday throne speech or the fall economic and fiscal update. These documents focused on social spending, climate change, tax hikes and big deficits. That the private sector is crucial to Canada’s economic recovery is not in the prime minister’s vocabulary. But It should be — and it should also be a central theme for this spring’s federal budget.

Advertisement

Article content

According to a recent report from the National Bank, for the very first time the stock of capital invested in businesses is now less than that invested in housing. Manufacturing capital stock is the lowest it has been in 35 years. Writing for the Fraser Institute, Professor Steven Globerman has shown that business investment dropped in seven of 15 sectors from 2014 to 2019.

In our 2020 tax competitiveness report , Phil Bazel and I show that since 2015 Canada’s investment record has been one of the worst in the OECD. Even in the first half of the last decade, Canada’s business investment as share of GDP lagged behind that in resource-based countries such as Australia, New Zealand, and Norway. It also lagged the OECD in general although it did better than the United States. After peaking in 2014, however, our business investment declined sharply as a share of GDP, falling behind the United States and the other OECD countries.

Advertisement

Article content

Why does our poor business investment record matter? Capital deepening improves labour productivity: the same working hours produce more output. When companies invest, they adopt the latest innovations, enabling them to reduce their production costs. Our poor investment performance is a leading cause of our per capita economic growth declining to virtually nil from 2015-20.

Will lower labour productivity result in lower worker compensation? Some argue that productivity and wage growth have become de-linked as machines have replaced workers, causing wages to be pushed down. But that’s not the case. In a new International Productivity Monitor paper , Jacob Greenspon, Anna Stansbury and Larry Summers conclude that growth has helped boost worker pay.

Advertisement

Article content

Excluding the public and non-profit sectors, where productivity usually is proxied by input costs rather than impossible-to-value public services, Summers et al. find that in the U.S. each percentage point increase in labour productivity from 1973 through 2019 led to roughly a three-quarter point increase in average pay, all else equal. True, the linkage was weaker in the last two decades (1997-2019) but it was still there.

In Canada, on the other hand, the labour productivity/average wage growth link was about half a point from 1961 to 2019. The authors conjecture that a smaller, more open economy like Canada’s is more influenced more by international trade, which weakens the relationship between labour productivity and wage growth.

Advertisement

Article content

  1. The Bank of Canada building in Ottawa on May 23, 2017.

    Jack M. Mintz: Five reasons why inflation will persist

  2. Brine pools from a lithium mine, that belongs U.S.-based Albemarle Corp, on the Atacama salt flat in the Atacama desert, Chile.

    Jack M. Mintz: Latin America: mining’s new Middle East

  3. None

    Jack M. Mintz: Be glad Alberta is getting its mojo back

The Summers et al. paper should lay to rest any notion that labour productivity does not matter to middle class pay. The policy question — and not an easy one to answer — is how to improve Canada’s productivity growth, which has generally lagged the United States in the past four decades. As Summers et al. show, labour productivity grew 1.3 per cent per year and median compensation 0.7 per cent from 1976 to 2019 in the United States. In Canada, productivity growth was just 1.0 per cent and median compensation just 0.5 per cent. That may not sound like much but over 45 years it adds up to a big difference in real per capita incomes.

Advertisement

Article content

Many factors influence labour productivity, including education, innovation, labour force participation, private investment and government policy. While Canada has a relatively well-trained work force, we lag other countries in private investment and research and development.

Policy has a lot to do with that. Our tax policies are no longer attractive. Our corporate tax system is riddled with special preferences that encourage companies to pursue tax avoidance rather than better economic opportunities. Our personal income taxes on skilled labour are among the highest in the OECD. Our GST, which we take such pride in, is sub-par in the OECD with its many base-narrowing exemptions.

Our “tough-to-build” regulatory system slows down infrastructure projects. Whether building a condo in Toronto, a bridge in Ontario or a solar plant in Alberta, the gears move very slowly for federal, provincial and municipal approvals. And now we are embarking on a society-wide energy transition that focuses exclusively on targets without regard to the least-cost path for reaching them.

The federal government needs to recognize that Canada’s economic potential depends on private investment, not government spending. Its aim should be to spark economic growth, not douse it with deficits, taxes and regulations.

Advertisement

Comments

Postmedia is committed to maintaining a lively but civil forum for discussion and encourage all readers to share their views on our articles. Comments may take up to an hour for moderation before appearing on the site. We ask you to keep your comments relevant and respectful. We have enabled email notifications—you will now receive an email if you receive a reply to your comment, there is an update to a comment thread you follow or if a user you follow comments. Visit our Community Guidelines for more information and details on how to adjust your email settings.

Adblock test (Why?)



Source link

Continue Reading

Investment

Ford sees $8.2 billion gain on its investment following Rivian’s IPO – Driving

Published

 on


Ford continues to gain, despite abandoned plans to jointly develop an EV with the startup

Article content

Ford Motor Co. expects to record a gain of $8.2 billion in the fourth quarter on its investment in RivianAutomotive Inc. after the electric-truck maker’s blockbuster initial public offering late last year.

Article content

The legacy automaker disclosed the gain Tuesday along with several special items it intends to report when Ford releases earnings on Feb. 3. The Dearborn, Michigan-based company will also reclassify a non-cash gain of about $900 million on the Rivian investment from the first quarter of last year as a special item, meaning it will be excluded from the full-year adjusted results, according to a statement.

The disclosures show Ford continues to gain from its connection to the startup even after the auto giant exited Rivian’s board in September and subsequently announced it had abandoned plans to jointly develop an electric vehicle. Ford, which has invested a total of $1.2 billion in Rivian since early 2019, has a 12 per cent stake that the company has said was valued at more than $10 billion in early December.

Article content

  1. Rivian delays big battery packs to prioritize more deliveries

    Rivian delays big battery packs to prioritize more deliveries

  2. Tesla doubles down on accusations rival Rivian stole its battery secrets

    Tesla doubles down on accusations rival Rivian stole its battery secrets

Since a November listing that was the largest IPO of 2021, Rivian has been on a roller coaster. The shares peaked at more than $172, but have tumbled 57 per cent since then as the company faced new competition in the electric-vehicle market. Rivian was briefly valued at more than $100 billion, then more valuable than Ford, but Ford has subsequently reclaimed the lead after it topped $100 billion in value for the first time last week.

Ford shares were little changed in after-hours trading Tuesday in New York, while Rivian climbed less than one per cent.

Adblock test (Why?)



Source link

Continue Reading

Investment

ByteDance reorganizes strategic investment team, causes panic – Yahoo Movies Canada

Published

 on


What a roller coaster day for China’s tech industry. TikTok’s parent company ByteDance has dissolved its strategic investment team, sending worrying messages to other internet giants that have expanded aggressively by investing in other companies.

At the beginning of this year, ByteDance reviewed its “businesses’ needs” and decided to “reduce investments in areas that are not key business focuses,” a company spokesperson said in a statement.

ByteDance isn’t halting external investments outright, though; instead, the investment team will be “restructured” and “integrated across the various business lines to support the growth” of its business.

In other words, some members from its strategic investment team, which has backed 169 companies, according to Chinese startup database IT Juzi (some deals may not be public), will be reassigned roles in other business departments and continue to invest there.

The “restructuring” still stirred up a wave of panic in the industry. China’s cyberspace regulator has drafted new guidelines that will require its “internet behemoths” to get its approval before undertaking any investments or fundraisings, Reuters reported, citing sources. Some Chinese media outlets also reported similar drafted rules.

“Behemoths” refer to any internet platform with more than 100 million users or more than 10 billion yuan ($1.58 billion) in revenue, said Reuters’ sources. That rule, if true, will put a slew of Chinese internet giants, from Tencent, Alibaba, Pinduoduo, JD.com to Baidu, under regulatory review for their investment activities. Tencent in particular is famous for its expansive investment portfolio, which earns it the moniker “the SoftBank of China.”

In a surprising turn, China’s cyberspace regulator said that the “rumored guidelines for internet companies’ IPO, investment and fundraising are untrue.” Furthermore, the authority will “investigate and hold relevant rumormongers responsible in accordance with the law.”

ByteDance’s motive for restructuring may indeed be to generate more synergies between its external investments and internal businesses. We don’t know for sure yet. But there are signs that China’s antitrust action on its internet darlings are nowhere near the end.

Tencent recently sold a great chunk of its shares in two of its most important allies, Chinese online retailer JD.com and Singaporean video games and e-commerce conglomerate Sea. While antitrust pressure wasn’t cited as the cause for its divestments, speculation is rife that China is continuing to blunt the monopolistic power of its largest interent platforms. A handful of them have received various degrees of fines for violating anticompetition rules, but a pause on their investment game will carry much greater consequences. The question now is who’s next.

Adblock test (Why?)



Source link

Continue Reading

Investment

CSA shines a light on greenwashing – Investment Executive

Published

 on


Greenwashing has become an issue for regulators who worry that investors could be intentionally or inadvertently misled about the green credentials of the funds they buy.

“In addition to leading investors to invest in funds that do not meet their objectives or needs, greenwashing may also have the effect of causing investor confusion and negatively impacting investor confidence in ESG investing,” the CSA warned in its notice setting out the new guidance.

The regulators reported that targeted reviews of investment funds’ continuous disclosure in this area revealed a number of shortcomings. Some funds had potentially misleading disclosure, the CSA found, while others featured inadequate reporting to investors on investment strategies, proxy voting practices and ESG performance.

Many funds “lacked detailed disclosure” about the specific ESG factors considered in their investment strategies and how those factors are evaluated.

Regulators also found that many funds provided more detailed ESG disclosure in their marketing materials than in their prospectuses; that most funds didn’t detail portfolio changes that were driven by ESG considerations; and that more than half of the funds that use proxy voting as part of their ESG strategies didn’t set out specific voting policies.

“In addition, the vast majority of the funds reviewed did not report on their progress or status with regard to meeting their ESG-related investment objectives,” it said.

In the wake of that review, the regulators indicated they don’t believe current disclosure requirements need to be revised to specifically address ESG factors. However, the CSA said “regulatory guidance is needed to clarify how the current disclosure requirements apply to ESG-related funds and other ESG-related disclosure in order to improve the quality of ESG-related disclosure and sales communications.”

The new guidance doesn’t add requirements for fund managers, but it does provide insight into areas where firms may be falling short of meeting existing disclosure expectations.

On the issuer side, the CSA is consulting on proposed new climate risk disclosure requirements for public companies.

For investment funds, the regulators are hoping that guidance will be enough by bringing “greater clarity to ESG-related fund disclosure and sales communications to enable investors to make more informed investment decisions.”

Among other things, the guidance recommends that funds that aim to generate a measurable ESG outcome report their results to investors.

“For example, where a fund’s investment objectives refer to the reduction of carbon emissions, investors would benefit from disclosure in the fund’s [performance report] that includes the quantitative key performance indicators for carbon emissions,” it said.

On marketing materials, the CSA said that “a sales communication that does not accurately reflect the extent to which a fund is focused on ESG, as well as the particular aspect(s) of ESG that the fund is focused on, would both be misleading and conflict with the information in the fund’s regulatory offering documents.”

It also said that the use of fund-level ESG ratings, scores or rankings may be misleading. Reasons include conflicts with the rating provider, cherry-picking positive scores, and failing to disclose qualifications or limitations to a rating or ranking that would supply added context.

“Interest in ESG investing is on the rise and this enhanced and practical guidance will play an important role in helping investors make informed decisions about ESG products, as well as preventing potential greenwashing,” said Louis Morisset, chair of the CSA and president and CEO of the Autorité des marchés financiers (AMF), in a release.

The CSA indicated that it will continue to review ESG-related disclosures as part of its continuous disclosure reviews.

Adblock test (Why?)



Source link

Continue Reading

Trending