January 23, 2008
Archived - Speech by the Honourable Jim Flaherty, Minister of Finance, to the Canadian Business Council
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Dubai, United Arab Emirates
I would like to thank all of you for being here tonight. I appreciate the opportunity to visit with Canadians and friends of Canada while travelling so far from home.
I am here to offer my support and help you achieve your objectives.
For nearly 15 years now, members of the Canadian Business Council of Dubai and the Northern Emirates have dedicated themselves:
- To building bridges between Canada and the Middle East;
- To developing trade relationships; and
- To assisting Canadian companies and business people get a foothold in the United Arab Emirates.
You are the entrepreneurs, the risk takers and the visionaries. The work you do is about creating and seizing opportunities. You promote Canadian interests abroad and your success is our collective success.
Your actions also have a direct positive impact on the Canadian economy. As Minister of Finance, I applaud you for your dedication and effort.
There are currently 115 Canadian companies with a physical presence in the UAE on the ground here and more than 12,000 highly skilled Canadians contributing to this dynamic country region.
Evidence of your efforts is reflected in the growth of our export statistics. By the end of November 2007, Canadian goods exports to the UAE reached over $1 billion for the first time, a 42-per-cent increase over the same period in 2006.
Dubai has become a broadly based market economy, to the point where revenues from oil and natural gas now account for less than 6 per cent of its economy. It boasts an international financial centre which is quickly gaining a reputation as an emerging capital markets centre.
Over the past two days and a half, I have met with officials at the Dubai International Financial Centre and spent some time with my government counterparts here in the UAE. My objective is to build upon the work you and your members do each and every day. I encouraged greater cooperation and investment. I discussed opening the doors to further trade. I painted a picture of a Canada that has emerged as a shining star in a highly competitive global economic universe.
For those of you who have been living abroad over the past two years, I can assure you Canada is a very different place. Under the leadership of Prime Minister Stephen Harper, our government has moved forward with a sense of purpose and determination.
We are creating an environment for businesses to grow and prosper:
- We are balancing our budget and paying off our national debt;
- We are taking a responsible approach to spending; and
- We are reducing all taxes, bringing federal business taxes to historic lows. Unfortunately, they will never be as low as Dubai, where corporate tax is virtually non-existent.
As a result, Canada's economic fundamentals have remained strong in uncertain times:
- We are experiencing the second-longest period of economic expansion in Canadian history;
- Business investment is expanding for the 12th consecutive year;
- Our unemployment rate is near its lowest level in 33 years, with more Canadians working than ever before;
- Canada is one of the few countries in the world with sound public pension plans; and
- We are on the best fiscal footing of the major western industrialized countries. In fact, we're the only member of the G7 with both ongoing budget surpluses and a falling debt burden.
We are also a leader on the commodities front. As Prime Minister Harper is fond of saying, Canada is an emerging energy superpower.
Consider the facts:
- Canada's "natural resource wealth"-the total value of energy, mineral and timber reserves-has more than doubled in less than 10 years to more than $1 trillion, or more than $30,000 per capita;
- Canada has the second-largest petroleum reserves on the planet next to Saudi Arabia;
- We are the largest exporter of oil to the U.S.;
- We rank third in global natural gas production;
- We are the world's second-largest producer of hydroelectric power;
- We are the world's largest producer of potash and uranium; and
- We are the second-largest producer of nickel, the third-largest producer of aluminium and diamonds, and the largest exporter of forest products.
Our government fully intends to build on this success. Within our first year in office, I released a long-term economic plan entitled Advantage Canada.
It has served as our blueprint for making Canada a world leader for today and for future generations. It focuses on creating five key advantages to benefit Canadians and Canadian businesses:
- An Entrepreneurial Advantage, by reducing unnecessary regulation and red tape and increasing competition in the Canadian marketplace;
- A Knowledge Advantage, by creating the best-educated, most-skilled and most flexible workforce in the world;
- An Infrastructure Advantage, by building modern, world-class infrastructure that promotes economic growth, a clean environment and international competitiveness;
- A Fiscal Advantage, by eliminating Canada's total government net debt in less than a generation; and
- A Tax Advantage, by providing relief in every way the Government collects taxes-personal taxes, consumption taxes, excise taxes and business taxes.
Since Advantage Canada was released, we have gone well down the path towards achieving these advantages.
We are reducing taxes by $190 billion over this and the next five years. We haven't seen federal taxes this low in nearly half a century-not since the last year of the John Diefenbaker government in Canada.
Our government is reducing the federal debt by nearly $37 billion, or $1,570 for every man, woman and child in Canada.
Our government has committed to limiting growth in program spending, on average, to less than the rate of economic growth. We want to ensure tax dollars are being used to support programs and services that deliver maximum benefits for Canadians.
While we are building a more successful economy, we are also making the largest investment in modern infrastructure since World War II-a total of $33 billion over the next seven years for roads, bridges, water systems, public transit and international gateways.
We are also rethinking the traditional approach to infrastructure renewal and creating a P3 office through the Department of Finance. Through the use of public-private partnerships, we can tap into the experience, knowledge and capital of those who have designed, constructed and financed some of the world's most complex and successful infrastructure projects.
While the Canadian economy has sailed along quite nicely over the past two years, we are anticipating some rough seas ahead.
Just like the UAE, we are increasingly confronted by economic challenges originating outside our country, challenges over which we often have little or no control.
- We are seeing a significant decline in the U.S housing market and the negative economic effects that can have;
- We are seeing increasing economic competition from abroad, especially from emerging economies like China, Brazil and India;
- We are seeing an aging population and a shortage of skilled workers;
- We are seeing the rippling effect of global imbalances; and
- We are seeing financial market turbulence affecting global credit markets.
In uncertain times like these, we must work with others to ensure global financial stability. We must show leadership through cooperation.
On the credit side, countries around the world are struggling to cope with ongoing market turbulence as they attempt to maintain well-functioning capital markets and limit harmful economic consequences.
Canada has not been spared. But I'm pleased to say Canada's response was quick and decisive. Important initiatives taken early on by the private sector have supported the functioning of the markets.
Under the so-called "Montreal Accord," market participants have come together to devise market-based solutions to the challenges faced by Canada's non-bank asset-backed commercial paper. These actions were supported by government officials from both the Department of Finance and the Bank of Canada.
Late last month, private sector interests successfully agreed in principle to a restructuring plan for Canadian non-bank asset-backed commercial paper-an orderly solution that is a model for other nations. It is an example of how key interests can demonstrate leadership by working together for the greater benefit of all.
This Canadian resolve was also on display when it became clear that wider efforts were needed to address liquidity pressures worldwide.
Late last year, the Bank of Canada joined with its American, European, British and Swiss counterparts in announcing measures aimed at strengthening short-term funding markets. By working in concert with other nations, we were again able to devise a more effective response than any of us could have done individually.
Canada has been challenged with the recent market turbulence, but we have also been challenged by the effect of global imbalances.
The euro and the Canadian dollar have each accounted for about one-third of the effective depreciation of the U.S. dollar, even though the Canadian economy is about one-tenth the size of the euro zone.
It has been difficult for some sectors but Canada is adjusting. And while Canadians have faced challenges due to a rising dollar, we did so knowing that the benefits of a flexible exchange rate far outweigh the drawbacks. Canadians have had a flexible exchange rate for 40 years and it has served us well.
But to effectively address global imbalances, everyone must play their part.
This includes countries with large trade surpluses like China. They have a prominent role to play in adjusting to global balances through flexible exchange rates and other measures. It's in our collective interest to do so.
More generally, a well-functioning global monetary system supported by stronger international institutions is also in our best interest. This is why Canada has continued to work with its global partners to ensure the International Monetary Fund better reflects the changing global economy, and has all of tools necessary to promote international monetary and financial stability.
The result will be a stronger, more secure global economy for us all.
The opening of global markets has been a boon to both Canada and the UAE. We are trading nations, and our prosperity is founded to a large extent on our ability to access foreign markets.
As a matter of fact, my colleague, Minister of International Trade David Emerson, was here in the UAE just two months ago promoting trade between Canada and the region. Our government has made the countries of the Gulf Cooperation Council a priority of our trade and investment promotion efforts. There exists significant untapped potential in our commercial relations.
To tap into that potential and strengthen our economies, we must maintain an open international trading system and resist the calls for protectionism. This is clearly a priority for us. That's why Canada is working at the World Trade Organization to secure a successful and ambitious Doha Round.
As an aside, I was fascinated to see your free trade zones-a place exempt from import duties, a place free from corporate tax, a place with an inexpensive energy supply and efficient recruitment procedures to ensure the availability of a skilled workforce. It's certainly a unique approach to complement and contribute to Dubai's growth and development. I would be interested to hear more about these zones and their effectiveness.
Canada has also developed a new Global Commerce Strategy aimed at expanding our bilateral trade network, strengthening our position in the U.S. market and extending our reach to emerging markets.
We must also strive to avoid financial protectionism against any particular class of investor.
Open investment across borders is vital to a healthy global economy. The importance of foreign investment was on display recently with capital injections in large international banks.
Having said that, to guard against such protectionism, we must also realize that legitimate concerns exist regarding the transparency of foreign investment, and that all foreign investment must be made for economic reasons.
Certainly, Canada knows the rewards that foreign investment makes possible. Over the past three years, we have experienced a sharp increase in foreign direct investment in both directions-by foreigners investing in Canada and by Canadians investing elsewhere.
Canada is obviously a nation that welcomes foreign investment and all of the benefits that come with it-more and better jobs, increased innovation and enhanced productivity. That has certainly been my message over the last day and a half here.
But Canadians must keep in mind that foreign investment is a two-way street.
While Canada recently experienced high-profile foreign takeovers of Canadian firms, our companies have continued to seize their own opportunities abroad. According to the United Nations, Canada is among the top 10 nations both in terms of attracting foreign investment and in investing abroad.
Trends indicate that, by the end of the decade, Canada will become a net global creditor, a country with more foreign assets than liabilities. Not only is this unprecedented in Canada's history, until recently it was simply unimaginable.
Canada's Investment Environment
And yet, Canada can and must do more to ensure our investment environment is up-to-date and able to respond to the changing conditions in the global economy.
That's why our government has launched a review of Canada's foreign investment policies. We want to ensure we can increasingly attract investment from abroad while continuing to safeguard the interests of Canadians.
As a government, we recognize that misguided barriers to foreign investment can end up shutting our own entrepreneurs out of new markets, and can only risk harming Canadian success abroad.
At the same time, our government is committed to protecting Canada's interests on those rare occasions when a particular investment might not actually be to our country's benefit.
Unlike other G7 countries, we don't have a mechanism in place to review investment for national security implications. That's why our government is carefully considering the creation of a national security test to give Canada the tools we need to safeguard our security and our sovereignty.
We have also released guidelines for state-owned enterprises wishing to invest in Canada, to provide clarity on how the Investment Canada Act will be applied.
Let me state unequivocally that these new guidelines will in no way create new obstacles or signal any change in the Government's openness to foreign investment. Their intention is, in fact, to provide clarity to investors around the world so that we can continue to attract foreign investment that benefits Canada.
Sovereign Wealth Funds
As this audience knows full well, any substantive discussion about foreign investment must address the major increase in activity by sovereign wealth funds, used by nations to manage their resource reserves or national savings.
While they may have been around for decades, they have never been more important to the global economy. While there is currently no way of definitively measuring the total size of sovereign wealth funds, estimates run as high as $3 trillion, with the IMF predicting these funds will reach $12 trillion by 2012.
The world's largest, of course, can be found in this very country, the Abu Dhabi Investment Authority.
Canada, through examples like the Alberta Fund, as well as other nations like Norway, have much to offer when it comes to sharing best practices on sovereign wealth funds. In my international duties, I've joined my G7, G20 and IMF counterparts in calling for improvements in such areas as fund governance, transparency and accountability.
Through these and other efforts, the role of sovereign wealth funds is receiving greater global scrutiny.
The IMF is looking at a set of possible "best practices" to help guide sovereign wealth funds, drawing in part on discussions the G7 had with the UAE and major sovereign wealth funds at an outreach dinner last fall. Meanwhile, the OECD is examining investment frameworks to encourage a more effective use of investment dollar inflows in recipient countries.
There is no doubt that sovereign wealth funds provide numerous economic benefits, not only for the country of origin but for the countries they invest in. They can provide stability, help cushion nations against economic shocks, diversify investments and ensure better use of capital by investing abroad or in productive domestic projects such as infrastructure.
As the recent credit turbulence illustrated, they can also be a constructive source of investment in financial markets at times when capital is at a premium.
Canada, however, believes sovereign wealth funds can be even more valuable capital market participants by becoming more transparent in how they operate and how they are governed.
It must be clear that investments are being made for business reasons, not political ones.
Just as Canada demonstrated leadership in its response to recent capital market turbulence, I believe that the UAE can be a leader in its own right in encouraging greater transparency and better governance in sovereign wealth funds.
I have now gone on for almost as long as it seems. Let me conclude with a few final thoughts.
The world economy is changing and Canada needs to adapt to it. To sustain our Canadian advantage, we must not just embrace change; we must lead it.
Canada's first Prime Minister, Sir John A. Macdonald, was fond of saying "Look a little ahead my friends." His vision of Confederation was inspiring:
- To create new opportunities; and
- To broaden our horizons.
The members of the Canadian Business Council of Dubai have not only embraced the spirit of Macdonald's words, you have taken them to heart. You are ambassadors, furthering Canadian interests and promoting Canadian values abroad.
I encourage you to continue your work building bridges and pursuing relationships with Canadian companies and business people.
I firmly believe that there is nothing Canadians can't do if we put our minds and energy behind it. There is nothing Canadians can't do when we mobilize and focus our creativity and talent.
Canada is a land of opportunity. In spite of all the global challenges that lie ahead, Canada is a country emerging as a world leader. Like the UAE your country, Canada, has laid the groundwork for even greater prosperity.
Again, I appreciate the opportunity to visit with Canadians and friends of Canada here in the United Arab Emirates.
Thank you for inviting me here today.