Bloomberg News

Harper Seeks More Canada Investment to Guard Against Slump

June 03, 2011

(Updates with U.S. Ambassador comment in second-last paragraph.)

June 3 (Bloomberg) -- Canadian Prime Minister Stephen Harper will outline a program for his freshly seated parliamentary majority today that will include plans to rein in spending, diversify trade and attract more foreign capital to protect the country from being damaged by a faltering U.S. recovery.

Harper, the first Conservative to govern with a majority in two decades, will announce his agenda in a Speech from the Throne, the ceremonial opening of a new legislative session in Ottawa. A budget will follow June 6.

Harper’s May 2 election victory ended seven years of minority governments that fueled federal spending. A majority may also make it easier to press ahead with free-trade agreements, and open industries to foreign investment to sustain spending by businesses such as Suncor Energy Inc. and phone company BCE Inc. that is driving growth.

“The political situation enables the government to do things in a way that they could not have done before,” said Bernard Lord, chief executive of the Canadian Wireless Telecommunications Association and a former Conservative campaign chairman.

Harper, in power since 2006 without control of the legislature, must surmount challenges that include a weakening U.S. economy that threatens exporters, an aging workforce that will squeeze government finances, and productivity gains that lag behind its main trading partners.

Faster Growth

Canada posted 3.9 percent annualized economic growth in the first quarter, second only to Germany among Group of Seven nations and more than twice the U.S. rate. Canada’s benchmark Standard & Poor’s/TSX Composite Index has declined 0.7 percent since the beginning of May, compared with a drop of 3.7 percent in the Standard & Poor’s 500 Index. Canadian bonds have returned 2.06 percent so far this year, compared with 1.56 percent for the G-7 as a whole.

Still, the Bank of Canada predicted in April economic growth would slow in the second quarter to about half the first- quarter pace. The faltering U.S. recovery has damped the ability of Canada -- the only net commodity exporter in the G-7 -- to benefit from rising prices, central bank Governor Mark Carney said May 16, as higher costs crimp U.S. growth.

Canada’s dollar has fallen against all 16 of the most- traded currencies over the past three months, according to Bloomberg data, dropping 10 percent against the Swiss Franc and 4.9 percent against the euro, amid concern a weak U.S. recovery will prompt Carney to delay interest rate increases. Canada sends about 75 percent of its exports to the U.S.

Clarity Wanted

Canadian businesses will look for suggestions Harper will give clarity on changes to foreign-ownership rules in the telecommunications sector, as well as trade negotiations with the European Union and India and discussions with the U.S. on border security and economic integration, said John Manley, president of the Ottawa-based Canadian Council of Chief Executives.

The Conservatives campaigned as “strong managers of the economy and as a party that believes that business could be important in creating wealth,” said Manley, a former federal Liberal finance minister. “They will want to run fairly hard on a lot of these agenda items.”

The government’s first priority will be to pass the 2011 budget, Conservative House Leader Peter Van Loan told reporters yesterday. In a May 11 interview at the Bloomberg Canada Economic Summit in Toronto, Finance Minister Jim Flaherty said the government will use its majority to ensure the nation erases its deficit.

Spending Cuts

While the government’s March fiscal plan projected a surplus by 2015, Harper promised during the campaign to accelerate that timetable by finding C$4 billion in annual savings in government spending.

Another impediment to growth has been foreign ownership restrictions. More than half of the country’s top 15 companies by market value, including Royal Bank of Canada and BCE, can’t be owned by foreigners.

Harper has said Canada remains open to foreign investment even after the government blocked the takeover of Potash Corp. of Saskatchewan, Inc., the world’s biggest fertilizer company, by Melbourne-based BHP Billiton Ltd. Following the rejection, the government delayed plans to open the satellite and telecommunications industries to more foreign investment. Canadian telecom firms want the government to clarify its position so they can plan infrastructure investments, said Lord.

Wireless Spectrum Auction

The government has promised to hold a wireless spectrum auction next year. Wireless firms like Globalive Communications Corp. want the government to set aside some bandwidth for new entrants, while established companies such as BCE and Rogers Communications Inc. say it should go to the highest bidder.

“We’d like the government to make an inventory of what’s available,” Lord said, and “lay out a plan on how and when this spectrum will be released.”

Energy policy will also be closely watched. The government has promised regulations this year to limit carbon emissions by oil and gas firms. Perrin Beatty, head of the Canadian Chamber of Commerce, said the government needs to mount a “full-court press” in the U.S. to counter the image of Canada’s oil sands as “dirty oil.”

The country needs “a coherent energy strategy that commits Canada to bring our energy resources to market in a responsible way,” said Beatty, a former Conservative cabinet minister. “Our policies today are scattered.”

The Obama administration wants Canada to agree to new border-security rules and modernize intellectual-property laws now that Harper has secured a majority, U.S. Ambassador to Canada David Jacobson told a business audience yesterday.

Canadian and U.S. officials are negotiating an agreement to cooperate on security matters to speed the flow of trade across the border. Legislation to impose tougher copyright restrictions on music, films and other works has been introduced by minority governments three times since 2005, only to expire without being passed each time.

--Editors: Paul Badertscher, John Simpson

To contact the reporters on this story: Andrew Mayeda in Ottawa at amayeda@bloomberg.net; Theophilos Argitis in Ottawa at targitis@bloomberg.net.

To contact the editors responsible for this story: David Scanlan at dscanlan@bloomberg.net.


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