There's a simple solution to Canada's emerging patriotic reticence toward foreign takeovers of the country's resource assets: the joint venture. And the beauty is, the Canadian government doesn't even have to impose this solution – with some subtle nudging, the market may just adopt it on its own.
The questions of ownership structures and foreign control are taking on new urgency in the wake of the Canadian government's de facto rejection of the proposed takeover of Progress Energy Corp. by Malaysia's state-owned energy company, Petronas. The government has been increasingly signalling a reluctance to allow Canadian assets – especially in the resource sector – to be taken over by foreign-government-controlled entities.
Obviously, we're not the first country to be nervous about foreign buyers snapping up our best assets, especially when those buyers have the interests of foreign governments at their heart, which may well clash with the best interest of Canadians. Admittedly, such concerns tend to be the more common purview of emerging-market economies. But as long as Canada is loudly expressing the kinds of questions more typical of emerging economies, we might as well consider their best answers.
And many of those countries have found the joint venture – in which foreign investors share ownership with domestic owners, the foreigners often restricted to something less than a controlling stake – as a happy compromise.
If you think such restrictions chase away investors, you need look no further than China, the poster child for joint-venture investing. Despite a complex web of joint venture and foreign-ownership restrictions, China's foreign direct investment has nearly quadrupled in the past 10 years, to more than $200-billion annually. Joint-venture investments alone topped $50-billion last year.
But Canada doesn't even need to impose such restrictions. By making the hurdles for full-on takeovers onerous for big state-owned buyers, the joint venture becomes a logical path of less resistance. All Ottawa would really need to do is quietly point this out, through both its actions and the quiet back-room discussions that go on behind the scenes of foreign bids, to make its preference clear.
Indeed, the joint-venture model is already gaining high-profile traction among foreign state oil entities looking for a Canadian foothold. China's CNOOC Ltd. has invested in several such partnerships – with relatively little political uproar – as a prelude to its pitch for Nexen Inc. Athabasca Oil Corp. and Connacher Oil and Gas are reportedly closing in on a deal with Kuwait's national oil company for a jointly held oil sands development. India's state oil companies have also been sniffing around for oil sands partnerships recently.
Frankly, Canada needs the money. Federal Natural Resources Minister Joe Oliver said just last month that "we don't have enough capital in this country" to finance all the development potential of the country's resource sector.
That's not politics talking, that's arithmetic. We're a small economy with an oversized resource base. To successfully tap these assets to achieve the growth and economic well-being that we desire, foreign investment is not only desirable, it's essential.
And when we're talking about joint ventures, the political calculations aren't much more complicated. It's a lot easier to see the balance of benefits tilt toward Canadians when the foreigners forking over the money don't have control of the assets, but are merely enthusiastic participants in the profits. The argument that we are ceding our economic sovereignty would be nullified, without chasing away the money and its economic benefits.
David Parkinson