Long time readers of this blog will know of my focus on positive investment flows as the underlying foundation for economic development. Because we are a small province, etc. most of the savings accumulated in New Brunswick flows out of the province to fund economic development elsewhere. If you think about all the public pension monies (provincial and national) that are collected each year in New Brunswick they mostly flow outward for investment elsewhere and then flow back as needed to meet pension obligations. The Canada Pension Plan, as one example, is investing in toll highways in Australia. This also applies to private savings. If you look at where your RRSPs are invested you will find very little if any investment in your home province with the exception of some indirect investment (i.e. if you have shares in a bank and that bank has branches in New Brunswick).
I’m not complaining about the outward investment flow. Just like people and ideas – the global mobility of capital is now easier and safer than ever. It just puts an onus on us to ensure there is more than enough capital flowing back into New Brunswick in the form of investment in our firms and in economic projects across the province.
This investment can come in many forms. Like the CPP example above, it can involve investors putting money into low risk publicly back infrastructure projects but more importantly it needs to flow into firms and into greenfield multinational investments in plant, equipment and IP in New Brunswick. Firms investing in the mining sector, manufacturing, professional services, IT, contact centres, etc. that are based on export markets (Canada and international) boost employment, GDP and tax revenue.
New Brunswick needs more of this investment. While the interprovincial foreign investment flow data is very limited, we have good data at a national level. Across Canada, foreign owned companies have been pumping in new investment, expanding employment and growing their footprint. According to Statistics Canada, from 2010 to 2013, foreign majority-owned affiliates in Canada added more than 150,000 net new jobs between 2010 and 2013 including 20,000 in the mining sector (which has likely retrenched some since 2013), manufacturing (18,500), wholesale trade (26,000), professional services (20,500), administrative and support services (11,500) and accommodation and food services (23,000). The figure below shows the percentage change in total employment by 2 digit NAICS code.
While we don’t have the NB data, it is fair to say that multinational investment is not rushing into the province these days. The wholesale trade industry – adding 26,000 jobs from foreign majority-owned affiliates across Canada – has been shrinking in New Brunswick. Manufacturing investment is way down. Mining GDP has been cut dramatically. Even ICT GDP has been relatively flat in recent years.
So how do we encourage national and international investment? Well, it can come through greenfield investment (i.e. a firm comes here and sets up a new operation to service national or international markets) or it can come through investments in NB firms (equity stakes, outright acquisitions, etc.) which connect the NB firms into global supply chains and helps build international markets. According to Statistics Canada, foreign majority-owned affiliates across Canada account for more than 50% of international merchandise exports. While I can’t give you the NB share it is likely in the 10% range.
Why would international firms want to invest here? We need to have a value proposition for investment.