Amid economic gloom, a bet on infrastructure
That sea of troubles, it just keeps rising. The floodwaters of uncertainty turned the English Channel into a gulf between Britain and Europe. They may yet sink Hillary Clinton. The $6 billion a year that Bill Morneau set aside for — wait for it — a rainy day have already vanished beneath the waves.
So Morneau and his boss Justin Trudeau will build an ark.
Not since the 1980s has Ottawa heard such a stark contrast between current gloom and future hope as Morneau, the federal finance minister, depicted Tuesday in his fall economic update to the House of Commons.
Morneau admitted that the gloomiest projections his officials could devise as recently as April were just barely gloomy enough to match the emerging reality. Yet amid the slow growth and the nauseating onslaught of political uncertainty from every point on the compass, Morneau confirmed the Liberals are launching an audacious experiment to attract huge amounts of outside investment in government projects.
Potentially hundreds of billions of dollars.
This is the Canada Infrastructure Bank I wrote about last month.
Using $35 billion in federal seed money, it will seek to attract much larger amounts from large institutional investors, such as pension funds in Canada and abroad.
The money, if it comes, will help pay for very large infrastructure projects from which investors will expect to generate enough returns to justify their investment.
What sort of projects? Roads, ports, power grids, water treatment plants. In theory, the sky’s the limit.
What sort of returns? Whatever the ingenuity of developers can concoct. Hydro rates and water metre rates, if that’s what’s getting built. Real estate development along routes rendered more attractive because the roads and rails will be getting a boost. And, yes, road tolls, like on Hwy. 407, if governments decide there will be any public appetite for them.
“This bank will allow us to create thousands of jobs, get more projects built and attract as much as $4 to $5 in private capital for every tax dollar invested,” Morneau told MPs. “That’s progress.” It’s also hypothetical, his advisers admitted during the closed-door session for reporters before Morneau spoke.
This extraordinarily ambitious plan to pay for Canada’s public ambitions out of the world’s deepest pockets could flop.
It would not be the first time. As recently as 2014, Stephen Harper’s government set aside $14 billion for a New Building Canada Fund that would try to identify, and cobble together financing for, publicprivate partnerships. The scheme didn’t exactly set the world on fire.
What’s different this time? A few things.
The context: It has now become clear that the world has settled into an extended period of very low rates of return on most investments.
The response: Pension plans and other large institutional investors — the kind whose investment portfolios are in the hundreds of billions of dollars or more — have increasingly turned to unorthodox investments.
Canadian investors have been among the most aggressive. None more so than Quebec’s Caisse de Dépôt, which has invested $1.43 billion in Mexican infrastructure projects on its way to proposing a $5.3-billion light-rail network around Montreal.
Finally, the scale of government involvement and ambition. One federal staffer at Tuesday’s event for journalists said that already, potential investors have been found for potential projects. Morneau’s announcement marks only the beginning of the project’s public phase.
The next step comes Nov. 14 in Toronto, with two separate sessions for the world’s largest investors. Trudeau, Morneau, Infrastructure Minister Amarjeet Sohi and other federal bigwigs will meet with foreign investors invited to town by BlackRock, the world’s largest asset manager with $5 trillion under investment. The Liberals will also meet Canadian institutional investors, hardly junior players given their clout: the CPP Investment Board, the Caisse,
It could fizzle. It could give birth to projects that are not well-received by the public. Or it could be a major new source of capital
Ontario Teachers’ Pension Plan, OMERS, Brookfield.
Some, like the Caisse, are already into infrastructure plays big-time.
Others, like the CPPIB, are not at all persuaded.
This whole thing is an experiment.
It could fizzle. It could give birth to projects that are not well-received by the public. Or it could be a major new source of capital. If enough investor money goes into high-return projects like power grids, it could free up federal money to invest in public works that won’t interest investors but are still worth doing.
Beats me whether it’ll work. But already there are signs of interest.
On Wednesday, Enstoa, a fastgrowing U.S. boutique consulting firm that helps co-ordinate all the contractors who work together on very large infrastructure projects, will announce it is opening a Toronto office next spring.
Enstoa has already worked on Canadian projects in areas like mining, but in 2014 they were brought in to help co-ordinate the city of Ottawa’s new light-rail project. Jordan Cram, the firm’s CEO, said he wants to capitalize on what he expects will be furious growth in Canadian infrastructure spending at every level of government.
Cram is trying to stay ahead of the game. He does not expect to be alone. “There will be a lot of action.”
The big consulting firms that play in the same water — Accenture, Deloitte, PwC — will step up their Canadian activity too, he predicted.
That kind of buzz suggests that, for all the project’s novelty, Morneau may be onto something. Paul Wells is a national affairs writer. His column appears Wednesday, Friday and Saturday.