Ottawa behind on spurring capital investment, productivity growth

JOCK

Podium

FINLAYSON, KEN PEACOCK

There has been much discussion of the Trudeau government’s preternatural fondness for deficits and its halting efforts to address hot-button issues like escalating living costs and the challenges posed by the blockbuster (albeit misnamed) U.S. Inflation Reduction Act (IRA). The latter features an eye-popping US$370 billion in subsidies and incentives to accelerate the United States’ clean energy transition, and to boost domestic production of low-carbon goods, renewable energy and clean technologies.

Canada, understandably, has been under pressure to respond to the IRA. Budget 2023 is Ottawa’s attempt to do so. It puts flesh on the bones of the government’s fledgling green economic strategy. We believe the strategy should be appraised by asking whether it is likely to improve Canada’s performance in two areas that are vital to future prosperity: Business investment and productivity.

On investment, it has become commonplace to bemoan the sluggish pace of non-residential capital spending by Canadian businesses. The C.D. Howe Institute estimates that such private-sector investment per worker has been running at just 55 to 65 per cent of the U.S. level since the mid-2010s. Canada is also lagging well behind the average for advanced economies.

As a result, the typical Canadian employee has fewer and less up-to-date “tools” – machinery, plant, equipment, advanced process technologies, infrastructure and intellectual property products – to work with than a counterpart in the U.S. or much of Europe. Even more troubling, business investment has been so weak that it isn’t even matching depreciation across large swathes of the economy. Canada’s private-sector capital stock is at best stagnant if not declining outright.

A second area of Canadian underperformance is productivity. Here, too, the picture is sobering. Labour productivity hovers around 75 per cent of the U.S. benchmark. The pattern of weak Canadian business investment is a major driver of the productivity gap. Other contributing factors include the smaller size of the average firm in Canada and the slower take-up of digital and advanced technologies by Canadian businesses.

Will Budget 2023 reverse these trends? We are skeptical. The only significant new economic announcements are focused on advancing the Trudeau government’s ambitious climate agenda. They include tax incentives to encourage “green” manufacturing, spur the development of renewable electricity and hydrogen, promote the adoption of clean technology products across industry and support carbon capture and storage. This suite of tax credits carries a sizable price tag: $21 billion in the next five years, and up to $80 billion over the coming decade. The incentives are designed to help counter the magnetic pull of the U.S. for companies looking to invest in clean energy projects and technologies. Canadian firms involved in clean energy and clean tech sectors should benefit from Ottawa’s greentinged industrial policy. So will some natural resource and manufacturing firms looking to slash greenhouse gas emissions.

But it’s hard to see how the government’s plan to decarbonize the economy will improve the broader investment environment or stimulate faster productivity growth. For one thing, what Statistics Canada defines as the “environmental goods and clean technology” sector makes up just three per cent of GDP (and 1.6 per cent of payroll employment), with renewable electricity and waste management services together accounting for more than half of that. Even if the sector flourishes, the effect on Canada’s $3 trillion economy will be very modest.

Second, Ottawa is piling on ever-higher energy taxes and adding more costly regulations – steps which increase production and operating costs for many Canadian businesses. At the margin, this policy mix is likely to dampen private-sector investment in things that would make our firms and workers more productive over time.

So, while Budget 2023 will yield some positive outcomes for segments of the Canadian business community, it won’t do much to tackle the country’s chronic weaknesses in capital investment and productivity growth. •

WHO’S GETTING SUED

These corporate claims were filed with the B.C. Supreme Court registry in Vancouver. Information is derived from notices of civil claim. Civil claims have not been tested or proven in court.

DEFENDANTS

Atira Property Management Inc. and Atira Development Society and Atira Women’s Resource Society and City of Vancouver (Fire and rescue services) and Winters Residence Ltd.

PLAINTIFF

Jennifer Hansma

CLAIM

Certification of a class action and damages for negligence and breach of duty over the Winters Hotel fire last year that killed two residents and displaced the survivors.

DEFENDANT

Team Kennedy Stewart Vancouver Society also known as Forward

Together Vancouver

PLAINTIFF

Point Blank Creative Inc.

CLAIM

$59,000 to cover unpaid invoices for marketing work performed by the plaintiff for the defendant during the October election.

DEFENDANT

Colliers Project Leaders Inc./Colliers

Maitres De Projets Inc.

PLAINTIFF

Gary Keith Fry

CLAIM

$80,000 for wrongful dismissal from the plaintiff’s position as senior project manager, $3,400 for relocation expenses and $100,000 in aggravated damages, claiming the defendant was unaccommodating of his challenges with relocating, instructed him not to complete training for the position and that he experienced harassment from management.

DEFENDANT Canadian Professional Golfers’ Association of British Columbia

PLAINTIFF

Donald Miyazaki

CLAIM

Damages for wrongful dismissal from the plaintiff’s position as executive director.

DEFENDANTS

Ping Zhang and Xiao Jun Liu

PLAINTIFF

Zhiwei Hu

CLAIM

$360,000 and an order tracing funds lent to the defendants with the intention of financing cannabis-related projects for a numbered company but rather invested in other companies.

DEFENDANTS

Wildfire Helicopters Inc. and Stuart Wild

PLAINTIFF

Green Vista Contracting Inc.

CLAIM

$497,390 in a lien against the defendant’s property for unpaid work on three residential buildings, a sauna and drainage and septic tanks, among other things.

DEFENDANTS

Spice It Indian Restaurant Ltd. and Sukhbir Singh

PLAINTIFF

Hudson Retail Inc.

CLAIM

Damages for $79,401 in unpaid commercial rent for three months and $9,079 to cover enforcing the lease termination.

Lawsuit Of The Week

Vancouver NFT creator claims company takeover was a sham House of Kibaa co-founder claims buyers drained company of assets

BY DUSTIN GODFREY

The takeover of a Vancouver company known for creating and selling non-fungible tokens (NFT) turned out not to have been what it seemed, its co-founder claims.

Thanh Khiet (Jason) Nguyen filed his lawsuit April 6 against Looking Glass Labs Ltd. and Peter Michael Nguyen, among a slate of other individuals and businesses.

Jason Nguyen claims Peter Michael Nguyen approached him in 2021 to float the idea of selling HOK Technologies Inc. (House of Kibaa) to Looking Glass. The former had a 60-per-cent stake in House of Kibaa at the time.

But Jason Nguyen claims in legal filings “long-time acquaintance” Peter Michael Nguyen had ulterior motives and failed to disclose his ownership stake in Looking Glass.

Jason Nguyen claimed House of Kibaa had generated $500,000 in revenue in June 2021 through membership programs for the company’s products. He told Peter Michael Nguyen of his success and that he expected to make millions of dollars in NFT sales in the coming months, which Jason Nguyen claims put a target on him for a scheme.

That scheme, according to the lawsuit, involved allegedly positioning several individuals in high-ranking positions of a variety of “seemingly unrelated corporations,” which would then issue fees for “seemingly arms-length consulting contracts and/or engage in seemingly arm’s length share purchase agreement/acquisitions with the other group co-conspirators.”

On the surface, it looked like a company was experiencing a downturn due to bad business decisions, according to Jason Nguyen’s lawsuit. But he claims the draining of the company’s assets would later turn out to effectively be self-dealing to associates’ businesses.

According to Jason Nguyen, Looking Glass had no business prior to the acquisition and only had a few thousand dollars in cash. And he claims Looking Glass bought House of Kibaa at a low price based on its cash value prior to millions of dollars in sales of NFTs. He claims his former lawyer, defendant Matthew Fish, told him to go ahead with the acquisition at the lower price, saying it could be adjusted after the deal was done. Jason Nguyen was told the NFT sales and subsequent metaverse land sales would be forwarded to him as well, but he never was paid out, according to the lawsuit.

Jason Nguyen claims the company was drained of its assets and value in the year after the acquisition, diluting the more than 11 million shares he was set to receive as part of the deal.

And while Jason Nguyen claims he was supposed to receive those shares immediately, when the share price of the company was $0.96, he never received the shares until October 2022. By then, the share price had sunk to between $0.10 and $0.20, according to lawsuit.

Last week, the share price stood at about $0.03.

Looking Glass’s assets shrank from $7.16 million in October 2021 to $308,035 in July 2022, despite generating another $2.5 million in metaverse land sales in the spring of that year, according to Jason Nguyen.

None of the defendants had filed responses as of press time and the allegations have not been proven in court.

DEFENDANTS

Keith Nicoll and Canadian Imperial Bank of Commerce

PLAINTIFF

Lionheart Sports Ltd.

Claim

Damages for breach of contract and breach of fiduciary duty after the individual defendant was found to have sent e-transfers from the plaintiff to his CIBC bank account.

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