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CANADA BILATERAL TRADE FINANCE INTERVIEW

Country

CANADA

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Canada’s trade and investment relations with the GCC countries has been growing from strength to strength. We spoke with H.E Ambassador Arif Lalani to get his views on this bilateral relations.

Please give us a brief background on the trade relations between the GCC and Canada, particularly the UAE.The UAE is one of our most important commercial relationships in the region. Activity in trade, investment, innovation and education is robust and growing. The UAE is the top export destination for Canadian goods and technology in the MENA region, and within Canada’s top twenty export markets globally. Our UAE commercial and investment team of 12 operates out of the Embassy in Abu Dhabi and the Consulate General in Dubai.

Two-way merchandise trade between Canada and the UAE reached USD 1.66 billion in 2012.

Some 40,000 Canadians live and/or work in the UAE: more Canadians live and work here than in any other country in the MENA region.

Canada’s two-way merchandise trade with GCC countries for 2012 was USD 6.78 billion.Priority sectors in the region where we see the most opportunity for Canadian exporters

include the service industries, oil & gas equipment and services, health industries, infrastructure/green-build and agriculture, food and beverages.

How has the trade relation evolved over the decades?For over 40 years, Canadians have been a part of the UAE story. Many Emirati health care personnel have been trained in Canada. Some schools in the UAE are modelled on a Canadian curriculum. In addition, the higher colleges in the UAE were developed on the basis of a Canadian/Ontario model. Canadian universities and colleges are making their presence known in the UAE through partnerships with UAE institutions, and through the growing number of alumni in this country who have graduated from Canadian schools.

We have helped Emiratis develop their health and education sectors, and build their infrastructure. A Canadian nurse named Gertrude Dyck arrived in Al Ain in the early

1960s and worked at the Oasis Hospital there. Her work in the area of maternal and neonatal health served to bring the incidence of newborn infant and maternal mortality down. Hundreds of Emirati births were facilitated by her efforts. Her dedication and kindness earned her the name “Doctora Latifa”. I was thrilled to be part of the ceremony in February which marked the 100,000 birth at Oasis Hospital in Al Ain!

Also in the 1960s, a Canadian company called Cansult built the Maqta Bridge linking Abu Dhabi to the mainland. They also built Abu Dhabi’s very first international airport. And we mint your Dirhams!

Today we are building a strategic relationship across the foreign, security, commercial, and development sectors that we hope will allow Canada to be a part of the UAEs future. For example, Canada’s BlackBerry chose Dubai as one of only six cities worldwide for its BlackBerry10 launch! Canadian companies have been actively involved in several projects in the region with the two most notable being Rio Tinto-ALCAN and SNC-Lavalin. SNC-Lavalin have undertaken several projects in the aluminum industry including for DUBAL in Dubai. They are also actively involved in the EMAL project having successfully completed the first phase of the smelter. When completed, Canadians will have contributed to the largest single-site aluminum smelter in the world! Most important to me, we will have played a valuable role in the UAEs economic diversification strategy. We can do much more!

We believe the UAE is a model of what I call “enlightened accelerated development”. And I want to encourage Canadians to continue to be a part of the story. I know Canadians here care deeply about the UAE.

There are two Canadian Business Councils in the UAE: one serving Abu Dhabi and the other serving Dubai and the Northern Emirates. Both have large memberships and generous sponsors

Know your partners

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and play an influential role in promoting two-way trade and investment between our countries.

What are the main products exported and imported between the two countries?Trade activities and investments are diversified across many sectors, including aerospace, ICT, health industries, education, defence & security, service industries and capital projects, oil and gas, and environmental industries.

Canada’s merchandise exports to the UAE include aircraft (Bombardier) and aircraft simulators (CAE), telecommunications equipment (BlackBerry) and a variety of

agri-food products and commodities. On the services side, education and financial services, as well as construction and architecture, are key areas of expertise for Canada in the UAE market. Canada is the number one supplier of foodstuff in the UAE (wheat, canola, value-added food products) and these products can be found in Spinneys and Lulu across the UAE.

UAE exports to Canada include oil, chemicals, iron and steel products, and minerals and precious stones.

We see continued interest in Canadian technology and services in all the areas of priority importance for the diversification of the UAE economy. Canada is well represented in several fields, from aerospace to financial services and from agriculture to manufacturing.

For GCC companies, keen on investing in Canada- what advice would you like to give them and which sectors and areas would you highlight?I believe Canada offers one of the best returns on investment anywhere in the world. The Canadian financial sector is among the World’s most well-regulated and is more and

more a benchmark for many international best practices. No major Canadian banks failed during the financial crisis of 2008-2009. The World Economic Forum has for five years in a row ranked Canada’s banking sector first worldwide for financial strength and safety.

Canada led all G-7 countries in economic growth over the past decade (2002-2012). We have a strong economy with low tax rates, unparalleled access to the North American market and strong and stable dollar. KPMG places Canada as the most tax competitive country in the G-7 (our corporate taxes are 13% lower than the U.S.).

Our team of federal, provincial and municipal

partners is ready to assist foreign investors with their business ventures in Canada. We provide advice with respect to site selection, financing and setting up a business anywhere in Canada.

Are there any issues that foreign companies need to be aware of when they decide to set shop in Canada?We make it our business to attract businesses to Canada. The main issues that foreign investors should be aware of are the competitive and open nature of our business environment. This why Canada was the second largest recipient of global FDI inflows per capita in the G-20 from 2007-2011.

These are broad indicators of our success so here are some specific factors that any company might consider about investing in Canada:

Canada’s workforce is the most highly educated among countries of the OECD, with half of its working-age population having a tertiary level of education.

We are linguistically diverse, with 1 in 5 Canadians speaking one of over 200 languages in addition to either of Canada’s official languages of English and French.

How many Canadian companies are in the UAE/Middle East?Over 150 Canadian companies have chosen the UAE as their base of operations for the wider MENA region because of this country’s well-developed infrastructure, business-friendly environment and extensive regional linkage, including MENA, South Asian countries, Central Asia and sub-Saharan Africa.

We ensure Canadians are aware that the UAE is a regional hub with excellent logistical links to South Asia, Africa and the wider MENA region, as there is huge potential for many more Canada-UAE business partnerships.

What kind of investments is Canada making in the UAE?The Government of Canada does not report on foreign direct investment abroad but we do assist Canadian clients to establish their operations abroad. Canadian direct investment in the UAE is diversified across many sectors, including banking (RBC, BMO and Scotiabank), infrastructure (SNC Lavalin) and transportation (Bombardier).

How do you see the bilateral economic relation evolving in the coming years? Any agreements being signed?Canada and the UAE have recently signed Memorandums of Understanding (MOU) with respect to SME incubator models. For example, Sustainable Development Technology Canada (SDTC) signed an MOU with the UAE Ministry of the Economy to share best practices on Canada’s P3 model for the clean tech sector, the due diligence process for investing in technology start-ups, as well as investment opportunities in SDTC funds and eventual commercialisation activities. An MOU was also signed between the MaRS Discovery District and the Ministry of the Economy to explore the MaRS technology incubator model. Canada also concluded a nuclear cooperation agreement in September 2012 with the UAE Ministry of Foreign Affairs.

We are actively exploring new institutional partnerships in technology innovation and SME creation which will lead to even greater levels of bilateral cooperation, trade and investment. There is huge scope for Canadians to share our experience with Emirati partners across many sectors.

$6.7 billion Canada’s two way merchandise trade with

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Canada remains one of the most welcoming places in the world for international business and foreign direct investment. In what remains a challenging global economic climate, Canada’s economy has outperformed those of most other industrialised countries and remains a top destination for foreign investment.

The World Economic Forum has rated Canada’s banking system as the world’s soundest. Forbes magazine

has ranked Canada as the best place in the world for businesses to grow and create jobs, due in part to their low-tax environment, which includes the lowest overall tax on new business investment in the G-7. These are but some of the factors contributing to an innovative, stable and predictable, and cost efficient and profitable environment, attractive to international investment.

Canada not only presents a stable and predictable investment climate that generates creative and innovative solutions, but also provides access to international markets. Canada, as a member of the World Trade Organisation and signatory to both bilateral and multilateral free trade agreements, reduces barriers to trade and as well enables tariff free access to qualifying goods and services.

The North American Free Trade Agreement (NAFTA), to which Canada is a

signatory, has in the last 10 years, eliminated barriers to trade as well as provided duty free access, to a market of 463 million consumers with combined GDP of USD 18.7 trillion (2012 estimates). The unparalleled access to a thriving domestic economy and international markets positions Canada as a prime destination for international investment.

Additional features of Canada’s investment environment include government assistance at both federal and provincial levels. Government

Invest in Canada - Innovative, Creative and Stable

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led initiatives such as the Scientific Research and Experimental Development Tax Credit (SR&ED) and the recently launched Venture Capital Action Plan provide candidates with much need funding to continue research and development activities and commercialisation activities. This is but one example of how Canadian governments work to compliment the efforts of industry and commerce in a collaborative manner.

The collaboration extends well beyond public/private partnerships to include partnerships with governments and research and educational institutions, both foreign and domestic. The strategic partnerships have seen their partners pool resources and cut costs, gain unparalleled access to essential resources and facilitate the transfer of knowledge and technology. The partnerships have also witnessed the development of centres of excellence, pioneering the development of cutting edge technologies many of which have been deployed in the UAE today.

Following, are highlights of some of Canadian investment opportunities with key strengths illustrated.

AEROSPACECanada’s aerospace producers have earned an outstanding worldwide reputation for quality, value, performance and reliability, with exports accounting for 80% of the industry’s annual revenues. More than 400 aerospace manufacturing and services companies across Canada generated an estimated USD 21 billion in revenues in 2010. Aircraft and aircraft parts design and manufacturing is the largest sub-sector, accounting for 53% of the industry’s revenue.

Canada’s key strengths in aerospace• Research and development: With a

combined R&D and capital investment of more than USD 2 billion in the aerospace industry, Canada is at the forefront of aircraft technology development and applications.

• Export competitiveness: Canadian government through the Export Development Corporation (EDC) provides support ranging from inbound investment to export market financing of aircraft sales, logistics and market access.

• Duty-free manufacturing tariff regime: Canada is the first G-20 country to offer a tariff-free zone for industrial manufacturers, a major initiative that will see tariffs on all manufacturing inputs reduced to zero by 2015.

RENEWABLE ENERGY Like the UAE, the development of clean technologies is a priority for all levels of government in Canada; at the federal, provincial, territorial and regional levels.

Canada is an active centre for research and innovation in renewable energy technologies. Support for innovation in wind and solar energy includes:• Preliminary gross domestic expenditure on

R&D in 2011 in Canada is USD 30 billion, one of the highest levels in the world.

• Canmet ENERGY, part of the federal department Natural Resources Canada, provides technical expertise and financial support to renewable energy technologies, and works with industry, universities and research groups to support innovation in wind, solar and thermal energy.

Canada’s key strengths in renewable energy• Natural Resources: Vast coastlines and huge

land mass provide Canada with strong wind resources.

• Large domestic market: Canada is the sixth largest consumer of electricity in the world providing a huge market for renewable energy.

• Research & development capabilities: Partnerships between industry, government, universities and research institutes such as Canmet ENERGY and testing facilities such as WEICan and TechnoCentre E� olien create an excellent environment for R&D and innovation in renewable energy.

WIRELESS COMMUNICATIONSInformation and Communications Technologies (ICT) is one of the four priorities of the Canadian government’s science and technology strategy: there is a national digital economy strategy supporting this initiative. This strategy aims to help the ICT sector create new products and services, accelerate the adoption of digital technologies, and improve cyber-security practices.

The Canadian telecom services market for 2012 was valued at USD 43.5 billion, with wireless data being the fastest growing segment. Canada’s strengths in Next Generation Networks (NGN), M2M, and cloud computing applications are encouraging many international companies to invest in Canada.

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Recent policy measures removed foreign investment restrictions for telecommunications operators with less than a 10% share of the Canadian market. This, combined with caps applied to the next spectrum auction, later this year, will enable new entrants to compete to bring the latest 4G LTE mobile networks to Canadians.

Canada’s key strengths in wireless communications More than 300 wireless and telecommunications companies in Canada spend over USD 6.2 billion annually on R&D. Canada’s deep expertise in wireless covers many areas.

Skills and researchICT accounts for one third of all Canadian private sector R&D. The Government of Canada encourages R&D through generous Scientific Research and Experimental Development tax incentive programmes. Five, of the 10 Canadian companies that spend more than USD 200 million on R&D, are operational in the wireless sector. In 2011-12, Blackberry (Research In Motion) remained Canada’s top corporate R&D spender, devoting nearly USD 1.6 billion to research. This research has focused on new product development such as the BB10.

Canada’s ICT workforce is highly educated – 84% of all workers have university or college training and 71% hold a post-secondary graduate degree. In 2011, Canada’s ICT sector employed an estimated 556,000 people.

MEDICAL DEVICES Canada’s highly diversified medical device manufacturing and development industry encompasses more than 1,000 firms employing some 26,000 people. The industry consists primarily of small- and medium-sized enterprises that generated a combined total of around USD 2.6 billion in export revenues in 2009. Demographic trends, developments in science and engineering, and health-care delivery changes are expected to contribute to the industry’s growth in the years ahead.

The industry’s many innovative firms specialse in cardiovascular devices, medical imaging, in vitro diagnostics, dental implants

and materials, and assistive devices for home health care.

Canada is also a world leader in the field of in vitro diagnostics. For example, Halifax-based MedMira developed a flow-through rapid diagnostic HIV test, the only such product to earn regulatory approval in Canada, the United States, China, and the European Union.

Canada’s key strengths in medical devicesCompetitive remuneration costs: The salary costs of R&D executives in Canadian cities are competitive compared to, for example, cities in the United States and in Europe.

A large pool of experienced, highly trained R&D researchers. With its high number of experienced, highly trained R&D researchers, Canada offers many advantages to companies looking to launch or expand their R&D facilities. With close to 35,000 researchers in Montréal alone, and another 40,000 in Toronto and Vancouver combined, Canada’s three largest cities are ideal investment locations.

World-class scientific research centres: Canada is home to many internationally recognised universities and leading-edge scientific research institutions, staffed with world-class scientists and researchers. In addition, the federal government provides strong support to research and development across the country through such internationally recognised institutions, as the International Development Research Centre, the National Research Council Canada, and the Canadian Institutes of Health Research.

A no-nonsense legal framework: The federal government deals with legal issues of national scope, including those related to

international trade and intellectual property, while provincial governments handle legal matters related to health and education, among other issues. Canada’s legal system is rooted in British common law, while the province of Québec operates under a system of civil law for private legal matters.

FINANCIAL SERVICESFinance and insurance accounted for 7% of national output in 2011, and the Canadian financial services sector represented a GDP of USD 264 billion. The size and growth of the Canadian financial services sector is supported by Canada’s AAA credit rating and stable banking system

Canada’s key strengths in financial serviceStrongest banking system in the world-The Canadian banking system was ranked the soundest in the world by the World Economic Forum in 2011. Moody’s Investment Service ranks Canada’s banking sector first worldwide for financial strength and safety. No major Canadian banks failed during the financial crisis of 2008-2009 and four of the world’s top ten strongest banks are Canadian: CIBC (third), Toronto-Dominion Bank (fourth), National Bank of Canada (fifth) and Royal Bank of Canada (sixth).

Size of the financial sector: The Toronto Stock Exchange (TMXGroup) is the largest in North America and second largest worldwide by number of companies listed. It is the third largest in North America and eighth largest worldwide by market capitalisation.

Quality of the regulatory environment: The Canadian financial sector is among the worlds most well-regulated and offers many examples of best practices.

Skills and researchThe financial services industry is one of the largest sectors for employment in Canada, with a workforce of nearly 700,000. The Canadian government has recently realigned its temporary foreign worker programme, streamlining the process for employers with immediate labour needs in high-skill occupations such as financial services.

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On the other hand, in order to promote Canadian exports, there is the Export Development Canada (EDC) which is Canada’s official export credit agency (ECA). They support and develop Canada’s export trade and international business efforts through the provision of (1) Financing and insurance solutions for Canadian exporters and investors; (2) Financing solutions for buyers of Canadian goods & services and (3) Matchmaking and market intelligence.

EDC carried out USD 102.8 billion in international and domestic transactions on behalf of Canadian companies during 2011, a rise of 21.0% from 2010. For every USD 1

in income earned in Canada during 2011, 5.2 cents is attributable to EDC’s support for trade and investment. The employment associated with the business EDC facilitated in 2011 is estimated at 707,287 person-years, about 4.1% of total national employment.

Through their international footprint of 16 representative offices, EDC can help Canadian exporters and investors to build relationships with leading foreign companies and Canadian and foreign banks active in these markets. EDC’s Abu Dhabi representation was officially opened in December 2007 and covers the Middle-East region. EDC’s business strategy in the

Middle-East is centered on four main sectors: Extractive (Oil & Gas, Mining and Metal (Aluminum)); Infrastructure & Environment (Power & Water, Infrastructure, Clean Tech.), ICT (Telecom and eHealth) & Light Manufacturing (Medical Devices).

Overall, EDC’s objective is to leverage Canadian and International strategic business relationships to increase the overall Canadian footprint by profiling opportunities and procurement needs of the market and connecting decision makers to relevant and interested Canadian suppliers through close collaboration with all local stakeholders.

Canada is home to many impressive innovations that—while perhaps not as familiar as Bombardier’s CRJ Series of regional jets, canola oil or BlackBerry smart phones—generate a wealth of opportunities for international investors across a variety of sectors. Canada’s world-leading mining companies, for instance,

have developed advanced, higher-resolution imaging technology to optimise exploration programmes. Canadian research into the potential health benefits of canola, probiotics and oat fibre enables food manufacturers to boost the health properties and international sales potential of processed foods. Finally, Canadian nanotechnology research enables the development of high-performance wood products that meet the demands of world construction markets. These are but some of Canada’s creative and innovative solutions that have demonstrated commercial success in both domestic and international markets and have presented the investment community with sound investment opportunities to compliment a multitude of investment portfolios.

• Canada is the best country for business according to Forbes Magazine’s November 2012 study.• The Economist Intelligence Unit (EIU) says Canada is the best country among the G-7 to do business over the next five years (2013-

2017).• Canada is the easiest place to start a business in the G-7, according to the World Bank.• Canada was the second largest recipient of global FDI inflows per capita in the G-20 from 2007-2011.• Canada has the lowest net debt-to-GDP ratio in the G-7, according to the International Monetary Fund (IMF).• Canada led all G-7 countries in economic growth over the past decade (2002-2011).• Canada has posted the fastest employment growth in the G-7 over the last two years, fully recouping more than all of the output and

more than all of the jobs lost during the recent global financial downturn.• Overall business costs in Canada are the second lowest in the G-7 and 5.0% lower than the U.S., according to KPMG’s Competitive

Alternatives Report.• Canada›s combined federal-provincial general corporate income tax rate of 26.1% in 2012 is below the level of most other G 7

countries, and about 13 percentage points lower than the U.S.• Canada leads the G-7 in R&D spending as a share of GDP in higher education.• Canada›s workforce is one of the most highly educated among the countries of the Organization for Economic Co-operation and

Development (OECD), with half of its working-age population having a tertiary level education.• Canada’s status as a NAFTA member and its world-class infrastructure makes it an investment platform to tap into the lucrative

North American market of nearly 461 million consumers.• Commercial real estate has long been a vehicle of choice for investment into the Canadian markets.

Some quick statistics on Canada’s economic fundamentals:

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Canada is a prosperous society, with a highly educated workforce, substantial natural resources, modern infrastructure, well-functioning public organisations, and sound financial institutions. The country’s high standard of living and quality of life is sustained through a diversified and open economy. James McDermott, Managing Partner, Bennett Jones LLP – Abu Dhabi, advises us on Canada’s legal framework for foreign businesses.

In a World Bank review of G-7 countries, Canada received the top score in seven out of eleven sector groups for the least

amount of FDI regulation. Canada’s economy has expanded faster than any other G-7 county in the past decade and it is the only G-7 country to have recovered all jobs lost in the recent global recession.

FDI trade stock in Canada (i.e inbound investment) is CAD 550 billion, which, as

a percentage of GDP, is much higher than the average for G-7 countries. Yet despite such high levels of inbound investment, the FDI stock from Canada (i.e., outbound investment) is even greater at CAD 600 billion. This means that Canada is a net foreign investor of CAD 50 billion.

The Canadian government has enacted favourable corporate, securities and commercial laws, as well as foreign investment rules that support investing in Canada.

Investment Canada and National Security ReviewOnly a small sub-set of investments in Canadian companies requires any form of notification or review by the Canadian government under the Investment Canada Act regime. For example, only where an investment by a public investor or a state owned enterprise is over CAD 330 million would an application and review be required.

In the 28 year history of the Investment Canada Act regime, only two applications have ever been rejected. One was from the United States and the other from Australia.

Understand the legalities

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Both transactions had unique political circumstances that are unlikely to be repeated.

The Canadian government recently approved two large foreign investments by state owned enterprises (SOEs). First, the acquisition by Chinese National Offshore Oil Corporation (CNOOC) of Nexen Inc., a Canadian based oil and gas company for CAD 15.1 billion was approved. On the same day, the acquisition by Petronas of Progress Energy Resources Corp., another Canadian based oil and gas company for CAD 5.2 billion was approved. Both are large investments into the Canadian oil and gas market.

For approval of these large transactions, the Minister of Industry must determine that the investment will bring a net benefit to Canada. Each relevant province of Canada is to be consulted during the review process, but the ultimate decision is left to the federal government.

To determine if there is a net benefit to Canada, the Canadian government will examine the corporate governance and reporting structure of the investor. This includes the investor’s commitment to Canadian standards of transparency, disclosure, presences of independent members of the board of directors and independent audit committees, as well as equitable treatment of shareholders. The government will also ensure that the investor adheres to Canadian laws and practices such as free market principles. The impact on Canada’s employment, production and capital levels will also be assessed. Finally, the government will ensure that the investment is made primarily for commercial reasons. This final element is especially important for SOE investors.

The federal government will also consider if the investment could be injurious to national security. This question is considered for investments of any size. However, no investment has ever been rejected under this review process.

CANADA’S INTERNATIONAL TREATIESCanada’s favourable investment framework includes a network of international

Inward stock of Foreign Direct Investment (as a percentage of GDPI)

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treaties that support both investments into Canada and Canadian companies investing abroad. This international network is composed of treaties that help avoid double taxation, reduce trade barriers, and protect investments inside and outside Canada.

Double Tax TreatiesCanada has treaties for the avoidance of double taxation with Egypt, Kuwait, Oman, Turkey and the UAE. These treaties protect nationals and their companies while investing in Canada. This treaty limits the tax on what otherwise would be due for a business earning money in Canada.

Trade TreatiesCanada is a party to nine free-trade agreements with trading bodies such as Jordan, the European Free Trade Association and the United States. Canada also is a member of the World Trade Organization (WTO). Canada is currently negotiating free-trade agreements with Morocco, the European Union and India. These trade treaties will give Canadian business access to some of the world’s largest markets.

Investment TreatiesCanada is a party to more than twenty treaties that protect the investments of foreign companies in Canada. Notable, Canada has recently concluded negotiations for a new

treaty with China. In the Middle East, Canada currently has investment treaties with Egypt, Jordan, and Lebanon. It has also concluded negotiations for investment treaties with Bahrain and Kuwait.

DOING BUSINESS IN CANADAFinancing a Foreign Business Operating in CanadaAs of 2010, there were roughly ten times the number of mining financings on the TSX and TSX Venture as there were on all other global stock exchanges combined. In 2011, the World Economic Forum rated Canada’s banking system the world’s soundest for the fourth year in a row. Of the world’s fifty safest banks, seven are Canadian. Of North America’s ten safest banks, six are Canadian. Canada’s capital markets are cutting edge and its banks are stable.

There are numerous financing options available for businesses in Canada. Broadly, the categories of financing are debt, equity and government assistance programs.

INDUSTRY FOCUSOil and GasCanada has the second-largest proven oil reserves in the world after Saudi Arabia. This makes Canada a true leader in global resources with numerous oil and gas project development and investment opportunities. There are more than 100 individual projects valued at USD 1 billion or more in the oil and gas, mining and primary metals sectors to be developed between 2013 and 2020.

Renewable energy and infrastructureCanada is the second largest producer of hydroelectricity in the world. The Canadian government is very supportive of renewable energy projects. There are a number of government grants, above-market power purchase rates, low-cost loans, rebates on projects and tax incentives.

TechnologyIn 2009, Canada exported more than CAD 26 billion worth of information and communication technology (ICT). In that same year, the Canadian ICT industry generated CAD 154 billion in revenue. Leading developers like Blackberry, Google, Microsoft Game Studios and Warner Bros. Interactive Entertainment have all decided to base business operations in Canada. The highly educated population and several regional clusters of technology industry participants make Canada very attractive for technology companies.

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Value of mining equity financings (CAD billions)

ABOUT James McDermott is the Managing Partner of Bennett Jones LLP – Abu Dhabi. James advises prominent international businesses on their commercial operations and investments in Canada and the Middle East.

Bennett Jones LLP is one of Canada’s premier business law firms. It has a 90 year history and is unparalleled in the field of energy, natural resources and project development. This combined with exceptional experience in complex cross-border and international transactions, the firm is well equipped to advise foreign businesses and investors with Canadian ventures

and connect Canadian businesses and investors with opportunities in the Middle East.

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Sustainable Development Technology Canada (SDTC) was created to help develop the cleantech market in Canada. SDTC has been working actively in the UAE. We bring you the details about their mandate and the work they are doing in the region.

A t one point of time, Canada had a lot of innovation capacity and there were many good ideas brewing in

R&D, but very few were making it out of the lab into the marketplace. The market, of course, is where impact happens: when technologies get picked up by industries and put to use, they change market dynamics, grow businesses, create jobs, and generate revenue.

SDTC’s principle objective is to bridge funding gaps—to get technologies into real-world demonstrations with potential customers, attract downstream investment, and become commercially ready.

SDTC realises this goal by managing two funds on behalf of the Government of Canada SD Tech Fund and NextGen Biofuels Fund. SD Tech Fund, USD 590 million, helps

demonstrate in real-world conditions pre-revenue technologies that deliver both economic and environmental benefits. SDTC has funded over 240 companies since its inception, and by leveraging contributions from other partners—including early stage private investors—the total value of their portfolio is more than USD 2 billion.

The USD 500 million NextGen Biofuels Fund, is focused on supporting the capital-intensive construction of large-scale, first-of-their-kind demonstration facilities for producing next-generation renewable fuels.

MEETING THE CHALLENGESCanada’s cleantech market has matured considerably thanks in part to SDTC’s role in bringing technology innovators and investors together. According to a recent

report by Analytica Advisors, annual Canadian cleantech revenues could reach USD 25 billion by 2020.

The fact remains that cleantech is very ‘leading edge’. The technologies being developed are true innovations – they’re not the kinds of things the market has necessarily seen before, or that have been put to use on a mass scale. For investors, this represents risk and consequently a lack of funding. A recent survey of SD Tech Fund applicants showed 65% of the applicants applied for funding because no other sources of funding were available at seed stage of development. What was described was a “dearth of capital” that has created “a severe shortage of funds for the seed stage.”

SDTC has built a process to de-risk clean technology so the investment community

Bridging the technological gap

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will put money into these technologies early on—money that’s needed to carry them to market—is one of the challenges addressed. Funded technologies are evaluated not only in terms of their technical merits but also their market potential. The business case has to be strong. In addition, SDTC does not fund companies, but consortia, and those consortia must include organizations that fit the ultimate customer profile for the technology in question. As the products go through the development and demonstration phase, SDTC provides additional assistance by building a market for the technologies and actively engages the investment community to ensure they too are part of the package as well.

Success rates are high: roughly a third of the funding for the projects in the portfolio comes from SDTC. The rest—the majority—comes from other sources, increasingly private sector sources.

HOW TO MEASURE SUCCESS?SDTC’s success is a direct function of the success realised by the funded companies and projects. Benchmarks for successes include assisting companies attract outside investment, demonstrate capabilities, increase production and bring technology to market.

33 clean technologies have been guided to market, and the supported companies have raised almost CDN 4 billion in private-sector capital so far. The 33 commercial projects are projected to generate CDN 5 billion in revenues by 2015. SDTC-supported companies generate as much as 90% of their revenues from exports more than non SDTC companies, another benchmark of success. One of SDTC’s longer-terms goals is to achieve “20 by 2020”: to see 20 funded companies generate more than CDN 100 million each in annual revenue by 2020.

As a publicly-funded agency, SDTC has a responsibility to generate other kinds of returns as well on the taxpayer dollars administered. An independent study in 2011 found SDTC delivers a nine-times return on the public funds it receives in terms of social, economic and health benefits.

ENGAGING WITH THE UAESDTC portfolio companies have always had

international ambitions which include the UAE. Since the announcement of Masdar City, the high level business mission led by His Excellency Sultan Bin Saeed Al Mansoori, the Minister of Economy, through to the recent signing of a collaborative Memorandum of Understanding for Innovation with the Minister, SDTC has been actively promoting partnerships in innovation. Some of these collaborations are highlighted here.

Agrisoma BioSciences, an SDTC partner has developed an innovative non-food biofuel feedstock, “Agrisoma Resonance TM” as a scalable and sustainable aviation solution. The effective suitability was confirmed in October 2012, when the National Research Council of Canada Falcon 20 jet flew the world’s first 100% drop-in biofuel flight, using Resonance based aviation biofuel with advanced biofuel technologies. Agrisoma with its global supply chain partners is seeking to integrate its supply production base with an Emirati partner, which has processing and refining capacity to produce Resonance based drop-in aviation biofuel for the UAE and as well for exports.

Resonance feedstock also produces a valuable high-protein meal by-product for animal feed enhancing the economic return to partners. Agrisoma seeks to work with an UAE partner to demonstrate leadership in the future of sustainable biofuel.

Electrovaya Inc, an SDTC partner, is a global leader in designing solutions to meet energy requirements. Because of a lack of efficient energy storage capabilities, Solar farms can lose up to 60% of their energy output. Electrovaya has developed the lithium ion batteries produced in Canada can store and release electrical energy at greater than 92% efficiency. This is the highest known energy storage efficiency. Electrovaya is also the world’s sole producer of lithium ion batteries that does not use toxic chemicals – this ultimately means lower cost.

On a recent visit to the UAE, Electrovaya representatives met with local energy authorities who explained the UAE’s solar industry faces similar challenges. Following the visit, Electrovaya is examining a number of options with a view to joining with an

Emirati partner to establish a local presence which will lead to enhanced systems technologies to meet requirements in the UAE, including Ras al Khaima, Sharjah, Abu Dhabi and Dubai. In addition to persuing commercial opportunities, Electrovaya is also actively looking at getting involved with tertiary institutions.

Terragon Environmental Technologies Inc. is a Canadian engineering company that is developing and commercialising practical, inexpensive and environmentally safe small-scale appliances that use waste to generate valuable resources, such as energy, water and bio-char. The company’s vision is to enable a “zero waste discharge habitat” with technologies that have the potential to fundamentally change the current understanding of “waste” and completely eliminate waste pick-up and waste transfer.

The Micro Auto Gasification System (MAGS) is able to generate up to 1,700 kWh of energy daily by treating up to one tonne of solid waste or waste oils. MAGS is ideally suited for small habitats of up to 500 persons, such as ships, rigs, military bases, hotels, resorts, hospitals, work camps, small isolated communities and enterprises. The Wastewater Electrochemical Treatment Technology (WETT) is a small-scale technology that can be used to generate reusable water and reduce overall fresh water requirements.

Terragon has successfully demonstrated its technologies with The Canadian Navy, The US Marines, Maersk, and Fairmont Hotels. Through its partner, Terragon Gulf, a system has been installed at Saudi Aramco’s Abqaiq, Dalma Gulf Drilling site in Saudi Arabia. In addition, a containerized version called “MAGS-in-a-Box” will be delivered to the Ras al-Khaimah shipyard in Dubai, UAE in early 2013.

Terragon is working closely with SDTC to offer a fully integrated solution to sustainable “off-grid” living, and to address the needs of small communities in terms of energy, water, and waste management. The company is also pursuing key partnerships around the world, including the Middle East and Gulf region, to assist with its commercialisation activities for all of market sectors.

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Structural trends are reshaping economies and expectations around the world. Honourable Kevin G. Lynch, Vice Chairman, Bank of Montreal gives us an overview of the financial landscape in Canada.

Structural trends including the aging population, the rapid growth of emerging economies, and the digital

universe are reshaping the world. In this changing world, the drivers of

success are also shifting. Today, it takes a global economic perspective, and the ability to serve markets beyond one’s traditional boundaries. It takes an ability to attract, welcome and retain global talent. It takes a capacity for continual innovation and sustained productivity growth in every business sector. It takes sound economic and policy fundamentals that build confidence, resilience and flexibility. And, it takes stable and trusted institutions and the rule of law to attract international investment.

Canada withstood the financial crisis better than most other countries, and has continued to outpace the other G7 countries in the recovery. The Canadian banking system

did not require any government financial support during the global financial crisis, and the World Economic Forum has ranked it the soundest in the world for the last five consecutive years. Canada’s fiscal situation is by far the best among the G7 countries, and this fiscal stability strengthened resiliency and reduced uncertainty as other countries were going through periodic fiscal cliff-hangers. In a world that increasingly needs natural resources and energy, Canada is fortunate to have both. And Canada has long relied on immigration, and today has one of the world’s most multicultural and diverse populations.

Looking to the future, Canada faces this changing global landscape of new opportunities and shifting challenges with clear strengths. Canadians understand the importance of rapidly and effectively adapting to the changing world. We welcome foreign direct investment and international business relationships and partnerships. Canadian banks are reaching out to new markets in the Middle East, Asia and Latin

America. Our universities are home to students and researchers from every corner of the world.

Over the last decade, through recession and recovery, Canadian growth significantly outperformed other G7 countries (Figure 1).

We are one of the few G7 countries to have recovered all output and employment losses suffered during the global recession, and our unemployment rate today of roughly 7% is well below the United States, something we have not seen for decades. In a world where the advanced economies are expected by the IMF to continue to be challenged by low and slow growth, Canada and the US should lead G7 growth prospects over the next several years (Figure 2).

Government debt matters, as the recent European and American fiscal problems have so publicly demonstrated. In this important regard, total government net debt (as a percent of GDP) in Canada in 2012 is projected by the International Monetary Fund to be 38% of GDP. This is less than half that of the US and well below all other G7 countries. This relative fiscal strength is expected to remain; the IMF expects that by 2016 our net debt as a share of economy will be roughly 40% of the US, and well below the Euro zone, Japan and the UK.

Stable and predictable inflation is important to investors, just as it is to consumers. Canada has kept inflation within a target range of 1-3% (2% mid-point inflation target) for more than a decade. Indeed, Canada led the G7 in implementing an inflation rate target regime in 1991 and such a policy has now been adopted by over two dozen central banks around the world.

Advantage Canada

FINANCE

COUNTRY FOCUS

Figure 1

Figure 2

Source: IMF WEO Update, January 2013

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Lower taxes, particularly on capital and companies, improve competitiveness, drive growth and support job creation. They also support investment in Canada by both Canadians and non-Canadians alike, and attract foreign investment. There is a distinct Canadian advantage for corporate taxes: the corporate statutory income tax rate (combined federal-provincial/state) is now nine percentage points lower than the U.S (Figure 3).

Canada is a large producer of commodities that are needed by the world—forestry, agriculture, minerals and energy products.

In a competitive global economy, Canada’s workforce is well educated, multi-lingual and multi-cultural, representing a true advantage. Canada ranks first among OECD countries in the proportion of adults with post-secondary education (over 45%). Canada’s public education system is strong: on standardized reading, scientific and mathematical literacy scales, Canada ranks third, second and fifth, respectively among OECD countries, and well ahead of the US.

As the global financial crisis so aptly demonstrated, solid financial systems matter dearly to economies. For the fifth consecutive year, the World Economic Forum has ranked Canada as having the soundest financial system in the world. And, safety and soundness pays off; today, five of the major Canadian banks are among the top ten financial institutions in North America based on market capitalisation and asset size (Figure 4).

In times of uncertainty, institutional strength and rule of law is important for foreign investment because they instil confidence in a country’s long-term sustainable performance. The World Economic Forum ranks the quality of Canada’s institutions the highest of the G7.

Finally, if talent is part of the new wealth of nations, an important factor for attracting and retaining global talent is the community environment that a country can offer. In the recent Economist survey, three Canadian cities are among the world’s top five most liveable cities.

As we face a global future that will be profoundly changing, Canada has much to attract global business and international investors. Advantage Canada offers a stable and resilient economy, one that is welcoming to the world and brimming with opportunity.

FINANCE

COUNTRY FOCUS

Statutory Corporate Tax Rates in Canada and the US, 1992-2014

Source: Bloomberg, February, 2013

Source: Source: Canada (Combined Federal and Ontario Statutory income tax rate for General Corporation)- BMO Taxation Group; US- Haver Analytics, IRS

ABOUT The Honourable Kevin G. Lynch, P.C., O.C., PH.D, LL.D is Vice Chair of Bank of Montreal. Dr. Lynch is a distinguished former public servant with 33 years of service with the Government of Canada. Most recently, Dr. Lynch was the Clerk of the Privy Council, Secretary to the Cabinet and Head of the Public Service of Canada.

Dr. Lynch is the Chair of the Board of Governors of the University of Waterloo and serves on several other boards. Dr. Lynch was made a Member of the Queen’s Privy Council for Canada in 2009, and an Officer of the Order of Canada in 2011. He has been awarded the Distinguished Alumni Award

from McMaster University and the Queen’s Golden Jubilee Medal.

Figure 3

Figure 4

50 APRIL 2013