Ever hear that old line about insanity? It’s defined as doing the same thing over and over again and expecting different results.
You could say it applies to how we have handled many of the socio-economic issues facing Canada.
We talk about the challenges growth-stage companies face to scale and penetrate global markets. Caught in a no-man’s land between startup and maturity, they struggle to find the investment capital they need to succeed.
They no longer qualify for the types of support available to an earlier-stage company. Many don’t fit into that select group of darling industries in vogue with equity investors. The average bank considers them too risky.
While government can help with trade agreements that make it possible for Canadian companies to access markets outside the country, we also need existing and new companies to be able to respond to changing marketplace needs.
If the forecasts made by Klaus Schwab in his book The Fourth Industrial Revolution are even partly correct, the need for existing and new companies to be nimble in response to change is paramount.
Then there are our infrastructure challenges. Building the hospitals we need for the shifting demographics of an aging population. Fixing crumbling roads and bridges. Rethinking how we use transportation infrastructure to move people and goods to provide economic stimulus to smaller urban centres.
Business groups and politicians talk about these issues all the time, but new and effective solutions are slow to come. The status quo persists, leading people to ask why things don’t change. But how can they, if the ways we address them remain fundamentally the same?
Sometimes, a relatively small change in policy can have a big impact.
A couple weeks back, I attended a Mayor’s Breakfast here in Ottawa that featured Victor Dodig, chief executive of CIBC.
CIBC has the most at stake in the Canadian economy versus the other big chartered banks. More than 62 per cent of its total loans last year were made up of domestic mortgages, including home lines of credit. The average among the other banks is 49 per cent.
With that kind of exposure, it’s obvious what’s good for Canada and Canadian communities is good for CIBC.
CIBC, which served as principle sponsor for Ottawa’s Canada 150 celebrations, knows what is important for communities and for its own success. Dodig spoke about the shift CIBC has made in its community relations/advertising.
It views public-private partnerships (P3s) as positive vehicles to help foster business and community growth.
The P3 model is one to build on
In fact, CIBC has a team dedicated to advising on, financing and underwriting P3s, in areas like hospitals, light rail, schools, data centres, correctional facilities, highways and bridges, and greenfield and brownfield redevelopments.
Aside from CIBC, more than 220 P3 projects have been undertaken in Canada since 1990 by various partners. Some high-profile examples are Highway 407 in Ontario, the Royal Ottawa Hospital, and the Confederation Bridge linking Prince Edward Island to the mainland.
Sure P3s have taken their share of knocks over the years. Early criticisms targeted the conflict between private sector partners driven by profit and the public interest, a loss of accountability, and assumption of risk versus cost for the public purse.
But we’ve had almost 30 years of experiential learning to hone the model. Many infrastructure projects can’t generate enough revenue to be viable without government involvement.
If government could pursue these key projects on its own without saddling future generations with a load of long-term debt, it would. If the private sector saw sufficient ROI to pursue these projects on its own, it would.
In many situations, we need the combination of oversight in the public interest and the resources of the private sector to see these jobs done.
More capital for business
CIBC has also partnered with Canada’s other major banks and insurance companies to refute the old joke banks only want to lend money to those who don’t need it. Last year, this group launched The Canadian Business Growth Fund (CBGF), which will invest up to $1 billion over 10 years.
The intent? To provide long-term financing to emerging high-growth businesses that pose too much risk and require too much capital for a single financial institution to swallow.
Of course, we already have a financial institution dedicated to entrepreneurs and business that’s willing to take more risk than the typical chartered bank – the Business Development Bank of Canada (BDC). But the more, the merrier.
BDC responded to the launch of the CBGF by announcing it would boost its lending by 50 per cent, to $1.8 billion over five years, to what it called “asset-light high-growth SMEs to increase their innovation, productivity and globalization rate.”
Regardless of where it comes from, our next generation of multi-national companies need the stimulus to drive new wealth and job creation for our economy. Canadians need to be bold and find viable models that give worthy ventures what they need to grow and succeed in the global markets crucial to their success.
Angel investors only take a startup so far. Venture capitalists are often almost as myopic as a bank about which companies they will support and in what industries . . . not to mention the equity and control a company founder may have to cede to a VC to secure an investment.
What matters is, does it work?
“Non-traditional” may be the way to address many of the needs that face our communities and allow the small-to-medium-sized businesses that fuel Canada’s economic engine to grab onto new opportunities.
It’s about what works and what can work, when the older way of doing business doesn’t provide all the answers. Sharing and diversifying risk and cost, whether it’s through some variation of the P3 model, or a joint venture between financial service providers, is a way of the future.
To discuss this or any valuation topic in the context of your property, please contact me at [email protected]. I am also interested in your feedback and suggestions for future articles.