Momentum Builds for State-Funded Canadian Infrastructure Bank

  • Key advisers to finance minister signal idea’s time is ripe
  • Infrastructure is ‘new fixed income,’ says McKinsey’s Barton

Support for a state-led infrastructure bank in Canada is growing as Prime Minister Justin Trudeau’s government prepares a major investment push to bolster growth and competitiveness.

Two key advisers to Finance Minister Bill Morneau -- Michael Sabia and Dominic Barton -- said they wanted to see the federal government leverage its planned infrastructure spending with private capital. Morneau said a “central agency” for infrastructure “makes eminent sense.”

Trudeau’s Liberal Party has made expanded deficit spending on infrastructure a centerpiece of its economic platform, pledging in its campaign last year to establish the Canada
Infrastructure Bank to provide low-cost financing to build new infrastructure projects, and has looked for ways to bring in private investment.

Canada’s infrastructure gap may be as high as C$500 billion ($377 billion), Morneau has said. The government’s March budget projected more than C$11 billion in new cash for infrastructure over the next two years.

“I would create an infrastructure bank and I would have that bank funded in part by government capital,” Sabia said at a conference in Ottawa Wednesday hosted by the Public Policy Forum. Sabia was a top federal public servant and then ran BCE Inc., one of Canada’s largest telecommunications companies, before taking over at the Caisse de Depot et Placement de Quebec. “I don’t think the old ways of doing things are going to work.”

Morneau may win further backing for new infrastructure measures soon. His Advisory Council on Economic Growth, chaired by McKinsey & Co. Managing Director Barton, will present its first “wave” of recommendations to the government this month, Barton said.

Council Priorities

Infrastructure spending is one of four target areas identified by the 14-member panel that was appointed by Trudeau this year to find new engines of growth for Canada’s economy. Barton said infrastructure aimed at improving productivity will be of huge interest to foreign investors in search of steady returns with record low or negative interest rates in many parts of the world.

“Infrastructure is the new fixed income,” Barton said in a speech over dinner at the conference. The mix of public and private capital has the potential to “jolt the system,” said Barton, a Canadian based in London who has advised companies and governments around the world.

The other three areas, or levers, to be targeted by the council include:

  • Markets and competitiveness: Canada needs to become more of a trading hub and remove barriers to foreign direct investment, Barton said. “We are punching way below our weight” on foreign investment, he said.

  • Labor: The country has one of the fastest-aging populations among countries in the Organization for Economic Co-Operation and Development, he said. To compensate, Canada needs to boost immigration, increase training for workers cast adrift by new technology and encourage more women and seniors to work.

  • Innovation: Canada is good at inventing new products and services but not good at growing companies on a global scale. “Scaling is key,” Barton said. Sectors with the most potential include agriculture, tourism, health care, aerospace and mining, he said. “I don’t believe in picking winners, but there is nothing wrong with picking key sectors” for growth.

Think ‘Boldly’

Barton and Morneau declined to comment on the specific measures to be endorsed by the council.

“The Growth Council’s recommendations will be shared between now and the budget,” Morneau spokeswoman Annie Donolo said in an e-mail.

On infrastructure, advisers like Sabia have recommended projects big enough to attract institutional investors; a series of long-term investments to choose from and counterparties in government to discuss the projects, Morneau said in an interview with Bloomberg TV Canada’s Amanda Lang.

Sabia said Canada must think “boldly” in a world economy confined to growth of about 3 percent after tapping out gains from loose monetary policy. The Caisse proposed earlier this year to build a C$5.5 billion light rail network in Montreal.

Globally about $11 trillion is invested in negative-yielding bonds. Sabia said the challenge for investors is “you’ve got to find some returns, and that’s happening on a massive scale around the world.”

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