Trans Mountain impasse adds to Scotiabank CEO’s concerns over Canadian competitiveness
Canada has a competitiveness problem, and impasses such as the one over the Trans Mountain pipeline expansion project aren’t helping, the president and chief executive officer of the Bank of Nova Scotia suggested Tuesday at the lender’s annual meeting of shareholders.
Brian Porter said that it was important to look at the potential cost to the Canadian economy of not doing these sorts of projects, in terms of gross domestic product and what it means for per-capita income.
“We’re going to lose our competitive advantage on a number of things,” Porter told reporters in Toronto. “Canada has a productivity issue, it has a competitiveness issue. We’d like to see the (Trans Mountain) project proceed, but we understand the difficulties involved.”
Facing political opposition from the current government in British Columbia, Kinder Morgan Canada Ltd. announced Sunday that it was suspending all non-essential activities and related spending on the pipeline expansion project. The estimated $7.4-billion energy project would twin an existing 1,150-kilometre oil pipeline between Alberta and B.C., increasing capacity from 300,000 barrels per day to 890,000.
The pipeline battle has been an ongoing concern for the Scotiabank CEO, as Porter called in 2015 for an end to “inter-provincial bickering” over energy projects. He said Tuesday that he has been disappointed.
“This is really tough stuff, because we’ve been talking about it as a country for a long period of time and nothing’s been done.”
Porter is not the only one in corporate Canada wondering about the fallout from the Trans Mountain situation, but Scotiabank was a part of Kinder Morgan Canada’s $1.75-billion initial public offering in 2017, and the bank has helped the company with financing. Scotiabank, Canada’s third-largest lender, reported a profit of $8.24 billion for 2017, a 12-per-cent increase over the previous year.
Speaking with media, Porter said the Trans Mountain expansion was important for Canada, and especially Western Canada. Asked if the issue could have a chilling effect on broader investment in Canada, Porter said he thought it was, and pointed to the performance of the country’s equity market in recent years, as well as inflows of capital.
The CEO said some sectors in the country were doing well, such as technology, but that those weren’t his concern.
“I’m concerned about the resource-based economy and access to tidewater for our product,” Porter said. “The differential in Western Canadian crude is big.”
Porter’s view on competitiveness differed from that of Bank of Montreal CEO Darryl White, who told reporters last week, before the Trans Mountain suspension, that Canada did not yet have a problem in that regard.
White did, however, say that it was something to watch, and told reporters that BMO had seen some departure of capital from Canada following tax reforms in the U.S.
Porter, whose bank’s focus on Mexico and South America is unique among Canadian lenders, said during his speech to shareholders that Scotiabank was still optimistic an agreement would be reached in the North American Free Trade Agreement negotiations. The CEO said his bank’s economics team had analyzed the trade deal, with the evidence showing that the pact had produced a net benefit for all three member countries.
But there is still uncertainty in Canada around competitiveness and trade, brought on by the NAFTA talks and tax reforms in the U.S. Some corporate clients may be growing and expanding in Canada, Porter said, but others were looking south of the border due to influences such as the tax cuts and “Buy America” policies.
“If they had a cross-border business to start with, facilities in Toronto and Buffalo, they might be expanding the Buffalo piece a little more than they would the Canadian piece,” Porter said. “That’s a reality today.”
Financial Post
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