BUSINESS WATCH

The minister for joint ventures

Peter C. Newman April 22 1985
BUSINESS WATCH

The minister for joint ventures

Peter C. Newman April 22 1985

The minister for joint ventures

BUSINESS WATCH

Peter C. Newman

Last week’s salvage operation of Domtar’s Windsor paper mill, which allowed the Mulroney government to claim the political credit while putting up only $38 million of the requested $117-million subsidy, provided a rare public glimpse of Sinclair Stevens’s emerging clout on the Ottawa scene. As the federal minister of regional industrial expansion he has been biding his time, evolving new approaches to the reindustrialization of Canada and paying special attention to the potential of trade around the Pacific Rim. His most exciting comments have involved the revitalization of Cape Breton and Vancouver Island—“the two Caymans of the North,” as he calls them.

In an exclusive interview Stevens recently told me about these and other ideas, including the notion that between domestic and foreign investment there is an as yet unexplored middle ground of joint ventures. That realm, he judges, will finance Canada’s future economic growth. “I’ve recently been to countries such as Singapore, Germany and England, making the point that Canada is a great stepping-stone into the U.S. market and that if they decide to do something they should do it with Canadian partners,” he told me. “At the same time, a lot of Canadians feel it’s a pretty competitive world out there and that there would be great advantage in hooking up with someone who has technology and distribution know-how.”

He visualizes fifty-fifty partnerships but strongly advocates a minority position for outside investors in vital industries such as mining and energy. An early example of how such a formula would work is the early spinning-off by Ottawa of some major Crown corporations, including de Havilland and Canadair: both companies will be sold on a joint-venture basis.

Stevens’s most interesting ideas concern the establishment of tax-free “enterprise zones” in such areas as Cape Breton and Vancouver Island. “There is no reason why it wouldn’t be feasible,” he says, having recently toured similar “export zones” in Miami, Fla., and near London, England. “In the past we have been too disinclined to make innovative moves that have international implications. Some of the bureaucrats are telling me that there may be problems with GATT, yet the United States has already designated 170 such zones. Why should we be the most righteous nation in the

world and let everybody else reap the benefits?”

Stevens has an internal task force studying the idea and is particularly anxious to launch the Cape Breton experiment. At the moment, Ottawa is spending $300 million a year on DEVCO, as well as subsidizing the near-useless heavy water production on the island, funds that could be rerouted to much more productive effect. “Their greatest problem is transportation,” he says,

“because no manufacturer who has to compete for world or even domestic markets wants to be at the extremity of the country, away from his customers.” The big advantage in southern Ontario is that within about 800 km of Toronto you have 100 million of the wealthiest people in the world. But go down to Cape Breton and you’ve immediately got a very big transportation problem to

overcome. Instead of handing out grants and subsidies, Stevens wants to use the tax system to equalize transportation costs for industries willing to resettle. One approach would be to formalize Cape Breton (and later Vancouver Island) as tax havens, with no corporate levies against co-operating enterprises until they start to turn a profit.

Stevens has already retained Control Data, one of the largest computer companies in the United States, to do a feasibility study (along with the Royal Bank and Clarkson, Gordon), because the U.S. firm is involved in similar schemes in five other countries. “Their projections are fantastic,” he said, and that was all he would tell me. But he was grinning.

On the other side of the world Stevens is trying to put together joint ventures that would attract major amounts of investment capital from Singapore. Again, he is selling the idea that they should use Canada as a stepping-stone into U.S. markets. One Singapore government fund alone has an $ll-billion surplus waiting to be invested in safe havens overseas. Stevens is particularly high on a joint venture with Singapore’s United Overseas Bank, which would also start Canadian capital flowing into mainland China. (The bank is currently financing a hotel in Shanghai.)

The other new direction that has caught the minister’s fancy is the formation by Canadian business (with minority government participation) of overseas trading corporations that would be permanently on the ground in Asia, ready to execute deals on the spot. “At the moment,” he complains, “if our guys go over there, it takes 24 hours just to arrive, they have a brief meeting and then they have to fly 10,000 miles back.” To facilitate such a scheme, Stevens has recommended to cabinet that the revised competitions act not apply to joint ventures abroad, so that exported goods can have fixed prices. He also wants to put our trade commissioners in the field on quotas, so that they can spend their time working on specific deals instead of spending time generating goodwill.

What does the ambitious Mulroney minister plan for an encore? He won’t say, but he recently had a secret meeting with Edmund de Rothschild of the British banking family, and at the top of the agenda was a plan to build a second multibillion-dollar power development on the lower Churchill River. By the end of the negotiating session, the two were calling each other “Sine” and “Eddie.”