Saskatchewan will need to attract $20 billion to $30 billion in capital investment annually for the next 20 years to finance its rapid economic and infrastructure growth, according to a Conference Board of Canada report.
How well the province manages this unprecedented demand for capital will largely determine whether or not Saskatchewan achieves its maximum growth potential, said the study, entitled Green Machine: Financing Growth in the New Saskatchewan.
About $38 billion in capital projects are currently underway, largely financed by multinational, out-of-province companies, with mining projects accounting for about 40 per cent of the work. But the province will require capital investment of $20 billion to $30 billion a year over the next two decades (2013 to 2032), to keep up with demand for oil and gas, mining and public infrastructure spending.
“This is not another commodity cycle. The force driving higher returns to crops and potash are real and long term,” the study said, noting that global population is expected to grow by 36 per cent by 2050, which will require another 945 million tonnes of cereal grains and 200 million tonnes of meat.
In addition to the capital demands of extractive industries, like oil and gas and mining, demand for public infrastructure, like roads, water and sewage treatment facilities, will also increase as the population grows to 1.4 million by 2035, the study said.
Michael Grant, author of the report, said the mining and oil and gas companies should have no difficulty raising the capital for its expansion projects. “They’ve got deep pockets,” Grant said. “If they think the project is worth doing, they’re going to find a way of doing it.”
Infrastructure poses a bigger challenge because governments are forced to make huge investments in times of economic uncertainty. “They don’t want to build out the infrastructure too much because they fear these things will become ghost towns and you end up with a road to nowhere.”
Grant said public-private partnerships (P3s) can help governments manage their infrastructure challenges, but they are not a “magic solution” to all our infrastructure needs. As for smaller capital projects under $100 million, Saskatchewan has some capacity to finance through banks and credit unions, as well as labour-sponsored venture capital corporations.
But the province needs greater access to private-sector venture capital, such as ‘angel investors’ – high-net worth individuals who want to invest in new businesses. “These are sophisticated investors. They have skin in the game. It’s active management. They get quite involved in the company.”
The report also recommends the province: Maintain a hospitable investment climate for foreign investment, including state-owned enterprises (SOEs); keep personal and corporate tax rates competitive; and engage First Nation and Metis businesses and communities in the economy.
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