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While at a reception in Beijing earlier this year, I talked to a director of the China Investment Corporation, the world’s fourth biggest sovereign wealth fund.
He told me that if the Canadian government had not approved the takeover of Nexen by the Beijing-based state-owned oil company, CNOOC, Chinese investment in Canada would have dried up overnight.
“We don’t want to be where we’re not wanted,” he said. So much for investment flowing where it gets the best return.
The Conservatives did approve the takeover but also introduced new rules that stipulated that any investment in Canada by a state controlled enterprise greater than $344-million in asset value would trigger a review.
The result: Investment in Canada by Chinese state-owned enterprises — which totaled $33-billion between 2005 and 2012 — has fallen off a cliff. The new rules state control of an oil sands business by a state-owned enterprise will only be deemed to be of net benefit to Canada in “exceptional” circumstances.
The unwritten subtext is that the Harper government prefers private foreign investment over state-owned investment and minority stakes over acquisition or control.
Stephen Harper admitted the critical importance of foreign direct investment when he introduced the new rules, but that part of his speech appears to have been ignored by foreign investors.
As revealed by CIBC vice-chair Jim Prentice, Mr. Harper’s former industry minister, investment in the Canadian oil sands has dipped dramatically in the wake of the Nexen decision. Foreign direct investment in the oilpatch has declined 92% this year to $2-billion from $27-billion last year. Merger and acquisition activity has dropped to $8-billlion from $66-billion last year. The disparity is not solely due to 2012 being a bumper year because of the $17-billion Nexen deal — CIBC figures suggest activity has averaged around $50-billion a year over the last decade.
For the rest of this article, click here: http://fullcomment.nationalpost.com/2013/10/01/john-ivison-foreign-investment-in-the-oil-sands-have-dropped-off-a-cliff-since-nexen-takeover/