The unexpectedly quick approval by the Canadian Government of the proposed link-up of Canada’s Teck Resources and the UK’s Anglo American confirms several things: 1) Canada is open for foreign investment (from some countries at least ); 2) the Canadian Government can be as transactional as the Americans – extracting significant investments and other commitments in return for deal approval and; 3) Prime Minister Carney wants to do things fast. The last point addresses a criticism from the business community that it just takes too long to get things done in Canada and this has been stifling investment.
The “optics” around the Anglo/Teck deal were important. Canada needs significant foreign investment to fund major infrastructure projects – port facilities, rail, energy, mineral processing, data centres. A number of sovereign funds and American private equity players are circling. Turning down the Anglo/Teck deal would chill the investment Canada needs. Approving it, and quickly, would be a welcome signal. The Carney Government wisely chose the latter.
It was easy to approve a UK deal. Chinese investment will be problematic as it could rile the United States. Investment from India and the Gulf will raise human rights concerns. However, could investments from the US raise questions we have never asked before?
The recently announced US National Security Strategy has as one of its principal goals the restoration of American pre-eminence in the Western Hemisphere (a Monroe doctrine on steroids). This has a stated commercial element:
“The U.S. Government will identify strategic acquisition and investment opportunities for American companies in the region and present these opportunities for assessment by every US financing program….”
Energy infrastructure, critical minerals and communications are mentioned.
The recent investment made directly by the United States Government in two small critical minerals companies in Canada shows that in giving life to its strategic acquisition policy, the US Government will not wait for the private sector. Direct commercial investment in Canada by the US government itself is new. These initial investments were small. It is an open question how the public would react to a significant US Government investment in a major piece of Canadian infrastructure given President Trump’s antipathy to Canadian sovereignty.
Over the last decade, Canada has moved to bolster its power to review and challenge acquisitions by adding “Guidelines” under the Investment Canada Act that establish additional screens for: national security; to protect critical minerals, critical infrastructure, the supply chain, and sensitive technology; and to prevent state-owned enterprises (“SOEs”) from acquiring assets in Canada. It was pretty much China that the Government had in mind.
More Guidelines introduced almost a year ago were about something else and had a different target. The issue was now “economic security” and clearly aimed at opportunistic investments that might be made by foreign (read American this time) acquirers in the current context – a weak dollar and trade and tariff threats. Call this one the “Blackrock Rule”.
Blackrock had just then made a surprise acquisition of Hong Kong’s CK Hutchinson’s interest in Panama Ports Company – clearly an opportunistic investment when the new US President was threatening Panama. If that deal was not made at the behest of the US government, then certainly it was done with its enthusiastic support. This raised the question for Canada – what would happen if a deep pocketed US entity were to seek to buy vulnerable Canadian assets?
Without the new economic sovereignty Guideline, a similar transaction could require a messy determination whether the buyer was a state-owned enterprise (a foreign government entity or one acting at the behest of a foreign government). With the addition of the “economic security” provision, Canada moved quickly to give itself more space and time to consider a significant and strategic US acquisition.
A short while ago it would have been inconceivable to suggest that a US investment in Canada would be unwelcome or turned down. Certainly, there was angst decades ago when some worried that the Americans only coveted our water. The stakes are higher now -protecting our very sovereignty when there is a creeping realization that the United States and those acting at its behest are not benign players. The Government may have to answer this question. How does US control of major infrastructure build a resilient Canadian economy? It has the power to stop a US deal; but would it? Could it?