Investment Climate in the Provinces is Mixed

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Jason Clemens

The 1999 Summer Survey of Investment Managers is complete and some of the results are quite surprising. The survey sample includes 130 of the largest pension fund managers in Canada. The respondents to the Summer Survey this quarter represent approximately $130 billion in assets under administration.

The investment climate in the Canadian provinces

Respondents were asked to assess the investment climate of the provinces and to rank government policy areas that contribute to the positive or negative provincial investment climates.

The winners

Alberta and Ontario, the two provinces that dominated the 1998 survey on provincial investment climates, again dominated the 1999 rankings. As figure 1 illustrates, Ontario topped the provincial rankings with a score of 7.9, followed closely by Alberta with a score of 7.8. This is a reversal of the top spots from the 1998 survey in which Alberta topped the rankings followed by Ontario. Saskatchewan and Manitoba tied for third position with scores of 6.0.

Figure 1: Provincial Investment Climates

The second part of the assessment, which rated whether or not provinces have the necessary economic policies to promote the development of world-class companies, was equally supportive of the investment climates in both Alberta and Ontario. As figure 2 depicts, 91 percent of respondents stated that Ontario possessed the necessary economic policies, while Alberta scored 87 percent in this area. Other than Ontario and Alberta, only Quebec (52%) and New Brunswick (57%) received scores in excess of 50 percent.

Figure 2: Basic Economic Policios in Each Province

Respondents overwhelmingly indicated that government finances and taxes were particular areas of strength for Alberta. Labour legislation also scored relatively well with a score of 3.5 on a scale of 1 to 5.

All five of the factors assessed - government finances, taxation, labour laws, environmental regulation, and economic and general regulations - received scores in the 3 range for Ontario. Government finances and taxation received the highest scores at 3.79 while the scores for labour laws, social and economic regulations, and environmental regulation were 3.13, 3.05, and 3.00, respectively.

The loser

British Columbia is the clear under-performer of the ten provinces. It dropped from 9th in 1998 to dead last in the current survey. British Columbia received a score of 3.1 (see figure 1), on a scale of 1 to 10 rating the investment climate of the provinces. Newfoundland, which was ranked 10th last year moved ahead of British Columbia by improving its score to 4.5.

Equally as troubling for British Columbia was that it received the largest negative response of any province: 70 percent of respondents stated that the province lacked the necessary economic policies required to develop world class companies over the next decade (figure 2). For comparative purposes, the next "worst" province was Newfoundland, about which only 39 percent of respondents felt lacked the necessary economic policies to promote globally competitive companies.

In terms of the five government policy areas, British Columbia received a negative rating on all five (where the rating scale was from 1 = extremely negative to 5 = extremely positive). British Columbia received the worst ratings for both government finances and taxes. Both policy areas received a score of 1.8, indicating a highly negative effect on the provincial investment climate. Labour laws, environmental regulation, and social and economic regulations, although outperforming government finances and taxation, still received scores of 2.0, 2.3, and 2.3, respectively, indicating a negative effect.

Minister of Finance rebounds

Another interesting result was the rebound in the approval ratings for the Minister of Finance, Paul Martin. Seventy-seven percent of survey respondents indicated that the minister of finance was doing an excellent, very good, or good job. As figure 3 illustrates, this is a significant improvement from the previous survey that saw the minister’s ratings plummet to their all-time low at 57 percent. Interestingly, the minister’s rebound coincides with dramatic statements made by both him and the prime minister regarding the need for tax reduction. The current approval rating of 77 percent is still, however, well below the 100 percent approval ratings that the minister of finance received between the Summer and Winter Surveys of 1997.

Figure 3: Previous Survey Responses of Good, Very Good, or Excellent (Approval Ratings) for the Minister of Finance, Paul Martin

Continued improvement for the Bank of Canada

The Bank of Canada’s approval rating continued to increase - to 92 percent, significantly up from the 76 percent garnered in the 1999 Spring Survey. The 1999 Summer Survey marks the third straight survey in which the Bank of Canada has received increased approval ratings.

Quebec sovereignty: almost a dead issue

For the third straight survey, the percentage of respondents indicating the likelihood that Quebec would become sovereign in the next five years dropped. The percent of respondents indicating Quebec separation was likely declined to 24 percent from its previous level of 35 percent in the 1999 Spring Survey. Since peaking in the 1997 Summer and 1998 Spring Surveys, the likelihood of Quebec separation has consistently received low scores.

Most important issue: for the seventh straight survey, it’s still taxes!

Ninety-two percent of senior Canadian investment managers surveyed indicated that taxation, specifically the high level of taxes in Canada, is the most important issue facing the federal government. The remaining 8 percent of respondents indicated that deficit and debt reduction is the most important issue facing the federal government.

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Last Modified: Thursday, September 23, 1999.