Export Development Canada (EDC) has a big problem – the kind of problem Crown corporations have no business courting.
Canada’s export credit agency, EDC loaned Turquoise Hill Resources, a mining company, $1 billion. Unfortunately, Turquoise Hill allegedly transferred a considerable amount of money offshore to minimize the taxes it pays in Canada.
EDC’s mission is to aid Canadian exporters by financing international trade and helping Canadian firms operating abroad. EDC has 5,749 clients. Most often, EDC funds ventures that are much too risky for commercial banks to handle, such as high-risk mining projects.
However, only some countries provide safe environments for investing, offering honest and transparent markets as judged by the World Bank and Transparency International. Mongolia, where Turquoise Hill operates, is considered unreliable.
Of course, this isn’t the only company to ‘borrow’ money from EDC for high-risk projects. It is trying to repossess a Bombardier executive jet from the Gupta brothers, deadbeat cronies of the recently ousted president of South Africa, Jacob Zuma.
While this plane is only worth about US$52 million, EDC has exposed billions of dollars: 15 per cent of EDC’s portfolio is invested in the risky and politically influenced aerospace sector.
Bombardier is by far the largest client, and it has received billions of dollars from the federal and Quebec governments. It continues to be favoured by EDC.
Financing foreign investment outside of Canada is an important mission of EDC. There are always political considerations to take into account and Mongolia is only one of the many unstable countries where EDC has risky investments.
Most EDC clients are not in and do not intend to work in lawless, corrupt or dangerous countries. Yet even stable, advanced countries can be difficult to navigate for naïve Canadians. Import restrictions, product standards, logistics, labelling and language issues complicate international trade and investment.
Merely being paid for goods and services, and not having foreign assets damaged, destroyed, stolen or confiscated is almost impossible in many countries. Ensuring that officials don’t make illegal demands is nearly unavoidable in many countries. Multinational companies often spend millions of dollars on consulting and lobbying firms; effectively, much of this is graft.
EDC plays in a squalid pit with Canadian money, so controversies such as the one with Turquoise Hill are inevitable. While EDC recently sent a multimillion-dollar dividend payment to Ottawa, its true risks may not be fully reflected in its financial reporting.
EDC has over $63 billion in assets and over $9.8 billion in book value, so it would be a good company to privatize. This Crown corporation is solidly profitable and growing. It has a fairly consistent and very low loan loss ratio (under one per cent). There are very good reasons to put this worthy – but risky – corporation into the private sector.
It’s time these big problems didn’t rest on the shoulders of taxpayers.
Ian Madsen is senior policy analyst at the Frontier Centre for Public Policy.
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