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Sandy Walker, Mar 26, 2014
Canada, like the United Kingdom and the United States, has witnessed a sharp decline in state ownership in the past few decades. However, investment by foreign state investors in Canada in recent years-in effect a foreign “nationalization”-has represented an interesting and significant deviation from this trend, particularly in the natural resources sector. Such investment has not gone unnoticed: the acquisition of Canadian resource companies by foreign state-owned enterprises and sovereign wealth funds has become the subject of heated political debate and extensive press attention in Canada over the last few years including the acquisition by Chinese SOE, CNOOC, of Canadian oil company, Nexen in 2013.
This wave of foreign state ownership has been remarkable not only because of the state status of the acquirers but also because the sources of foreign direct investment in Canada are no longer limited to Western countries (particularly the United States) but include a growing number of emerging economies such as China, Malaysia, Korea, Russia, Singapore and the Middle Eastern oil states. As illustrated in Table 1, which lists recent SOE investments in Canada, investment by SOEs in Canada has focused primarily on natural resources and, in particular, oil and gas.
Also of note is that Chinese investment has expanded dramatically: cumulative foreign direct investment into Canada from China (both state and non-state) was U.S. $10.7 billion at the end of 2011, an increase of 3500 percent in the last decade. From 2011 to 2012, Chinese investment in Canada doubled to reach U.S. $21.3 billion, $15.2 billion of which can be attributed to the CNOOC-Nexen deal.
SOEs are also investing in related industries, moving up the energy sector’s “value chain;” for example, PetroChina had expressed interest in building Enbridge’s Northern Gateway pipeline to transport Canadian oil to the west coast of Canada. It is also noteworthy that Chinese companies have increasingly invested in Canadian companies with assets in Canada rather than Canadian companies with assets outside of Canada (e.g., China National Petroleum Corporation’s acquisition of PetroKazakhstan in 2005).
The sometimes nationalist response by Canadians to SOE investments is in part a response to already existing concerns about foreign investment. These concerns rose to a fevered pitch in the wake of a spate of foreign (non-SOE) takeovers of Canadian icons beginning in the mid 2000s with the acquisitions of companies such as mining company Inco, aluminum producer Alcan, natural resources giant Falconbridge, and retailer Hudson’s Bay Company (founded in 1670 in Canada). The loss of head office jobs (the so-called “hollowing out” of corporate Canada) and the elimination of Canadian companies as national champions were key themes of critics of these investments.