Originally published in Blakes Bulletin on
Competition Law, January, 2008
On January 28, 2008,
Canada's Minister of Finance, The Honourable Jim Flaherty,
addressed the growth of sovereign wealth funds and the role
that they may play in the future at a Conference Board of
Canada event in Toronto entitled "The Hollowing Out of
Corporate Canada: Myth or Reality?".
A sovereign wealth fund is a
pool of investment resources provided by a country's
government, most often funded by foreign exchange assets.
Sovereign wealth funds have grown significantly in recent years
(due to large current account surpluses and increased revenues
in oil producing countries) and are estimated to be valued at
trillions of dollars globally. Some of the largest global
sovereign wealth funds include the Abu Dhabi Investment
Authority (United Arab Emirates), China Investment Corp.
(China) and Temasek Holdings (Singapore).
Without condemning or praising
sovereign wealth funds, Minister Flaherty noted that they will
become increasingly significant players around the world where
capital is at a premium and sovereign wealth funds look for new
opportunities to invest. The Minister referred to the Industry
Department's recently adopted Guidelines on the review of
investments by state-owned enterprises (SOEs), noting that
increasing foreign direct investment in Canada is a priority
and that the Guidelines clarify the government's position
without raising obstacles to investment.
The Guidelines reflect the
government's policy that the governance and commercial
orientation of SOEs will be considered in determining whether
an investment subject to review under the Investment Canada
Act is of "net benefit" to Canada, the statutory
test for an investment to proceed.
With respect to corporate
governance, the Guidelines state that the Minister of Industry
will examine whether the SOE adheres to Canadian standards of
corporate governance, such as commitments to transparency and
disclosure, independent members of the board of directors,
independent audit committees, etc. In evaluating the commercial
orientation of a firm, the Minister of Industry will examine
the SOE's business plans for the Canadian business with
regard to Canadian employment, its support of innovation,
research and development in Canada, and its anticipated capital
expenditures in Canada.
In addition to the Guidelines,
the government is also considering the proposal of a national
security test as part of the government's review of foreign
investment under the Investment Canada Act. (A
national security amendment to the Investment Canada
Act was proposed in 2005 but died on the order paper).
Minister Flaherty also noted
that the Organization for Economic Cooperation and Development
and the International Monetary Fund are working on developing
best practices with respect to investments by sovereign wealth
funds, which are expected to be introduced in the coming
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