EDC, BDC merger seeks to foster corporate champions with global footprints

More McCains. More Bombardiers.

The planned merger of Export Development Canada and the Business Development Bank of Canada amounts to a bet that, with the right size and focus, it will be possible to nurture into life a new generation of something this country has long sought: domestic corporate champions that conquer industries across borders.

“It’s about the number of Canadian companies of a certain size that have a genuine footprint in multiple markets,” Alison Nankivell, chief executive officer of EDC, said in an interview this week.

EDC and BDC are both Crown corporations that offer support and financing to businesses.

Ottawa plans to merge federal financing agencies, set up standalone sovereign wealth fund

Together, they have $128-billion in assets, 5,100 employees and a footprint in more than two dozen countries. The mandate to combine them is among the steps Ottawa promised in the federal budget unveiled earlier this month.

It is, to date, little more than a concept.

The name of the new entity is not yet clear. Nor is its leadership. Nor is the date it will enter into existence.

But the idea is not novel. Canada is following in the footsteps of countries such as France, Japan and even China, concentrating government-backed financial resources in an effort to bolster the economy.

“The model of how we create prosperity going forward is a lot harder and more complex,” Ms. Nankivell said. “So it actually needs a much more focused development bank to do that work.”

The combined entity will be placed under the responsibility of the Minister of Finance, according to two people with knowledge of the plans, part of a broader bid to consolidate federally backed financing agencies. The Globe is not identifying the two sources as they were not authorized to speak publicly on the matter.

EDC is an export credit agency tasked with bolstering trade through supports such as financing and export insurance. BDC similarly provides financing to businesses in addition to offering advisory services.

The combination isn’t being done as a cost-cutting exercise, Ms. Nankivell said. Rather, it is intended to create a body with a bigger balance sheet and a greater ability to reallocate resources.

In September, EDC released a white paper that evaluated the complexity of global economies – a measure of the sophistication of goods a country produces – and ranked Canada 35th, behind Japan, South Korea, Germany, China, Sweden, Italy, the U.S. and France.

Canada must invest in adding value to exports, EDC report says

Canada could boost its GDP by $100-billion, EDC estimated, if it made more complex products.

It’s a question of building on existing strengths and deepening value chains. It’s also a question of deciding which strengths, exactly, are worth building on.

“Canada has to spend more time thinking about what it is truly good at – where it has competitive strength and clusters of capability that we need to double down on and scale quickly,” Ms. Nankivell said.

She offered a few examples, including critical minerals, the energy transition, digital capabilities like artificial intelligence, agri-food and forestry.

“We should be much higher in our global scale for agriculture,” she said.

She also pointed to Toronto construction projects using engineered wood imported from Austria, which has built that industry to a scale and efficiency that it can compete globally. For Canada, that can serve as a template of, “How do we take that playbook and build it here?”

A Canadian desire to extract more value from natural resources is hardly new. Politicians and labour leaders have long lamented the export of raw goods, whether as logs, unrefined crude, bulk crops or unprocessed minerals. Efforts to do otherwise have had to confront market realities, as companies consider relative costs when deciding where to manufacture goods. Often, those costs have been lower elsewhere.

Ms. Nankivell argued that this time is different, driven by the ruptures to trade with the United States. No longer can companies expect that supply chains will seamlessly cross the border in a continental economy, she said.

“That’s all changed. And that’s changed the conversation of how we build industries and we think about value add.”

Managing that will require cultivating a greater appetite for lending risk.

Canadian institutions need not “take on all of the risk themselves,” said Tushar Handiekar, EDC’s vice-president of structured and project finance.

He expects to partner with export trade agencies from other countries or insurance companies, “such that others can take certain portions of that risk alongside us,” he said.

Ms. Nankivell expects the new, combined entity to see an increase in the value of assets it oversees.

“The whole point is to continue to grow as an organization. Your assets are based on how many companies you can finance to get out and abroad,” she said.

With a report from James Bradshaw