HALIFAX, THURSDAY, DECEMBER 18, 2003
STANDING COMMITTEE ON ECONOMIC DEVELOPMENT
9:00 A.M.
CHAIRMAN
Mr. Russell MacKinnon
MR. CHAIRMAN: Good morning, ladies and gentlemen. Welcome to today's Economic Development Committee meeting. Today we have Nova Scotia Business Inc. before us. As we start, I would ask all members of the committee, starting to my immediate left, in a clockwise formation, to introduce themselves.
[The committee members introduced themselves.]
MR. CHAIRMAN: Gentlemen, would you like to introduce yourselves? The format is, generally, you have 10 or 15 minutes for an intro - if you need a little more time, that's fine, too - there will be some questions, and you will have time for a closing statement or two.
[The committee witnesses introduced themselves.]
MR. STEPHEN LUND: Good morning, thank you. Mr. Chairman, I just want to thank you for the opportunity to join you today and also to thank you for being flexible in switching the date of the meeting, I do appreciate that. What I thought I would do is just take you through a few slides to give you an overview of what we've been working on in the past year, Nova Scotia Business Inc., and also a flavour for some of the areas that we're focusing on in the coming year. Then, obviously, we will leave some time for questions, and we can look at any specifics that you might have.
1
We've been in existence for about two years. We released our annual report, which covered our first full year of operations ending last March 31st. We focused on a number of opportunities. In the Opportunities for Prosperity document in the creation of Nova Scotia Business Inc., we looked at a number of sectors to focus on, and these are the sectors that were identified for us: Information Technology, Energy, Life Sciences, Advanced Manufacturing, and Learning. In conjunction with that, obviously, are traditional sectors of the economy that we also work with.
Just a quick overview of our five-year strategic plan. These are the broad strategic goals that help guide our activities: essentially help existing companies in Nova Scotia expand, attract leading-edge companies to the province, provide access to capital for businesses, increase recognition of the province and develop an action-oriented organization.
We meet with companies. We try to gather relevant information. We look at various regional business cases. We have a number of stakeholder sessions, and through those we look at identifying gaps in the market in providing services. We essentially provide financial services, export development services and investment attraction services. We have a business advisory group throughout the province.
Summary to date. As of our first full year in operation: 17 financings valued at $13.6 million; we were able to leverage the money that we put out; we assisted 113 clients in increasing export sales; there were 473 company visits; and seven companies located part or all of their businesses in Nova Scotia. The bottom line, returning to the province a positive return for any monies that were put out through the Strategic Investment Funds.
Some quick highlights on the annual report. We are quite proud of the accomplishments that we've been able to achieve in the last fiscal year, our first fiscal year in operation. I'm going to quickly go over some of the objectives that we put in place and where we stood.
The number of company meetings, we targeted 400, we hit 473. The number of clients assisted with increasing exports, along the lines of this we recently lost a trial program called Export Prospector, where we helped 26 companies recently, and that's really taking the best parts of a trade mission and helping companies really get into a market, and help them identify opportunities and meet with companies. We hope to roll this out on a full-time basis. It's been extremely successful. In fact we did it last week. We took five companies from Cape Breton down to Boston and set up a number of meetings for them in Boston.
Attract leading-edge, sustainable companies to Nova Scotia. We had a target of five; we passed that target last year and we believe we're on track to match or exceed the target for this year.
Access to capital. We provided, again, 17 financings totalling $13.6 million. We're also able to leverage that money by getting other partners into transactions. We have an extensive pipeline in place now with potential new deals that we hope to close, and hope to meet the target that has been set for this year.
Number of presentations that we had promoting Nova Scotia, talking about specific business opportunities, increasing the measure of awareness of Nova Scotia Business Inc. within the province. We had an awareness target of 2 per cent. That was a year ago. The recent awareness numbers show us up about five percentage points with the general public and up about six percentage points with the business constituents.
Operating budget. We are living within our operating budget.
A quick summary of jobs that our clients generate, where we provide some assistance to them. We have a five-year target of 18,000. In summary, we're on track. I think what we're seeing is really a shift in the type of jobs that we're seeing now versus what we would have seen a year, a year and a half ago. Again, we're on target and hope to be on target by the end of this fiscal year.
This is the quick indication of the return of the portfolio. What this essentially says is that for every $100 that we might put out in a payroll rebate, we would return to the province $132. So it's a positive return for any monies that we would put out to companies.
A quick summary of a breakdown of our client list. It pretty well reflects the general population of the province. Nova Scotia Business Fund, we have 200 clients, employing nearly 9,000 people across the province, the total value of the fund is approximately $180 million. We have implemented a Portfolio Management Strategy within our financing group and maybe, Pat, if you could take 30 seconds now just to touch on those three points.
MR. PAT RYAN: Just to give you a sense of the approach we take to lending and investment, we do everything from term loans to venture capital. We believe if you're going to structure a deal properly you really need to understand the risks that are inherent in any proposition. Certainly, if you're going to take a risk you better understand what the risk is. We have engaged in the last year a business analyst to help us with the due diligence process and our financial analysis on the front end.
We have introduced a risk grading system to help us quantify more accurately where the risks are and to price to that risk, and also to structure our transactions in such a way that we're taking every step we can to mitigate the risk that we're taking on, whether that's through security or structuring or undertakings within the loan documents or what have you. In managing that risk on an ongoing basis, writing the cheque is the easy part. Making sure your principal and interest come back, and dealing with the challenging situations you are confronted with, as you inevitably will be when you act as a lender.
We have also recruited a professional who deals with our high-risk portfolio, both in workouts and collections, if we get to the point where we're not able to find a way to work through a particular situation. So that's my 30 seconds' worth on that.
MR. LUND: We conducted some research recently to follow up some research that we did last year to just gauge some of the issues and concerns of Nova Scotians. Just to share with you some of the results of that, what we found is that people are still generally positive about the economy, and there was another article in the paper this morning reflecting that. The numbers are down slightly year to year and they're not down as much as we might have expected, given some of the issues that we saw in the economy: mad cow, SARS, U.S./Canada relations, the Canadian dollar. Generally speaking, people are still pretty optimistic.
Again, we asked people what we should be focusing on as an agency. People said focusing on small business, promoting our services more, attracting new business to the province, providing financing and again, just providing different types of support to Nova Scotia businesses. With results like this we try to tailor some of the services that we're able to offer companies.
I thought this was an interesting one, we asked people how an agency like ours should be set up, and most of the people we asked felt that we should be 100 per cent independent, with a cost recovery mandate; in other words, to pay our own way.
We took a look at focusing on the economy in Nova Scotia and took a look at the fact there may be differences - strengths and weaknesses - in each area of the province and we should have a pretty good idea of what they are when we're trying to sell a region. We conducted a number of regional business case analyses where we went into communities and met with a number of key people in the communities, to get a real sense of what the issues are, what the strengths are, what the weaknesses are, what people thought had to be done and what would work in their area, and identify where we could play a role, but also where other organizations might play a role. As you can see, we have had a pretty extensive list of areas that we've been to.
[9:15 a.m.]
Some of the key findings that came out of those meetings were demographic challenges, the question of do you go and try to build one- and two-person companies, or five-person companies, or do you try to go for the big home run. Skills shortage, this was an issue that came up constantly and again, it's from the people who we talked with. Again, there was a request to continue to support small business. People even identified specific opportunities that they thought would work in their areas and I just outlined some of them, whether it's relating to the gas industry, or relating specifically to contact centres, aquaculture.
We asked businesses in our survey what issues are critically important to small businesses. The top items that came up were training or upgrading employees, market information and access to capital. Now what was interesting, too, when we asked these people which ones were critically important, we also asked them, are you completely satisfied with what's being done now? The numbers show that obviously people are not, they think there's a lot of room for improvement in a lot of these areas.
Within Nova Scotia Business Inc., a lot of our focus is on working with small businesses throughout the province but some of the feedback that we get is that there still is a perception in some areas that we don't focus enough on small business. What we have decided to do internally is restructure a bit to focus on setting up an internal small business unit within Nova Scotia Business Inc., with a specific mandate to work with small businesses.
Some of the efforts focus around skills upgrading, investing in new capital, market diversification, product diversification. Martin, do you want to comment on it quickly? Martin is actually heading up this group and has been doing a lot of work with small businesses. If you could take 30 seconds.
MR. MARTIN WALKER: Our regional business case analysis was an important part of our work plan last year and it did crystallize some things in our minds, not to mention the rapid appreciation of the Canadian dollar against the U.S. dollar. We began to see that Nova Scotia companies were in a position where they weren't making adjustments to this as their margins were getting squeezed, so we really began to focus very acutely on things that we could do at the company level. To that previous slide, the skills development, investment in new capital, export market penetration and adding value to our existing product base, those are things that we have been doing and we had been doing with our existing service lines.
What we did was bring together our export development team and our business advisory team, which is really our regional eyes and ears, to really drive the synergies around all the partnerships that those two groups have created there, have been part of for some time. Our export development team is a key member of Trade Team Nova Scotia and our business advisory team is an integral part of the economic development fabric across the province. We think that immediately we're going to see some good "one plus one equals three" synergies emerging from driving our service lines together.
Our focus is small business, our clients are small businesses, and we're just going to be capitalizing on the strengths that the team brings forward, with the full knowledge that it's not us alone, but us as part of a larger whole that is driving to meet the needs of small business.
MR. LUND: Again, that's a quick overview. In summary, we had a good year, we had a great year. We think our first year, we met the objectives that we set out. We're
constantly learning and looking at new initiatives. Essentially, we're on track and we're providing a positive return for our shareholders. That's where we are today and look forward to any questions.
MR. CHAIRMAN: Thank you, Mr. Lund. I will open up the floor for questioning from the members.
Mr. Theriault.
MR. HAROLD THERIAULT: I don't understand something here. You say you have helped existing companies, 473 of them this year and then on the next page you say you have helped 17 businesses. I don't understand that.
MR. LUND: We have a group within Nova Scotia Business Inc., it's a business advisory team, and we have offices across the province, and they work with companies. They would go in, meet with companies, do an assessment of what their needs are and from there they would look at what we could do or what others could do and they would refer business either within the group or to others. So that number of about 473, that was the number of actual meetings that we had with clients and from that we would have worked with some of those clients to help them on their exporting needs, we would have helped some of those with their financing needs and we would have helped some of those by referring them to other organizations. So the number of 17 is the number of actual financings, where we provided money to companies; 473 is the number of meetings that we had.
MR. THERIAULT: You helped 17 out of 473.
MR. LUND: In terms of providing specific financing, but of those 473, not all of them would have needed money and some of those would have received money from organizations where we were able to provide a referral service to. But the 17 are specific applications that we've received within NSBI.
MR. THERIAULT: What do you do that the banks don't do? What is your interest rate, how does that work?
MR. LUND: We get a cost of funds from the government and we have a matrix set up, in other words, where we take a look at each application and we would rate it based on an element of risk. So if our cost of funds - just to pick a number - is 5 per cent and a certain company fits in a category or box where the rate would be 5 per cent plus, let's say 3 per cent, our rates are higher than the banks. We try not to compete with the banks but in some cases our terms might be more flexible than some of the banks. One of the challenges that we hear from people around the province is the perception that the banks maybe aren't as aggressive as they used to be. Whether that's a reality or not, a lot of what we would do in
talking to companies is trying to fill that gap, when they might not be able to get the right type of financing with the bank.
MR. THERIAULT: What do you consider small business versus micro business and large business? How do you determine that?
MR. LUND: That's a good question because I think everybody might have a different answer. My interpretation of small business is looking at the number of employees and I look at the number under 50. Micro businesses might be in the area of five or 10 but 92 per cent of our businesses in Nova Scotia have less than 50 employees, so we kind of look at that number of 50 and, again, I've seen that number before but I've also seen the number of 25 or 30.
MR. THERIAULT: So you're going to focus more on small business in the coming year, you say?
MR. LUND: We are, but it's also a bit of a perception thing. If I look at the last year, I would say that probably 80 per cent of our effort and energy has been working with small businesses. But we want to make sure that and people know that we are focusing on small business, that's why we've restructured internally. So, the answer is yes, we are going to focus on working with small businesses.
MR. THERIAULT: To me that doesn't seem like a lot, the 17 businesses you've helped, I mean I've been hearing a lot that it's very hard to deal with Nova Scotia Business Inc., that everything seems to be so tight and I'm just wondering, if you're going to focus on small business, are you going to change your risk factor? Life is a risk, every business is a risk. I've been in business all my life, take a risk every day. It seems to me that 17 businesses out of 473, you're not taking much of a risk there.
MR. LUND: No, it's a good question. But, again, it's not 17 out of 473 because we didn't get 473 requests for financing. Working with companies, we try to look at a number of factors. We do look at the industry, the area and we are able to do things that others can't do. But each client that we look at, the business has to make general business sense. I might at this point ask Pat, because that's his area, to comment on that a little bit.
MR. RYAN: I understand your point, I've heard the same feedback about the way in which we're perceived in terms of our willingness to take risks, our focus on larger businesses and so forth. I would like to be able to place every dollar that's made available to us from our shareholder and from the interest on the principal that's recouped from the existing portfolio.
Where we try to address ourselves, specifically, with our financing is to those good businesses in the province that are unduly challenged in accessing capital. That might be
because of where they are or because, for instance, many of the commercial institutions don't want to take a risk in rural settings. It may be because of their stage of development, start-up businesses, for instance, are a particular challenge for all institutions. It may be because of the sector that they operate in. I worked in the financial services industry for a long time and on Monday I can be in a certain sector and on Wednesday I could be out of it, whether I chose to be or not. So we try to address ourselves to those particular situations. Or it may be an expansion of that kind of thing. It may just be a simple shift in policy and the commercial institutions will come in and come out of the market and we try to address ourselves specifically to those kinds of issues.
It's always a challenge to determine how much risk is enough risk and it's something that we struggle with every day, especially with smaller businesses. You mentioned micro versus small, probably 30 per cent or 40 per cent of what we did last year was for transactions in the $75,000 to $250,000 band. We would like to do more in the coming year in the band from about $125,000 to $250,000. I think there's a good deal of coverage in the communities up to $125,000, the Business Development Corporation, the credit unions, the Business Development Bank actually covers the ground pretty well on smaller transactions. So we try to address ourselves to those niches that aren't serviced. We would always like to do more. We're always looking for the kind of feedback that we're hearing from the community and the members present and trying to continually adjust our service offerings.
MR. THERIAULT: Do foreign countries have access to Nova Scotia Business Inc.?
MR. RYAN: How do you mean? I'm not sure I understand your question.
MR. THERIAULT: Can a foreign country come in here and borrow money from Nova Scotia Business Inc.?
MR. RYAN: No.
MR. CHAIRMAN: Just before we proceed, just as a housekeeping item, as a matter of courtesy to our guests here today, I would ask if all members of the committee that may have a cellphone on them, please turn it off, so it won't be disruptive to the guests here today.
Mr. Parker.
MR. CHARLES PARKER: Mr. Chairman, I guess I have a few minutes, is it? A certain amount of time?
MR. CHAIRMAN: Well, we try to extend to five or 10 minutes to each member. We will make sure every member is given equal respect.
MR. PARKER: Thank you. Gentlemen, I guess my first question was around just how is it that you're different than your predecessor? I know you're independent and you're business people, how are you doing things differently than the previous entity that was there? I forget the name of it, what was it called, Nova Scotia Business Development Corporation.
[9:30 a.m.]
MR. LUND: That's a good question. The Nova Scotia Business Development Corporation was a predecessor group on the funding side of it and was separate from the operations of a trade group and investment group. All the functions now within Nova Scotia Business Inc. are combined under one entity, and we report to a board of directors. So decisions that are made are made, up to a certain level, at the board of directors. So in terms of the differences - I wasn't in the predecessor organization, Martin could probably comment on that more - I think the independence of decision making would be an important factor, and also a more proactive business-promotion-attraction effort on our part, and also the controls and accountability that we've put in place might be a bit different. I think the reason we were set up was to operate as an independent business-focused organization. Martin, you've been around longer than us.
MR. WALKER: My involvement was with the investment and trade piece. As Stephen said, the Business Development Corporation was, again, separate from us , with its own board structure. I think what I would say is that it really is the accountability framework and the board governance structure that - up until recently I had been working in the business development side and the investment side. It really has been my first exposure to a board framework, where the review process is driven from the staff level up, but at the end of the day we were presenting into a very different kind of framework.
In the past it would have gone straight from our shop into a request of Cabinet. Well, today, in many instances, on the investment side, it is a Cabinet approval finally, but today we work with an investment committee structure and a board structure. So I would have to say that the checks and balances and the rigour around due diligence is something that's far more obvious and apparent. That would be the big difference that I see.
MR. PARKER: You're more at arm's-length from government under this structure than perhaps your predecessor. You think that allows you more leeway to do a better job, or gives you more focus on the job at hand?
MR. LUND: Time will tell. My personal view is yes. Ninety-nine per cent of our days are focused on talking to businesses. From what we hear from our clients, we're able to focus on the business aspects of what we're doing. We have a private sector board of directors in place. I've often said that there are many variations of what we do. I think, to me, one of the critical areas of success will be just the ability to continue with something for an extended period of time. If you look at some of the successes around the world, including Ireland, a
lot of it is built on putting something in place and letting it run. Whether this is the exact model, I don't know. I tend to think it's a good one. I also think it's important we take a look at our long-term mandate in what we're doing here.
MR. PARKER: I come from rural Nova Scotia, from Pictou County, an area of the province that, unfortunately, has a shrinking population. Many of our counties in this province are shrinking: Guysborough, Cape Breton, Antigonish, certainly Pictou, Cumberland, the South Shore and so on. Do you have any particular initiative to help areas where that is shrinking? It's certainly growing here in metro, it's growing in the corridor right around it, but what about areas where there are shrinking populations? Are there any particular initiatives to help those areas?
MR. LUND: I'm going to let Martin answer that. There are lot of factors that go into that, and some that we can influence and others that we just can't. I think what we try to do - and that was part of our regional business case analysis, getting a first-hand view of what people think and what people are doing in the area and where we can play a role, and then taking some specific initiatives around that. Martin, would you like to comment on some of that because it's relevant to our discussions of the last few days.
MR. WALKER: Yes, we heard it right around the province, from one end to the other, that there are pockets, in Colchester County for instance, where population is growing, but really it is, as you said, sir, that demographic forces are in some ways almost inexorable, that there's movement, you feel helpless. We get that sense in communities, what are we going to do, our young people are leaving. That's really what we heard more than anything, what are we going to do about the young people. Is it a rite of passage that young people want to see the bright lights elsewhere, or is it something about what we're doing here?
What we heard is that there's kind of a gap even at the local community level, a gap in understanding of what the opportunities are within that community. For instance, just before last Christmas, the Colchester RDA, Jo Ann Fewer and her gang, put on, essentially, a reverse trade show where they brought in businesses from within the county and invited students who were home from school and students out of the high school system in to take a look at what was happening in Colchester County. The thought was, boy, there are lots of things happening, maybe there's an opportunity for me when I graduate.
Just yesterday two members of my team were meeting with the Halifax Regional Development Authority to put on a similar kind of event here in Halifax County. It is something that we know in Nova Scotia, that our population, overall, is not going to grow. It is aging, we have an aging population, we have an aged population. So what we're going to be doing is focusing closer to the community to identify those opportunities that make sense within that community and work with our partners to ensure that, number one, we can create a marketplace where there is an understanding of the opportunities that are available, but, I guess to follow on our regional business case, to just better understand, as acutely as
we can, what are those things that we can do that make sense in the context of that community.
Now, will that stem the tide of demographic flows? I'm not sure, but I think that it's very practical and common-sense measures like that that will at least help make people aware that there is opportunity within their own community.
MR. PARKER: Can I ask one more question, Mr. Chairman?
MR. CHAIRMAN: Sure.
MR. PARKER: A more specific question this time. I'm not sure it was your body that was involved, but I'm just wondering, with MacTara Lumber in Halifax County, Musquodoboit Valley, I understand they have received loan guarantees at least twice this particular year. If it is your bailiwick, can you give us an update on where that is and how things are going with MacTara?
MR. RYAN: To answer your question, we, corporately, renewed a guarantee during the past year that had been in existence for some time. MacTara was one of the clients that we inherited when we began to manage the portfolio that came to us from the Business Development Corporation. As to the guarantee that was issued during the summer, we did not issue that guarantee, so I really can't speak to the particulars of that. As to the business, well, that's a sector that's very challenged, as you well know. We're trying to work through the issues with our client.
MR. PARKER: So they are your client, but there's also another government department that's involved with them?
MR. RYAN: That's correct.
MR. PARKER: From your own perspective, though, how are things going? Does it look promising? I know they've come twice now for loan guarantees.
MR. RYAN: I have to be cautious about disclosing too much about the operations of that business, but suffice it to say that it's public knowledge that that sector is challenged and there has been significant support for that business over time. It's a major employer in that region, and certainly we want to do whatever we can to see that business endure, and whether it will or not, I can't say, I don't have a crystal ball.
MR. PARKER: I will yield the floor, Mr. Chairman.
MR. CHAIRMAN: Before I proceed I would ask, with the greatest respect to the guests that are here, and I don't like - with all due respect, certain initiatives are becoming
disruptive. I don't like to name members, but I think we owe a courtesy to our guests. (Interruption)
Mr. Dooks.
MR. WILLIAM DOOKS: Good morning, gentlemen. I'm not going to say anything different from the other members around the table. I'm a representative of the Eastern Shore and in my opinion we would state that that place would be economically oppressed. There hasn't been any generation of new business there for a long, long time, or any substantial employment opportunities. I've been in politics for 10 years and as my colleague across the way knows, have been a small-business person for a number of years, so I have a good feel about small business in Nova Scotia.
We have different agencies: Blue Water Business Development Corporation, Greater Halifax Partnership, HRDA, HRDC, Nova Scotia Business Inc., ACOA, Fisheries Loan Board; that's just to name seven and I probably could name another seven. I've sat in community meetings where facilitators would come to the community and say, what's the problem here, why are we not creating a climate for economic growth? Well, gracious, gentlemen, all these agencies are doing exactly what you're saying you're doing, or a part of.
We could say, not enough risk, we could say there's too much red tape because very small businesses like mom-and-pop operations, they have neither an understanding or the time to go through the process. We tell them we can get them a person to help them with their business plan but that takes six weeks. Interest is dying, they have to meet their month-end payments and so on and so forth, there is a state of confusion with small business in Nova Scotia. Something is drastically wrong. Our population is declining in the rural areas and why is it? It is nothing new for young people to leave our areas and the fact is, they're not returning.
Back in the 1970s, people would leave the Eastern Shore and other parts of Nova Scotia and go West. They would work a few years, get enough money to come back and put a down payment on a home, bang, bang, bang, set up life back in Nova Scotia, go to the convenience store, go to the movies, buy their new car. This is not taking place anymore because there's not a proper climate for small business in the rural areas of Nova Scotia. What do I mean by a proper climate? A proper climate would be roads, proper schools, recreation facilities.
When we talk about young people who are we talking about? What's a young person? Is it 18-years old or 30-years old? When a person in a family is 30 years of age they have already started their family and the schools are important; recreation, hockey, baseball, and all these things are important.
What we're doing is focusing on the top of the problem, rather than the guts of the problem. You go out and visit 400 people, what do you do with the information? You go back and say yes, there is a need in that community and for some reason this is not happening, we will send them out a loan application - when I say "you" I mean the whole gamut of people. When you look at the seven I've just named, that's a lot of organizations, funding partners, advisers and community facilitators. I will tell you that the most jobs created are the people working for those different organizations, and I say this respectfully.
Right now there is a tour around Nova Scotia to identify the problems of the rural areas and why economic growth is not developing there. I will tell you, the climate is not set for economic growth in rural Nova Scotia and the reason the young families are leaving, is because the resources necessary for them to develop as a family unit are not in place. This is your challenge.
When we talk about small-business owners or two people, four people, spinoffs that employ 40 or 50 people in a community, we have to be so very sensitive of the situation they find themselves in and be very careful to eliminate red tape, to be able to focus in on what they want and to be able to help them get funding. Our chartered banks, I will say, are not favourable in lending small-business people in rural Nova Scotia money, I can attest to that. They will probably say, go to some government agency, I don't know.
[9:45 a.m.]
What about affordable housing in rural areas? I know on the Eastern Shore just now, people - and here's my point - have no place to live, unless you build a new home or unless you're living with your mom and dad; there are no apartments. The reason why there are no apartment units is that no one will lend a developer money to build apartment buildings. The only people doing any type of development are the big money holders, and they're not going to risk their funding in a rural area, they're going to build and provide opportunities for people in suburban areas, that sort of thing.
Are you familiar with the Sheet Harbour Port? I'm sure everyone is familiar with the Sheet Harbour Port. The federal and provincial governments, 12 to 15 years ago, put $10 million into creating a facility in Sheet Harbour, a deep-water port that does not freeze, deep anchorage, everything is there, but the government of the day neglected to do one thing, they neglected to build or provide infrastructure for that port. So what have we done? It's been a symbol of what takes place in rural Nova Scotia. We build a beautiful port, we have a union, and the management is there, but we have no infrastructure to support that port.
It is my belief that if Blue Water Business Development, Greater Halifax Partnership, HRDA, HRDC, Nova Scotia Business Inc., ACOA, Fisheries Loan Board would get together and focus on building a climate for Nova Scotia, more people would move into the rural areas. When you have people, small business will look after itself because all of a sudden if
10,000 people moved into Guysborough - I won't say the Eastern Shore, I'm a little pro-Eastern Shore, I mean Eastern Shore as a riding - you know what? You wouldn't have to lend money for a convenience store, you wouldn't have to lend money for a flower shop, you wouldn't have to lend money for a garage, because the population would be there to support the small-business people.
Small-business people do pay taxes, they do struggle in Nova Scotia, they have a spirit in Nova Scotia where some fail - and that's sad - and some survive. I don't know, when we talk small business, how many small businesses are not struggling in Nova Scotia and it's because there's not a climate set there to support small business. Small businesses' secret, Mr. Chairman, is population. If we had the population, the small business would look after itself.
These are just a few comments that I have today and all these organizations have to focus around setting up the climate for economic growth. So you, sir, should be looking at all the things you do - and we appreciate that and I'm not taking away from what you do. I'm not taking away from what Blue Water Business Development Corporation does on the Eastern Shore, they do lend people money. But if the population is not there the business has very little chance to survive. I know that if the road was built to the Sheet Harbour Port and we had proper recreation facilities, and we had the proper cables and such for technology, and we had air and rail, that small business would survive on the Eastern Shore and maybe a foreign investor would come down and say, yes, we like that port, yes, we like that opportunity and we would be able to settle here because it would be cheaper to support our business than it would be in the suburban area or in the city core.
There have been struggles between some of these groups and I'm not speaking negatively of any, but here's my question, do you work together with the other groups? Do you meet? Do you talk about setting a climate for the rural area? Mr. Chairman, not to take the whole meeting up but that is my question, do you work together with these other funding - or development agencies, I don't want to think that it's just money they hand out, the RDAs have different functions. There are a lot of organizations that I've just listed so where are you with that? Do you meet with them? Do you talk with them? Have you ever heard anybody ever say what I've just said and if so, why are we not making recommendations to government, or are we, to help small businesses in Nova Scotia? Thank you.
MR. CHAIRMAN: Mr. Lund. (Interruptions)
MR. DOOKS: I know, that's a lot.
MR. CHAIRMAN: That question only took 9.5 minutes. (Laughter)
MR. DOOKS: Mr. Chairman, I apologize for that but I think what I said today I had to say and that's the purpose for me to be here.
MR. CHAIRMAN: I was a bit lighthearted on that.
MR. LUND: I take all your points because they're great points. The business climate is an extremely important issue, whether it's a small community looking to retain its people or looking to attract business, infrastructure is absolutely critical. People don't want to locate in an area unless there is a good school, nice roads and the things that go with that, you are absolutely right, I can't argue that. The challenge is, how do you fix that and I don't know if anybody has ever actually come up with the right formula to fix that. There are a lot of groups out there that do some type of economic development work and yes, we do talk to them all the time, constantly. But infrastructure and even immigration, I mean those are all big issues that involve provincial and federal participation.
We do take the research that we get, the findings, we do make recommendations to government. We do meet on a regular basis. We try to promote each area and we try to promote the strengths of each area. We try to work with communities. Some communities are better than others. Some communities have their act together. They do a really good job of promoting their area, of encouraging people to stay. Others don't do as good a job and it's probably as much a function of the individual as the organizations, but it's a critical issue.
Martin, do you have any data on that? You hear more than I do in terms of what the critical issues are.
MR. WALKER: Everything you've said, I've heard, really, from one end of the province to the other. There is no mistake about that. It is a partnership fabric out there. We learned from a recent study that there are 198 organizations supporting entrepreneurial development in Nova Scotia. That's a lot of organizations.
Our business advisory team, our field staff, they work in a partnership framework every day. In fact, it's not a pleasant surprise, but it's pleasing to note that issues are raised and discussed in a collective fashion every day. Not always does a solution arise, but there is that willingness for everyone to come together to focus on these things.
To your point, sir, we have heard in Guysborough County, for instance, that we can't get access to the Internet on a winter's day until the telephone wires thaw out. I've never heard that in my life, but if you're part of a supplier network or something like that, you have to have that capacity. So those sorts of things are real eye-openers. But it is a partnership fabric. We work well within it. NSBI has been part of the community development action group that has been just recently going around the province to aggregate this information from the ground up. We do the same thing, really, our 473 business meetings are our effort at aggregating information from the ground up to see how we can effectively do something to move the yardsticks in there. So, it is a challenge.
To hear that if we lose two or three more families from our community and a school is going to close and then that means that the ripples from that - it's wrenching, but I think it is progress by increment and I feel that we are working in a partnership framework. Sometimes it may seem awkward and convoluted, but at the community level, it is people committed to doing the right thing and moving it forward. But it is a challenge. It is tough.
MR. CHAIRMAN: Actually, the honourable member has had 15 minutes.
MR. DOOKS: Just one closing statement, if it's your wish.
MR. CHAIRMAN: If it's not going to be 9.5 minutes. (Laughter)
MR. DOOKS: Thank you, Mr. Chairman. In dealing with hundreds of people in my constituency office a year, I can tell you that I sort of get a consensus of what's taking place on the Eastern Shore. People who are meeting with me, who have social concerns, are people who are unemployed. I have less visits from those people who are employed and providing for their families than the people who are not. So, healthy families are working families. I just wanted to make that closing statement.
MR. CHAIRMAN: Just as a point of interest, because it's a general theme that's been asked by individual members, I heard our witnesses today indicate that they've heard from so and so in such a community about depopulation, do you have any statistical analyses or details on the population trends in rural Nova Scotia? Do you have that information or are you just basing it on what you're hearing from people? Could you provide that to the committee?
MR. WALKER: Yes, we do have that information, and we would be happy to provide it. I don't have it with me here today, but we would be happy to provide it. What we did was look at trends over a 10-year period, and just aggregated by age group.
MR. CHAIRMAN: Mr. Parent.
MR. MARK PARENT: Mr. Chairman, thank you for the opportunity. Just as an aside to that, the Voluntary Planning committee has that information as well, on depopulation and population shifts. We could get information from them. I want to thank you for being here. I guess I'm in the fortunate position of being aware of some very good success stories with NSBI, in particular I think of Apple Valley Foods in the Kentville Industrial Park, the area I represent. I had a chance to tour through that facility and to . . .
MR. LUND: It's quite impressive.
MR. PARENT: Yes, it's very impressive - to hear about the growth and to know that they are the ones providing the apple bundt cake in Wal-Mart in the United States. To me,
it warms my heart when we can go into the States and we can provide business out of Kentville businesses. I think that's an exciting red-letter day. I'm aware of much of what NSBI does and am grateful for what you did in that particular case and other cases in my riding.
I do want to ask a question, because I've had these discussions with my own MP in the past, about over-dependence upon export to the United States. Scott Brison and I have discussed this and his response to me, well, it's easier to get into the States, therefore, we should concentrate our attentions there. Certainly there's an argument to be made in that regard. I worry about over-dependence on any one market, though. I was just wondering what efforts NSBI is doing in terms of exports to countries outside the United States, to perhaps Spain or down to Latin America - I have a great interest in countries down there - and to the Carribean.
MR. LUND: No, it's a good point. We are dependent on the U.S., 82 per cent of our exports go to the U.S. We still think it's our primary market, particularly New England we think is our primary market. We took a look at where we export into different countries outside of the U.S., and it's not really that big. But there are a number of European companies with operations here, Michelin, Stora and others, so there are some opportunities. One of the challenges that we have is just resources. We really don't have the resources to have a France team or a Latin American team that other jurisdictions would have.
Some of the initiatives would be built around particular trade missions, for example. In the next year, one of the things that we wanted to do, in fact, was take a closer look outside the U.S., particularly Europe, and try to leverage off of some of the companies. For example, there's an aerospace mission going to France in January. What we hope to do is start to leverage a bit more with our companies here in some of the European places. But again - I take your point - it is a matter of resources. We still think most of our efforts should be in the U.S., but I do agree with you that we should at least be aware of what's out there and start to take a look to see what we can do.
MR. PARENT: Talking about resources, that was a question I was going to ask. I understand that in comparison with other provinces the staffing is fairly light on the ground here and that we're competing with other provinces that have far larger departments that do the same sort of thing you're doing. Do you have any sort of comparison figures?
[10:00 a.m.]
MR. LUND: Yes, we have them all.
MR. PARENT: Would it be possible for those to be available to the committee?
MR. LUND: Yes, sure. There are something like 2,000 economic development agencies in North America. It's an extremely competitive business out there. We look at analysis in terms of other jurisdictions. We have 65-ish people in Nova Scotia Business Inc.; Business New Brunswick has 187 people. What we also found, Mr. Parent, is that it's really hard because there are so many different variations. Within Nova Scotia, for example, we have trade people in different groups, whether it's agriculture or different departments of the government. Apples and apples are really hard to get. Business New Brunswick has 187 people, and a budget three times what we have. It's really hard to get an accurate comparison because we don't know, in terms of all the groups that go in there.
We don't have the resources that other groups have, other jurisdictions have, not that I'm advocating that we need to ramp up considerably, but we just have to be conscious of the fact that as an organization when we turn a profit, we turn an investment to the province. The more we're able to generate business activity, the more money we can channel back into the government for different programs.
MR. PARENT: So you're following the traditional Nova Scotia pattern of doing more with less.
MR. LUND: We do more with less. In spite of the fact that we're a small group, our numbers - and we've done the comparison in terms of our results - we can hold our own with any organization.
MR. PARENT: You talked about agriculture - I know my time is running out, so I will be very quick - I was looking at the clients per region, and as you say they do sort of match the population, although a little light, perhaps, in the Valley, I would say, with the population. Is that because of agriculture being the predominant industry there? I'm glad to hear you have an agricultural group and certainly agriculture is a global business now that we have to compete in. Could you give us some comments on that?
MR. LUND: The Valley, in my general understanding, is doing reasonably well economically. We play a role.
MR. PARENT: That's because they have good MLAs there.
MR. LUND: They have great MLAs there, yes, that's what I hear.
MR. DOOKS: Good highways.
MR. LUND: But they're doing well in that area. We do have a number of clients there. Again, there are specific groups within the government that do work with a number of clients. So if you take them all together, the spread would probably be the same.
MR. PARENT: Very last question. Payroll rebate taxes, that's been a method which has been used to try to get away from giving grants and loans to businesses and then all of a sudden they disappear. The payroll grant method is a method to try to keep the money and to make sure that the jobs are created. Can you just give us your analysis on whether it's a good method, whether improvements should be made? That will be my last question.
MR. LUND: It's a trade-off, and it's something that we look at. The whole incentive and attraction business is an incredibly competitive market. In the paper this week they talked about this silicon chip plant going to Germany, and the government in Germany offering one billion euros to help the company; Daimler Chrysler in Ontario, talking about we will set up if you give us $600 million; Michelin setting up in South Carolina for $350 million. These are all huge numbers. We don't play in those games. You have to be in the game to compete.
The payroll rebate program was designed several years ago. It's been very effective for Nova Scotia. It's after the fact. A company generates employment, pays wages, there's a rebate on part of those wages after the fact. That program might not be as competitive as others that offer incentives of money up front, but it's worked and it's been a very effective tool for the province and returns a positive return to the province. Payroll rebates in place now, I put a number of 32 per cent up there, that will be growing each year. Any deal that we do, where we offer some type of payroll rebate, has to have a positive return for the province. We haven't done any deals that don't. So it has been a great tool but we should always look and see what the competitive landscape is out there.
MR. PARENT: Thank you very much. Thank you, Mr. Chairman.
MR. CHAIRMAN: I now recognize Mr. Gaudet.
MR. WAYNE GAUDET: Mr. Chairman, I want to thank our guests for coming in this morning as well. I am looking for a little bit of information. I am looking at the regional distribution of clients for the Annapolis Valley, NSBI clients were broken down to 14 per cent. I am trying to find out how many clients that represents and could you provide me with a breakdown of small, medium or large clients, is that possible?
MR. LUND: It is, but whether or not I can rattle that off right now, I might need some help on that. Our client breakdown, in our portfolio, consists of roughly 200 clients. From our lending side of it we have - Chris, why don't you answer this question.
MR. CHRIS SMITH: The analysis that we saw there would be all NSBI clients, whether they're as much as we can quantify them or whether we provided direct financial assistance or not. There could be clients we assisted from an export development perspective or provided a federal rebate to or we've actually made an investment in it from the Nova Scotia Business Fund perspective. The stats where we have the most accuracy right here today would be the ones associated with the Nova Scotia Business Fund, ones where we have
money at risk, in our $180 million portfolio. Of those clients, which are approximately 200, we have in the Annapolis Valley 33 accounts, which would represent roughly 15 per cent of the total portfolio.
MR. GAUDET: The reason I was asking, I'm sure all MLAs pretty well on a weekly basis receive calls from constituents, especially from small businesses, looking for capital to expand their businesses. I guess what I'm trying to find out, many times it's where do I go or how do I apply or what's the process involved. So, would it be possible to provide us with a little bit of background that we could share with Nova Scotians when we do get calls?
MR. RYAN: Well, there are 65 of us, in total, and any business could make an approach to any of the 65 of us. In the regions we have, Martin mentioned our business advisory team, so we have a gentleman on the ground in Yarmouth. He's the primary point of contact, I'm sure you know Irvin Surette. I have a woman who's based in Windsor, who's currently away from the office on leave, her name is Kathryn Downey, and she would be another point of contact. A person in Bridgewater, a woman in Port Hawkesbury and a woman in Sydney, all of whom could be primary points of contact. But any one of your clients can certainly call myself or any of the people in my unit and we would be happy to make those numbers and contact information available to you.
MR. LUND: Mr. Gaudet, you're also looking at sort of what type of client we would look at and what we might do versus some other organization.
MR. GAUDET: I think many times, we know who these individuals are, so there is no sense in making a reference if they don't qualify, there's no sense in putting them through the process.
MR. RYAN: It's important for us to determine quickly what the client's need is and whether they're going to be eligible, even under our regulations. We do have a number of regulatory constraints that apply to us, so there are certain types of businesses that we're not able to finance. We may be able to help in a variety of other ways, but there are certain kinds of businesses that we're not able to finance by regulation. We need to recognize those situations quickly and refer them to an appropriate service provider.
MR. LUND: Such as? Maybe you could . . .
MR. RYAN: It could be, for instance, the Business Development Corporation, such as Mr. Dooks mentioned, it could be the credit unions, in some circumstances the programs that may be available through the chartered banks. I understand that there is a general perception about the banks but there are still situations where they can make deals work. The Business Development Bank has a very effective small business lending process in place. So, especially the people who are located in the regions have a very good understanding of a lot of these service providers.
I think the challenge for us is to understand what our customers need and make sure they're getting the best service from wherever that might be. If it is a financing proposition and it's something that we're not able to do, by regulation, or because they have a need for a product that we don't offer, we need to understand that and I encourage my own team members, strongly, to make sure that they're doing everything they can to get their customer in front of the right service provider.
MR. LUND: But also there are things that we have regulations in place that we can't finance. So when we meet with a company, we try to quickly determine whether we can even do something on the lending side and if we can't, then we would try to refer them to the right company. At the end of the day, we still try, with any organization, to find the right financing that would fit the company. Usually, in most cases, it's based around equipment purchases and things like that, where we take security and we put our repayment plan in place. Again, we look at most industries, there are some exceptions that we just can't provide financing but we might be able to do something else.
Pat, if we could outline some of those industries . . .
MR. RYAN: I neglected to bring the regulations with me this morning, which I intended to do, so I apologize. So, some examples are the retail and service sectors, those generally are financings that we're not able to do. Wholesale distribution, finance companies, and there are several others that escape me at the moment. Because we have a service-based economy in many ways, many of those small businesses that you all hear about regularly aren't eligible for financing, at least, under our regulations.
MR. GAUDET: I see, basically, you have identified five sectors that you are focusing on. One of the sectors that I have a question on has to do with shipbuilding. I understand that especially the small and medium shipyards in Nova Scotia are having difficulty in securing security for bidding on tendering, especially on federal contracts. I guess my question to you would be, what is being offered to stimulate the shipbuilding industry in Nova Scotia?
MR. RYAN: I understand the issue that you're speaking about. My end of the operation, I'm responsible for our financing operations and we tend to have a tactical operation so, we deal on a client by client basis. We have clients who are engaged in that business and I'm well aware of the challenges that they're faced with. We do lend for working capital purposes; that is, we would provide financing that's intended for the general operations of the business and we can provide that in the form of a term loan, based on the condition of the client. We could also do that in the form of guarantees, or what have you, to help them with contract fulfilment. So we're permitted to place a certain portion of the capital that we put to work each year into those kinds of situations. So in that circumstance, I'm sure we can find an instrument that would satisfy the customer's need.
Now, if we're getting into performance bonds and those kinds of things, that's a place where we really don't have the expertise to participate but if there are ways to help mitigate the risks that a bonding company might have to solve that solution and we're dealing with a good customer, we will work to find ways to do that and have, in fact, done that in the past period of time. (Interruption) I can't get into it.
MR. LUND: But we have had discussions with specific clients about providing clients - there isn't an overall strategy that I'm aware of specifically in the shipbuilding industry. We have talked to some specific clients who are going through the same issues that we're trying to see if we can structure the right financing for.
MR. RYAN: If I might add on that particular issue, we do have a real situation that we're engaged with right now and I hope that's going to be finalized in the near future.
MR. GAUDET: My final question, Mr. Chairman. Nova Scotia Business Inc. is arm's-length, independent from government, yet they have a budget of over $6.5 million of the taxpayers' money. Recently I recall that Nova Scotia Business Inc. has come forward with a policy for any loan over $1 million, that these clients would be identified. The feedback that I have received, what about when there's $500,000, or whatever amount less than $1 million invested with a company in Nova Scotia, shouldn't taxpayers be made aware of those dealings. I guess my question is, why a restriction on a $1 million deal?
[10:15 a.m.]
MR. LUND: If I can comment on that, first of all, it's not our policy and secondly, that came out of I think it was back several months ago when there was a accusation that we didn't disclose some of the deals we had done when, in fact, all the deals in question were made public at some point prior to that. We think we're as transparent, if not more transparent than any organization of our type in Canada. We have put together an annual report that lists pretty well everything we've done and we've gone on and pulled off the annual reports of other similar jurisdictions, and there's not as much detail as what we provide.
We do make public deals that we do. The only question, again, comes around some of the timing of the transactions and sometimes if we approve a deal and it's not finalized with a client, then in some cases we may have to wait until the deal is finalized. We make deals public, if it goes to Cabinet there's an OIC that's public, press releases, on our Web site, our newsletters. I take your question but I also think that we do a pretty good job and we will make things public. There's a list in our annual report and all the deals that we talked about in question, were made public at some point. I take your question and we have no problem in making things that we do public.
MR. GAUDET: Mr. Chairman, I'm just looking for clarification. Is it NSBI policy that any deals over $1 million needs Cabinet approval?
[10:17 a.m. Mr. Gary Hines took the Chair.]
MR. LUND: No. Any financing transaction over $3 million needs Cabinet approval. Any payroll rebate deal that we do needs Cabinet approval. Things like working capital or equity investments need sign off from the minister.
MR. CHAIRMAN: Mr. Epstein.
MR. EPSTEIN: First to my colleague, the honourable member for the Eastern Shore, I hope he's made his speech to his full caucus. It's a very good speech and deserves being made regularly to your full caucus, so make it again.
Mr. Lund, in our background materials we have something called Nova Scotia Fast Facts. It's intended as a statistical profile of the province and it's on your Web site. One of the things it does is it lists, for example, the largest employers in the manufacturing sector, IMP and Michelin, but No. 5 is Sydney Steel on your list. Is Sydney Steel the fifth largest manufacturer in Nova Scotia?
MR. LUND: I don't know. Can you comment on that? I have no idea where that came from.
MR. EPSTEIN: Well, let me suggest it is out of date.
MR. LUND: Point taken.
MR. EPSTEIN: It's one thing to be somewhat at arm's-length from the government, another to have missed the fact that it was their basic policy to close Sydney Steel. Moving along from that, can we just look at what you are calling the Nova Scotia Business Fund. The $180 million that you are describing, this represents cumulatively the amount of money that's out in loans, is that right? Including from your predecessor organization.
MR. LUND: Yes.
MR. EPSTEIN: You're calling it the business fund and these are term loans, some you would call venture capital. Is some of that equity position?
MR. LUND: Yes, that's correct.
MR. EPSTEIN: Is there a breakdown of this, for example, as to what's equity and what's loans? Is that in your annual report, I have to say I don't remember seeing it there?
MR. LUND: Yes. I can tell you the companies that we have invested in as well. There has been three or four companies out of that portfolio.
MR. EPSTEIN: Meaning NSBI has actually taken an equity position and that's not just a hangover from before?
MR. LUND: That's correct, but it's in the form of convertible debenture which is a debt instrument by converting into equity.
MR. SMITH: Mr. Epstein, notes three and four of the financial statements which are included in the annual report that I think all of you have been provided with, which is on Page 23 of the annual report, break down the difference between loans and our equity investments.
MR. EPSTEIN: Okay, good. I will have a look at that, thank you. The person who is now your risk grading advisor, what was the formal term you used for that?
MR. LUND: One is a compliance risk management person but his function is to basically ensure that were following the correct procedures in everything we do, and analyzing the risk elements of what we do. Within Pat's group, we look at each transaction and we rate that based on a number of factors, according to the risk.
MR. EPSTEIN: I understand what the function is, when did this person come on?
MR. RYAN: We do have an individual, who we engaged in May, who handles our high risk portfolio but she isn't the person who establishes risk on each transaction, that's part of our process.
MR. EPSTEIN: So that's a team effort?
MR. RYAN: Yes, as a transaction proceeds through our process, we're considering a series of factors in arriving at a risk rating for a particular transaction, including financial position, markets, and financial team, and so forth. We have a range of acceptable risk but there are variations there.
MR. EPSTEIN: I wasn't suggesting that you weren't doing it before it's just that Mr. Lund did flag that there was a new staff person on board.
MR. RYAN: That's correct. So we want to be more proactive, especially with the high-risk elements of our portfolio.
MR. EPSTEIN: Can I ask about the potential for self-sufficiency of the organization. You pointed out that there was some interest in this, both among the general public and the
business community, for this to become a fact of life. Right now, is the situation that you're funding on an ongoing basis about $6.5 million a year from the government, or do you continue to get other sums from the provincial government?
MR. SMITH: Our operating budget this year, which was . . .
MR. EPSTEIN: Was it about $36 million?
MR. SMITH: No, it was $29.2 million. It comes in three forms, strictly for operations to run our day-to-day routine, the investment portfolio of all the in-market activity that we do, as well as just to run the corporate structure. That amount of money is $6.8 million in 2003-04. We are provided in the budget this year to fund our Strategic Investment Funds and the Payroll Rebate Program that we inherited, plus the new deals that we put in place, that was approximately $20 million. We are also provided with an estimate of a loan valuation allowance of $2 million, so the three totals are $29 million. Only $6.8 million of that goes for our operations.
MR. EPSTEIN: Okay, so about $30 million does come from provincial funds.
MR. SMITH: That's correct.
MR. EPSTEIN: But was it not also the case this year that NSBI retained some of the earnings from the loan portfolio?
MR. SMITH: That's correct, we generated a net revenue worth about $10 million which was reinvested in the portfolio.
MR. EPSTEIN: And is this in a position to move you along to the point of increasing self-sufficiency, that is, are you expecting that that $29 million or $30 million or so is likely to decrease in the coming years?
MR. SMITH: We certainly are open to that debate as we have identified through out internal discussions. Through board discussions from time to time, we discuss such ideas and we've even had some internal discussions with other departments of government in terms of that type of idea. The point being is it is really up to the shareholder to decide what the shareholder is, the government, the taxpayers of Nova Scotia, so if that's what is deemed appropriate for us, we're certainly able to engage in that type of discussion, but we're not in a position to comment as to whether that would be policy or . . .
MR. EPSTEIN: So far you're not under any instructions to become self-sufficient?
MR. SMITH: No, but we certainly from time to time do modelling of such a scenario, just in case that type of thing is proposed to us.
MR. EPSTEIN: If that were to occur it would have to come from retained earnings from loans, is that right?
MR. SMITH: That's right and as part of the modelling exercise, there would be certain things that would have to be worked out. Right now our entire operation is capitalized through debt to the province. So if we were to become self-sufficient, we would probably have to have that whole deposition converted to equity, which obviously has other implications from the shareholder's perspective. So it's one thing to talk about these things in theory but then to put them into practice is quite a different matter.
MR. EPSTEIN: Sure. In the slide that you gave us in which you showed your target for job creation or job retention, you're showing about 4,000 jobs for this year, either retained or new. I'm wondering if there is a breakdown by growth sectors. You know, the growth sectors that were identified in the Opportunities for Prosperity, is that in the material somewhere? I have to say I missed it, or do you have such a thing? I'm concerned about whether we're getting enough jobs, for example, in life sciences or advanced manufacturing.
MR. LUND: The portfolio is broken down into different areas, one is on the lending side of it and our portfolio for lending clients, about 50 per cent of our lending portfolio is with advanced manufacturing. On the jobs, I don't know if we have that but we could certainly provide it, but I can comment on that, if you would like.
MR. EPSTEIN: First, I would ask if you to take a whack at providing the committee with something in writing as a follow-up to that question.
MR. LUND: Yes. Absolutely.
MR. EPSTEIN: But go ahead with your comment on it.
MR. LUND: Part of the job business is really what do you target and what do you react to. If you take a look at what we react to, about a year and a half ago, if I took a look at what we were working on at the time, about 90 per cent of the deals that we were working on, that were coming to us, were reactive, and they were mostly call centre jobs. If I take a look at where we are now, it's probably flipped. Probably 89 per cent of what we're working on are things that we're actually targeting and going after.
If I take a look at the six biggest opportunities that we have right now, that we hope to close, there is a potential manufacturing opportunity in Sydney, two manufacturing opportunities in Port Hawkesbury, call centres in Liverpool and Digby, and an information technology company in Halifax. Those are the six biggest ones. We had specific target initiatives for each sector and IT is an area that we will focus on, one of the areas, because we think we have a great opportunity in Nova Scotia, and advanced manufacturing is another one. The life sciences side of it, we are at a real early stage in the province but we have some
specific opportunities that have come to us recently in life sciences-related opportunities for areas around the province.
MR. EPSTEIN: One of the things I am really concerned about is the potential for spinoff from the concentration of universities that we have here. I have to say that I don't see call centres as exactly representing that. We won't go into that issue again, but let me move to another point.
MR. LUND: I agree with what I think you're getting at in terms of how you maximize the talent from the universities. That's a big issue and we have some specific challenges in the province around that and that is, how do you take all this research that we're doing in Nova Scotia and how do you make it as a real economic benefit for the province? There are some examples of areas that have done it and have done it well, Boston comes to mind, but even places in Canada like Kitchener-Waterloo, Victoria, UBC, Simon Fraser, where they've taken a look at what role the universities play in economic development through generating taking research and turning it into not just research but development. So I agree with I think what your thoughts are on that.
MR. EPSTEIN: Very much so.
MR. CHAIRMAN: Mr. Epstein, I wonder if you could come back in the second round. I have Mr. MacKinnon who wants to have a chance and I've got three names on for the second round, I will add you to that.
MR. EPSTEIN: Sure, put me down for the second round too, thank you.
MR. RUSSELL MACKINNON: Thank you, Mr. Chairman. I wanted to focus on the numbers. Last year when I received the breakdown on the dollars that were loaned from Nova Scotia Business Inc. from the minister in the House, it showed that only 0.5 per cent of all dollars loaned by Nova Scotia Business Inc. went to businesses on Cape Breton Island. In fact, it was only one business, I believe it was Laurie's motel in the Margaree area, $45,000 out of $22 million. Now, you're indicating this year upwards of 20 per cent of your
dollar value is focused on Cape Breton. Could you give us the details on that breakdown for this year?
[10:30 a.m.]
MR. LUND: Details in terms of?
MR. MACKINNON: Well, you say 20 per cent of your total dollars loaned went to businesses in Cape Breton.
MR. LUND: Okay, that's a cumulative number. That's a cumulative number of our portfolio.
MR. MACKINNON: So, it's not specifically what you loaned, it is the total dollar value of what your portfolio is worth, it's 20 per cent of $180 million?
MR. LUND: That's correct.
MR. MACKINNON: So, in other words, what I want to know is what you folks loaned. Are you saying that $45,000 is not representative of the 20 per cent, it's the total value of Laurie's motel's business?
MR. LUND: No, a total portfolio of $180 million . . .
MR. MACKINNON: Let's be simple. How much did you loan this year to Cape Breton businesses?
MR. LUND: That one deal, that's correct.
MR. MACKINNON: That was last year. What did you loan this year?
MR. RYAN: I think in the last fiscal period there was one additional transaction, Mr. MacKinnon.
MR. MACKINNON: How much?
MR. RYAN: I think it was for $67,000.
MR. MACKINNON: Out of a total of how many millions loaned?
MR. RYAN: I think we placed $14 million last year.
MR. MACKINNON: So that's still less than 1 per cent.
MR. RYAN: It was a small number, that's correct.
MR. MACKINNON: You indicate that your focus is primarily on rural Nova Scotia because that's where the bulk of manufacturing is, it's not in urban. There's twice as much manufacturing in rural Nova Scotia as there is in - well, actually, three times as much in rural Nova Scotia as there is in urban, correct? Yet, you haven't loaned more than 1 per cent of your total dollar value in two complete fiscal years to businesses in Cape Breton. Why?
MR. RYAN: That's a very good question, Mr. MacKinnon. We're project financiers and sometimes it takes awhile for projects to come together. I can tell you that in the last several days, we've issued a term sheet to a new client of ours in Cape Breton for about $0.5 million. I can't disclose that client to you until the deal is completed. We have other prospects in our pipeline that in the near term could reach several million dollars and in the near term I mean in this fiscal period. So, we're well aware of the fact that our new activity in Cape Breton has not been what we would like it to be.
MR. MACKINNON: In other words, you haven't focused on Cape Breton at all?
MR. LUND: No, I don't think that's the case. Again, it's opportunity driven.
MR. MACKINNON: We have the local mayor and the entire council saying that we're in a crisis situation down there, I'm not so sure that I agree in totality about the severity but I do believe there are some serious economic issues and social issues. I'm just wondering why Nova Scotia Business Inc. hasn't stepped up to the plate and provided a leadership role there.
MR. LUND: I think if you talked to the business community down there, not the mayor, you might get a different answer. We met with . . .
MR. MACKINNON: Well, meeting with them but you haven't put any more than 1 per cent of your total dollars on the table.
MR. LUND: Yes, let me finish my thoughts.
MR. MACKINNON: Money talks.
MR. LUND: Yes, money talks and, again, it's opportunity driven. It's a matter of turning over enough rocks and doing deals. We met with 20 people from the business community two weeks ago, including members from Enterprise Cape Breton and other organizations. We had a great meeting and they don't share the same views that the mayor shares. That's another issue, but we realize we haven't done as much as we would like and we have shifted our emphasis to try to focus more down there, to work with some of the organizations down there.
The province, itself, still has an interest in creating a Cape Breton Growth Fund. We
opened an office in Sydney recently. We have a full-time person there. We added a new board member in the Strait area. We have several significant projects that we're working on now that we are pretty confident will come to fruition this year. By the end of this fiscal year, we believe, looking back, we will be able to say we had a great year in Cape Breton.
MR. MACKINNON: I know one company, USG Wallboard in Point Tupper, has been in the sling for quite some time.
MR. LUND: That's correct.
MR. MACKINNON: Is that one of the ones under consideration?
MR. LUND: That's correct.
MR. MACKINNON: In the report that was issued just recently called Painting the Landscape of Rural Nova Scotia, subtitled Rural Communities Impacting Policy Project, October 2003, it states that the gap in income between rural and urban Nova Scotia is expanding. I will quote the one line, "In the long run the growing gap in incomes between urban and rural Nova Scotians will have a significant effect on the sustainability of rural communities."
What in your economic development strategies do you have to deal with this particular concern, particularly since it was raised by the honourable member for Eastern Shore? What specific strategy do you have?
MR. WALKER: What we're doing is refining and defining our focus at the company level to look at productivity and competitiveness factors, certainly tracing back to some work that had been done this past year by Voluntary Planning, looking at some very obvious and striking differences in prosperity around the province. This is something that we're working to, and that, I think, has spurred us to bring together our export group and our business advisory team to focus on opportunity at the company level. It will be one company at a time but, really, the focus is on prosperity.
I can't say that NSBI, in a singular way, will be that one entity that will make that kind of fireworks go off and say that it has happened. It is going to be a partnership piece. We are working collectively to address this. We know it is a challenge. What we do in our business development efforts, quite frankly, in rural Nova Scotia, is focus on opportunities that will immediately raise average wages in an area. That is one thing. It is to look for growth opportunities that will move a company from where they are today to a place where they can, on their own, begin to grow and compete in a broader marketplace, and over the longer term you will see those kinds of metrics move in a positive direction, but it is a longer-term challenge.
MR. MACKINNON: One more question, Mr. Chairman. It was interesting, noting, Mr. Lund, when you indicated about the Cape Breton Economic Growth Fund, the payroll for Nova Scotia Business Inc. is what? About $6.8 million?
MR. LUND: Yes.
MR. MACKINNON: The total contribution to the Economic Development Fund is $2 million a year. So, when you put things in perspective, I think you appreciate, given the fact that we had upwards of 12 staff in the development office at one time, previous to this administration, I think things have really been cut down quite a bit.
My final question is with regard to immigration. We've had representatives from the Immigration Division of Nova Scotia Government here before another committee of the Legislature recently, putting a lot of emphasis on immigration. How does your agency interface with the Immigration Division or wing of the provincial government? And, can you identify specific target areas where you have been successful in attracting businesses to Nova Scotia, vis-a-vis the immigration policy? I know that's a loaded question.
[10:40 a.m. Mr. Russell MacKinnon resumed the Chair.]
MR. LUND: And I don't know if I can tell you, I don't know if I have an answer to that.
MR. MACKINNON: What's your relationship with them . . .
MR. LUND: We would work with the people within the Immigration Department, which is located at the Office of Economic Development. Immigration is an issue in the province. Our mandate is not to play a specific role on the immigration side of it, other than to express any issues or concerns that we would have, we are more focused on the business side to identify specific opportunities to bring people to the province. The overall responsibility for immigration lies with the Office of Economic Development.
MR. CHAIRMAN: I will recognize the second round and I will ask members, given the fact that we only have about 20 minutes left and we would like a couple of moments for our witnesses to wrap up, if you could shorten it to - because we have five on the list - perhaps one or two questions.
Mr. Theriault.
MR. THERIAULT: I have no questions, Mr. Chairman, but I do have a comment or two about what has been said around this table this morning. It was said by one of the members of the present government that the Annapolis Valley is doing well. Maybe in the end where he lives is doing well but in the end of Digby-Annapolis where I'm from, it's not doing well. The population in the last five years has decreased by 10 per cent in that area, and that brings me to another member's comment this morning, which I commend him very highly for. The member for Eastern Shore stated we do have a depopulation problem in rural areas.
I would like to have it recorded here this morning, which is already recorded in Hansard from October, that I presented a resolution to the House to the present government that the present government try to help turnaround the depopulation of the rural areas of Nova Scotia. It was voted down by the present government. Those are all my comments.
MR. CHAIRMAN: Mr. Parker.
MR. PARKER: My question sort of revolves around small business. You started out your comments, you had a lot of emphasis on the importance of helping small business. Probably your public image is maybe opposite to that, a lot of people think you're there to help big business and there's some evidence that maybe that's true. You mentioned that you're working with a number of clients right now in manufacturing and call centres and they are much larger businesses than the one, two, five, 10 employee type of businesses. I guess that's something you are trying to overturn or change.
I just wondered if you have any specific criteria in place when you do lend money to an employer so that maybe other small businesses in the community are not hurt? Just as an example, here in this room about a month ago we had a small lumber producer, Northern Lumber from Tatamagouche area, that actually went out of business because there was government money lent to a large hardwood manufacturer and that allowed that business to do very well, but a number of other small businesses were impacted. That particular business went out of business completely and other related businesses are having real trouble accessing green lumber in that particular case. It's all channeled now into one big business and it's not available to them. Do you have some specific criteria that ensures that other small businesses are not negatively impacted by helping them?
MR. LUND: Certainly, our intent is not to provide any financing to a company that would do damage to another company, I'm not even sure if that was one of our transactions.
MR. RYAN: That is one of the things that we take into consideration so when we evaluate a lending proposal, presuming it's a situation that we're permitted to lend into, by virtue of our regulations, we will complete the same analysis that any other lender would in terms of security and cash and those sorts of things but we need to do two other things that would be specific in our process.
We need to be able to demonstrate what's in it for this place, where's the net economic benefit to this province? We also need to be able to demonstrate that we're not damaging another business. I suppose it's our version of the Hippocratic oath, first do no harm. There's a very practical reason for that, if we're supposed to generate a net return and I finance your business and it hurts somebody else's, that's a zero sum gain, that doesn't compute. We try not to do that.
[10:45 a.m.]
MR. PARKER: But it has happened in the past. I know there have been impacts on other businesses, by helping one you've hurt others. I'm not saying specifically your entity but other lending institutions, certainly that has happened in the past.
MR. RYAN: And that's the reason why it's embedded in our guidelines.
MR. LUND: In terms of your first point on small business, we understand even from the comments today that's obviously an important area of focus that we should have. We believe we do have a focus now, but I do believe that's not that well known. Part of our challenge is to make sure that people know that we do work with small business and we have to make sure that we get the word out, and not just on the financing side of it - taking five companies to Boston last week from Cape Breton, those kinds of things, just to make sure that people are aware that we can do those things, working with companies.
MR. CHAIRMAN: Mr. Hines.
MR. HINES: Mr. Chairman, I just want to make a comment and I have a question surrounding that. In your charts you refer to the Halifax piece of the pie at 29 per cent. When you refer to Halifax, I know it was always a contentious issue at HRM that Halifax, the greater geographical area is known as HRM. We encouraged a Halifax Regional partnerships and others who make presentations to governments and to others across the province to emphasize HRM so that it isn't perceived that you're promoting the City of Halifax or the former City of Halifax. That's just a suggestion, in your presentation, maybe HRM should be the acronym used as opposed to just Halifax in general.
You referred skill shortages. Being from a business background I recognize that skill shortage. It's right across the board. Your tradespeople now are 55, 60 years old, and nobody is coming in and taking their place and so on. In recognition of what you do, is the skill shortage one of the reasons that perhaps the rural areas are being neglected, because those skills are not there? I know in my area, if you went out and offered to put a business in the Waverley-Fall River area they may chase you out because they are a bedroom community that serves the greater Halifax area in terms of places to work. I know the rural issue is different. Is it perhaps because sometimes you don't go in that direction because of skill shortages in those areas?
MR. WALKER: I think, certainly, from the context of inward investment traction, when we're talking with companies from around the world that are looking at making investment somewhere, the availability of certain skill sets in certain quantities is a very important screening factor. The group that I work with are a small business growth unit. That's not our focus. What we're doing, just to your point, is we're hearing that story right around Nova Scotia and so we're thinking about, are there different ways that we can -
number one, looking at labour, a lot of emphasize over time has been focused on the supply side, how many people are we turning out of institutions in Nova Scotia.
I think today, increasingly, there's more of a focus on the demand side, and starting to look at things at the company level and aggregating that, and just seeing if there's a way that we can, with our partners within training institutions and whatever, do things to meet those gaps. So from the perspective of where I am, we're not steering away from it, we're beginning to better understand that there is a skills gap, and what are those remedial things that we can do, a company at a time or aggregating groups of companies, to overcome those.
MR. CHAIRMAN: Mr. Parent.
MR. PARENT: Just one quick correction before I ask my question. I'm not sure if it was me who mentioned that the economy was good in the Annapolis Valley . . .
MR. LUND: I said maybe in areas, it was my comment.
MR. PARENT: I simply made a quip that it was due to the MLAs, so just for historical accuracy.
MR. CHAIRMAN: Mr. Brison. (Laughter) Oh, that's an MP. Sorry.
MR. PARENT: We shall ignore that comment, Mr. Chairman. My question is about R and D. I've had a chance to have briefings over at InNOVAcorp, and we've been looking at perhaps doing something similar in the Wolfville area as a model for how to grow business. But one of the suggestions that was made in the presentation that I was at is that our R and D funding is off-skew in Nova Scotia because there's too much centred in universities and not enough in private companies and that this is one reason why the R and D is not resulting in as many jobs as we would like to see.
I am not sure if that's accurate in that sense. But I do twig to your remark that there is a lot of Rand D going on in universities but to make the transition into the workforce, into employment is a difficult job. So what are you doing in that regard? You did mention it, you did flag it as something that you're concerned about.
MR. LUND: It's a big issue. If you take a look at the growth of different areas of the U.S. and you take a look at the fact that the U.S. has lost 2.8 million jobs in the last three years, they're having a jobless recovery. But if you take a look at the area around the research triangle in the States in the Boston area, the life sciences area, around the universities, continues to grow and they continue to look for more people. The universities in the U.S., particularly in that area, are extremely successful, they get more government funding than any other area of the country. They spin out more companies than any other area of the country. They provide more economic benefit and growth.
So if you take a look at Nova Scotia, we've been working with people from the Boston area. We've set up a Boston advisory board, of which the lady who heads up the commercialization unit from Harvard is on our advisory group, we've had discussions with other universities. Again, this is only my personal opinion, but the key issue that we have, the key issues in Nova Scotia around the universities are that we're too focused on research and not focused enough on development.
Intellectual property is owned by the professor and if you look at some of the successful areas in the U.S., that's not the case. I think that has to change before we can become really successful here. Disclosure policies around people working on potential innovations, people don't have to disclose here, in Nova Scotia. So you can get funding for research for research sake but what we don't see is we don't see the taking of that research and expanding it out into commercialization. We don't see the number of companies coming out. We also have a problem with venture capital. We don't have enough money to fund those companies.
I think we have a lot of potential within our universities, we have some great people, we have bright people. We have the highest educated workforce in the country, what we have to do is make sure that we utilize the strengths that we have and capitalize on some economic opportunities that we have. Part of that is policy and part of that is . . .
MR. PARENT: Thank you very much.
MR. CHAIRMAN: Thank you, a very interesting point, indeed.
Mr. Gaudet.
MR. GAUDET: Mr. Chairman, one quick question. Especially with the World Acadian Congress taking place in Nova Scotia next summer, is Nova Scotia Business Inc. willing to support requests coming from the tourism sector to help especially with accommodation needs? I am looking at, specifically, bed and breakfast operations, especially down in Digby County and I suspect in many of the Acadian communities throughout Nova Scotia, I'm sure it's been talked about and many people have been asking that question.
MR. RYAN: The tourism sector is certainly one where we are very active. We would be receptive to those kinds of propositions. Certainly with every transaction we look at, there are certain criteria that we're going to consider. That doesn't mean that we would be able to do every deal that was presented to us but we're certainly very receptive to doing business in that sector.
MR. GAUDET: Thank you.
MR. CHAIRMAN: Mr. Dooks, a short snapper.
MR. DOOKS: I have one quick one. Approval of funding, does an independent lending officer approve the application or is it a board decision?
MR. LUND: Right now, transactions would go to an investment committee. First of all, when a deal comes in, an account officer would work on it and we have an internal investment committee made up of a management group that would look at it at an early stage, basically and say, yes, it's something that we would look at, go back and work on these things, or it probably doesn't fit with what we're trying to do. Then from there it goes where I sign off on it internally and then it goes to our investment committee and then depending on the amount, then it would go up to the board. If it's over $3 million then it goes to Cabinet for approval.
MR. DOOKS: Thank you.
MR. CHAIRMAN: Mr. Epstein.
MR. EPSTEIN: Mr. Lund, what is the current state of play with Britex? Is Nova Scotia going to lose this company and in responding can you, in particular, let me know about the employee bid to the extent that you can?
MR. LUND: The answer is no, I hope we don't lose the company. In terms of what we can share at this stage, I don't know what we can share.
MR. RYAN: The date for the tender closing was December 16th, which was two days ago. The receiver is packaging those bids and doing some preliminary analyses and we will be meeting with them early next week to evaluate the bids. We are hoping to come to some conclusions early in the new year. We are all very concerned about the situation there. I can tell you that during the past several weeks, while the receiver has been operating the business, they have continued to fill orders, they have continued to accept new orders. To the best of my knowledge, all of the employees have continued to work through this period. Up until now I think the situation has unfolded as well as we could hope in the circumstances but now we have to determine what the results of these bids are. Our strong desire is to see a sustainable business endure in that community, period.
MR. EPSTEIN: Mr. Chairman, can I point out something to the committee and to NSBI? Unfortunately this year the budget of the Office of Economic Development in its branch, Community Economic Development branch, was reduced by $2 million. I think what that means is that the burden of many of the points we have heard today about rural economic development, local community economic development is going to have to shift to agencies like NSBI so I hope you have noted all of the comments that have come along today.
MR. CHAIRMAN: If I could, one final on my Cape Breton issue here, if that's okay with the members of the committee, just quickly, what was the total cost of operating your office for a year in the Sydney area, including wages . . .
MR. LUND: The total cost of our operations. We just opened it a few months ago. I don't know, it's too early to tell what . . .
MR. CHAIRMAN: Do you have a budget?
MR. LUND: No, because we are in the process of finding a location. We are in a temporary space right now. I can get you a ballpark.
MR. CHAIRMAN: For the two fiscal years, $110,000 in totality that was loaned, which is about 1 per cent of the total dollars loaned, how many new jobs were created?
MR. RYAN: I don't know the answer to that question, Mr. MacKinnon, but I would guess it is probably the retention of a small number of jobs there.
MR. CHAIRMAN: So no new jobs.
MR. RYAN: That is probably a safe assumption.
MR. CHAIRMAN: Okay, thank you.
So, if you have some closing remarks, we have two minutes.
MR. LUND: Sure. First of all, I just want to again thank everybody on the committee for the opportunity to come here today and for your comments. Again, we are still in the early stages. We had our first year. We feel internally that we had a very successful year. We get great feedback from the business community around the province. We believe we can always do some more and so that is why we take the comments that were made today. In terms of Cape Breton, we haven't done as much as we want. On the lending side of it, we have helped a number of companies outside of the lending portfolio and we have worked with a number of companies in the area. We are committed. We have taken some steps recently. We have a number of significant transactions on the go that we hope, by the end of this fiscal year, that we will be in a position to look back and say we had a good year.
We take your points on small business and rural development. We don't have all the answers. Some of the answers are outside of our purview. They are federal issues, provincial issues, but the point is, there are some issues in rural Nova Scotia that have to be dealt with. We have a role to play and we will try to play an active role there.
In summary, we always welcome your comments and there are some areas that we have to work on. We believe we are on the right track and we believe that we are all in it for the same purpose so any support that we get is much appreciated. So again, thanks.
[11:00 a.m.]
MR. CHAIRMAN: Mr. Lund, on behalf of all members of the committee, I would like to thank you and your colleagues for coming today and giving some forthright straight answers. We may not have achieved all that we were looking for but certainly very helpful to members of the committee. We wish you well in the upcoming year.
MR. LUND: Okay, thank you.
MR. CHAIRMAN: A housekeeping item for upcoming meetings, just quickly with the members, we tentatively have EMO scheduled for January 13th, that's pending confirmation from Mr. Boyer from EMO. (Interruption) Yes. Also, on February 10th, it has been confirmed, Capital Transportation Authority, HRM.
So I will entertain a motion to adjourn.
MR. PARKER: I so move.
MR. CHAIRMAN: So be it.
The committee is adjourned.
[The committee adjourned at 11:01 a.m.]