HALIFAX, TUESDAY, FEBRUARY 18, 2003
STANDING COMMITTEE ON ECONOMIC DEVELOPMENT
1:00 P.M.
CHAIRMAN
Mr. Brooke Taylor
MR. CHAIRMAN: I would like to bring the Standing Committee on Economic Development to order and welcome everybody here this afternoon. We are very fortunate this afternoon in that we have a delegation from Nova Scotia Business Inc. with us as guests and witnesses. Mr. Stephen Lund is the President and CEO of Nova Scotia Business Inc. I wonder, Mr. Lund, if you would want to identify your colleagues there, or they can themselves, whichever seems to be appropriate.
MR. STEPHEN LUND: Over here we have Pat Ryan, Martin Walker, Kelliann Dean and Chris Smith, and in the corner we have Joe Gillis.
MR. CHAIRMAN: I guess what we will do, as MLAs, is identify ourselves.
[The committee members introduced themselves.]
MR. CHAIRMAN: I understand from Darlene Henry, our clerk, that Mr. Hendsbee is on his way in, the member for Preston; he is substituting for the member for Eastern Shore, Bill Dooks. Jim DeWolfe is filling in today for Frank Chipman, the member for Annapolis. Graham Steele is substituting for his colleague, Frank Corbett, the member for Cape Breton Centre. There's Mr. Hendsbee coming in now.
Mr. Lund, if you want to begin, I understand you have a presentation you would like to make, 10 or 15 minutes. Please begin.
1
MR. LUND: Thank you very much, Mr. Chairman, and thank you for the opportunity to join you today. I did bring a cast of thousands here. We look forward to having a chance to share some ideas with you and also hearing some feedback. What I thought I would do is just take you through a general presentation, and a little bit about NSBI and a bit about what we're doing, some of our plans and some of the initiatives that we have. What we've also incorporated in here a little bit is we've taken a clip at the beginning and a clip at the end of a presentation that we use with businesses.
For example, we had a business group - a substantial potential opportunity - that we were going to meet with today from Boston, but they called and they are snowed in in Boston. We would have used some of the business clip, and a lot of the groups that we meet with, many of them have not been before, so we think it's important to show them a bit of the flavour of Nova Scotia. I will start right in.
[A video presentation was made.]
MR. LUND: Again, this is part of a new presentation that we put together. We still have some work to do on it but, from the feedback we get, it's a very professional presentation, and we're continuing to add to it. I think many of you probably know better than I about the origins of Nova Scotia Business Inc.
Again, deriving from the province's economic growth strategy, Opportunities for Prosperity. We became fully operational in November 2001. So we've been in business, technically, for a little more than a year. Again, a private-sector-led business development organization. We have a board of directors in place, 12 business people representing various industry sectors throughout the province. Here's a list of our board of directors. Again, we have 12 business people, and we also have - many of you probably know - Bob MacKay from the Office of Economic Development.
In putting together Nova Scotia Business Inc., one of the first things that we did was really try to build our own business. We hired a number of people; we have six offices around the province in place. We engaged KPMG to do a complete analysis of our lending procedures. We added a new compliance function to what we were doing. We implemented a corporate scorecard throughout our organization, which really is taking our overall goals and objectives and having everybody in the organization assigned specific goals and objectives that would tie into our overall plan.
We formed a business intelligence team within our organization, and we have looked at continuous ways to increase accountability. We have spent a lot of time meeting with companies throughout the province, getting feedback on issues. Our mission is to expand business activity in Nova Scotia that leads to sustainable value-added growth for the economy. We put together, through our board, a five-year strategic plan.
Essentially what we do is we help existing companies in Nova Scotia expand; we try to attract leading-edge and sustainable businesses to Nova Scotia; we provide access to capital for organizations; we increase the recognition of the province here and abroad; and we continually work to develop an action-oriented organization. We have identified a number of sectors, really flowing out of the Opportunities for Prosperity: information technology; life sciences; energy; advanced manufacturing; and we also have a fifth one, e-learning. As an overall objective, we work with businesses. Many of the foundation industries we work with are covered in various aspects of these four sectors right here.
This is also part of our presentation. We can go into each sector, and we have testimonials from people in Nova Scotia, from companies in Nova Scotia, and we also have specific information on sectors and specific information on things like the business climate, the infrastructure and a number of things that we use as selling features for Nova Scotia.
Just to look at some of our strategies, expanding business opportunities and exports. Many people know that a lot of new jobs are created from existing companies, not just in Nova Scotia but everywhere. We've met with a lot of companies throughout the province, and we've also conducted independent research. Some of these numbers shouldn't be surprising. Many people believe that helping business grow is a critical component to any economic initiative. Over half the people we talk to believe export expansion is the key to strengthening the province. Having said that, we still, as a province, lag behind most of our provincial counterparts when it comes to export activity.
Again, we have met with over 450 businesses throughout the province. We have consulted with a number of industry associations. We have held specific industry sector summits on IT and life sciences. We have put together a new export strategy, focusing on being client-focused, working in-market, really trying to identify where our niche is in the export field.
We have appointed a provincial trade coordinator. There are many organizations in the province involved in some aspect of trade. We have taken on the initiative of trying to coordinate the activities of all these organizations throughout the province.
We organize the Nova Scotia Export Achievement Awards, this year in May, where we recognize the outstanding achievements of our companies. We are currently working with 60 active clients on the exporting side.
We're looking at launching some new initiatives, focusing on being more market-focused. One of them is called Export Prospector. We took a look at the whole spectrum of exporting and trade and took a look at what companies are doing and really tried to figure out where we could create the most value. We thought that among many of the things we could do, one area is to really work with companies in-market, so helping companies identify what market works best for them and then helping them in-market. If it is a company wanting
to export into Boston, we will work with groups in Boston to help them and put them in contact with the right people in these markets. They still have to sell themselves but we can help a lot of people get in the door.
We have a lot of industry association partnerships that we work on. One of the ones we're working on is with ITANS, an information technology group. We're working on putting together a mass directory. When we were in Boston meeting with one of the organizations, they had a very detailed listing of every organization in that industry in the New England market. It was a great selling tool so we're working with ITANS here in Nova Scotia, to make sure that we know who the companies are and what they do.
We're looking at launching a sector-specific entrepreneurial program, in other words, helping specific entrepreneurs in a number of areas, including getting exposure outside of Nova Scotia. This is something that we hope to launch in the near future.
Our second strategy is attracting sustainable business to Nova Scotia. Most business people believe that Nova Scotia is an excellent or very good place to do business. Two-thirds believe that businesses from outside the province are needed to strengthen our economy. Half the people we talked to support financial incentives to businesses that relocate or expand in the province, which could mean either fully half the people we talked to or only half the people we talked to but it's about half the people we talked to.
One of the areas that I have been a bit surprised by and learned is just how competitive the business attraction market is. It is hugely competitive to try to get new business to locate to a jurisdiction. There are 2,000 business development organizations alone in the U.S., all saying that they have the best quality of life, the best workforce and the best of everything. So it is a very competitive market and it is a very, very competitive market when it comes to incentives and I know that's an issue in many areas. I have been able to see some examples, first-hand, of what is going on in the world and it is a very, very competitive world.
In order to make sure that we are able to bring the right businesses to Nova Scotia, we have put together an aggressive sales team that will be out meeting with companies throughout the province and also, outside of the province. We've looked at specific sectors to focus on. We've looked at geographic areas and we really took a look at, as an example, 82 per cent of our exports go to the U.S., half of those go to New England and if we're going to focus on an area that we think has a lot of opportunity, let's pick a couple and try to do a good job and not try to be all things to all people.
We've developed a new approach in New England, working with a local group in that market and we're very happy with what we're seeing in that area and the potential.
[1:15 p.m.]
We've created the Toronto Business Advisory Council and again, many of these names may be familiar to people: Purdy Crawford; John Hunkin from CIBC; Ron Joyce, Tim Hortons. All of these people have a connection to Nova Scotia. John Hunkin, for example, just bought a house here and I think he spent some time in a school here. Many of them are from here but others aren't from here but have a connection here and are quite excited about working for us in the Toronto market and really, across Canada. We also have a Boston advisory group in place, as well.
We continue to develop Target Nova Scotia, which is a great tool to work with site selectors and giving them information on statistics in Nova Scotia. This is really widely recognized as one of the best tools of its kind in North America. We've been successful in supporting four new business investments in Nova Scotian companies.
We've looked at implementing some new initiatives, including forming an alliance with key partners, one of them with the community college and Aliant. One of the areas we found with talking to organizations that look at locating in other jurisdictions in the U.S. or Canada is they really want to have a single person that they can contact. It sounds basic but we're surprised that it is a fact that not a lot of organizations can do that, not a lot of jurisdictions. We have been able to do that and we've been able to be the contact for companies and being able to bring other groups on-board. When we talk to companies in the U.S., the whole labour and training component as well as technology, they are all key issues for companies.
We're launching a regional business case analysis to help us better understand the Nova Scotia business case on a county by county basis. We're doing that in conjunction with organizations in every county, RDAs and other organizations. We will discuss strengths, business opportunities and any potential challenges. We will also look for areas of collaboration and will be doing this from March through June and we will cover every sector of the province.
Access to capital. I'm sure many people can relate to the whole issue of access to capital, which is really an issue throughout the country and in particular, in rural areas. When we talk to businesses, many plan to increase their sales or launch new products, or a new service, or invest in new facilities. Many believe that access to capital is an issue.
We've developed a new approach to looking at financing prospects. We've put together an internal risk-grading system and again, we've added a compliance function. We have an aggressive calling program in place to actually go out and be proactive, meeting with companies across the province. We've authorized $50 million in financial assistance to 19 companies. We've looked at launching some new initiatives to help improve the access to capital for Nova Scotian businesses.
We've been looking closely at the whole financing spectrum and trying to get a handle on who does what and what organizations are out there providing capital to businesses, from small business community programs, to ACOA, to venture capital companies. We've really tried to identify whether there are gaps and one of the areas that we've identified is, there seems to be a gap in companies looking for sort of that 100 to 250 ballpark, so we were looking at coming out with a specific program to help businesses with financial needs in that area and really targeted, primarily, to rural Nova Scotia.
We are launching a Capital Ideas road show this Thursday. We will be in Port Hawkesbury on Thursday and we will be in Bridgewater, Kentville, Yarmouth, Sydney, Truro and Halifax. We are meeting with companies, partners, organizations. It will be a full morning session followed by lunch with a guest speaker.
We have eight partners in this, including a bank and an accounting firm. We have ACOA, Export Development Canada, ECBC. So we really try to get the people together that offer something on the financing side of it, and also, groups, including a law firm, that work with businesses. Again, we are launching that this Thursday.
Companies we talked to, when we asked them, how do you measure success in Nova Scotia, many of them talk about jobs, new companies and the average wage levels. We look at our clients and we track how many jobs our clients create or maintain. Again, this is over the first-year period. That equates into an annual payroll of $95 million and, roughly, $13 million tax revenues to the province.
Again, we are looking at what is important to us and that is trying to create economic opportunities and choices for people around the province. We are trying to continue to create a positive impression of Nova Scotia as a place to succeed in business. We continue to improve our standard of living and economic well-being.
We talked to businesses and we got a lot of feedback. One of the numbers that came back to us, in terms of some independent research was, 92 per cent of the businesses we talked to were optimistic about the outlook for their business over the next three years. We look at that as a very positive sign.
I am going to finish with a clip, again, that we show on one of our presentations to clients.
[A video presentation was made.]
MR. CHAIRMAN: Thank you, Mr. Lund. Members' questions. Mr. MacKinnon.
MR. RUSSELL MACKINNON: Thank you, Mr. Chairman, and thank you for your presentation.
I was very impressed with your presentation until you got to the part of your power point presentation that says, ". . . created or maintained 3,800 jobs." Now, as my memory serves me, when the Department of Economic Development representative appeared before the Public Accounts Committee a little more than a year ago, I guess, it was on May 1st, 2002, Mr. Fred Morley, representing the department, appeared, to speak to the KPMG report which indicated that Nova Scotia Business Inc. was going to create, on average, 3,600 new jobs a year which, by the way, is a significant number less than what was created by the department in the previous three years which averaged 5,000 jobs a year. So we are now going from 5,000 to 3,600 and from 3,600 to even less. Of the 3,800 that you say were created or maintained, how many were actually maintained out of that 3,800?
MR. LUND: Let me start again, I guess, with the first part. We put together a five- year strategic plan and we put a target of 18,000 jobs over the five years. That was based on new and maintained jobs. I am not sure of Mr. Morley's comment about the new jobs but we were always going with the number of new and maintained jobs.
MR. MACKINNON: Well, out of the 3,800 - through you, Mr. Chairman - how many are new jobs?
MR. LUND: I am going to have to double-check on that number. We are about 2,000 maintained and the rest would be new.
MR. MACKINNON: Your quote of saying 80 per cent of the new jobs created were within the existing businesses, so that works out to about, almost 2,900, not 2,200 or 2,000, so which figure is correct?
MR. LUND: Eighty per cent of new jobs come from existing businesses. That is a general, historical trend number.
MR. MACKINNON: What is your total budget for the year?
MR. LUND: We have three budgets. Our operating budget is $6.6 million.
MR. MACKINNON: Can you provide a list of the companies that you have loaned money to?
MR. LUND: Absolutely.
MR. MACKINNON: And the amount?
MR. LUND: Yes.
MR. MACKINNON: Can you give us, also, because I couldn't find - maybe I'm not looking in the right place - the financial report with that detail in it.
MR. LUND: Yes.
MR. MACKINNON: Perhaps, could you give us some sense of what the working relationship is between Nova Scotia Business Inc. and the office of the minister? What input does the minister have in finalizing any of these applications?
MR. LUND: Sure. In fact, we can give you that list today.
MR. MACKINNON: Okay.
MR. LUND: Nova Scotia Business Inc., was created to be the business vehicle. Office of Economic Development is the policy group. So we would have interaction with the department, the Office of Economic Development, through Bob MacKay. I report to a board of directors.
In terms of the transactions that we look at, we have limits within the organization. The board can approve transactions up to $3 million and over $3 million it goes to Cabinet. The minister has final sign-off on any transaction that is working capital. In addition to the payroll rebate program and deals that we do, the minister, in consultation with the Department of Finance, would sign off on those transactions.
MR. MACKINNON: One final question, Mr. Chairman, because I know other members would like to ask questions and then I will come back. Is there any particular reason why the job creation projections were significantly lower than the previous administration?
MR. LUND: I can't comment on that. I looked at the Statistics Canada job growth numbers. I think we have done a pretty good job in Nova Scotia over the last four or five years. We only track the jobs that our clients create or maintain, where there is specific financial assistance from us. We don't track where we have helped out on the exporting side of it or any types of work from our business advisory team, it's only specifically where we provided some type of financial assistance to companies. We have a role to play in working with our companies and they create jobs, but there are many other jobs that come as a result of the general economic conditions. I think the job numbers have been generally positive in Nova Scotia. We play a role in part of those but not all of them.
[1:30 p.m.]
MR. CHAIRMAN: Mr. Epstein.
MR. HOWARD EPSTEIN: Can we pick up on the budget questions, Mr. Lund?
MR. LUND: Sure.
MR. EPSTEIN: I heard you say that you had three budgets.
MR. LUND: Yes.
MR. EPSTEIN: And you mentioned one of them, the operation budget.
MR. LUND: That's right.
MR. EPSTEIN: What are the other budgets?
MR. LUND: We have an operating budget, and then we have what's called a strategic budget, which is $16.5 million this year, that is our payroll rebate program. Then we have another budget which is for our financing group, which is between $25 million and $40 million, depending on how much would be coming back in from people paying back loans.
MR. EPSTEIN: I was aware of the strategic one. Perhaps you could just explain the financing one. How is that meant to be invested?
MR. LUND: Again, it's $25 million to $40 million - it could be, potentially, $40 million - depending on money that we receive back from clients paying back money. So when I talk about our financing, $15 million in 19 companies, that would be part of that budget.
MR. EPSTEIN: Is it the case then that NSBI doesn't limit itself to payroll rebate as a form of investment in new companies or existing companies.
MR. LUND: No, there's a distinction. When we talk about attracting businesses here, we talk about using our payroll rebate. The $15 million in 19 companies, that's specific to financing activities for companies in Nova Scotia. So xyz company needs a loan for plant expansion, that's where that comes from.
MR. EPSTEIN: So you have other categories or forms of investment that you make.
MR. LUND: That's right.
MR. EPSTEIN: And that would include direct grants?
MR. LUND: We don't do direct grants.
MR. EPSTEIN: So what's the $25 million to $40 million?
MR. LUND: That's the lending portfolio I'm talking about. The $15 million to 19 companies, that's in the form of a loan, a term loan for example, or it could be an equity investment.
MR. EPSTEIN: I see.
MR. LUND: But that's strictly on the financing side to companies in Nova Scotia.
MR. EPSTEIN: So, loans, equity investment and payroll rebate are . . .
MR. LUND: Payroll rebate is, again, on the other . . .
MR. EPSTEIN: I understand it's a different pot of money, but I'm talking about the instruments you have available to use.
MR. LUND: Yes.
MR. EPSTEIN: That's it, specifically.
MR. LUND: Yes.
MR. EPSTEIN: That really makes we wonder about this question of access to capital which you mentioned a number of times, because you said that your respondents in your survey identified access to capital as a real problem and an ongoing problem. So what does that mean? Does this mean that there's a problem with the policies of the local major lending institutions, or does it mean a problem within venture capital, or both?
MR. LUND: I spent five years, before I joined NSBI, in venture capital, and I had the chance to look at over 400 companies. The difficulties in companies getting financing today are probably as tough as I've seen in maybe the last 10 years. Pat might have a similar comment. My impression - again, I could stand to be corrected - is that the banks seem to be a little bit more reluctant to work with companies, particularly in rural areas. The venture capital industry in Nova Scotia, in Atlantic Canada really started off in 1996, and it peaked in the year 2000. In 1992, the last full year, there was not a new investment in venture capital in Atlantic Canada.
MR. EPSTEIN: Has NSBI been talking with the lending institutions or with the venture capitalists, trying to get them to change their policies?
MR. LUND: Yes, we talk to them all on a regular basis. If you take a look at the venture capital organizations, most national organizations won't invest in a region unless there's a local player. In Nova Scotia we have some local players, but they're out of money.
They're in the process of trying to raise money, but because they don't have a lot of money now, there's not a lot of investing right now.
MR. EPSTEIN: Is it a threshold requirement of NSBI that before you will offer some form of investment in an applicant business that they have gone to the private sector first?
MR. LUND: We try to partner when we can. Many of the people we talk to can't get financing, and they've gone the route. They may be a good, strong company but they may be in an area of the province or in an industry that it's difficult to get financing. So, we can look at the business case and see that the business makes sense, but there may be a location risk, for example, that someone is not prepared to take.
MR. EPSTEIN: I wasn't really asking about what factors might affect the financial institutions turning them down, I was asking if it's a requirement that they have approached the private sector before they come to the public purse.
MR. LUND: No.
MR. EPSTEIN: Why is that? Why wouldn't it be a requirement?
MR. LUND: Well, we look at a business case, we always look at who their current financial players are, and we always ask the question of whether or not - in many cases, depending on what the transaction is, we will recommend that they talk to a group. We will look at people who have applications or need money in different areas.
MR. EPSTEIN: So part of your assessment would be you would just instinctively feel that these enterprises couldn't get money from the private sector?
MR. LUND: Pat, you might want to comment on that, you're close to that.
MR. PAT RYAN: I guess we will find situations where it's difficult to access capital on reasonable terms. What I mean by that is very often the commercial institutions are compressing amortization periods, so you may wish to finance a piece of equipment that has a useful life of 10 years and you're only able to take the term money out for 5 years, which really squeezes your working capital and can hamper your growth. So those are the kinds of situations where we will become engaged. We see companies that are challenged to access capital because of where they're located or because of their stage of development, especially early-stage companies and the knowledge industries, or because of the particular industry that they operate in, or because there is a general tightening in credit-granting policies across a spectrum of the commercial organizations that are operating in our markets. We're certainly seeing that today.
MR. EPSTEIN: I understand what you're saying about it being amorphous, but I have to say I have a real problem with not requiring an application to go first to the private sector. I will give you the example that just struck me as just amazing. It was last summer's $1.5 million loan to Oxford Frozen Foods, John Bragg's company. What was said at the time by Mr. Bragg was that he didn't think he could get money from the lending institutions, which, for a person who is one of Canada's richest people, strikes me as an amazing statement. He then went on to say that he didn't even approach any of the commercial lenders, he just went to the public purse.
I just find this amazing, that you would have rules that would allow this to occur or that it did occur. I have to say this is a very worrisome approach. One of the things that I think was really stressed to us when NSBI was put in place was that there would be a different way of doing business and that there would be a real shift, that the approach would be a hard-nosed business approach to protecting the public dollars and making sure that things like job creation were pretty well top of the list, but now we find that in fact there are other pots of money and other criteria, loans and equity seem to be back on the table. This is a little worrisome. I will yield to other members, but I have some other points I want to make later on if I can get back on the list a little later on, Mr. Chairman.
MR. CHAIRMAN: Mr. Lund, did you want to respond to Mr. Epstein?
MR. LUND: We like to think we have a rigorous process in place to look at every transaction. Every transaction that we look at has to stand on its own merits. As Pat mentioned, there may be situations where we have a strong credit that is unable to get financing or is unable to get the right types of financing in order to have a project go through.
MR. CHAIRMAN: Maybe Mr. Ryan could tell us essentially how the payroll tax rebate works - or perhaps you, Mr. Lund, whoever is appropriate - and whether or not it is available.
MR. LUND: I can comment on that. There are many forms of incentives that companies or organizations see. In Nova Scotia, our primary incentive that we use is the payroll rebate program. Many people are probably familiar with the call centre industry, that the payroll rebate has been used successfully in that industry. What it entails is, really, rebating some of the company's payroll back to the company. It is after the fact, so if a company is successful in employing people, they will receive a rebate; if they don't employ people, they won't receive a rebate. We have to constantly look at what we have as tools and figure out what works and what doesn't work.
The call centre industry has 12,000 people across the province. It is a very successful industry spread throughout Nova Scotia. The annual payroll is close to $300 million a year. That is probably $40 million in tax revenue that the province generates. So there are 12,000
jobs and it is a win-win, it is a benefit to the province. I mean, we have to constantly look, again, at what we have available when we talk to companies.
I was in the States recently and saw where a company was going to locate in a jurisdiction and they were approached by another jurisdiction. They were given a lot of free land; a four-lane highway was built for them; a rail track was put in for them; they were given a 10-year tax holiday on some taxes; they were given a payroll rebate program. The jurisdiction had a plebiscite in their community. They passed a plebiscite, increasing the retail sales tax by 0.9 per cent in order to pay for this company to come there. So it is a competitive world. The payroll rebate program, I think, is a good one.
MR. CHAIRMAN: Mr. Lund, maybe I didn't make myself clear. I was just wondering, is there a formula that you could share with us, like x number of employees sustained over a period of time, and is the formula constant or consistent, and available to, for example, different industries and sectors besides the call centres? The forest industry, for example . . .
MR. LUND: Yes, it is really established to encourage job creation and there is a guideline in place of 50 new jobs. It has been used primarily in the call centre industry but it is also available in other industries.
MR. CHAIRMAN: So it's 50 new jobs?
MR. LUND: As a ballpark, yes.
MR. CHAIRMAN: As a ballpark, okay. Mr. Hendsbee.
MR. DAVID HENDSBEE: Mr. Lund, during your presentation you made some remarks about Nova Scotia still lagging behind provincial counterparts when comparing export activities, percentage of gross domestic product. Can you expand upon that right now in regard to actual percentage-wise? How much are our exports a percentage of our GDP, in comparison to other provinces?
MR. LUND: Our exports are around $5.6 billion a year. The percentage of - we are near the bottom, I think we are. Prince Edward Island is the only province that trails us. I think we are 23 per cent of gross domestic product. If you track the numbers, I think our exports were up somewhere in the ballpark of 40 per cent since 1995 and about 11 per cent last year. A lot of that is due to natural gas.
Now, a lot of the service industry, for example, is not - the numbers are not captured in our export numbers, like the whole call centre industry, for example, and other service industries. That would make a difference but it wouldn't be the whole difference. You know, the fact is, our export numbers are low. We have identified 816 active exporters in Nova
Scotia. So the number of exporters is really quite low when you think of all the companies we have in Nova Scotia.
[1:45 p.m.]
MR. HENDSBEE: In regard to that, I'm thinking of our economy, we see the softwood market, we see pulp and paper, we see agriculture for blueberries and apples, we see fisheries and lobster being sent out, we see natural gas and gypsum and . . .
MR. EPSTEIN: Tires.
MR. HENDSBEE: Michelin tires, yes. Where do you think there are other markets we have to expand upon, our Christmas tree industry is another one. We always hear about our markets and our exporting products but you're saying we're lagging behind. Where do you think we are going to be able to develop those markets even further or new products?
MR. LUND: I think there's two ways to look at exports. One is helping our existing exporters grow and helping them identify new market opportunities and work with them in specific market segments. But there's also a huge segment of the population that is not exporting and I really think it covers all facets of business.
Many of the first exporting clients start with a sale somewhere or with a phone call or something and if only 816 people are actively exporting, there are a lot of people in every sector that really are not exporting now. Mark, do you have any ideas on what you think, specifically industries?
MR. MARTIN WALKER: Not really, Steve. I think the point you made earlier that the service area is one that we know we're performing reasonably well on an export basis but we don't have that hard, kind of Statistics Canada data to back us up. I think to your point that we have, in Nova Scotia, perhaps it's a lower propensity to export than perhaps some other jurisdictions so our approach is focused in-market, one off at a time, helping a company to do it. I guess that's our space, I think it's a multi-sectoral approach that we have to take and just gain a yard in each one of these areas.
MR. HENDSBEE: In regard to attracting investment into the province and there are other things like CEDIF, Community Economic Development Investment Fund and recently the Black Business Initiative just announced one which closes for offering on March 3rd. I believe it's the 14th such fund they have in the province now for community economic or small business ventures to access capital and stuff. In regard to those initiatives, how does your department involve in any participation or direct companies towards those funds, or trying to promote those funds to the greater public with regard to buying and investing in Nova Scotia companies or opportunities, leaving some RRSP dollars here in the province,
instead of letting them go elsewhere to other portfolios and also taking advantage of the equity tax credit for Nova Scotians here?
MR. LUND: We currently administer the CEDIF program and we've been helping organizations establish that program. The fact of the matter is, there is a lot of money in Nova Scotia that doesn't stay in Nova Scotia and I think the CEDIFs are one way, even though there seems to be some resistance from people who might be in the securities industry. It is one way for small companies to access funds but I think we have to look at other things as well - our securities legislation, for example. Also, there is a big chunk of money that leaves this province every year and we might want to take a look at addressing that but in terms of companies that come here, we don't see a lot of companies come here looking at that particular program.
MR. HENDSBEE: My last question is in regard to immigrant investment, trying to either bring new workers or new companies into the province from other parts of the world. If someone wanted to go to a trade mission or try to establish activities, for instance, over in Africa or somewhere across the world, to try to bring in other immigrant investors or families or even bring in students to the universities here, how would they approach your department in regard to trying to get some advice in regard to how to set up such a mission?
MR. LUND: That's a good question, I don't know if I have the answer. We don't really get involved with the immigration side of it. We would work with any organization or any company that wants to establish a business presence in Nova Scotia. I think the whole issue of immigration, or lack of immigration in Nova Scotia, is a big issue that is really on the policy issue. We do have a number of trade missions that we organize. We would work with companies that would go on trade missions, but we would also support any business, really, in terms of getting established in Nova Scotia.
MR. WALKER: Business immigration and immigration are currently being handled by the Department of Education, but I think that in terms of the business immigration side - that may be where you were aiming - Frances Wolfe, with the Office of Economic Development, spearheads that file, and I think that would be a good practical starting point for anyone you might know who would be interested in doing this. Frances Wolfe.
MR. CHAIRMAN: Mr. Carey.
MR. JON CAREY: As you've indicated, this has only been going on, NSBI, for about a year or so. So from Economic Development, prior to that, the set-up that was there, how many accounts did you inherit?
MR. LUND: How many accounts did we inherit? Are you talking financing accounts?
MR. CAREY: Yes.
MR. LUND: We have a portfolio now of 197 accounts. So that's roughly $182 million; that would include the $15 million that we have done.
MR. CAREY: That was my next question. You've picked up $15 million in your one year?
MR. LUND: Nineteen financings, 19 companies, $15 million.
MR. CAREY: So you picked up 19 and you inherited 180, 178?
MR. LUND: Yes.
MR. CAREY: Okay, just to go back to the comment about Mr. Bragg, getting a loan of $1.5 million, how many jobs did he create?
MR. LUND: Let me think. I don't know if we know that specific number. It was for a new line of product.
MR. CAREY: Right, he was doing a value added or something.
MR. LUND: Yes, that's correct. I could get those, I don't have it with me.
MR. CAREY: I guess my point is, did he create jobs?
MR. LUND: Absolutely.
MR. CAREY: As has already been determined, he's probably one of the wealthiest people, at least in Nova Scotia if not in Canada. So when you sign a contract with Mr. Bragg, he has to sign the same agreement that he would sign with most banks whereby he is accountable and you have some kind of lien or some kind of control over something?
MR. LUND: Absolutely.
MR. CAREY: So loaning money to a successful guy isn't a bad deal is it?
MR. LUND: It certainly helps your portfolio when you can get pretty solid businesses on the books.
MR. CAREY: Even a person with all the resources of Mr. Bragg, if he goes to the banks, if he's growing his business, it's been my experience - and perhaps you can tell me
one way or the other - that you don't want to exhaust all your resources at the chartered banks and so on.
MR. LUND: There may be specific issues around the type of financing as well, there may be a term that the company needs to get in order to match their cash flow for this specific project that they can't get elsewhere.
MR. CAREY: I guess that leads me into my next question. If you're making good loans, which I understand that's what you want to do, or assist in a positive way . . .
MR. LUND: We try.
MR. CAREY: . . . you don't want any more losses than possible, where are you different than a chartered bank? Do you give longer terms on certain loans? I understand the tax credits, that banks don't give them.
MR. LUND: We can take risks that a bank might not want to take, such as a location risk for example.
MR. CAREY: I guess what I'm trying to (Interruptions) Do you really take greater risks or do you give extended time to do something . . .
MR. LUND: We can be more flexible in terms of some of the terms, but we also make sure that we're adequately secured. We have many of the terms and conditions, for example, that a bank might have in place. Pat, do you want to comment on that? Is that pretty fair?
MR. RYAN: I would say so. Generally we do have more flexibility. So when Stephen speaks about the risks we take, we talk about the time value of money. We might offer a principal holidays, and by that I don't mean you don't have to pay the loan back but I mean there would be a period where you would pay interest only. There might be circumstances where we would capitalize interest because the cash flows from the project aren't going to kick in until the 18-month point, so you would structure to match those kinds of cash flows with any customer of any size.
MR. CAREY: Right.
MR. RYAN: There are certain kinds of financings that the commercial operators are sometimes not interested in.
MR. CAREY: If I might, just one more question, Mr. Chairman, at this time. Of the 178 that you inherited and the 19 that you added, I guess one year is a little early to say if it
looks like any of them are in difficulty. But what is happening with those businesses? What are you going to have to write off, roughly, or do you have any projections?
MR. LUND: Out of the accounts that we inherited and the new business that we have done, we are going to have accounts that don't work out. We set aside an annual allocation from the deals that we have.
MR. CAREY: My feeling is that this government was looking to improve the way they did things to be more accountable to the taxpayer, yet, still have economic development. So from the 19 that you have seen so far and, as I said, I realize it is a short time, does it look like the policy is working?
MR. LUND: Well, again, the deals that we have done are still in place, and we hope that they stay in place and we get paid back. We have completely redone all our lending policies and guidelines with outside help from KPMG. We have implemented a different due diligence process, review process. We have a compliance officer on board. We have done a lot of analysis and a lot of work to make sure that the companies that we help finance are reasonably strong companies.
We also try to partner where we can. Like, we try to partner with organizations out there so we are not the only people taking the risk. But we are going to have situations where they don't work out. We just have to try and do the best job we can at each and every opportunity we get.
MR. CAREY: Thank you, Mr. Chairman.
MR. CHAIRMAN: Thank you, Mr. Carey. Mr. Epstein.
MR. EPSTEIN: Thank you. Just a footnote to the baby carrot production line that Mr. Bragg was creating. It was 17 jobs at $1.5 million. That is about $85,000 a job. That is well above, I think, the going rate that I understood prevailed in this line of enterprise.
In any event . . .
MR. MACKINNON: Mr. Chairman, on a point of order. Just for clarification. Is this a loan or is it a grant?
MR. LUND: This is a loan.
MR. CHAIRMAN: As I understand it, it is a loan.
MR. MACKINNON: So it is a repayable loan?
MR. LUND: It is a repayable loan.
MR. MACKINNON: Oh, okay.
MR. CHAIRMAN: Not to mention how many thousands of peoples' eyesight would have improved. (Laughter) I say that very unbiasedly, Mr. Epstein (Interruption)
MR. EPSTEIN: I think I see in the dark here quite well. (Laughter)
Mr. Lund, I would like to describe for you, if I may, an example of investment in private enterprise that has occurred, not actually all that long ago, in Nova Scotia's past. Maybe you could tell me what, if anything, is wrong with this.
This was an investment that was not tied to job creation. It was money up front. It was tied to sales of the product. It included a repayment schedule that extended to offsets before the repayment triggers were in place that included offsets for research work that was done in Ontario. So I guess what I wonder is, is this the kind of proposal that is likely to find funding with NSBI these days?
MR. LUND: I'm trying to think if I even know that specific transaction.
MR. EPSTEIN: Don't worry, I'm going to tell you. (Laughter) (Interruptions)
MR. LUND: Generally speaking, no, but we look at every transaction to make sure it stands on its own basis, really, on its own merit.
MR. EPSTEIN: Well, I think the essence of your answer is, it sounds like the sort of thing that you wouldn't be funding these days. As my colleague, the member for Preston, correctly guessed, this is Orenda. I would like to quote what was said by the minister at the time, in Hansard, December 9, 1997, "Mr. Speaker, this particular deal with Orenda is one that I think, over the long haul, will have great returns for the Province of Nova Scotia and create an industry that will be welcomed in this province."
[2:00 p.m.]
MR. HENDSBEE: Point of clarification, could you identify that minister?
MR. EPSTEIN: Well, I think Cape Breton South is his district and Manning MacDonald is his name.
Now, this is a real question that I have. This, so far as I can see, is highly problematic, that this was an old-style and now-rejected form of investment in business. There was a lot of Nova Scotia money, I think it was $9 million or $10 million, that went in there, matched
equally, I think, by the federal government. As I recall the obligations went past the time of the previous Liberal Administration, and because of the contract that was signed, I think the present government had to continue to make some payments as well, although I'm not sure. Maybe you could help me out there, when were the last payments made?
MR. LUND: I can't answer that. I don't know that. Just a second, I can find out. Mr. Epstein, it's not even in our portfolio. I know what I read in the papers, and that's about it.
MR. CHAIRMAN: If I could, Mr. Epstein, I was thinking about trying to bring you back to NSBI, the witnesses we have before us today, and trying to stay within their mandate. You have strayed somewhat and probably made the point you wanted to. So would you please be relevant.
MR. EPSTEIN: Why isn't it in your portfolio? Where is it then, Mr. Lund?
MR. LUND: It's in a portfolio called the Industrial Expansion Fund.
MR. EPSTEIN: Which is handled by the department?
MR. LUND: That's right.
MR. EPSTEIN: In fact, this actually does lead me to a point that I wanted to bring out, which is so far as I can tell there continued to be a number of opportunities for enterprises that are looking for help from the public to make approaches. One is through NSBI, but that isn't an exclusive opportunity, is that correct? That is the Department of Economic Development itself maintains funds that it is able to invest, is that correct?
MR. LUND: That's correct.
MR. EPSTEIN: The last time I saw figures on this, the department had a budget that was about equal to yours. Does that continue to be the case?
MR. LUND: In terms of the total portfolio?
MR. EPSTEIN: The total number of dollars.
MR. LUND: Yes, I think it's roughly about the same.
MR. EPSTEIN: Do you know if they have invested their money completely, the funds that they have . . .
MR. LUND: I honestly don't know. I think that was set up for a specific purpose, in helping to deal with socio-economic issues. I honestly don't know if they've capped it or not.
MR. EPSTEIN: The real question is whether they consult with you about the investments that they make.
MR. LUND: We would generally see most of the transactions first, and we would look at doing an assessment in terms of would it fit our mandate in terms of being business-driven. Then, if it doesn't, it's really outside of NSBI.
MR. EPSTEIN: So the financial triage would be, an enterprise would, or perhaps might not go to private sector investors, then they would go to you, and having failed on both of those they might still go to the department, which might make the investment.
MR. LUND: Possibly.
MR. EPSTEIN: And that's an accurate description of how it might work.
MR. LUND: You might want to clarify it with them, but that's possible. Sure.
MR. EPSTEIN: Just to nail that one down, did you say you sometimes would see those proposals first or you would always see the proposals first . . .
MR. LUND: I don't know what they're looking at, so I can't comment. We generally want to look at all the business proposals and look at whether they would fit what we're looking at.
MR. CHAIRMAN: Mr. Epstein, if we have time, we can come back, if you so choose. Mr. MacKinnon.
MR. MACKINNON: Mr. Chairman, it's ironic, before I ask my first question it's important to note for all members of the committee that when the NDP submitted their list before the Public Accounts Committee, which included the Orenda file, they didn't even have the courtesy of sending a member to the committee to speak on the list of proposed witnesses, and then made a big to-do of it in the media that the Liberal and Conservative caucuses had usurped their democratic rights. Perhaps the next time they will at least have the decency to show up to speak to their own list.
MR. CHAIRMAN: Mr. MacKinnon, if I might as chairman, we'd best better get back to the scheduled hearing here today. I know you would want to be relevant, so would you please place a question, being in your second round.
MR. JAMES DEWOLFE: We want to hear him. (Laughter)
MR. CHAIRMAN: I can appreciate that, but we have to . . .
MR. MACKINNON: I want to look at this $16.5 million on the payroll rebate. Of the jobs that were created or maintained, how many would you say, using the payroll rebate program, were new jobs and how many were existing jobs?
MR. LUND: Out of that 3,800 figure that we talked about?
MR. MACKINNON: Out of the $16.5 million that you've invested through the payroll rebate. What percentage?
MR. LUND: I don't know - the $16.5 million, that's the annual allocation for payroll rebate, but that could be for deals that have been done over the last five or six years. That's just what this year's total number is.
MR. MACKINNON: So you can't tell me how many would be new jobs and how many are existing?
MR. LUND: No, I mean, they would all be new because they are payroll rebate jobs, but they were created over a period of time. Those are for deals that could go back five or six years. So deals that have been done five years ago with the five-year payroll rebate program, the fifth year would be this year. They would make up part of that $16.5 million.
MR. MACKINNON: Okay, so of the 3,800 jobs that are created or maintained, there would be zero dollars out of that $1.65 million fund attributed to those?
MR. LUND: Probably.
MR. MACKINNON: You don't know?
MR. LUND: I don't know but I'm assuming that the way . . .
MR. MACKINNON: But you're the chairman.
MR. LUND: Most of the deals that we do in payroll rebate are after the fact, after a year, so they wouldn't kick in until after this year.
MR. MACKINNON: I'm really perplexed because the job creation numbers seem to be substantially less under this new arm's-length Nova Scotia Business Inc., as opposed to when all the staff, the 60-some employees, were employed by the Department of Economic Development, creating less jobs.
As I go back to the Public Accounts Committee meeting, when Mr. Morley attended, the primary purpose for setting up Nova Scotia Business Inc. was to focus on business development, working with existing business and attracting new investment, whatever the
case may be. But everyone is completely focused on business. I mean, it doesn't make sense to me that you're claiming that this is a success when less jobs are being created, substantially less jobs than when all these employees were under the purview of the Department of Economic Development.
MR. LUND: Again, I don't know the numbers from before. You know, we are pretty confident in what we're doing. A lot of opportunities that we look at take a long time to mature. Again, out of the 3,800 jobs, those are the jobs that we have identified where we have provided assistance to companies. I don't know, in terms of comparison to previous years, but we had a target of 18,000 jobs in place and we are on track with what we said we're going to do and we are pretty comfortable with where we are.
MR. MACKINNON: Okay. I will shift the focus. One of the stumbling blocks, I understand, is with regard to the high cost of workers' compensation premiums, Nova Scotia versus other jurisdictions. How have you been able to address that with the Workers' Compensation Board and, indeed, the government . . .
MR. LUND: We haven't specifically. That's one of the areas in terms of the overall business climate that the Office of Economic Development would be involved in. What we try to do is identify issues that are important to companies and important to our ability to grow companies and to attract companies. We have had discussions with the Office of Economic Development and they are involved in looking at that specific issue.
MR. CHAIRMAN: Mr. MacKinnon, one last question this time around?
MR. MACKINNON: I will let it go for now, Mr. Chairman, and if there is time, will come back. Thank you.
MR. CHAIRMAN: Mr. DeWolfe.
MR. DEWOLFE: Thank you, Mr. Chairman. Welcome, ladies and gentlemen. First of all, I want to congratulate you on this Capital Ideas road show. I congratulate you in advance because I think that is a grand idea to get around the province. I expect there will be a lot of input you will receive as you get around the province and I hope that you get to my neck of the woods.
I want to go back to what Mr. Epstein brought up about the carrot caper here, John Bragg's company. First of all, the $1.5 million loan that was given to that company, would it not be considered a very low-risk loan, given the status of that company?
MR. LUND: Yes, he might argue no risk.
MR. DEWOLFE: Well, it's little or no risk, really. I mean, it's a very successful company and although there are 17 jobs - I mean, there have been improvements made to the plant that will last for many years and so on, and a new line product. Also, there were some outstanding loans of more than $30 million to the province from that company and they, too, would be considered very low risk. Has that company been paying them back on schedule?
MR. LUND: Yes. There are strong organizations in the province and we don't look at them and discount them because they are strong companies.
MR. DEWOLFE: Absolutely. They are strong companies, they are good employers and we want them around for a long time.
MR. LUND: That's right.
MR. DEWOLFE: Yes, those are the kinds of companies we like to invest in, in Nova Scotia. Thank you for that. I just wanted to clear that. Also, the fact is that when the province has $30 million to $40 million invested in a company, it probably makes it a bit difficult for it to go to the bank when they have such a control over that company as well. You can pass on that.
That was the area I was going to go into, Mr. Chairman, and Mr. Carey had taken some of the pressure off me on it, but I do want to go back to the first of your presentation. You talked in terms of creating or maintaining 3,800 jobs. I just thought that maybe you should go into a little bit of detail on what that means to the province. What are we getting back out of that? A great deal more, I would suggest, than the budget of your organization. Just what are we getting back in tax revenues and so on from those jobs?
Also, while you are looking for that information, I think you should be commended for being able to do that because that was during a period of very difficult financial times for most businesses in this province and, indeed, tough times for many Nova Scotians, a global situation, quite frankly. At any rate, perhaps you could tell us a little bit about what that means to this province?
[2:15 p.m. Mr. Russell MacKinnon took the Chair.]
MR. LUND: Sure. Maybe I could expand on my thoughts, you know, on the bigger picture. If we are helping our clients and they are creating jobs, and those jobs are spinning off into paying taxes, correct me if I am wrong, but that is a good thing.
I think one of the things that I have found out - and this, again, coming into NSBI, it is a little bit new to me - I have travelled a lot recently and I have seen a lot of organizations. I am not convinced that the economic development business in Nova Scotia is really understood and appreciated for what it might be. We've seen a lot of changes in
economic development over the years. Clearly, for NSBI to be successful, there has to be some consistency in approach, whether it's the NSBI model or something else. If you look anywhere else, then one of the key factors is just being consistent in your approach, whether it's Ireland or Michigan or any other area.
It's also important that we understand as a province that growing our economy and supporting new job growth is a good thing. We have a budget of over $5 billion, of which 85 per cent is taken up in a couple of key areas, health, education, social services. We pay $900 million a year in interest on our debt. There aren't many ways to improve the fiscal situation, other than increasing taxes, cutting services or growing the economy. We talk about spinoff growth, and there are 3,800 jobs but there's also a lot of other jobs that we had nothing to do with that were in the province. That in itself spins off additional revenue and tax revenue to the province.
I guess it's been an observation of mine, and that is that the whole economic development field has been, in some respects, a bit of a whipping boy over the last 10 to 15 years. When I go to Atlanta or Boston or Washington, or places like that, I realize that you look and you see that everybody buys into the concept of growing the economy and the value of creating jobs and whether you need incentives or this and that and how you go about getting it. It's an important feature in this province, and I think that we need to continue to support what we're doing and some of the successes that we have.
If we're creating jobs, it's also important that we look at where we're creating those jobs, what they are, what does it mean to the overall economy, and we do have other challenges as well that we have to face. We've identified $13 million in tax revenue. Well, that certainly helps. If we can increase that number by a factor of 2, 5, 10 or whatever it is, it's going to help us as an economy.
MR. DEWOLFE: You mentioned partnering. Do you partner or have dialogue with ACOA? Do you work on any joint projects, or is that a difficult one?
MR. LUND: It started off being difficult in terms of getting a handle on all the organizations that are in Nova Scotia, and who does what and what role does the federal government play and what role does ECBC play in Cape Breton. That was a challenge, really getting a handle on what people do. We don't have a choice. We're not that big a province, really. It's a big world out there. We work with ACOA on a regular basis. We took our management team and met with ECBC; we've invited them to meet with us here to try to plan together on how we can work together. It's a fact of life that you have to embrace, we don't have a choice.
MR. DEWOLFE: Right. Well, thank you. Mr. Chairman, could you mark me down for a quick snapper for later, please.
MR. CHAIRMAN: Mr. Steele.
MR. GRAHAM STEELE: I also have too many questions to ask in one round, so maybe, Mr. Chairman, you could put me down again as well. Mr. Lund, in response to a question from Mr. Epstein, you referred to the Industrial Expansion Fund, and that that was somewhere else under the Office of Economic Development. However, the Auditor General appears to disagree with your interpretation of responsibility for the Industrial Expansion Fund. I'm sure you've seen Paragraph 17.19 and Paragraph 17.20 of this year's Auditor General's Report.
I won't read them, Mr. Chairman, but the essence of them is that in the Auditor General's opinion, it is NSBI that's responsible for the Industrial Expansion Fund accounts, and in fact it's precisely the lack of clarity between NSBI and the Office of Economic Development that is allowing these accounts to fall through the cracks. The last line of the Auditor General's comment which is in a section titled System Weaknesses, the Auditor General says, ". . . without full and appropriate resolution . . .", that is of the lack of clarity, ". . . the roles and responsibilities for the IEF will be fragmented between NSBI and the Office of Economic Development." What is your comment on the Auditor General's view that in fact it is NSBI that's responsible for these 178 accounts, worth $167 million?
MR. LUND: Mr. Steele, I'm actually going to ask Chris Smith to answer that question.
MR. CHRIS SMITH: It's always been very clear to NSBI what our role is. We actually are responsible for the administration of the fund. We don't make any decisions in terms of what investments are made in the fund, we don't make any decisions in terms of what the value of those investments should be, we are not the organization that talks directly to the end-user in terms of being the client. We do the accounting basically and we provide information to the Office of Economic Development in terms of what it is they need to have to make their decisions, whether that be to make an evaluation decision to allow them to establish reserves or whatever.
As the Auditor General pointed out, which was always pointed out by NSBI through the Auditor General that we were uncomfortable with the relationship with the Office of Economic Development in terms of what sometimes their expectations were versus what our expectations were. So we followed our understanding very clearly, we pointed out very clearly to the Office of Economic Development what it was we were doing with that fund and made sure the appropriate information was at their disposal so that they could make the decisions that needed to be made then.
But as the Auditor General pointed out in his report, we also moved to establish a stronger distinction between the Office of Economic Development and NSBI in relationship to that portfolio. So we have formally removed two employees of NSBI to the Office of
Economic Development so that they would have the resources that they say they need to have to administer the fund or to deal with the account management, if you will, of the portfolio.
There will no longer be any information that anyone could ever say that NSBI has any proprietary information associated with the fund. So that formal cut has been made and to address the Auditor General's point, we've dealt with that. There is nobody within the Office of Economic Development who can any longer say that - or anywhere in the Auditor General's mind can there be any formal distinction in terms of how people view the administration or running of the portfolio.
Stephen's quite right in the sense that we, as a senior management team, have no idea in terms of what activities are going on within the fund. We have never wanted to have any idea of what's going on with the fund because of the distinctions between what it is that both of those funds do. I think the Auditor General's point had always been very clear in our minds, what our role was, and now it's very clear in everyone's mind in terms of how that fund will be dealt with on an ongoing basis.
MR. STEELE: What I'm afraid of is that what we have is two agencies of government that disagree on who's responsible and there's a great deal of money at stake. As I said before, there are 178 accounts worth $167 million, including Orenda, and the Auditor General says, ". . . NSBI's interpretation of the scope of its roles and responsibilities for the IEF and its accounts was significantly less than what had previously been done by . . ." the Nova Scotia Business Development Corporation. So what I'm afraid of, as an elected member of the Legislature, is that we have two agencies pointing at each other saying no, no, it's your responsibility and meanwhile, somebody is getting away with the cash or with a lack of accountability for a great deal of public money.
Something else the Auditor General says that I'll just mention in passing and this is in the preceding paragraph, "A process should be put in place to allow NSBI to collect the necessary information to prepare financial statements which comply with generally accepted accounting principles." Now when I read that, what it says to me is that NSBI is not currently following Generally Accepted Accounting Principles, is that true?
MR. CHRIS SMITH: When NSBI was created that is absolutely correct, the Nova Scotia Business Development Corporation did not follow GAAP. They also did not prepare full-entity financial statements, so there was no such thing as a Nova Scotia Business Inc. set of financial statements.
As you are aware, the first year of our being started on November 6, 2001, the end of the province's fiscal year was March 31, 2002, so for that transition period there was no change in terms of the financial statement presentation or the financial presentation of the Nova Scotia Business Fund. So the same method of financial presentation that was in place by our predecessor organization was maintained as at March 31, 2002. As of April 1, 2003,
we have moved to adopt full-entity financial statements and will be in full accordance with GAAP and so the financial statements that will be issued for the year ended March 31, 2003, will be fully in accordance with GAAP. That's the only kind of statement that I want to have any association with, as would the senior management team.
We have changed auditors to a new accounting firm to help implement a new set of financial statement presentations and Stephen has also alluded to the other types of formal controls we've put in place to address any inherent control weaknesses that were in place and throughout the financial system of the organization, as part of our predecessor organization. You have to remember that those comments were based on a five-month period of which many of us were not even part of NSBI for the 12 months that preceded the preparation of those financial statements. So we think we've made great strides since we've come into play and you will be very pleased with the financial statement presentation that will be fully available to you through our annual report sometime in late June.
MR. STEELE: Thank you. The chairman has signalled to me that I have one more question, so it will be this. Mr. Lund, it has been very helpful today that it has clarified for me how much money is available to NSBI and it has also been helpful to clarify the role of Cabinet. If I understood correctly, Cabinet approval is required for $3 million or more of capital projects and also the minister and the Department of Finance have to sign off on payroll rebates, but that's not my question - you can correct me if I'm mistaken but that's what I thought I heard.
My question is, is there any case, since the creation of NSBI, where either the minister or the Cabinet has declined to accept a recommendation of NSBI?
MR. LUND: Not to my knowledge. No, not to my knowledge. Mr. Steele, also just to clarify, anything to do with working capital has to be signed off by the minister as well, it doesn't matter what the amount is.
MR. STEELE: What was the $3 million figure then?
MR. LUND: It's $3 million, that's the cut-off that goes to Cabinet but any transaction, if it's $1,000 or whatever it happens to be, if it happens to be for working capital, has to be signed off by the minister.
MR. STEELE: If I could get back on the list, Mr. Chairman, please.
MR. CHAIRMAN: Yes. Mr. Carey.
MR. CAREY: Mr. Chairman, you mentioned in your presentation that - I believe this is right - occasionally or rarely you've taken equity investment in certain situations. Is this an ongoing policy?
MR. LUND: We've done three or four quasi-equity investments, really they're convertible debentures so there is security there, convertible into equity. Most of our transactions have been straight-term-lending deals.
MR. CAREY: Where you've taken equity investment, they would have been on ones that you inherited?
MR. LUND: Would have been on a company, for example, a knowledge-based company or a biotechnology company, early-stage companies where it's really critical that you find out what the needs of a company are and you don't just go at them with a cookie-cutter approach, it's really what works best for the company, as long as it works best for both sides and you're protecting your investment. In every case that we do that we try to partner with an organization at the same time.
MR. CAREY: I guess what I'm trying to determine is the last year and in the future would equity investment be a last resort type of finance?
[2:30 p.m.]
MR. LUND: Not necessarily. If there's a company in the biotechnology field or the information-technology field, the best solution for that company is an equity investment of some type. That might be the best instrument for that company. That's why we would partner with an organization that would be looking at it, doing a lot of the due diligence, and there might be an instrument that has some debt features as well as equity features in it. Many companies that have a capital acquisition, for example, would look at traditional debt financing.
MR. CAREY: You mentioned about Ms. Wolfe, and I've had some experience with her, with my constituents, and I can certainly say she is an excellent person. The clients who have dealt with her are very impressed. However, are we working or is your group working to get a better relationship or connection between the Immigration Department, which of course I realize is federal, and what we're trying to do? I've had constituents who are almost the poster boys of what we're advertising for Nova Scotia, yet because immigration has been difficult for them or they haven't had the - immigration, in my experience, has not been willing to have anybody to walk anybody through the process to get them where they need to be. I guess what I'm suggesting or hoping is that your department is looking at finding a way of putting a person in place to help them walk through this, because I think it's hurting - I've lost two people who looked like the ideal poster people.
[2:32 p.m. Mr. Brooke Taylor resumed the Chair.]
MR. WALKER: We certainly look at the immigration of people with skill sets that we need in Nova Scotia as being very important, like I described earlier. It's really Frances Wolfe on point with the Business Immigration Program and then driving through the Department of Education. We certainly work closely with Frances and the Office of Economic Development on business immigration and immigration-related issues, but specifically as they relate to projects that we have in place, the need of a client to get someone here on a temporary work permit or something like that.
So I guess the answer, without being convoluted, is that we tend to liaise on a tactical basis, but we certainly work with and consult with Frances, indicating that we're seeing skill shortages pop up here and there in the province, and is this something that the Business Immigration Program can be looking at. I know that the Provincial Nominee Program is being established now that will identify, I understand, or that there will be an opportunity to bring in 200 skilled immigrants through that nominee framework. Really, we do drive through OED and then into the Department of Education.
MR. CAREY: But I guess the point I was really hoping I could make - and maybe you're aware of it anyway - is to have a 1-800 number that goes to Immigration, they will not see a person, they don't give you the address, you press this button and you press that button, and by the end of a half hour you don't have a person. That is not making for easy access for a person who's investing money in Nova Scotia, and if they're like me, they want to tear the phone off the wall before they get any success. I just don't understand why Immigration is making it this difficult, but on the other hand I would hope that Economic Development or your group will try to find a person or put a person in place who will walk a person who's investing millions of dollars or whatever in Nova Scotia, to help them avoid this kind of frustration and difficulty because, quite frankly, my experience lately with them, I would be reluctant to go through that foolishness to put $1 million or something in the province.
MR. LUND: I agree. I think it's a serious issue for the province that we really have to take a look at. Again, it's a federal issue, but we need to, as a province, have a position on that. It's something we've chatted about but, although it's not really within our scope, it's something that does effect us, that we have to have some type of involvement in.
MR. CHAIRMAN: Maybe due to the lateness of the hour, I believe we would ask our members if they would succinctly place their questions. Maybe we could just have some short snappers here. There seems to be quite a bit of interest in NSBI and, in that context, we will move to Mr. Chataway to show us just how to do this.
MR. JOHN CHATAWAY: I wanted to take up Mr. Carey's questions but in any event, basically, I would like to know your input and your participation, in what event. While there have been events where teams have gone to various parts of - I know the Premier,
among others from Nova Scotia, went to Russia. There have been various trips taken to the United States. But, basically, I know they have gone to, I think, Scandinavia, maybe just Energy people, but they have gone there and things like that.
Basically, because I think you pointed out in one of your slides that there is something like 2,000 in the United States you know, about 2,000 teams that are pushing an area. The reason you should come here, ignore the 1,999, to get them to come here, you have to have a team. I just wondered, what participation have you had in these inputs to where they go, what do they do, and any participation? I'm sure many of the board are very interested in that.
MR. LUND: Well, it's really a two-part question. One is, helping companies export. A trade mission to Russia, for example, or a trade mission to New York, Washington or groups like that, places like that, we play a role in, really, coordinating the whole thing.
Our approach, again, on the trade side of it is a little bit different. We believe that we should be a bit more focused. We're a team of 63 which may surprise you but we're probably the smallest group in Canada, in terms of what we do. So we have to be focused on where we put our energies. Some of these missions or trips, for example, Russia, et cetera, are conducted by the Prime Minister; others would be led by the Premier. We play a role in that.
As far as attracting business, the 2000 organizations out there, we have targeted a number of areas where we think we can make a difference. One of the areas is New England. We have engaged with a group in New England to work with us. We have been spending some time down there getting to meet players, look at generating opportunities.
You know, one of the areas that is kind of a hot topic right now is outsourcing of back office stuff. A lot of the U.S. businesses are looking at setting up in places like India. There are 200,000 contact centre jobs in one section of India. There are many thousands of jobs in different areas around IT. We think there are great opportunities in Nova Scotia. So competing against the 2,000 groups out there really takes more of a rifle shot than a shotgun approach.
MR. CHAIRMAN: Mr. Hendsbee.
MR. HENDSBEE: I would like to ask for your comments in regard to this. Nova Scotia is a great place to live. We see our real estate being bought up by non-residential property owners but, now, with the time of free trade, fair provincial trade and globalization of markets, acquisition, mergers and consolidations of various companies and corporations, how is it that the non-residential business owners that come to this province, who are looking at Nova Scotia companies - and there is a fear or concern that perhaps 25 per cent of our small business owners of this province are going to retire or sell their businesses - how can
we try to maintain and attract Nova Scotia companies to keep going or to try to attract new investors or new buyers without losing it, closing up shop and taking it elsewhere?
MR. LUND: I'm not sure what the question is. In terms of foreign people moving into Nova Scotia, I'm not sure if I can comment on that.
MR. HENDSBEE: My question would be, how would NSBI help address the situation or does it fall under your mandate in regard to businesses here in Nova Scotia? Trying to get them to expand and everything else is one thing but that expansion may come to the point of foreign ownership or investments coming in from elsewhere and buying those companies out.
MR. LUND: I don't know, honestly. You know, we are trying to encourage growth of companies in Nova Scotia and where need be, to attract businesses in. Many companies that grow in Nova Scotia get to a point where there are succession issues, where someone would buy the business locally but there may be situations where companies from outside would buy the company, keep it here or move it elsewhere. In today's global environment, I'm not sure we can actually do anything.
We try to encourage our companies to grow. It may be the best thing for a business owner to find a buyer. We obviously want to encourage that company to keep their business in Nova Scotia and to keep employing Nova Scotians, but we can't always impact that decision. There probably are instances where companies are attracted elsewhere. There's pressure on our companies as well to relocate. We see that as a course of business. We talk about organizations, it is a challenge to maintain what you have in each jurisdiction as well. I'm not sure if that answers your question.
MR. HENDSBEE: Somewhat. It seems that some people are concerned with the dog-eat-dog of the business world. Sometimes it's, do we have to throw the bone out there to keep the dogs here or to keep the dogs away. (Laughter)
MR. CHAIRMAN: Just as a reminder, we do have some committee business. So we are going to try to let our guests leave, probably by about 2:50 p.m. or something like that. Mr. MacKinnon.
MR. MACKINNON: Mr. Chairman, with regard to job creation in rural Nova Scotia, you've identified that as one of your major challenges, the fact that it's very difficult to create jobs in rural Nova Scotia or have companies go there. You may or may not have heard of the government's policy position paper, the red tape task force, that final report. I know that report was supposed to have been produced some time ago. It was announced three years ago, and we still haven't seen the final report. They are busy. Can you identify one substantive area in which government has reduced red tape in Nova Scotia so as to make your job easier to attract new businesses to Nova Scotia?
MR. WALKER: I can think of one practical situation, and actually it relates back to the targetnovascotia.com tool that we've been engaged with, but it's really information on registering a company in Nova Scotia. At least from our standpoint, the work that's been done there to consolidate regulations and to put everything in a plain English format has been very helpful to us. We link directly to that information from our site. It seems like a small thing, but it's actually a very practical thing.
MR. LUND: Here's another one . . .
MR. MACKINNON: But that's an initiative that was started over a three-year period, even commencing before the government - I'm talking about under the present . . .
MR. LUND: I think the biggest change in red tape is the creation of NSBI. (Interruptions)
MR. MACKINNON: If creating less jobs is a success in Nova Scotia, then I would say good luck to you, but I would have to disagree.
MR. LUND: We meet with companies on a regular basis, and the ability for us to make a decision (Interruptions)
MR. CHAIRMAN: Mr. MacKinnon, order, please. I think what we should do, perhaps at this point, is move along to Mr. Steele. Mr. Walker, I should have advised you a little earlier, if you have an opportunity maybe you could speak into the microphone for recording purposes, it does assist. Mr. Steele.
MR. STEELE: Mr. Lund, I want to talk about Service Zone. In the book that we were given to prepare us for today, one of the quotes from yourself that struck me was, what you said back in April of last year was, "We did that deal, essentially. We pulled together all the parties." That's great, and everybody was very excited about it, and it seems to have gone south. I was wondering if, in hindsight, you could let us know what really happened there and what are the lessons that we can all learn from the Service Zone project?
MR. LUND: I guess the first point is that this is a business world, it's competitive, a lot of things change. We still strongly believe that Service Zone will be there. They've honoured all their commitments to date. A lot of these organizations may set up with a specific contract, and if the contract falls through, then they're working on getting the next contract. We're patient with Service Zone. We think it's a good opportunity. They've been great corporate citizens and we think that the business will be there.
[2:45 p.m.]
MR. CHAIRMAN: Mr. Epstein, if you have a short snapper.
MR. EPSTEIN: That's all I get?
MR. CHAIRMAN: Sorry, that's all you get in the second or third round.
MR. EPSTEIN: No, I will pass, thank you.
MR. CHAIRMAN: Mr. DeWolfe.
MR. DEWOLFE: I was just wondering what you could do for me. (Laughter) Rural Nova Scotia, I tell you, Pictou East, very few businesses with more than 30 employees. In fact, there are only a couple, two or three. Well, I guess, maybe more than that with a couple of large mills, but half a dozen tops.
Now a lot of our expansion is going to be with existing businesses, many of which are small operations, some of them forestry, 10 or less employees. I'm just wondering what Nova Scotia Business Inc. can do for those constituents and those small businesses.
MR. EPSTEIN: What Jim means is, he is going to be looking for a job. (Laughter)
MR. DEWOLFE: Not concerned. (Laughter)
MR. LUND: You know, looking at not just your area but rural Nova Scotia, we recognize that - and it is a priority for us to work across Nova Scotia - there are a couple of things that we are doing. One is, working with local groups. We also have people across the province who talk to companies and, again, we have met with over 450 companies.
Some of the specific things that we are doing, you know, a regional growth strategy. We are going to have people in your area, we are going to meet with all your organizations. We want to do a swat analysis, we want to come up with all the strengths, maybe what weaknesses and challenges are in your area, what people want to see and what might work in your area.
We are out there meeting with companies on a regular basis and the more we know about each specific area, the better off we are going to be. We have our financial road show coming up. We want to meet with companies. When we go into each area, we are having a day of announced visits. We are going out and meeting with companies on a regular basis. We are going to be launching our entrepreneurship program to focus on targeting specific entrepreneurs in the province.
We think we have some good, strong initiatives. We don't have all the answers but we need to work with people in each group. To be quite honest, there are some areas that have done a lot more work than others; they have plans in place, they invite us down on a
regular basis, they work with us and we identify areas together. You know, we need to make sure that all the . . .
MR. DEWOLFE: Well, with so many small little businesses, it's important that they have an opportunity for growth and that means a lot.
MR. LUND: Absolutely, yes. I agree.
MR. DEWOLFE: It's amazing how many small, little businesses are actually . . .
MR. CHAIRMAN: Order, please. It has been rightfully pointed out by another honourable member that some members are stretching the one question a little bit too far, adding commentary and all that sort of thing. But on behalf of the committee, I really do want to thank our guests for coming in today. As I think you witnessed, the presentation certainly did generate a lot of discussion and some other related matters and some not so related. I think I can say on behalf of all the caucus members that we really appreciate you coming in today. If you did want to make a summary comment on behalf of your delegation, you are more than welcome, Mr. Lund, or whoever.
MR. LUND: I appreciate it. I wanted to thank you, Mr. Chairman, and members, on behalf of our group. Just to pick up on some of the themes, we are an organization, you know, we think we're doing a good job but we also need to hear back from people, really. We need to be invited to your communities and we need to be invited to your businesses.
We don't have all the answers but we think we can help out in many areas, given the chance to meet with companies. We think we have some things that will work. Again, we appreciate the time and we do welcome the chance to come out into your communities.
MR. CHAIRMAN: Well, thank you very much. We have some other committee business I would like to move into, if I could. If you have any business cards or things of that nature that you would like to leave, we would appreciate that as well.
We will have to take a couple of minutes and come back.
[2:50 p.m. The committee recessed.]
[2:53 p.m. The committee reconvened.]
MR. CHAIRMAN: Committee members, if I could, I would just like to remind members that our next meeting dates are March 18th, where we have scheduled the Nova Scotia Fruit Growers Association and April 15th, Irving Shipbuilding Inc. The one on April 15th, I believe that that is the only hearing scheduled in the month of April, is that correct?
MRS. DARLENE HENRY (Legislative Committee Clerk): Yes.
MR. CHAIRMAN: That's correct, according to Darlene. Any questions on that, the next two meeting dates? No questions.
MR. CHATAWAY: Is that in this room or are we going to Irving, itself?
MRS. HENRY: That's here.
MR. CHAIRMAN: That will be here. Now, we have a letter dated January 22nd in our package there, actually underneath the Unapproved Witness List. It's a letter from the Minister of Economic Development requesting that the committee include the issue of Shearwater on our agenda at the earliest possible opportunity. I just wonder if the committee has any thoughts. Mr. Hendsbee.
MR. HENDSBEE: Well, Mr. Chairman, if the discussion of Shearwater is to come on the agenda, who would be the group, organization or person representing Shearwater? Would it be Shearwater Development Corporation, would it be someone from the federal government, the Department of National Defence, Department of Natural Resources? Who, exactly, would be the witness?
MR. CHAIRMAN: Well, from this vantage point, I would request, I guess, as per usual, that Darlene would contact, perhaps, the minister's office or the minister, himself, directly and we would make sure that we have guests in that are appropriate. I couldn't say at this point, Mr. Hendsbee. Have you got a suggestion, somebody you would like to see called in? No, okay. Any other thoughts on it? Mr. Epstein.
MR. EPSTEIN: Well, the member who represents the area might be consulted about who might be appropriate to come in. That's Mr. Deveaux, of course, who represents the area.
MR. MACKINNON: Have him appear before the committee?
MR. EPSTEIN: No, no. He would be appropriate for Darlene to talk to.
MR. CHAIRMAN: Well, if I might - and that's probably a good suggestion - Minister Clarke indicates in his letter that to provide further background related to the request, he would welcome the opportunity to meet or discuss this with Darlene. So it may be appropriate to request the caucuses to come forward with a name, like through Mr. Deveaux, if you would like, sure.
MR. EPSTEIN: I will mention it to him.
MR. CHAIRMAN: Likewise, Russell, with your caucus. So we have our next two meeting dates scheduled. Do any of the caucuses have any particular witness that they would like other caucuses to take back for consideration?
MR. MACKINNON: What about the Nova Scotia Federation of Agriculture? I would be interested to see their take on this AgraPoint, since they are a major organization in the province. It seems a little concerning that you have a major organization like this at extreme odds with AgraPoint, who is the . . .
MR. CHAIRMAN: If I could, not that they can't come before this committee, were they not before the Resources Committee not too long ago?
MR. HENDSBEE: Yes, they were.
MR. MACKINNON: Perhaps for a different issue. I'm referring to AgraPoint.
MR. CHAIRMAN: Would you like us to take this back to our caucuses?
MR. MACKINNON: I kind of feel that they're not being fairly treated if they're not given an opportunity to respond to some of the points that were raised by the AgraPoint representatives. I'm not an expert in this.
MR. CHAIRMAN: I'm just wondering where you're going. Wouldn't it be more appropriate to go to the Public Accounts Committee?
MR. MACKINNON: Well, we could write them and ask them if they would be interested or perhaps send them a copy of the transcript of AgraPoint and find out if they have any thoughts on it, and if they're vacuous on the response or they're not interested in pursuing it, well, fine, we will just let it go. I thought, given the timeliness of it, it would be worth considering.
MR. CHAIRMAN: Possibly, we could take that back to our caucus, because we do have some names that are in the pecking order, so to speak. We have flexibility enough to adjust and manoeuver the lineup a little bit. I would certainly be willing, on behalf of our caucus, to take it back and bandy it about.
MR. EPSTEIN: I'm going to move to another item that's on the list, which is the Securities Commission. Although I don't think I would have thought of it quite that way, I thought the point was to look at accounting information, that seems to be the essence of it. I would have thought there were probably two bodies that would have something to say to us about this. One might well be the Securities Commission, another is what I think is called the Public Accounts Board, not the Public Accounts Committee, perhaps the Public
Accountants Board is the right term, it certifies individuals to be able to review the books of companies.
Given how extensive the scandals have been in some quarters, including Canada, about bookkeeping, I think we should think seriously about looking at this, because it's something that we can regulate provincially, at least for our own accountants, those who are dealing with companies here. As we're reminded in some of the newspapers, I think today, in fact, there are a number of publicly-traded companies that are anchored in Nova Scotia. So I think we have a certain obligation to at least keep an eye on that. The investing public wants to make sure that they're getting an appropriate picture of the bookkeeping. I know we had occasion just recently at our caucus to talk with some accountants, and they say that this is working its way, but slowly, through the system.
It would probably be a useful function for this committee to emphasize to them that they might want to pick up the pace a little bit. If they had to come here and talk to us about what they're doing about their bookkeeping practices to be responsive to the needs of the public and to make sure that it's not gobbledegook but it's grounded in their recognition of their responsibility to the public, that would be a useful thing. I'm speaking in favour of that one as a priority for us. There are provincial people who could talk to it.
MR. CHAIRMAN: Again, usually we do things by agreement in this nature, where it's on the unapproved witness list, the Securities Commission. Howard, you've been more specific. We could certainly take that back to our caucus and see what the thoughts are. We have now approached the hour of 3:00 p.m.
MR. DEWOLFE: Motion to adjourn.
MR. CHAIRMAN: If I could, if you have an opportunity between now and our next meeting, Darlene provided us some time ago, probably two months ago, with a Statement to Witness, it's somewhat similar to the statement that the Public Accounts Committee has, would you be able to run that by the various caucuses again. (Interruptions) It's fine with the NDP, fine with the Liberals. (Interruptions) Yes, it's fine with us.
We are adjourned.
[The committee adjourned at 3:00 p.m.]