Mr. Chairperson (Ben Sveinson): Will the Committee of Supply please come to order. This afternoon this section of the Committee of Supply, meeting in Room 255, will resume consideration of the Estimates of the Department of Industry, Trade and Tourism.
When the committee last sat it had been considering item 10.1.(f)(1) on page 89 of the Estimates book.
Mr. Tim Sale (Crescentwood): Before we adjourned at lunch, I was asking a policy question. The minister gave a stirring defence of his government's activities in the North. I am always glad to hear his recitation and its enthusiasm. I guess one of the things I would say sincerely to him is that I am always impressed by somebody who has served as long as he has and still has the fire in his belly and the enthusiasm for his job that he exhibits at least once or twice in Estimates every year. I always enjoy his perorations on the achievements of his government.
My question, however, was not about what they had done to develop employment and other opportunities in the North. The question was a very, I guess in a sense, technical one. Will his government take the position and convey it to the Government of Canada that it is no longer acceptable for our main statistical body, Statistics Canada, on whose numbers every government in the country depends for public policy development, to explicitly exclude status aboriginal people on reserve from any of their major statistical gathering activities?
My two primary concerns are income-related, poverty-related statistics, which are not the responsibility of this minister, and employment and workforce statistics, which are. So it is a policy question. Will the government take a position in support of the inclusion of aboriginal, First Nations people on reserve in all activities of Statistics Canada, where other parts of our population are sampled or surveyed?
Hon. James Downey (Minister of Industry, Trade and Tourism): I will seriously consider it and probably ask the member if he has any recommendation on methodology as to how best that could be carried out as part of the discussion that he is going to be having with Mr. Falk in our Bureau of Statistics branch. I am not opposed to it. It is a matter of how best it could be done. We will take a look at how it may be able to be accomplished.
Mr. Sale: I thank the minister for that. As I have said before, I am not a methodologist, so I am not able, except as a layperson, to understand the difficulties. I know there are substantial methodological difficulties with including small populations that are geographically distance, because methodologists have nightmares about what that does to overall numbers. I know that is a problem. I think it is one we have to struggle with, not just so that our numbers are accurate, but so that we stop conveying what is essentially a colonialist mentality to our First Nations people, that they do not count from a federal government perspective.
I will tell the minister--he raised in his comments before lunch a concern that perhaps we were raising this issue for political, small "p" or large "p," political purposes, because the overall numbers were very good. I have been raising this issue--I think if he checks the record he will find I have been raising it since I was elected, but I can tell him that as a matter of my own professional history, when I was the director of the Social Planning Council of Winnipeg from 1976 to 1985 we struggled with this issue. When I was on the National Council of Welfare as an appointee of Lloyd Axworthy, I say with some historical anxiety, the National Council of Welfare almost from its inception, which I was not part of in 1968, which, I think, was the inception of the National Council of Welfare. But almost from inception, the National Council has raised this problem. When I was on the council from about 1980 or '81 till 1985--no, I suppose it was 1979 to 1985--we struggled with this question and raised it because it was evident that it was a problem then because it was seriously distorting Canada's poverty statistics. Our housing statistics, for example, northern reserves are not sampled for housing questions either.
So I can tell the minister that it was not a short-term political advantage that I was raising. It is something I have raised now for, I suppose, 22 years it would be. I hope that his success will be better than mine at getting something done about it. So, with those comments, I am prepared to pass this section.
Mr. Chairperson: Item 10.1. Administration and Finance (f) Manitoba Bureau of Statistics (1) Salaries and Employee Benefits $568,000--pass; (2) Other Expenditures $249,300--pass; (3) Less: Recoverable from other appropriations ($60,000).
Mr. Sale: Could the minister indicate what the $60,000 is for or from? What it is both for and from?
Mr. Downey: It is basically work that is done from other departments and/or Crown corporations, and that is basically what it is made up of.
Mr. Sale: Essentially, then, Mr. Chairperson, these are fees for service?
Mr. Downey: That would be correct.
Mr. Chairperson: Item 10.1.(f) (3) Less: Recoverable from other appropriations ($60,000)--pass;
10.1.(g) Grant Assistance - Manitoba Horse Racing Commission $176,100--pass.
Item 10.2. Business Services (a) Industry Development - Consulting Services (1) Salaries and Employee Benefits $2,198,400.
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Mr. Sale: I cannot recall where the levy, the pari-mutuel levy, shows up. I know it is not under the $176,000 grant. Is it within this section or is that further on? I cannot remember.
Mr. Downey: The change in the legislation last year eliminated the need to show it in our annual Estimates, so it basically goes directly to the racing commission and not through the books. It was an in-out situation before, so it has now been eliminated from the Estimates book.
Mr. Sale: Is that industry now seen as an industry receiving services under Business Services, under Industry Development, under Tourism and Small Business, Economic Development. Where is the appropriate place, in the minister's view, to ask questions about this?
Mr. Downey: Mr. Chairman, I do not have any trouble answering questions at some point on it. It actually comes under the Finance and Administration section of the department. If the member has questions, I am prepared to deal with it at this particular point.
Mr. Sale: I just had two factual questions then. One is what the total value of the levy is expected to be in the first year of the new operation, and the second is what is the total value net to the Jockey Club of the VLTs in their operation?
Mr. Downey: I will get that information for the member.
Mr. Sale: I thank the minister. Can we move then to 10.2.(a)?
Mr. Chairperson: Item 10.2. Business Services (a) Industry Development - Consulting Services (a) Salaries and Employee Benefits $2,198,400.
Mr. Sale: I think in this area we might as well deal with (a) and (b) all as one item, if that is acceptable to the minister, rather than going through each line one at a time.
Mr. Chairperson: Is that the will of the committee? [agreed]
Mr. Sale: Could the minister indicate what are the two or three most strategic areas in which he sees industry development? You know, we have aerospace, agri-food manufacturing. I can read this, but could he indicate what he thinks are the two or three most critical areas that government is now working on, and could he indicate what in his view needs to be done to be successful in those areas?
Mr. Downey: I would like to take this opportunity before I make my comments, Mr. Chairman, to introduce Mr. Ian Robertson who is the new Assistant Deputy Minister responsible for Industry Development, who will be joining us for this part of the Estimates.
The question, if I understood correctly, is that the member has asked what two or three of the most critical areas that the department are working on as it relates to overall industrial development in the province. One of them, and I will start off and I will ask the department to note if there are some additional ones that I am missing, but No. 1 is one of the key areas that has been identified that we have had to embark upon and work, and that was to work with financial organizations and institutions to try to make sure there has been the available capital in place to invest.
As the member knows, we have seen the development of an additional labour-sponsored capital fund which is another additional tool, the continued strength and growth of the Crocus Fund, which is an important part of it. The other pools of capital that are out there are extremely important. We have still got our target to accomplish, the $60-million equity capital pool by the year 2000, I believe it is, and we have moved a considerable distance, I think, from $4 million some three, four years ago to today in the neighbourhood of $30 million. So that still remains to be a critical area, particularly for the smaller companies that are looking for equity capital investment. That is an extremely critical area that has to be continued to work on.
Another key area that is continuing to be part of the overall initiative and that continues to be challenging and that, of course, is in the whole area of development of people for the high tech industries, the IT industries, which, again, are extremely important to us. But rather than specifying it as a particular challenge and a problem, I think it is a broad industry challenge and opportunity, because we are talking every company basically needs people with these capabilities.
Aerospace continues to be a major initiative by which we see a development and a growth. Of course, we have seen the sale of Bristol to the Magellan Corporation over the last year, which, I believe, is a positive move in the relationship between Bristol and Boeing, now that Boeing are having considerable work done at Bristol. It is strengthening that cornerstone of the industry.
The agri-food industry continues to be a major targeted area, and of course when we see the announcement in Brandon of Maple Leaf's expansion of a $112-million plant, we see what is happening with Schneider's here in Winnipeg. Of course, it is interesting to see how the outcome will be of the judicial decision made this week by an Ontario judge allowing the sale of the Schneider shares to go to Smithfield Foods of the United States, how that will in fact enhance the food processing, particularly on the meat side.
We are hopeful, although we do not have any direct investment in the operation per se, that the Can Agra oilseed crushing plant will be commissioned and brought into service in the next short period of time. Again, that is a major part of the overall development.
Just further on the food industry and related is the Isobord plant--on which the member had some interesting questions and comments last year--hopefully we see the commissioning of that plant by July, which I would hope the member would take some time to go out and observe. I am sure he will because not only of the investment the province has made but also the fact that it is new technology. One can always be encouraged by the fact that they are looking for a second plant. Hopefully, there can be the resources and the package put together to have a second plant developed in the province.
In the area of other manufacturing, of course we have furniture, clothing, the textiles, plastics, farm machinery, transportation being a very key one. I have talked about the aerospace, but transportation in general, what is happening in Transcona with New Flyer is extremely encouraging, and of course that holds us very well. The development of the health industries and the garment sector continues to be strong, with tremendous growth potential. Health industries I talked about. Information technology is extremely important, financial services.
Those are all key areas, and I will ask staff if they have any others. Tourism we are going to deal with in another one, but that again is another major area for industry. I do not want to be criticized for leaving something out, but it is basically the value-added industries, call centres, the improvement in the value-added of the work that is being done there. That is pretty critical.
I read some numbers into the record as it relates to our exports in my opening comments. Our exports are going very well. The continued expansion of our export opportunities into new markets, and diversifying that particular activity is extremely important as well.
If there are any others that I have not touched upon, I am sure during the debate we will include them, but key information, high tech industries, continued manufacturing, transportation, garments, furniture, food processing--environmental industries again continue to be another part of it--the pharmaceutical and health care industries, all areas that we believe will grow.
Probably one of the main emphases we will be placing is on the developing of pools of capital and the supports for those systems and also people trained in the high tech fields, not just per se high tech, but every industry needs those kinds of people to support their growth.
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Mr. Sale: I thank the minister for the expansive statement. What I was asking for and what he gave me at the beginning of his answer and at the end of his answer were the issues that I was particularly interested in, which were the two or three strategic areas. He has identified capital pools and human capital development, and I think we would probably both agree that there is a list of areas in which Manitoba is doing well and I think underlined by the Investment Dealers Association report which again points out something that most of us in this room know but many Manitobans do not, and that is that we have an extremely diversified economy. We are much more of a manufacturing and value-adding economy than people recognize. They still think that we are, in the old phrase, hewers of wood and drawers of water. While at least the hewers of wood part is important, many people do not understand just how diversified our economy is and has been for some time. It is not really that new. I think what is new is that the growth has been in the value-added side as opposed to in the natural resource side, and that is what is very positive. I think everybody can take pleasure in that having happened.
I want to ask a couple of specific questions about the issue of capital pools. The minister has acknowledged and others have acknowledged the outstanding success of Crocus, and I was very pleased that the government has retained Crocus to manage a specific technology fund, which I think is a very good idea. The problems facing high-technology companies in start-up are really very major, and in a smaller province like Manitoba finding capital for high-tech start-ups is even harder than it is in bigger markets such as Ontario or in the United States. So I think that is a very strategic development. Crocus welcomes it, and we welcome it. I think it is a good development.
I have some questions about ENSIS and about Crocus as well. Let me start with the limitation that is in Crocus's act preventing it from being active in anything that smacks of farming. We have an increasingly difficult line to discern between an activity that is farming and an activity that is really manufacturing or processing. For example, the government has indicated its intent to sell its forest nursery business. There is a company called PRT Forest Regeneration. It is a B.C. company, went public in the last year or so, has developed a very large following, and obviously would be interested in that business, but it would mean that another Manitoba industry that is very well thought of and has supplied an increasingly high-quality product would then be owned outside the province. At least, it would still be Canadian owned, but it would not be Manitoba owned.
On the other hand, there is the option of employee buy-out. That is difficult if the employees do not have the kind of capital that Crocus was set up explicitly to deliver, and their ability to bridge the equity investment needed by employees in order to buy a firm is one of the purposes of Crocus, and they have done it well a number of times now. But my inquiries to Crocus, their view is that the nursery is a farm, and so they might be interested in it, but they cannot look at it because their act prevents them from doing so. ENSIS is not set up to foster employee ownership. ENSIS is extremely small at this point.
Venture Capital fund, sadly, managed at least in terms of its business management by a non-Manitoba company, BPI. They do the marketing and the administration, I think; the actual fund management is made by Bill Watchorn and his associates, but he hired BPI to do their marketing and actual--now I am not sure what the entire role of BPI is. I do not think I have the prospectus with me, but if you review the prospectus, you will see that BPI figures in the management of that fund.
So I am wondering whether, first of all, the government would look at amending the Crocus Fund act to either loosen or at least clarify what is meant by farming? I do not think any of us would dispute that Crocus should not go out and buy farmland. That is probably not the most productive investment that Crocus could make, although it would be a good investment if you wanted to get into farming business, maybe. Would the government clarify, for example, could its forestry asset be privatized, if that is indeed the choice, through an employee buyout levered through Crocus? Would it be their view that Crocus could do such a thing or indeed is it prohibited? If it is prohibited, would the government look at changing its act so that the agri-business function in Manitoba, which is one that needs capital--I do not think government would argue that--could be something that Crocus could examine?
Mr. Downey: Mr. Chairman, let me at the outset say that I know how interested you are as chairman, particularly as it relates to the subject which was raised by the member, in the nursery business as to its location being in your constituency, so I am sure that this part of the debate will not put you to rest too quickly.
I would say at the outset, first of all to the member, there are some instruments that are already available, whether it is the credit corporations, the FCC, the Manitoba Credit Corporation and there may be an option. One may want to take a look at the new generation of co-op legislation that has just been introduced yesterday, which may be vehicles that could be used.
I will have to check this, and I will do so for the member, but I am not so sure that we are, that they are absolutely denied from looking at it. I am not sure whether it would be by regulation or by legislation, but I think that under ministerial approval, there is a little bit of latitude as to whether or not they could be investors.
I do not know what stage that it is at. I will ask the department to take a look at it so we are prepared, if in fact there was a request come forward as to the definition. It appears to me that is not in the true sense of the word the same interpretation of farming as we would traditionally have thought, that it is labour intensive, it targets a specific market. It is a niche market. It is not as if you are going out to get into production of traditional crops and that type of thing. And it is a major employer of people.
Let me say at this point I do not know whether I have the flexibility under current regulations and/or legislation, but I am quite interested in making sure that there is an ability to at least try to make sure that there are employee-owners of that operation. I think it is the right way to go. It has been demonstrated in lots of cases that the employee buy-outs have been extremely positive and Crocus have been the tools that have been established to help that.
So rather than say, no, turn it off, I am open to it, quite frankly, if there were some discussions that were to be brought forward. Again, if I am tied by legislation, the member knows what I would have to do would be to consider changing the legislation. If not, if it is by regulation, then we would be able to do so a little differently and maybe it is by ministerial discretion, so I would put it in that category.
On the comments that he makes about the ENSIS group, again, they are not influenced. We do not direct them as government as to how they operate, as we would not do with Crocus. I understand the other reason for the use of the company that is referred to in fact was to facilitate speed of set-up and getting on with the job. That is my answer to that. I cannot comment any further because, quite frankly, it does not fall under the direct direction of my ministry, but we are supportive of them. So I make those comments and hopefully it is helpful to the member.
Mr. Sale: I have asked the page if he could get a copy of the act so that I can refer back to it and see the sections I was concerned about, but I believe there is a section on prohibited investments and that farming is a prohibited investment, so I think it is in the act and not the regulations. But maybe we could just defer discussion of that until we get a copy of the act that we can refer to directly.
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I take what the minister is saying--I do not want to put words in his mouth--but I take what he is saying is that his priorities are to maintain Manitoba ownership to, if possible, induce employee ownership, substantial participation by the employees in the ownership, and to attempt to use vehicles such as the Manitoba Credit Corporation or whatever vehicles he has to facilitate that process. I would hope that he would do that, because I do not want to see control of that very, very high-quality, excellent resource pass out of Manitoba's hands, but in the absence of some injection of capital to allow employees to become owners--most of them, I think, are not highly paid, they are not high-wage people. I do not mean they are poorly paid, but they are not people who have made bundles of money working in this nursery. They are going to need assistance, as are any other investors, I think, who are likely to take it up. Otherwise, I think we will see it bought by a non-Manitoba company that increasingly we see in the forest seedling business across the country. It is a lucrative business and I would not want to see us lose that resource.
Mr. Downey: I am not in disagreement with the member. I think we demonstrated with our support of the Pine Falls Paper Company the government's commitment to helping employee buy-out processes. That was demonstrated. I agree, if Manitobans and Manitoba companies and particularly the employees can put together the resources and the tools are available to them to accomplish that goal, we certainly would encourage it.
Again, I think we are going to maybe get hung up on--I do not know where he would go for references to the right regulatory body that would say whether a nursery, a tree nursery or the type that we are talking about is a farm or it is not, whether it would have to be under the Tax Act or where it would come under.
Mr. Chairperson: Order, please. We are being summoned to the Chamber for a formal vote. We will now recess and proceed to the Chamber.
The committee recessed at 3:02 p.m.
The committee resumed at 4:06 p.m.
Mr. Chairperson: We will resume consideration of the Department of Industry, Trade and Tourism, item 2.(a)(1), and we had agreed to move around in this particular portion.
Mr. Sale: If we could just go to The Employee Ownership Fund Corporation Act, the section that I was referring to in terms of the Crocus Fund's function, Section 13(2), ineligible investment definition, 13(2)(a)(3), use in farming. In conversation with Crocus, their senior officers indicated that they believed from their legal counsel that the nursery would constitute a prohibited investment under that clause. So I am sure the minister was aware of that, but I take it that he has undertaken to review with his staff and probably with legal counsel as to whether this was meant to focus on farming in a traditional sense or whether, for example, it would include Pineland Forest Nursery or other kinds of new-generation farming.
I think this still goes to the question that the committee has discussed in a number of ways during the Estimates, and that is how we understand farming in the kind of new world we are in where we have so many activities that seem to be more like manufacturing or more like processing than like farming, but they take place in what sounds like a farming context. I think it may be appropriate to revisit this, particularly in view of the size of the Crocus Fund, which is very close to $100 million now and a very important pool of capital for Manitoba. Given that the minister is interested in and we are all interested in more value-added businesses in the agribusiness, agricultural sector, perhaps it is appropriate to review whether this section itself should not be amended to make it clear that in fact Crocus could invest in any business other than a traditional small farming operation, which, I suspect, was what the intent was when the act was framed.
Mr. Downey: As I indicated earlier, we will take a look at it to see if there is any ability to do it as it currently stands. If not, maybe there would be a chance to review it to see if in fact there are other types of activities that they should be in that they are now being prohibited from participating in.
Mr. Chairperson: 10.2. Business Services (a) Industry Development - Consulting Services (1) Salaries and Employee Benefits.
Mr. Sale: No, I still have a couple of other questions here, Mr. Chairperson. Under 10.2.(b)(3) Programs (a) Manitoba Industrial Opportunities, could the minister review with the committee or supply to the committee the status of all the MIOP loans and grants currently outstanding? I think in the past he has provided a list. If he wishes to do that in that same fashion, that would be helpful.
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Mr. Downey: Yes, I will. We are prepared to provide that list. I can tell the member at the outset, I believe that one that he is probably aware of that we will have some difficulty with is the support to Akjuit for $2.5 million under MIOP. It appears that that--we will do what we can, but I do not imagine there will be much payback on that one, but I think all their other ones are in reasonably good condition, and if not, we can speak to them after the member goes over them, and I can deal with any specific questions that he may have following the receipt of the list.
Mr. Sale: Does the minister want to provide that list now or does he want to provide it the next time the committee meets?
Mr. Downey: I can provide it the next time the committee meets. If we get finished tonight, I am prepared to provide it as soon as it is available.
Mr. Sale: It would be helpful if, given that we are going to recess for I think about a week, it would be helpful if he could provide that during the time that he is away so that it is not just tabled when we try to talk about it when we reconvene.
I wonder whether there has been any progress on the issue that has been raised in two successive years now on the listing of the companies receiving investment from Vision Capital and also from the Manitoba Capital Fund.
The minister is familiar with the issue I have raised. I have raised it with the Auditor as well. I am waiting for a response from the Auditor as to the listing of the companies that have been subject of the investment by those two important venture capital pools.
Mr. Downey: Our position has not changed. We are unable to provide that list due to confidentiality of which we have distributed a legal opinion to the member, I think it was the last--no, it was probably under the Manitoba Development Corporation hearing. So our position has not changed.
Mr. Sale: For the record, again, I do not think that our government, our party, rather--we will be government at some point--agrees with the position of the government that it is appropriate for public sector funds to be invested in companies whose names cannot be made public. I think it would be something that I strongly suspect that if the current party were in opposition, they would find it difficult to agree. They may find themselves in that position.
I think it is particularly silly, given articles such as the Friday, April 19, Winnipeg Free Press article, which lists virtually all of the companies, including ones that Vision lost money in, Ubritrex, Quantic Labs, and Chemfet, so, I mean, here are the companies. At least we are told this is most of them. What is the problem with having a requirement that these companies be listed in the same way? But we have had this debate, and the government has its view and we have our view, and this is one in which we have a difference of opinion.
Can I ask whether there are any companies in which Vision or Manitoba Capital Fund have invested that have failed in the current period?
Mr. Downey: Again, Mr. Chairman, I do not believe I am able to give that information. What we are able to do is to talk about the MIOP companies that we have supported, but we have not, I do not think, previously disclosed any information as to any investments which have been made either by Vision and/or by the Manitoba Capital Fund. Again, I think if other people want to release those names or those companies or they do themselves, that is their business, but, again, our advice from legal counsel is that we should not be doing so. So I think that is a trick question.
Mr. Sale: What is the purpose of the $2.37-million allocation to Vision Capital?
Mr. Downey: It is a matter of making an accommodation for the interest charged for the money and also an accommodation for any losses that may be incurred which come to that amount.
Mr. Sale: I do not understand interest in regard to this operation. I thought you were capitalizing this investment fund. I do not understand interest charges.
Mr. Downey: The relationship that the department has with the Department of Finance is that they provide us with the funds and the department is charged the interest charges on that money.
Mr. Sale: How much is the interest this year, Mr. Chairperson?
Mr. Downey: The combined number which has been put together is made up of interest and allowance for loan losses. That, basically, is what we are able to tell him.
Mr. Sale: That is a puzzling answer. The purpose of Estimates is to ask questions about the expenditures of government. Surely the minister is not now saying that interest is a nondisclosable expenditure? If there is interest being paid to the Department of Finance out of this $2.37 million, how much is it?
Mr. Downey: Would you repeat the question again? I am not trying to keep information from the member; I am trying to get specifically what he is looking for here.
Mr. Sale: Mr. Chairperson, the Minister of Finance advances, I am told, money to the department for the purpose of paying various expenses in regard to Vision Capital. I presume the same is true in Manitoba Capital Fund. How much of the $2.37 million is interest being charged by the Minister of Finance for the advances which the Minister of Industry, Trade and Tourism (Mr. Downey) identified in his first answer?
Mr. Downey: What I was not clear on was whether it was the rate of interest or the total amount of interest that we were charged. The amount is $1.974 million.
Mr. Sale: Just to be clear, that interest is essentially an internal charge of government then? It is a transfer from Industry, Trade and Tourism Estimates and should show up as a credit in the Estimates of the Department of Finance, a recovery?
Mr. Downey: That would be correct.
Mr. Sale: Do we have the same information for the Manitoba Capital Fund which I presume is the same issue?
Mr. Downey: Yes, Mr. Chairman, $200,000.
Mr. Sale: So it is fair to say then that the pro rata share of losses for this year for Manitoba Capital is about $306,000, and in the Vision Capital situation it is something in the order of $60,000?
Mr. Downey: Because the agreement that is made in the funds that are provided to the capital funds, Mr. Chairman, there is an accommodation for potential loss. However, there is also an ability, as he knows, because we are in fact investing as an equity investor, there could be a positive side. For the accounting purposes, we have to put in place an ability for if in fact there were a loss, so that we are not able to--it is hard to explain how it is an absolute. I can tell him what we have accounted for as it relates to the allowance for bad debt. This would be the number right here. On the Vision Capital Fund it would be $750,000.
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Mr. Sale: Mr. Chairperson, $750,000 is the loss provision for this year, and is there then an offsetting gain on assets provision that nets out then to the roughly $60,000 difference? I am puzzled by the accounting here.
Mr. Downey: Mr. Chairman, because in fact when we charge a greater amount of money for the use of the money, then it can come into a positive position, and there is a positive number which is recorded which is offsetting the loss allowance. It is a bookkeeping procedure because the fund has not been closed; it is still open waiting for the final. I will let one of the staff explain the other part of it.
Mr. Murray Cormack (Deputy Minister of Industry, Trade and Tourism): When there is any subsidization on the interest rate, we are required to show that as a charge immediately, but as the loan proceeds to maturity, that comes back into us. It reverses itself, so to speak, and becomes a revenue to us. So the situation when you combine all of our loans is such that this year that offsetting amortization comes in at $687,000. So when you take the interest costs of $1,974,000 and the allowance for bad debt of $750,000, then you have to subtract off $687,000 which is this reversed revenue, if you will, to get the net of $2,037,000.
Mr. Sale: Mr. Chairperson, this perhaps is why it would be helpful if we had a clearer accounting on how this works. Let me explain my confusion and my assumptions. I guess obviously they have been wrong, so we will hope we are--at least I am learning something here today. No one else may be.
I thought that Vision was a separate investment fund that was capitalized by advances from the government. I was not aware that on an annual basis there were transactions in and out in regard to the Vision Capital Fund. I thought it was separately managed and, in effect, once capital was transferred to the fund for investment purposes, the fund managed that capital. There may or may not be some return on the province's investment if the fund declared a dividend, for example, or declared a distribution to its partners, given that the government of Manitoba is not the only funder in Vision. There are other partners in Vision.
So I clearly am not understanding how Vision operates from the point of view of an investment fund. Do all the other partners have a similar kind of arrangement whereby in their books there is an ongoing, annual funding of Vision. Maybe I just should be quiet and let someone explain this, because I am sure confused.
Mr. Ian Robertson (Assistant Deputy Minister, Industrial Development): I am not sure in what detail you want an explanation of the agreement, but the province has a loan, a loan to Vision Capital, and Vision Capital also has a limited partnership, which is our private sector partners, plus the province has part ownership of the limited partnership as well.
Under the loan that we have to Vision Capital, Vision Capital pays us an interest rate. The interest is payable at maturity rather than on an ongoing basis. So on a current accounts basis, the province has no interest income because we do not take the income into our financial statements until we receive it, even though we are accruing it. On an expense basis, the Department of Finance is charging us an interest charge on the money that we lend to Vision periodically, and we advance Vision money on a formula basis over time as they make individual loans. So it is a complicated accounting arrangement, but the third number which Minister Downey provided you with is under what is called PSAAB, which is public sector accounting practices. That is required by public sector accounting practices. So that is why that number is contained in our arrangements.
Because it is required under public sector accounting practices, our private sector partners do not have a similar amount, but that is because of their accounting treatment, not a cash flow issue. That is only an internal government accounting number.
Mr. Sale: So, if I can paraphrase back the explanation, this largely arrives because government is not on a full accrual accounting basis in regard to this fund. It is taking income in and treating it as actual as opposed to, even though you are accruing it on your books, you are actually only recognizing it when it comes in? Is that the source of the difference here?
Mr. Robertson: On an income basis, we receive our income from Vision at maturity on our loan but, on a cost basis for those funds, we pay finance for those on an annual basis. So we are showing an expense but we are not showing an income. We are not showing an income because we show it when we receive it.
Mr. Sale: So, Mr. Chairperson, the other limited partnership contribution that we had, was that a capital investment in effect? Was it a buying of equity in Vision so that we are equity partners through the LP?
Mr. Robertson: Yes, we have an equity investment in Vision Capital, and that equity investment is made on the same basis as the other private sector partners.
Mr. Sale: Mr. Chairperson, could we just have then a breakdown of the equity versus the loan and that would presumably then give us our total outstanding division?
Mr. Downey: Mr. Chairman, we have a $30-million initial loan to Vision, a million and a quarter in equity, and we are in the process--or we have not announced that there is an additional amount that we will be providing to Vision which has not been announced yet but will be. It will be shortly, but it is not completed I guess. There is an additional amount which has not been announced yet but will be shortly.
Mr. Sale: I am not sure I understood the figures the minister gave. I wonder if he could just review them. I heard him say a $30-million equity investment, a $30-million loan investment, plus a share in a partnership of how much. That was the figure I missed.
Mr. Downey: One and a quarter million.
Mr. Sale: Could the minister just indicate whether we have a similar arrangement with Manitoba Capital Fund or is it all equity investment in the case of Manitoba Capital Fund?
Mr. Downey: With the Manitoba Capital Fund, it is a limited partnership.
Mr. Sale: So it is all equity then.
Mr. Downey: All equity, that is correct.
Mr. Sale: Thank you. Just for the record, I think the minister is just confirming that Manitoba Capital Fund is all equity, and so, in the case of Manitoba Capital, just to summarize it, it looks like we have a net loss provision of $306,000 for this year. Is that, in that case, a net loss? That is there have been some gains, there have been some losses, this is the net loss or is it a provision?
Mr. Downey: Mr. Chairman, it is my understanding that that is a provision, a loan loss provision, but no losses to date.
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Mr. Sale: So, Mr. Chairperson, that is setting aside a loan loss provision against our government. I think it is a $5-million investment.
Mr. Downey: That is correct.
Mr. Sale: So, Mr. Chairperson, how is that held? What account is that held in? Is it a trust account in Finance or how is that amount held if it is a provision for loss?
Mr. Downey: I am informed that it is held in the Department of Finance.
Mr. Sale: Mr. Chairperson, maybe Mr. Dalgliesh could just indicate in a note or whatever, where in the--it is probably in Volume 4 of Public Accounts, but is there a schedule where I would find the loan loss provision? Maybe you could just point me to it.
Mr. Downey: We will provide that information for the member.
Mr. Sale: Mr. Chairperson, I think we could pass down to (c).
Mr. Chairperson: Item 10.2. Business Services (a) Industry Development - Consulting Services (1) Salaries and Employee Benefits $2,198,400--pass; (2) Other Expenditures $840,500--pass; (3) Grants $16,900--pass.
Item 10.2.(b) Industry Development - Financial Services (1) Salaries and Employee Benefits $785,400--pass; (2) Other Expenditures--$250,600--pass; (3) Programs (a) Manitoba Industrial Opportunities $11,205,500.
Mr. Sale: Just so that we are clear when we reconvene, is it acceptable that we go back and review that list if that seems to us to require some questions?
Mr. Downey: Yes, Mr. Chairman.
Mr. Chairperson: 10.2.(b)(3)(a) $11,205,500--pass; (b) Vision Capital $2,037,000--pass; (c) Pine Falls Paper Company no expenditure--pass; (d) Manitoba Business Development Fund $2,000,000--pass; (e) Small Business Expansion Fund $500,000--pass; (f) Manitoba Capital Fund $506,000--pass; (g) Less: Interest Recovery ($2,807,500)--pass; (h) Less: Recoverable from Rural and Urban Economic Development Initiatives ($500,000).
Mr. Sale: Is this $500,000 targeted at any particular area or is it simply an arm twisting in cabinet?
Mr. Downey: There is no particular allocation, Mr. Chairman.
Mr. Chairperson: 10.2.(b)(3)(h) Less: Recoverable ($500,000)--pass;
Item 10.2.(c) Manitoba Trade (1) Salaries and Employee Benefits $1,128,400.
Mr. Sale: I want to recognize the success in the area of trade in terms of increased volume of trade over the past year and, well, over the past several years. As was pointed out in the House, there has been substantial growth in our international trade.
Mr. Downey: I have a correction to make on this $500,000, so the record is not--I want Ian to make a comment on it, if he would, please.
Mr. Chairperson: Item 10.2.(b)(3)(h). Is it agreed to go back for an explanation? [agreed]
Mr. Robertson: Mr. Chairman, the $500,000 is a recovery of (3)(e) the Small Business Expansion Fund. That is a specific allocation.
Mr. Sale: That is not a program transfer, though, is it? That program has been there before?
Mr. Robertson: The Small Business Expansion Fund just started and the full amount is being recovered; the full amount of the cost of the program is being recovered.
Mr. Sale: The $500,000 shown in the current year's expenditures, is that a restatement from Rural Development in previous years, or is it new this year and this is the provision for next year?
Mr. Robertson: This program is new, but it was in last year as well. The program was late in getting implemented, so the full cost of the program on an annual basis is being recovered
Mr. Chairperson: Back to 10.2. Business Services (c) Manitoba Trade (1) Salaries and Employee Benefits $1,128,400.
Mr. Sale: As I was saying, the trade numbers over the past few years in terms of exports growth has been substantial. I just note for the record that it appears that in 1997 the final export number, although I do not have the breakdown for various countries except the United States, was $7,600,900,000, which is a substantial growth over the previous year. I am saving the minister making all of these statements just so that he does not feel that he has to do those things. He probably would feel he has to anyway. But the percentage growth was also impressive in terms of a double-digit number. Although it is down from its peak, it is nevertheless--one cannot have growth at double-digit numbers forever. So there is no question that the growth has been impressive.
I think what is also impressive is that the area of the growth, I guess the minister has pointed out and we have noted, has been largely--not exclusively but largely--in value-added industry as opposed to unprocessed or semi-processed goods.
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That said, there is a continuing concern about the trade balance. When this government took office in 1988, we had a trade surplus of $372 million in that particular year, although that was a record year, and I believe, in modern times anyway, a record surplus, that there had been deficits in previous years under the previous administration. Nevertheless, it was a very impressive year in terms of the trade balance.
The American trade, however, since the outset of NAFTA, has, with the exception of 1996 where there was a significant reversal, the trade deficit with the United States has widened every year: $484 million in 1988, rising to a peak of $1.3 billion in 1994, and falling in 1997 to $1.031 billion, but still over a billion dollars in trade deficit with our largest trading partner. If you look at the Canadian numbers, you see a trade surplus in merchandise trade with the United States. In Manitoba's terms, you see a substantial deficit. The government has maintained that NAFTA has been good for us and that the open trading environment has benefited us, but the trade numbers would seem to suggest otherwise. There are clearly gains in exports, but the gains in imports have been very, very substantial and have, since 1988 in any case, outstripped the gains in exports.
The difficulty that that puts us in, of course, is that most exporters, while they may be happy with the current government, and I am not trying to suggest that the current government has not created a business climate that business groups like, they tell us, and I imagine they tell the minister too, that most of their success is dependent on a dollar that is in a reasonable trading range, that when we let the Canadian dollar go to 89 and 90 cents, it killed most of our exports and it certainly severely damaged the structure of our manufacturing industry.
We now have interest rates which are still, in real terms, very high. Our nominal interest rates have come down tremendously, and that is true. But real interest rates are actually higher than they were when inflation was very high in the late '80s. We are still seeing real interest rates in excess of 5 percent in many areas and higher than that in some sectors where risk is perceived to be higher. So there is a very, very high real interest rate premium. The Canadian dollar is absolutely critical to maintaining the kind of export performance that we have, and I do not think it will matter what government is in power. If the dollar appreciates above about the 74-cent level or 73-74-cent level, we are going to see our exports in serious trouble.
So the government has been an unwavering supporter of free trade, NAFTA and, I presume, FTA, but NAFTA in particular, but we are financing that trade with a billion-dollar transfer every year to the United States to pay for this trade deficit. Thank goodness we are in a trade surplus with the rest of our partners so that in fact our trade deficit last year of almost $600 million, while very large, is still better than our trade deficit with the United States of a billion dollars. Now, that is Manitoba money flowing out. It is not new money coming in. It is a net outflow of capital to finance our trade deficit.
I do not see anything in the numbers to encourage me to think that this is turning around. We had a trade surplus in 1988. We had very small deficits in '89, '91 and '92, but from that point on, apart from '96, which looks like it was probably an anomaly in a variety of areas, the trade deficits overall have been an average of well over $500 million, probably $550 million. Our trade deficits with the United States have averaged during that period of time about $1.2 billion, and I do not see encouragement in that. I see encouragement in the volume, but I do not see encouragement in the bottom line, which is really what matters to the Manitoba economy. The trade deficit has to be financed, essentially, out of our earnings as a province. So I would be interested in the minister's response to that.
Mr. Downey: Mr. Chairman, I want to acknowledge the comments the member made as it relates to the movement of product into the United States and how important it is that we continue to grow and expand. Without getting into the philosophical debate as to whether or not NAFTA or the FTA agreement has been good for us, we believe it has, and there have been several examples. I think the hog producers of the province and the country would say thank goodness we had the Free Trade Agreement or the agreement in place under NAFTA, because I believe three times the Americans have taken Canada to the dispute panel and three times criticizing us of unfair subsidies or unfair support for the hog industry. Three times it has gone to the panel, Canada has won, and there has been a substantial refund in border duties that have been in fact to pay back to the producers. So, without that structure, without that agreement, without that process, it would have been strictly a political argument which would have been hard to lay out our case.
I think it is also important to note that he does make an important point that our dollar, being where it is at with the strength of the U.S. dollar opposed to the strength of the Canadian dollar, is that it has left us in a strong advantage. We also know that many of the companies that we talk to continually say that, yes, it is very advantageous to them, but they could live with a stronger dollar up to a certain point. Now, I do not know how everybody would like it, but I think one has to also appreciate some of the production machinery that we buy, some of the inputs that go into this business which are shown here on our imports are not a benefit when you are buying it with a weaker dollar.
But the bottom line is that the number of 80 to 85 cents quite often is referred to by some of the companies, that they would still be in a reasonably good situation if they had an 80- to an 85-cent dollar. Not that they want to go there, but that is basically the number that has been used. I put that on the record, not with any research, but, again, with some discussion with some of the companies. There is, I think, an important note, and that is that the ratio of what we are importing compared to what we are exporting is probably an important number for the member to have. I put on the record that we get a better appreciation for this whole issue that the member has raised by looking at the ratio of exports versus imports.
In 1997, for example, Manitoba sold the U.S. 83.8 cents worth of goods for every dollar worth that we had bought from them--83.8 cents for every dollar that we bought from the U.S., an all-time high. That is up from 83.2 cents per dollar in 1996 and 75.4 cents per dollar in 1994. It is considerably higher and a major improvement over the situation a decade ago. A decade ago, in 1987, Manitoba sold the United States only 57.9 cents worth of merchandise for every dollar's worth that we bought from them, so the ratio of what we are buying from them compared to what we are selling them is continuing to improve, and we are at an all-time high, as I have indicated, at 83.8 cents. So the ratio of what we are buying from them versus what we are selling them is improving, and I consider that to be putting us in a good position as a province, and very positive.
Mr. Chairman, if one were to read the comments or make reference to the comments the member put on the record earlier from the Investment Dealers Association of Canada, I think it augurs well for Manitoba and the position that we are in. It is extremely well too when they point out that we are basing ours, and it is being based now on more manufactured goods, more value-added product than ever before and, quite frankly, there is, I think, an opportunity to continue to probably import raw product to this province rather than exporting it for processing here rather than our just continuing to export.
We still export a tremendous amount of mineral wealth that goes out in the raw form and not refined. Again, the economies of doing the processing have to be here. We still have a major electrical advantage, a cost advantage which we want to continue to maintain. We still have tremendous production capability, and we have to, we believe, maintain the course of encouraging businesses and doing certain things such as were done in this last budget in which some of the decisions are reflected, we believe, in the performance of our companies.
I am certainly not going to stand up as a minister and take all the credit because, quite frankly, it is the companies out there that have the attitude and the investment entrepreneurship and the vision to take on the challenges that are out there, but it is certainly rewarding to be in this ministry when, as much as it is a challenge and a difficulty, where some industries are finding problems getting employees to fill the vacancies that are now appearing with the demand that is coming at them.
So putting it in that context, Mr. Chairman, I hope it further explains how we feel about the situation on the export-imports.
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Mr. Sale: Mr. Chairperson, I appreciate the minister's comments, and I think we need to continue to work very hard at that balance, because this is after an unprecedented--I believe now the American economy is in its seventh full year of expansion, and our economy is in about our fourth year of significant economic growth. I do not think the law of the markets has been repealed, and it is very--let us say, I think, we are much more vulnerable than people would like to recognize to a downturn in the American economy or in the world economy, for that matter, but in the American economy because there are all sorts of indications that that economy is stressed, I guess, to say the least, after the number of years that it has had. We have the uncertainties of the Asian situation overhanging us as well. So I hope it continues. I hope the ratio the minister cites continues to improve, but I just flag this as something that would make me lose a little bit of sleep on this issue.
I wanted to ask the minister when these publications were done. I received them within the last week, a nice package, and they are nicely done. They are very, I suppose classy would be the term to use. I was wondering when they were prepared.
Mr. Downey: I think, I am informed, within the last year.
Mr. Sale: Mr. Chairperson, the Investment Dealers Association of Canada puts out a quarterly card that has a fair amount of similar information, not maybe quite as much about Manitoba, but a fair amount. I am wondering, when you are putting out this kind of stuff that--it is good, I like this, I like to see this kind of thing. But it is 1996. It is now a third of the way through 1998, and 1996 is the most recent data that we have in here. I think that we could do better, given the technology we have in terms of updates.
I like the information and I like the kind of card, and frankly it would be nice if MLAs had small supplies of these so when we travel we can say, maybe you do not know too much about our province, here is a little bit of information, pocket information, good information on the back about access. But I would think we would benefit from having this updated more frequently.
Mr. Downey: I agree that it is extremely important to keep it current. We are restricted by the information that flows on trade from Stats Canada and from our own bureau. I think it is June they come out for the last year, and I will also make sure--I do not even think there is a picture of the minister on there--I will have to make sure there is an updated picture of the minister that goes on these as well, Mr. Chairman. I think that is an oversight by somebody in the department. Yes, that is the buffalo, that is right. But I will look at that, seriously look at that. It is important to have as up-to-date information as possible, particularly when it is good.
Mr. Sale: Mr. Chairperson, there is lots of information in here that does not need to be updated, but I would just suggest that there are in fact monthly StatsCan publications of GDP and growth and employment and all sorts of numbers that are in here. I do not think you have to wait for annual publications. If you decide to do it thirdly or quarterly or semiannually, I just think it shows to the people who are receiving it that we are on top of our own stuff. Just a comment for what it is worth.
Mr. Chairperson: Item 10.2. Business Services (c) Manitoba Trade (1) Salaries and Employee Benefits.
Mr. Sale: Mr. Chairperson, I have a little article here from the Union Farmer, and I know the minister will recognize the organization and the publication, but it has an interesting chart and an interesting article. Essentially what it says is that increasing exports do not appear to increase farm income. It is talking about net Canadian farm income: Manitoba realized net farm income against Manitoba agri-food exports. What this chart shows, if the data are correct, and I do not have any reason to doubt it, is that we have had sharply rising exports of agri-food and slightly declining farm gate receipts.
I wonder if the minister has any strategies or any suggestions as to how we can explain to our farmers why in 1989 farmers received about 23 cents, a very similar ratio approach to what the minister was using a few minutes ago, for every dollar of agri-food exported from the province. Today, they get just seven cents. That is a little more than a two-thirds decline in about nine years, or eight years, a very serious problem for our farmers that, while the value of exports has grown very sharply, the real world of the farm-gate receipts does not seem to have changed at all.
Mr. Downey: Mr. Chairman, I could give a considerable, lengthy response to this because I think it does deserve some debate, not necessarily debate but some comments made. First of all, the farmers in Manitoba are paying the highest cost of freighting their grain out of any prairie province in the country, and that was thanks to the federal government who took away in entirety the support under the transporation subsidy without investing back either in roads and/or in any other infrastructure for the farmers of Manitoba and/or western Canada.
Today, just to give the member a number that he may appreciate, when a farmer from Manitoba hauls three loads of grain to the elevator, whatever size they are, one load goes to the transporting and the elevation of that crop, so that means if you haul $6,000 worth of grain to the elevator, $2,000 of it goes to the movement and the elevation. Farmers cannot continue on with that kind of cost incurred. So it is a matter, yes, grain prices are down. When the Crow was taken off, they were high, and right now the real shock is hitting them, and, quite frankly, that is why I advocate a dual-marketing system because once the subsidy was taken off of farmers to force them to use that high-cost system, it is very, very difficult.
Point No. 2--and there is room for more discussion and my colleague the Minister of Agriculture (Mr. Enns), again, is certainly aware of this and we are working on it--is that because of some of the production restrictions that we have upon us where we have some natural advantages in Manitoba, we are restricted from increasing those products because of our agreements with the other parts of the country under national supply quota systems.
Now, there is another one, and when one looks at the statistics--and I saw it recently and I am going to have some more work done on this. The member is right. The farm-gate prices have not gone up in a manner which have been satisfactory. What has gone up has been the processed food portion of agriculture. That is why the closed co-ops or the new generation co-ops to move farmers up the food chain higher, where there is Crocus Fund being allowed to get more involved in the processing of food or any of those capital pools, we have to do that, where the farmer carries the ownership of the product higher up the food chain to get a greater return from people like him who is a consumer.
There is quite a bit of work to be done, and as we move down this diversification and this whole new generation of farm communities, we are going to see more of that take place. That is why, again, the production of hogs, the diversification into livestock and all different kinds of speciality crops where you add value to them at site of production rather than shipping them as a raw product to site of consumption is absolutely essential, and when we look at the loss of people out of some of our rural communities, we have to bring those jobs back in the food-processing industry.
So, when he talks about whether it is Crocus or other capital pools, he can count on us being very supportive.
Mr. Sale: Mr. Chairperson, I just table this, and perhaps we could get copies for when we next meet. Just a brief comment, it would seem from the bottom of that chart that the Crow does not show up here as a particular problem. It has been a problem all the way along. It has been essentially flat to declining, Crow or no Crow.
Mr. Downey: But it has been greater impact with the loss of the Crow.
Mr. Chairperson: Order, please. The time being five o'clock, it is time for private members' hour. Committee rise.