From: Issue 41
With influence comes responsibility
Canada is punching above its weight in the global mining sector, but being a dominant foreign investor isn’t license to behave badly
Canada is a member of the G8, and a nation widely regarded as one of the most prosperous in the world. And yet, compared to the 25 per cent share of global GDP contributed by the United States, Canada’s GDP is tiny – representing just 2.8 per cent.
It raises the question, why is Canada generally perceived on the world stage as a wealthy nation? What gives us membership in the prestigious big players club? And why should a nation that accounts for such a sliver of the world’s wealth have so much influence?
One answer: our mining sector.
In terms of market capitalization, nine of the 40 biggest mining companies worldwide are Canadian. Roughly 75 per cent of the world’s exploration and mining companies have their headquarters in Canada. Barrick Gold and Goldcorp (both Canadian companies) are the only two gold mining companies on earth with a market capitalization exceeding $30 billion (U.S.). Barrick’s 2012 market cap alone sits at nearly $50 billion.
According to the TMX Group, 90 per cent of all mining equity financings in 2011 were done on the Toronto Stock Exchange and TSX Venture Exchange, with more than $450 billion in mining equity traded over the year. Simply put, Canada’s dominance in the global mining industry has enabled us to punch above our weight internationally.
But contrary to the popular misconception that Canada’s bounteous domestic reserves of minerals and metals are fuelling our mining industry, the majority of Canadian mining assets are actually held abroad. Corporate Knights has identified that the largest concentrations are located in Latin America, the United States, Oceania and Africa. After narrowing the search to the 50 largest mining companies in Canada, we found that at least one Canadian resource company was a dominant private foreign investor in 19 countries.
On the surface, this appears like business as usual. Corporations have for years been making large investments in foreign countries to exploit resources for profits. While Canadian private investment is heaviest in developed and industrialized nations such as Australia, Mexico and the United States, it has the greatest impact in developing countries such as Mauritania, Madagascar and Burkina Faso where the inflow makes up a significant portion of incoming foreign direct investment.
As the magnitude of this foreign investment reaches critical mass, it’s reasonable to expect that the partnership between company and country transcend bare-boned capitalism and incorporate fiduciary duties. The gap here between the private and public sectors is quickly receding. It may be time in these more vulnerable geographies to reconsider the role of the corporation.
In many cases, such a partnership between foreign corporation and state has led to the successful development of nations, such as Chile’s rapid economic ascendancy during the 1990s and 2000s. But the strategy requires sizeable and constant inflows of direct investment to counterbalance the volatility of export prices. Multinational corporations must provide the capital, specialized training and knowledge to attain the comparative advantage needed to realize profits. Socially and environmentally responsible practices must be put in practice to foster independence and ensure the continuation of development after the resource is depleted.
There are a range of regulatory requirements in North America designed to ensure the integrity and transparency of the domestic resource sector. But in less economically developed countries with weaker regulatory bodies – the same countries in which Canadian resource companies have been identified as significant private investors – lack of disclosure, tax evasion, badly structured resource rent agreements, and socially and environmentally unacceptable practices often lead to stagnation instead of growth and development.