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37th PARLIAMENT, 1st SESSION

Standing Committee on Industry, Science and Technology

EVIDENCE

CONTENTS

Thursday, May 9, 2002

0900

The Chair (Mr. Walt Lastewka (St. Catharines, Lib.))

Hon. Andy Mitchell (Secretary of State (Rural Development) (Federal Economic Development Initiative for Northern Ontario))

0905

0910

0915

The Chair

Mr. Andy Mitchell

0920

Mrs. Cheryl Gallant

Mr. Andy Mitchell

Mrs. Cheryl Gallant

Mr. Andy Mitchell

Mrs. Cheryl Gallant

Mr. Andy Mitchell

Mrs. Cheryl Gallant

0925

Mr. Andy Mitchell

Mrs. Cheryl Gallant

Mr. Andy Mitchell

The Chair

Mrs. Cheryl Gallant

The Chair

Mrs. Cheryl Gallant

The Chair

Mr. Andy Mitchell

Mrs. Cheryl Gallant

0930

Mr. Andy Mitchell

The Chair

Mr. Larry Bagnell (Yukon, Lib.)

Mr. Andy Mitchell

Mr. Larry Bagnell

Mr. Andy Mitchell

0935

Mr. Larry Bagnell

Mr. Andy Mitchell

Mr. Larry Bagnell

Mr. Andy Mitchell

Mr. Larry Bagnell

Mr. Andy Mitchell

Mr. Larry Bagnell

Mr. Andy Mitchell

0940

The Chair

Mr. Scott Brison (Kings--Hants, PC)

Mr. Andy Mitchell

Mr. Scott Brison

Mr. Andy Mitchell

0945

Mr. Scott Brison

Mr. Andy Mitchell

Mr. Scott Brison

Mr. Andy Mitchell

Mr. Scott Brison

Mr. Andy Mitchell

Mr. Scott Brison

Mr. Andy Mitchell

Mr. Scott Brison

Mr. Andy Mitchell

Mr. Scott Brison

Mr. Andy Mitchell

Mr. Scott Brison

Mr. Andy Mitchell

The Chair

Mr. Brent St. Denis (Algoma--Manitoulin, Lib.)

0950

Mr. Andy Mitchell

Mr. Brent St. Denis

0955

Mr. Andy Mitchell

The Chair

Mrs. Cheryl Gallant

Mr. Andy Mitchell

Mrs. Cheryl Gallant

1000

Mr. Andy Mitchell

Mrs. Cheryl Gallant

Mr. Andy Mitchell

Mrs. Cheryl Gallant

The Chair

Mr. Andy Mitchell

The Chair

Hon. Gerry Byrne (Minister of State (Atlantic Canada Opportunities Agency))

1010

1015

1020

The Chair

Mr. Gerry Byrne

Mr. Brian Fitzpatrick

Mr. Gerry Byrne

Mr. Brian Fitzpatrick

Mr. Gerry Byrne

Mr. Brian Fitzpatrick

Mr. Gerry Byrne

Mr. Brian Fitzpatrick

Mr. Gerry Byrne

Mr. Brian Fitzpatrick

Mr. Gerry Byrne

Mr. Brian Fitzpatrick

1025

Mr. Gerry Byrne

Mr. Brian Fitzpatrick

Mr. Gerry Byrne

Mr. Brian Fitzpatrick

The Chair

Mr. Brian Fitzpatrick

1030

Mr. Gerry Byrne

The Chair

Mr. Larry Bagnell

Mr. Gerry Byrne

1035

Mr. Larry Bagnell

Mr. Gerry Byrne

Mr. Larry Bagnell

Mr. Gerry Byrne

Mr. Larry Bagnell

Mr. Gerry Byrne

Mr. Larry Bagnell

1040

Mr. Gerry Byrne

The Chair

Mr. Scott Brison

Mr. Gerry Byrne

Mr. Scott Brison

Mr. Gerry Byrne

Mr. Scott Brison

Mr. Gerry Byrne

Mr. Scott Brison

Mr. Gerry Byrne

1045

Mr. Scott Brison

Mr. Gerry Byrne

Mr. Scott Brison

Mr. Dennis Wallace (President, Atlantic Canada Opportunities Agency)

Mr. Scott Brison

Mr. Gerry Byrne

1050

Mr. Scott Brison

Mr. Gerry Byrne

The Chair

Ms. Paddy Torsney (Burlington, Lib.)

Mr. Gerry Byrne

Ms. Paddy Torsney

1055

Mr. Gerry Byrne

The Chair

Mr. Brian Fitzpatrick

Mr. Gerry Byrne

Mr. Brian Fitzpatrick

Mr. Gerry Byrne

The Chair

CANADA

Standing Committee on Industry, Science and Technology

NUMBER 082

1st SESSION

37th PARLIAMENT

EVIDENCE

Thursday, May 9, 2002

[Recorded by Electronic Apparatus]

¿ (0900)

[English]

The Chair (Mr. Walt Lastewka (St. Catharines, Lib.)): Pursuant to the order of reference of the House dated February 28, 2002, we are dealing with the main estimates for the fiscal year ending March 31, 2003, votes 1, 5, 20, and 25 under Industry.

Appearing this morning is the Honourable Andy Mitchell, Secretary of State for the Federal Economic Development Initiative for Northern Ontario. Mr. Minister, thank you very much for being with us this morning. I understand you have some opening remarks for about 15 minutes, and then the rest will be hot questions from the committee. So I'll ask you to begin.

Hon. Andy Mitchell (Secretary of State (Rural Development) (Federal Economic Development Initiative for Northern Ontario)): Thank you very much, Mr. Chairman. It's great to be back with the Industry committee. A number of years ago I had the honour of being a vice-chair of the committee, and I appreciate the opportunity to be here to provide testimony.

As I'm sure colleagues are aware, FedNor has been in existence since the 1980s, when it was originally established. It underwent in the mid-nineties a major review of its structure and how it would do its programming. Essentially, in 1996 FedNor was re-engineered and moved away from direct assistance to individual businesses and more into providing assistance to communities and organizations within communities. Since the restructuring of FedNor in 1996 we have worked on close to 1,700 projects, totalling just a little less than $137 million. The area FedNor covers is that defined as northern Ontario. As a federal government, we follow the definition that's established by the Province of Ontario as to what they consider to be northern Ontario, and our programming matches that.

The reason for FedNor's original creation and its continuation is the disparity in the economy of northern Ontario vis-à-vis the rest of Ontario, and indeed the rest of Canada. If you take a look at indicators of employment participation, workforce participation, population decline or growth, and a number of other things, you will see that northern Ontario, as compared to the rest of the province, is not doing as well. Indeed, the same comparison can be made with Canada as a whole. There are reasons for this, Mr. Chairman, and many of those reasons are structural in nature. It's because of the reality in which the economy of northern Ontario operates. Those challenges are fairly straight forward, but I think it would be proper to look at them for a minute.

One of the realities is that there is a lot of geography in northern Ontario. It represents most of the geography of Ontario, and that presents certain challenges in delivery of services and community development. Often, when you are trying to pursue public policy, that is a particular challenge in northern Ontario. Indeed, it exists in many of the rural parts of the country, but it is something that we need to deal with.

A second element is the whole issue of population density. Northern Ontario has low population density. When you're trying to attract investment to an area, population density is important, whether you're trying to trigger private sector investment or public investment. In a high density area, for instance, a major metropolitan centre, like Calgary, Edmonton, Toronto, or Halifax, the private sector may be willing to make investments, for example, in infrastructure on its own, because it will get an immediate return from the market, or even a long-term return from the market. When you have low population densities, in order to trigger the same type of investment, sometimes you need a public-private partnership to make it go forward.

Another structural challenge that faces northern Ontario is the whole issue of distance. When we try in northern Ontario to develop our businesses, whether they be small businesses or intermediate businesses, businesses that are dealing with the value-adding of our natural resources products, we have the extra challenge of our distance from market. That requires a different approach often from a situation where you have access such as you have in southern Ontario or in some of the other provinces.

¿ (0905)

I think one of the key points about the northern Ontario economy that FedNor deals with is the fact that for the most part, it's a natural resource-based economy. We have other areas in the country where you have something similar. For instance, in western Canada you have a large agricultural industry. In northern Ontario, although we have an agricultural industry--and I'm proud to say we do--our natural resource industries are primarily forestry and mining, and as natural resource industries, they tend to be cyclical in nature. Commodity prices fluctuate. That's the reality when you're dealing with resource-based industries. That's a very different type of economy from what you often find in an urban area, where you have a very diversified manufacturing or technology-based economy, and the cyclical nature of those economies requires a different public policy response from what you may find in an urbanized, diversified manufacturing or technologically-based economy.

Those are the types of challenges FedNor works to mitigate. Essentially, what we're trying to do with FedNor is create an environment within which the private sector has the opportunity to create wealth and jobs. Let me give you a specific example. In the city of Kenora, which is in northwestern Ontario, we've partnered with the city and provided it with $5 million to assist it in developing an industrial park. With that $5 million and the development of that industrial park, they were able to attract a $250 million private sector investment in a new business from the United States. We were able to create the environment, the infrastructure, the actual industrial park that allowed for that investment to come forward from the private sector. That's what I mean when I say creating an environment.

As for the types of tools we try to provide from FedNor, basically, the key word is access. We're trying to provide access to the knowledge-based economy, access to technology, access to markets, access to capital, and access to community capacity building tools. Those are the types of things that, in a broad way, we are trying to do. For instance, FedNor over the last few years has invested a little over $25 million in telecommunications activities. Some of our communities in northern Ontario are very remote. Without this public investment, our opportunity to have telecommunications would be limited. When I talk about telecommunications, although I'm talking about data communications, in some cases we're simply talking about a telephone. That's how basic the need for infrastructure can be. Some of that has gone into infrastructure development, some of that has gone into applications, and some of that has gone into planning, assisting communities in developing a business plan to attract the private sector to make those kinds of investments in telecommunications.

Again, we're trying to create the environment for the development of new technologies in northern Ontario. We operate two innovation centres, one in Sudbury, one in Thunder Bay. In Sudbury we're assisting with prototype developments. We have a number of companies, particularly in the mining sector, that are developing new products that they have an opportunity to sell around the world. We're assisting them with the type of infrastructure they need to develop their prototypes. In Thunder Bay our innovation centre is dealing with telecommunication development and information technology development, again providing the basic infrastructure to allow them to do what they do best, which is create the wealth and create the jobs.

The population is around 130,000, which, in relative size, is a small market, so one of our needs is to make sure we have not just the 9 million people of Ontario or the 31 million people of Canada, but the world as our marketplace. One of the things we're trying to do is expand our market, so that we can expand our economic activity. We deal on the trade side. We've invested a little over $2 million in assisting businesses with becoming export-ready and having an opportunity to sell their products around the world. We recently had a trade mission to the southeast United States, where we were able to bring a number of companies to Atlanta. That trade mission has just recently finished that particular phase. We're now into the phase of following up those contacts. There were 18 businesses on the trade mission, and they had over 220 individual contacts with businesses in the Atlanta area.

A big market area we're trying to work on in northern Ontario is tourism. We have an opportunity to attract visitors not just from Canada, but from around the world, particularly in the area of ecotourism. That's an emerging market in the 21st century. We had an ecotourism conference in Sudbury not that long ago, where we brought a number of the individuals that play in that particular field to learn more about ecotourism, more about the ways they can attract people, and more about the ways they can develop their product. I also took the opportunity at that time to meet with a number of other players from across northern Ontario who happened to be there and talk about tourism in general. We work in partnership with a number of organizations to help on tourism and marketing, as well as to assist, to a limited extent, on some tourism infrastructure.

¿ (0910)

As to markets, we've done a couple of very specific things. As I mentioned earlier in my speech, a lot of people don't realize that we have an agricultural industry in northern Ontario. So we took the opportunity to assist a number of our producers to go to the Royal Winter Fair in Toronto and set up a northern Ontario display. It was a great display. It was right in the front as people walk in. You would be amazed at how many people stopped in not realizing that we do have an agricultural industry in northern Ontario. A lot of good contacts were made, a lot of good market opportunities were developed, and I'm very pleased with that. Those are the kinds of opportunities we try to foster with FedNor.

One of the big issues we have in northern Ontario is access to capital. The private sector is often either unwilling or unable to deal with small businesses in northern Ontario. For those of my colleagues who are in other parts of the country, particularly if you're from rural areas, that's a problem as well, trying to get access to capital. So in areas where the private sector is either unwilling or unable to play we've provided a number of tools to assist. I guess the best known one is the community futures programs. We have 54 of those operating in Ontario. Over the last five years they've provided assistance to some 6,800 businesses, that's $205 million. These are commercial loans, they're fully repayable, they're collateralized, but what they're there for is to provide capital where capital wasn't available from the private sector. There are a lot of good business ideas that had an opportunity to create wealth and create jobs that died on the vine for lack of nourishment, for lack of capital. The community futures have filled that gap.

Also, we've developed a number of pools. We're pooling money together to try to provide additional access to capital. We've done this in a couple of pilot projects, one in southeastern Ontario, where the community futures has fostered money to come together to provide equity, because it's not just debt capital that's a problem, it's equity as well, and a combination in northeastern Ontario to put together a pool of money that will provide increased amounts of debt capital.

We also have a business planning initiative, where we will assist businesses in developing their business plans, particularly new start-ups and people who need assistance in that respect. We've worked with the private sector to establish some loan loss reserves with them, again to try to assist them in going higher up the risk curve in providing access to capital.

The other area we provide assistance for is community capacity building, assisting communities to have the capacity to move forward on economic development and community sustainability. I'm a firm believer, and our organization is a firm believer, in a bottom-up approach, that the initiative for community sustainability has to come from the communities themselves. A community in northwestern Ontario has different challenges from one in northeastern Ontario. It's important that we give them the opportunity to understand what their assets are in their community, to build on those assets, to train, to retain, to attract new human resources to help them build the types of community consensus they need in order to move forward on development initiatives. We work with them to develop the types of plans they'll need to have in order to move forward.

So we do a lot of work on the whole issue of community capacity building. If you work with a bottom-up approach, allow the community to drive the process, make sure the community has the capacity to do that, senior levels of government, federal and provincial, provide the tools that will allow the communities to achieve those ends.

One of the important programs we work on there is a youth internship program. This is a program open to post-secondary graduates coming out of school without a particular job. These are northern Ontario students, many of whom have received their education in southern Ontario. We're able to provide them with their first job with an organization, usually one that's involved in economic development and community development. It's a one-year program, and they're getting some practical experience to go along with their academic experience over the year, while the organization is getting assistance.

¿ (0915)

I mention that program because there have been 465 youth interns since we initiated this program, and 88% of those individuals have gone on to find permanent employment. More importantly, from the regional development perspective, that permanent employment is occurring in northern Ontario. As we all know, outward youth migration is one of the issues we have, so this a way to attract our young people back to northern Ontario. The key to it is that they tend to stay where they obtain their first job. That's what the program is designed to do, in addition to giving them the practical experience, making them more attractive to future employers.

Those are my opening comments, Mr. Chairman. I'll be happy to answer questions from the committee.

The Chair: Thank you very much, Mr. Mitchell.

I'd like to also introduce Louise Paquette, who is the director general for FedNor. Welcome to the meeting.

We'll begin with Ms. Gallant.

Mrs. Cheryl Gallant (Renfrew—Nipissing—Pembroke, Canadian Alliance): Thank you, Mr. Chairman.

Minister, the decision was made recently to extend northern status to your riding of Parry Sound—Muskoka. Most people in Ontario consider the demarcation between northern and southern Ontario to be the French River, yet your riding lies south of the French River. You mentioned it is based on the provincial government's designation of northern status that an area receives aid, but could you explain to the committee the criteria that do determine whether or not an area receives northern status?

Mr. Andy Mitchell: When I became the member of Parliament for Parry Sound—Muskoka, a portion of the riding was, in fact, covered and considered to be part of northern Ontario. That change actually happened either in the 1980s or in the 1970s, when the boundary of northern Ontario, again driven by the provincial government, was taken to be south of the French River, and so the district of Parry Sound was included. When I became the MP in 1993, I was in a similar situation to that you're in, but with a much larger segment; half of my riding, the Parry Sound half, was included as part of northern Ontario, while the southern side, the Muskoka side, was not. That's the situation. It wasn't my riding being brought in, because half of it was already there. The provincial government made a decision in their budget of either 1999 or 2000, I can't remember which. The current Premier was then the finance minister. In his budget he said, for definitional purposes, we are going to include Muskoka as part of northern Ontario.

One of the realities is that FedNor very rarely operates in isolation. It usually operates with partners. It operates quite frequently with the Ministry of Northern Development and Mines from the Province of Ontario and through their heritage fund. As we had in the past, we adjusted our boundaries to match what the provincial government has done. That's the general approach we have taken. It's very challenging for municipalities and for our other partners when there isn't a consistency of programming between the two senior levels of government.

¿ (0920)

Mrs. Cheryl Gallant: Mr. Minister, you must have some idea of the criteria, other than because the province does it. What are the criteria that give an area northern status?

Mr. Andy Mitchell: Some of those criteria I mentioned at the beginning, the types of challenges you meet, the population density, the geography, the cyclical nature of the particular economy. The debate about what does or doesn't constitute northern Ontario has been going on, I think, since there was an original definition.

Mrs. Cheryl Gallant: Are there facts and figures? For example, is there a certain number associated with population density, economic cycles? What are the nuts and bolts of the criteria?

Mr. Andy Mitchell: If you're looking for a specific written definition in those terms, there isn't one. Let me put it this way. It's not hard to tell the difference between the population density in the GTA and the population density in those areas covered by FedNor.

Mrs. Cheryl Gallant: Okay.

When we look at the map of Ontario, we have your riding here and my riding up here. Geographically, if we're going to use my riding as an example, as you did before, my riding is more north, more spread out, a greater distance from the centre of Toronto. What would it take to get the balance of my riding given northern status?

Mr. Andy Mitchell: If you open that map up entirely and go to the west, you'll find that perhaps our colleague Mr. Jackson would have a similar issue, because the Bruce Peninsula is probably further north than parts of Parry Sound and parts of your riding.

But I think there's a broader issue, and I think you're bringing it out quite clearly. I'm going to put my other hat on for a second as the Secretary of State for Rural Development. Is the economic disparity we're trying to deal with one that in 2002 is geographically based, north-south, distance from the centre, or is the issue more between the urban parts of the country and the rural parts of the country? I think that's an issue that certainly needs to be explored, and I appreciate the fact that you're pointing out that very fact.

Mrs. Cheryl Gallant: Thank you.

Minister, one of the reasons programs such as FedNor acquire a bad name is that they're delivered on a partisan basis, rather than on need. During Monday's debate on rural Canada you stated that government must rise above petty partisan politics in the delivery of the regional economic development programs. However, you yourself, Mr. Minister, have a record of refusing to inform opposition sitting MPs of when you plan to be in their ridings to present these cheques on rural development. In January this year you did not observe the courtesy of letting me know in advance that you were planning to show up in Deep River to present a cheque. The provincial minister set partisanship aside in Ontario when he invited our MPP—and in Ontario, in our particular riding, the MPP is in opposition to the sitting government. During Monday's rural Canada debate the member from Cypress Hills—Grasslands mentioned that you had not afforded him the courtesy of a call in advance to let him know you were coming. The press releases from your departments always mention the Liberal MP, but never an MP from the sitting opposition. Even the Minister of Public Works lets me know in advance. In fact, on one occasion he even offered me a ride, so that we could arrive at the event at the same time.

So, Minister, will you promise to stop playing partisan politics when it comes to the delivery of these programs?

¿ (0925)

Mr. Andy Mitchell: I'm going to have to correct the record, Mr. Chairman, because the reality is that 99.9% of the area FedNor covers, for good reasons, on behalf of the voters I would suspect has Liberal members. There are no opposition members in northern Ontario. So if all my announcements for FedNor are being made in Liberal ridings, it's because all the ridings in northern Ontario are held by Liberals. It's fairly straightforward.

Mrs. Cheryl Gallant: But you presented a cheque in my riding, and I'm not a Liberal.

Mr. Andy Mitchell: If I remember correctly, Ms. Gallant, I invited you to go on the Atlanta trade mission. It's hardly a question of not wanting to include opposition members in items. With the member from Cypress Hills—Grasslands, I said to him during debate that I would check, and I did check my records. In fact, I did send him a letter in advance letting him know that the project had been approved in his riding.

There are many in your party in places where I wear my other hat, the rural development hat, and there is programming in there under the CARCI program or under the pilot project program, and they receive letters from me when we authorize the funding.

I can certainly understand where you're coming from, but I stand by my comments in debate on the importance of working collegially in regional development.

The Chair: I think the question has been answered. We'll go on to the next question.

Mrs. Cheryl Gallant: I thank the minister for the eleventh-hour invitation to the trade mission, which, unfortunately on my part, had to be cancelled because of time allocation on a vote.

On February 25 of this year the government announced a list of projects for the Canada-Ontario infrastructure program, but there seems to be a problem with funding on the federal side. It was the Ontario government that made this announcement. This is the program where the province, the municipality, and the federal government each put in a third of the cost of the project. So, Minister, communities across Ontario are being told that they have the provincial funding, and they know they have the municipal funding, but they run a risk with receiving the federal funding, so—

The Chair: I think we're going to have to stop this, because we're getting into the party politics, and—

Mrs. Cheryl Gallant: This is a federal question.

The Chair: But the problem is going to be very clear. The provincial government is making announcements before they've even approved projects and passed them to the federal government. I've been backing this up with a number of ridings, and every time we back it up, they're making announcements or they're making speeches before the application has even reached the federal government.

I'm sorry, Mr. Minister, I'm probably answering your question.

Mr. Andy Mitchell: I can answer the question. FedNor does not have the responsibility for delivery of the infrastructure program in Ontario, that's under the Department of Industry and its minister.

Mrs. Cheryl Gallant: There is an example you may be familiar with. On April 13 of this year you signed off on $5 million for the Canada-Ontario infrastructure program for a project in your riding at Gravenhurst for docks on Lake Muskoka. So how is it that you have money right away for Toronto millionaires to moor their yachts, but there's not enough money to go around for communities who want clean water do drink?

¿ (0930)

Mr. Andy Mitchell: Again, I don't sign off on any of the Canada-Ontario infrastructure programs, the Minister of Industry does, if it's at a particular level. If it's over that level, the Deputy Prime Minister, who has responsibility for the infrastructure program, signs off, and if it's over that, Treasury Board has to sign off.

You're right, there was a funding announcement in my riding. I participated in the funding announcement, and I was pleased to participate in it. I note well that those dollars were matched by the provincial government, which nominated that project to the federal government. That's the way the program works. I think the interesting thing about that--and I know you and your party would be pleased with this--is that it is bringing in between $30 million and $40 million of private sector investment, and that's the way the program is designed.

But let me make it clear that the Canada-Ontario infrastructure program is delivered by the Minister of Industry, who authorizes those projects.

The Chair: Thank you.

We'll go on to Mr. Bagnell.

Mr. Larry Bagnell (Yukon, Lib.): Thank you.

As you know, my riding is the Yukon, and I'm trying to get economic development funding, so that's basically why I'm asking the questions I'm going to ask. But before I do, I'd just like my colleague, chair of the rural caucus, Murray Calder to know that you mentioned agriculture in your riding, which is so far south of mine. We have tremendous agriculture in ours, and there's an entire hour-long slide show on the various agricultural functions.

The first question I'm asking of all the ministers of regional development agencies. What is the difference between them, for instance, between FedNor and ACOA and Western diversification?

Mr. Andy Mitchell: There are both differences and similarities. The differences are really by design, because there's a belief, as I said in my opening comments, that regional development and community sustainability have to come from the bottom up. The realities faced by, for instance, a small community on the prairies that is agriculturally based are very different from, say, those of a forestry community in northern Ontario, and different again from those of a fishing community in Atlantic Canada. Therefore, the type of programming and the types of initiatives will need to be different. So although they all have a similar objective, their programming should be different, because the realities of where they are operating are different.

Mr. Larry Bagnell: I think it was more than 20 years ago when regional development programming started, in fact, when Trudeau started the Department of Regional Economic Expansion. I'm sure my colleague Mr. Fitzpatrick didn't agree with that type of programming, grants and stuff. Can you tell me about the evolution of regional development programming and how it might have changed since then, with the experience we've had with it?

Mr. Andy Mitchell: You're right. This goes back before my time as well, but DREE was originally a department that dealt with those kinds of initiatives. The government prior to ours in the 1980s decided to go with the concept of regional agencies, I suspect in part to try to deal with the fact that there are differences in the different regions that require a different approach. Three agencies were initially established, one in eastern Canada, one in western Canada, and one in Quebec. Subsequent to that there was a request for a similar type of entity in northern Ontario, and that's where FedNor came into being. It was created as part of the Department of Industry, but with essentially the same mandate as the regional development agencies.

Concurrently, it's important to remember, we got the development of the community futures program, which was originally part of Human Resources Development Canada. In 1995 it was transferred to Industry Canada, and in turn to the regional development agencies, because access to capital is one of the key elements regional agencies are trying to deal with. Then they received additional funding, I believe in the budget of 1999 or 2000, for the community futures program, so that they would have universal coverage and be available to all rural communities, and that process is now playing out.

So that's been the evolution. I can't speak to the details, but the different agencies have revamped and changed. I know Mr. Byrne is going to be in here a little later, and ACOA made some changes a couple of years ago. I'm sure he can talk to that. I mentioned in my opening comments that FedNor re-engineered the way it did things back in 1996.

I think at the beginning there was a tendency to provide direct assistance to business. That had a tendency to distort the marketplace. As somebody who spent 20 years as a banker, I would concur with that. So rather than doing that, I think the approach has been more to create the economic environment within which those businesses that are going into that marketplace have an opportunity to be successful, have an opportunity to create wealth and create jobs. So we've become an enabler, something that creates the environment. I think that's an appropriate approach to take in today's marketplace.

¿ (0935)

Mr. Larry Bagnell: Do you provide any direct grants to businesses, or are they all loans?

Mr. Andy Mitchell: They are all repayable. Everything community futures does is what we would call a standard loan. We have a very small program that deals with research and development, pre-commercialization, where repayment would come from the ability of the company to bring their product to market. To give you an example, I think we've done 16 of those since 1996, as compared, in the last 5 years, to over 6,000 through the community futures. So you can see it's a very small percentage.

Mr. Larry Bagnell: I'm going to steal Mr. Rajotte’s question. If they're all repayable, how come the loans aren't done through the BDC and your research grants aren't done through some Industry Canada research program?

Mr. Andy Mitchell: The community futures program, again, adopts that bottom-up type of approach. Although the funding is provided by the federal government, in their strict guidelines on how to use it there are operating agreements, there are audits that take place on these organizations. The decisions are made by local boards of directors, based on the marketplace, based on the realities they face.

One thing about these programs and why they have, I believe, been successful for 20 years is the community-based type of programming. But also, when those payments come back in, they don't go to consolidated revenue, they go back into the loan pool community futures operates, so the money can be lent out again. Generally speaking, they have a maximum of $125,000. When you get into some of the pre-commercialization activities, some of the research and development, the due diligence on those transactions tends to be more complex, and so we tend to do those in-house in FedNor, as opposed to having them done at the community futures. It's hard to have the expertise spread over 54 different community futures when you're getting into something as complex as that, so those particular transactions are dealt with by officials in FedNor, with assistance from other sections of the Department of Industry that may have expertise in the particular product that's being developed.

Mr. Larry Bagnell: Assuming that they couldn't get these loans from the chartered banks, as they're probably more risky, what's their record compared to loans from chartered banks with repayment and so on?

Mr. Andy Mitchell: They vary, but they tend to be good. Some do better than some of the chartered banks, others don't do that well. But as I've mentioned, these loans are fully collateralized, they're repayable, and I think one of the reasons they tend to be sustainable is that they're priced according to risk. You will pay a higher rate if you have a higher transaction. The banks could go there, but they choose not to play in a prime plus 6 or a prime plus 7 marketplace. They're more comfortable with a prime plus 2 or prime plus 3 risk profile. So that's the area community futures deals in.

Mr. Larry Bagnell: You talked about exporting. Does your riding either produce or export anything outside the resource extraction? Do you do any manufacturing or high-tech, knowledge-based economy work?

Mr. Andy Mitchell: There are some examples of that. As I mentioned, some of the suppliers to the mining industry in northern Ontario have been able to develop markets beyond northern Ontario and have been successful in doing that.

One of the challenges that needs to be taken up is that we do need to do more value-adding of our natural resources in northern Ontario. For instance, in forestry, when you harvest your lumber, if you can add value to it, if you can have your hardwood flooring plant in northern Ontario, as opposed to shipping the raw lumber out, having them mill it into flooring and then sell it back to you, you're going to be far better off. The more wealth creation you can actually have occur in northern Ontario, the more jobs you're going to create in doing it, and one of the ways to do that is to have the value-adding done closer to the source of the natural resources, as opposed to simply shipping it out.

¿ (0940)

The Chair: Thank you.

Mr. Brison.

Mr. Scott Brison (Kings--Hants, PC): Thank you.

We've had over 30 years of various permutations of economic development agencies, and you mentioned starting with three and evolving into the multi-agency model. I represent a rural Nova Scotian riding, and the communities being served are still, in a comparative sense, in about the same position. I think you'd probably agree with me that if these economic development agencies had been successful, they would have worked themselves out of existence. And so in some ways, isn't there a counterintuitive set of goals here, because if the ministry does its job properly, ultimately, the result will be to work the bureaucracy out of existence? It doesn't make a lot of sense to have an economic development agency if the communities being served are no longer disadvantaged. Don't you see that as being part of the challenge here?

Mr. Andy Mitchell: There is some analysis to suggest that, but that analysis misses a very basic point. One of the reasons those regional development agencies exist is that there are structural challenges you've got to manage, as you're not going to eliminate them. If one of the issues is having large geographic areas that make it very difficult to transact business and deliver services, you can manage that, but you're never going to get rid of the fact that there are large geographic areas. It's the same thing with distance from markets. It's going to be very difficult to actually get rid of that structural challenge. You're going to continue in northern Ontario to be a long way, probably, from your primary markets. So you need to manage that.

It's the same thing when you're dealing with resource-based economies. I don't think we're going to be able to end the cyclical nature of resource-based economies. Commodity prices fluctuate, that's the reality. So you need to manage those structural challenges. Your success is if you can mitigate the impact those structural challenges are having on your economy. The real test is whether you have closed that gap by your existence. Some of those structural challenges will always exist. To use an agricultural example you may be familiar with, you will never eliminate the need for crop insurance, because it's inherently risky. You have an opportunity, and the government participates in crop insurance.

Mr. Scott Brison: I think crop insurance recognizes a structural difference along industry lines that is far simpler to define than the specific impedimenta that create barriers between levels of opportunity in some communities as opposed to others. Educational funding, roads, airports, those sorts of structural infrastructure probably are more important in some ways.

As to your budget, you said there's no more money going directly to business. Is that accurate?

Mr. Andy Mitchell: With the exception of those pre-commercialization transactions I talked about.

¿ (0945)

Mr. Scott Brison: What percentage of your money goes to community-based economic development agencies?

Mr. Andy Mitchell: How much goes to the community futures program?

Mr. Scott Brison: No, community-based economic development agencies. Within rural communities being served by your agency there will be community economic development agencies, some of which I expect would derive some funding from you. Is that accurate?

Mr. Andy Mitchell: They do, but do you characterize all of them as community development agencies? Some may take on that role, some may call themselves tourist marketing agencies. If you take the broad rubric of community development, just short of half the resources are flowing through to communities themselves to work on development according to what they see as their priorities.

Mr. Scott Brison: Do some of them lend money or invest money in businesses in their communities?

Mr. Andy Mitchell: The community futures program does.

Mr. Scott Brison: I'm talking about the community development agencies.

Mr. Andy Mitchell: Other than community futures, I don't believe so, but I'd have to check to make absolutely certain whether we're funding other organizations that lend out. I think there's a women's resource centre in northwestern Ontario that may not fall under the umbrella of community futures, but let me check that for you. Generally speaking, I can say the answer is no.

Mr. Scott Brison: Do you see a challenge in that in some of these communities there is the risk of creating community economic development fiefdoms, where the highest paid person living in the community is the local community economic development officer, who doesn't really have an incentive to work himself or herself out of a job? What criteria do you use to determine whether or not a community economic development agency is deserving of your funding?

Mr. Andy Mitchell: What we tend to do is see the structural economic development entity, which is what you're talking about—

Mr. Scott Brison: What's the accountability?

Mr. Andy Mitchell: Let me just go through it. We see the structural entity being the community futures program, because in Ontario, unlike Atlantic Canada, they not only provide the lending investment pool, they also do community economic development. So what we will tend to do, when it comes to creating economic development structures, is say to those communities, you have a community futures program that operates in your area, that's the structure. If you're talking about wanting ongoing operating money, if it's not project-driven, you simply want the money to keep your lights on and your staff, we don't do that, we say, you have a community futures program that's there to do that. If you have a specific project where we could be of some assistance, which has a specific beginning, a specific objective, and a specific end, we may be with you there, but I agree with you, you don't want to start duplicating and creating a whole series of structural agencies. That's why we have said in northern Ontario, for the FedNor catchment area, when it comes to structure, the structure is the community futures. That is our community development entity. That's where we place our operating dollars.

Mr. Scott Brison: Have you evaluated the tax-based measures that have been used as best practices in other parts of the world for economic development strategies, tax-free zones, those kinds of incentives, as opposed to direct funding incentives?

Mr. Andy Mitchell: We have not done that at the FedNor level. Our programming, in comparison to the overall federal government, is relatively small. But I would agree with you, there's always a need for all regional development agencies in all this type of programming within the federal government, and provincial governments for that matter, to consistently and continually be reviewing what they do and whether there are ways to do it more effectively. Looking at international models is certainly one of the ways to do that.

The Chair: Thank you.

Mr. St. Denis.

Mr. Brent St. Denis (Algoma--Manitoulin, Lib.): Thank you, Mr. Chairman. Thank you, Minister Mitchell and Ms. Paquette, for being here.

As you know, but for the benefit of those watching—I think we're televised—my riding of Algoma—Manitoulin, which is about a nine-hour drive across one way, has 50-60 small communities.

A voice: The whole size of New Brunswick.

Mr. Brent St. Denis: Right, the whole size of New Brunswick.

I can tell you that the mayors, reeves, and first nation chiefs, bar none, have come to appreciate that FedNor, as it has evolved since we were elected, actually, has become an agency that has shown its willingness to partner with them and encourage partnerships horizontally in the areas within our northern Ontario ridings. So I can tell you that the evolution has been a very positive one.

I'd like to focus on two subjects within the overall FedNor ambit. First, the CFDCs are the locally driven, locally based corporations, the boards of which are made up of community volunteers. Have you found that the partnerships they are making with their neighbouring communities and the partnerships they are evolving with your own organization, FedNor, are becoming stronger, that there is an increasing capacity to appreciate how rural economic development best plays out in the context of northern Ontario? Are you seeing ability to respond to community actually growing because we are there as a federal government?

Second, could you comment on broadband and the importance of that to rural northern Ontario?

¿ (0950)

Mr. Andy Mitchell: I believe that relationship is getting stronger and is doing well. I am perhaps not the most objective person to make that assessment, since I'm at one end of it, but I think it is. For the most part, our community futures work well. As you know, they all work under agreements with FedNor. We have field officers who work with these entities on an ongoing basis. From time to time, and you've probably heard this in your own riding, they express some concerns about the amount of paperwork they need to fill out for ensuring accountability. Not just in signing their overall agreements, but with individual disbursements, there is a set of controls placed over them. We're always trying to find that right balance between making sure they're as efficient as possible and making sure those internal controls are established over them.

We have 54 of them in Ontario, I think 23 in northern Ontario, and they all are a little bit different. That's not to say one is better than the other, but they all approach it a little bit differently. What's really amazing is their ability to attract volunteers to sit on their boards. If you take a look at the boards on the community futures that are operating in Ontario, there's a wealth of knowledge, a wealth of experience. I was visiting up in northern Ontario two or three weeks ago, and somebody pointed out to me that there was over 500 years of business experience on a particular board. These individuals do this for the princely sum of zero. These are volunteers. Again, one of the successes of this program is the level of expertise and experience that is brought to the table by these volunteers. If you actually had to go out and purchase that type of expertise, the dollar value attached to that program would be enormous.

I should take an opportunity, since we are on television, Mr. Chair, to thank all those volunteers who work in the community futures program and make it so successful, as well as the professional staff who support them.

As for broadband, it's very important, it is one of the tools that can help provide access. This isn't about everybody having a computer in their house and being able to download their e-mail more quickly or get their recreational activities on the computer, it is about access. It's about access to health care, it's about access to post-secondary education, it's about access to lifelong learning, it's about access to a competitive business environment. What we're trying to do through this type of initiative, and FedNor is very much involved, is make sure northern Ontarians have access to some of those basic services all Canadians see as part of the menu of activities that it is appropriate for government to be undertaking.

Mr. Brent St. Denis: Thank you for that response.

We're all aware that rural Canada's population, in relation to the urban centres, is in decline. Add to that in northern Ontario the cyclical nature of forestry and mining, and tourism too as a seasonal thing. I'm wondering if you could talk briefly about some of the advance thinking that might be going on about dealing with population decline in relation to our urban centres and the difficulty that creates for our local leaders.

¿ (0955)

Mr. Andy Mitchell: I think you bring up a good point. Northern Ontario has experienced a net decrease in population from the last census. We intend to take a very close look at that in cooperation with community leaders across the north. We're going to wait a little, as Statistics Canada is going to bring out some additional information within the next several weeks. Right now we have the broad numbers, but Statistics Canada will be giving us the numbers by age group, and then it will continue to provide some additional information, so we can dig a little bit under the numbers.

If you use the OECD definition of what is rural and what is urban, Canada has roughly a 70-30 split. What's taken place with this last census, when you use that definition, is that urban Canada has grown and rural Canada has basically remained at a flat level, but as a percentage of the total population, there's been a decline. We tend to divide rural Canada into three component parts, urban adjacent, heartland, and remote. The urban adjacent rural parts have tended to grow, if not as fast as the urban parts, the heartland areas have tended to be very flat or have seen some reductions, and the remote areas have seen reductions. So we need to understand that rural Canada is not a monolithic entity, that there are different parts of rural Canada that are going to require different types of responses. An urban adjacent part of rural Canada may require a different approach from, for instance, north of 50 in northern Ontario, or for Mr. Bagnell, the Yukon. We have to understand that rural Canada is not all the same.

The Chair: Thank you, Mr. Mitchell.

Ms. Gallant.

Mrs. Cheryl Gallant: One problem in rural Canada you should be familiar with is phone service. In December the CRTC approved a rate increase for rural customers only for long-distance calls. This is much more of a necessity for rural people than it is for people in an urban centre, so why is there that discrimination?

Mr. Andy Mitchell: You bring up a good point, Ms. Gallant, and it really brings forward a number of important issues. One of the reasons that's happening—and I spoke to Mr. Brison about this—relates to the challenge of lack of population density and that of geography. If you can string a mile of fibre and have 30,000 people who can hook into that mile of fibre, you start to allocate the cost by person. If you make that comparison for rural areas, where that mile of fibre may only have 30 people hooked up, the cost becomes much different from what you would see in an urban centre. Given that challenge, you have to decide, from a public policy perspective, whether or not you're going to assist in the rural areas where there may be only 30 people hooking up. That's one of the questions you have to ask.

Second, I can't speak for areas other than Ontario, but there in the past they have made rate increases and been very open in saying part of this rate increase was the cost of upgrading service in rural areas. So then you get into another debate. If a company is providing service in urban and rural areas, and it's more expensive to provide it in a rural context, should all the subscribers pay for that increased cost or should just the subscribers in the rural areas pay for it? That's the same public policy debate we have often when we talk about delivering government services: should it be an equalized rate across the country, for instance, with how much it costs to mail a letter, or should the costs reflect whether you're urban or rural? That really brings forward that kind of debate.

Mrs. Cheryl Gallant: In my riding of Renfrew--Nipissing--Pembroke the portion, as you mentioned, that qualifies for FedNor is the district of Nipissing. I was surprised to read a letter in my local paper from your director general trying to explain why it was that until I pointed out that it qualified, FedNor didn't realize that the district of Nipissing was even in my riding. We found out that this had been going on since its inception. Rather than having our public servants waste time writing letters, would you direct your people to stop the partisanship and allocate the money accordingly?

À (1000)

Mr. Andy Mitchell: If I can again correct the record, FedNor has dealt with that portion of your riding that is Nipissing. Prior to its re-engineering there were a number of companies that applied for direct assistance. Some received it, some didn't.

Mrs. Cheryl Gallant: But it wasn't until just a couple of months ago that they received any money from FedNor.

Mr. Andy Mitchell: No. I just pointed out, Ms. Gallant, that companies that operate in the Nipissing portion of your riding did apply for and receive funding. With the re-engineered funding, South Algonquin, which is what that portion is now called, received a project to help them deal with their cell service. The community futures program has been very active in South Algonquin. And I can tell you that I know very well, as the minister, that it is part of northern Ontario, because I drive through there on my way from my riding to Ottawa on a fairly regular basis. I'm very well aware of where the line of northern Ontario is.

Mrs. Cheryl Gallant: We're very thankful that the funding from FedNor finally came through after all these years.

Minister, as a—

The Chair: Sorry, but I'm going to have to close. We're going to be short on the next one, so I have to come to the end. One of the items we'll talk about is having more time next time.

Mr. Calder, I know I'm not allowing you to ask a question, but you will be the first one up on the government side in the next session. We must now change. I'm sorry about that.

Thank you very much, Mr. Mitchell and Ms. Paquette. We'll take extra time next time to ask even more questions.

Mr. Andy Mitchell: I'm always happy to be here at the industry committee, Mr. Chairman. Thank you very much to yourself and to all the members.

The Chair: We'll take a minute to change, and then we'll get into our next session.

À (1002)

À (1008)

The Chair: We'll bring this meeting back to order.

At this time we have Gerry Byrne, Minister of State for the Atlantic Canada Opportunities Agency. I'd like to also welcome Mr. Wallace, president, Mr. LeBlanc, vice-president, and Peter Estey, also vice-president. Welcome to the industry committee.

Mr. Minister, you can begin. As I mentioned, under the 15-minute mark would be appreciated.

Hon. Gerry Byrne (Minister of State (Atlantic Canada Opportunities Agency)): I shall try.

Mr. Chairman and colleagues, thank you very much for the opportunity to appear before the Standing Committee on Industry, Science and Technology. As a former member of this committee, I had a sleepless night last night, knowing full well the intensity of the questions that will be peppered at me in the coming hour.

I'd like to thank you for an opportunity to talk about plans and priorities of the Atlantic Canada Opportunities Agency over the next three years, but before I begin, I just want to touch on the big picture here.

As the latest Speech from the Throne has stated, and as was demonstrated in the launch of Canada's innovation strategy, the Government of Canada's commitment to building a leading, world-class, knowledge-based economy driven by innovation, ideas, and talent is at the forefront. ACOA is very much a leader in this strategy. The Atlantic Investment Partnership, and specifically the Atlantic Innovation Fund, is a very tangible example of our support of the knowledge-based economy and of the national innovation strategy within Atlantic Canada.

The rationale for this approach is simple. A more innovative economy is a more productive economy, and a more productive economy is a more competitive one. In the years ahead our capacity to innovate will determine precisely how well we will prosper as part of the global economy. Increasingly, it is brain power, rather than simply raw power, that counts in today's world. The urgent task for all of us in government is to craft effective and relevant policies, programs, and partnerships that support increased innovation in our regions and our provinces, specifically in our individual communities.

I'd like to talk a little about the current situation in Atlantic Canada. There is already mounting evidence of a fundamental shift in attitudes and in opportunities. The region, on the whole, is becoming more entrepreneurial, more diversified, and more innovative. Atlantic Canadians, particularly our young people, are becoming more confident in their collective ability to compete globally. I believe ACOA has played a fundamental role in that shift by making a significant, positive impact on the region's economy over the past several years. I'd like to provide you with some examples.

In the last five years, the agency has helped create and maintain close to 61,000 jobs in Atlantic Canada by investing in more than 4,500 commercial projects. Research using Statistics Canada data also indicates that the region's overall unemployment rate is 2.8% lower as a direct result of ACOA programming. Strategic investments by the agency in the areas of trade, innovation, R and D, tourism, and entrepreneurship have increased the number of exports and export-ready firms in our region, improved the private sector's R and D capability, increased regional tourism revenues by millions of dollars, and increased the number of people of all ages choosing entrepreneurship as a way of life.

However, colleagues, significant challenges do remain for the region. Compared to the rest of Canada, this region continues to lag in R and D investment, productivity levels are lower, and there are skill shortages. Unemployment and underemployment in some areas remain unacceptably high.

These barriers are further complicated by difficulties specific to each province. To generalize a little, in Newfoundland and Labrador, my home province, a declining population in areas outside the capital city of St. John's and a severe disparity between rural and urban economic opportunities are of concern to me. In Nova Scotia progress on private sector R and D is still lagging behind national trends, and export readiness and performance are not yet equal to those of other provinces across the country. In Prince Edward Island insufficient economic diversification and innovation capacity has occurred. In New Brunswick there is still too heavy a reliance on traditional resource industries, despite major progress in knowledge-based industries. Addressing and improving these conditions is ACOA's primary focus today and over the next three years.

As I'm sure you're already aware, our approach at ACOA is a highly consensual one. We work in partnership with the people of Atlantic Canada, with provincial governments, with the academic community, and with regional and community business development organizations. Local governance and the private sector play important parts as well. We continue to find that this partnership approach is the best way to advance our own mission objectives: to improve the growth and competitiveness of Atlantic small and medium-sized enterprises, leading to increased productivity, earned incomes, and job creation; to stimulate economic opportunities for rural Atlantic Canada through community economic development; and to generate greater economic activity in Atlantic Canada through national policies sensitive to the needs of the region.

À (1010)

Within this framework of objectives our primary focus is on small and medium-sized businesses, which continue to generate most of the new jobs in the region. Our aim, of course, is consistent with the guiding principle of stimulating innovation for better competition in global knowledge-based economies. Towards this end, we are working with our partners to increase the region's capacity to carry out leading edge R and D. We're contributing to the development of new technology-based economic activities. We're strengthening the export performance of the region. We're implementing a new foreign investment strategy. We're supporting strategic initiatives that help create self-sustaining viable communities. We're improving the business management competencies of small Atlantic Canadian firms. We're attracting foreign investment that will bring employment, research, and development and strengthen emerging Atlantic clusters of excellence.

To touch on an important point, as you may be aware, we've had a system in the past of federal-provincial cooperation agreements. These cooperation agreements have expired now in P.E.I. and Nova Scotia, and they will be expiring in the two other Atlantic provinces. This does not mean—and I want to really stress this to colleagues—that the Government of Canada is backing away from its commitment to regional economic development and to the concept of partnership. Our economy is changing, and we must be able to respond with new programs and new approaches that place greater emphasis on a pan-Atlantic approach to regional development, and we must respond more effectively to current economic challenges in Atlantic Canada, as well as aligning regional economic development more closely with national strategic priorities.

We get to the plans and priorities of ACOA. The new program that allows us to do just that is the Atlantic Investment Partnership, which builds on the success of ACOA programming by extending further support to productivity and competitiveness initiatives in the region. The five-year $700 million AIP, the result of recommendations put forth in the Atlantic caucus' report “Catching the Wave”, effectively enriches and extends the reach of ACOA's existing strategic economic development priorities. AIP is a made-in-Atlantic-Canada response to the challenges we continue to face. It puts partnership with key stakeholders, governments, research institutes, schools, community organizations, and private enterprise, right where they belong, at the centre of economic development in our region.

The major investments under AIP include $300 million for the Atlantic Innovation Fund, which is designed to strengthen the region's innovation capacity and to help commercialize promising new technologies and technology-based products and services; $54 million for the Atlantic Trade and Investment Partnership, which is designed to increase and improve export activities and to increase foreign direct investment in the region; slightly over $59 million for entrepreneurship and business skills development, including activities that support women in business and young entrepreneurs; $135 million for the Strategic Communities Investment Fund, which will help communities strengthen their local economies and generate new opportunities for job creation and business investment; $110 million for the National Research Council to extend its network of Atlantic research centres.

Colleagues, with such potent resources in hand, we expect to generate significant and measurable results in each of our major priority areas over the next three years.

In entrepreneurship and business skills development planned results include increased awareness of the benefits of good management practices, greater use of training opportunities, and an increase in the number of business start-ups, particularly among young people from the region. Some 250,000 Atlantic students have already been touched by our entrepreneurship programs in our region's schools.

In trade we're looking for an increase in the number of potential exporters committed to exporting, an increase in the number of first-time exporters specifically, and an increase in the number of exporters securing new international markets for their products and services.

In investment we expect to generate stronger investment partnerships, leading to more foreign direct investment in the region, heightened awareness of the region abroad as an attractive location for business investment, and identification and analysis of the real factors influencing investment decisions by foreign corporations in the region.

À (1015)

In tourism some planned items are increased tourism during the off-peak times of the year, the shoulder seasons, better, more targeted, more sophisticated tourism products and offerings, and more effective use of our federal and partnered resources in the development of a healthy, innovative tourism sector. Current indications are that our tourism marketing efforts will hold market share and increase it in some regions, despite the terrible events of September 11.

In innovation we expect to see new technology development and commercialization partnerships, more technology start-ups, stronger strategic sectors and economic clusters, more innovative products and services, both in number and in quality, and increased awareness and use of e-commerce among small Atlantic Canadian firms.

On our community economic development agenda planned results include a more integrated approach to community economic planning with partners in other levels of government, an increase in the number of government services and programs available at the local level, particularly in remote rural areas and aboriginal communities, and an increase in the number of business counselling resources available to smaller communities.

In policy advocacy and coordination we expect to contribute to better alignment between national policies and regional development circumstances, steadily improving access to federal contracts for Atlantic firms, and increasingly accurate, penetrating, and sophisticated research on economic trends and conditions affecting the Atlantic region.

Finally, in access to capital and information we expect to assist approximately 450 small and medium-sized businesses in the region, create jobs, generate revenue, and seize new opportunities, both at home and abroad.

As I have said already, ACOA expects to generate significant results in each of its major priority areas. These are not idle words. Over the past several years the agency has worked on the principle of management by objective, where goals are transparent, they are measurable, and ACOA is accountable for its results. It is an approach that challenges the agency to be creative, flexible, and diligent in its operations. It's an approach that breeds positive results. It's an approach that is relevant to the times we're living in. Most importantly, it is an approach that is helping build a stronger economy in Atlantic Canada.

Thank you very much.

À (1020)

The Chair: Thank you very much, Minister.

I'll now begin with questions, and I'd like to make sure we get right to the questions, with short answers, if at all possible. If we have about six or seven minutes apiece, we can have more questioners.

Mr. Fitzpatrick.

Mr. Brian Fitzpatrick (Prince Albert, Canadian Alliance): When you look at the mandate and the words you have stated, Mr. Minister, the big question is making sure these words become reality and are alive and well. The first thing I'd ask is for some details, as this is an estimates committee, I think.

How many employees does ACOA have?

Mr. Gerry Byrne: We have 550 employees throughout the region, very few of whom—and it's an interesting point I think is worth mentioning—

Mr. Brian Fitzpatrick: Does that include community futures?

Mr. Gerry Byrne: We fund the community futures program.

I'll just finish the question I was asked. The Atlantic Canada Opportunities Agency is one of the very first agencies to decentralize. The headquarters are in Moncton, New Brunswick. We have regional offices in each of the four Atlantic provinces. We have a very small staff here in Ottawa. With the staff complement we do have within the agency, it really provides an effective approach to getting a sensitization to the Atlantic Canadian perspective.

Mr. Brian Fitzpatrick: I have the hang of that. The estimate you gave me of 550 would not include people who are employed in the community development corporations or the community futures, as these are local matters. Do you have any numbers on how many people are employed at that end?

Mr. Gerry Byrne: You are correct, it does not include those numbers. I can give you an estimate at this time of 150 to 200 throughout the Atlantic region.

Mr. Brian Fitzpatrick: You need office space and so on to administer these programs. Have you any idea of the cost to provide these physical facilities, lease payments and so on?

Mr. Gerry Byrne: I wouldn't have a figure at this time, but I can certainly get back to you.

Mr. Brian Fitzpatrick: Could you undertake to provide me with that information?

Mr. Gerry Byrne: Sure.

Mr. Brian Fitzpatrick: The department also engages consulting firms from time to time to do performance analysis with regard to your objectives, outputs, results, and so on. Could you provide me with the names of the consulting firms you've engaged to do that?

Mr. Gerry Byrne: I think they would be available under the Access to Information Act.

Mr. Brian Fitzpatrick: Please provide that to us.

Your department has been the object of some really severe criticism over the years. I'm sure you've heard of the book Looking a Gift Horse in the Mouth. An economist took a look at the legacy of your department, and it was pretty much a damning indictment of a lot of negatives that happened in Atlantic Canada through this department. I'm going to quote from a former Premier of New Brunswick, Frank McKenna.

Atlantic Canada is at a fork in the road. We may continue down the traditional path of reliance on the Government of Canada, which has created such a devastating legacy of dependency, or alternately, we can embark on a new road toward self-sufficiency.

My friend down the way has mentioned concepts such as tax-free zones. I think Mr. McKenna is alluding to creating a very competitive corporate business tax environment in Atlantic Canada and doing something about a huge regulatory burden in that part of the world. The regulatory burden is quite massive. The Auditor General pointed out in her report that you actually gave assistance to businesses in your region that hadn't complied with federal environmental standards, and your department wasn't even aware of it. That just underscores the huge regulatory burden that's been imposed on businesses in this country and the obstacle that creates.

I'm just wondering if there isn't really a better way of going through this than having some government bureaucracy trying to direct the economy of the region. Mr. McKenna feels it's led to a real legacy of dependency in the area that's hard to get rid of. What's your reaction to those sorts of criticisms?

À (1025)

Mr. Gerry Byrne: I'm not sure that's a correct reference to Mr. McKenna's points of view.

Mr. Brian Fitzpatrick: I've got the quote right here.

Mr. Gerry Byrne: I think he's referring to some of the challenges I mentioned in my speech. Mr. McKenna, it should be on the record, is a strong supporter of regional economic development and opportunities. He has a point of view I admire and respect. It's certainly shared by a number of people. I wouldn't want to broadly start interpreting exactly what you're referring to, but I will say that in today's Moncton Times Transcript Mr. McKenna is again talking about economic development and saying we need to push forward with an innovation strategy, we need public sector investment, we need partners working together. He has been a frequent commentator about economic development in Atlantic Canada and has provided very positive reinforcing evidence as to the powerful role of a strong coordinated force in Atlantic Canada. In fact, Mr. McKenna, when he was Premier, utilized the resources of ACOA in partnership.

Perhaps you might want to call Mr. McKenna as a witness. It's very clear to me that the region itself is very supportive of the agency and its activities. We are self-reporting in many respects. I come from a background of regional economic development. Before I became a member of Parliament, I understood and valued the role ACOA played in the region. One of the things we've done is extend a hand in further partnership and consultation in streamlining our priorities and plans, and I think that's reflected in these plans and priorities documents.

Mr. Brian Fitzpatrick: Mr. Minister, I'd like to make sure I get one more question on this.

The Chair: Could you make the questions right to the point, and then we can get the answers to the point.

Mr. Brian Fitzpatrick: The government, through your department, I believe, is trying to lead an innovation strategy, encourage entrepreneurship in the region, and so on. I think it's quite clear that in the market system people react to market signals, and the competitive environment you have in there encourages entrepreneurship and innovation. Your competitors ensure that. Quite often, my frustration with government is that it would be about the last place you'd look for leaders in innovation. They're generally following the pack.

The question I'm really getting to is, if you've got businesses that are chasing after government money and the resources of those companies are preoccupied with harvesting government money, it seems to me this very fact undermines the whole concept of innovation and entrepreneurship and creates this dependency Mr. McKenna referred to. I just wonder how the government can possibly be the leader in innovation and entrepreneurship when it's actually caused a lot of the dependency problems we do have in this country.

À (1030)

Mr. Gerry Byrne: Your comments are interesting and somewhat provocative, because, of course, we feel very strongly in Atlantic Canada that the business community is vibrant, is competitive, and is looking to enhance its international position and competitiveness. Again for the record, I would not want to interpret Mr. McKenna's point of view. I think there may be a broader generalization that does not necessarily reflect his position. So I think that would be best left to him.

The point about leaving market forces, and only market forces, to spur economic development through a net tax reduction strategy, and only a net tax reduction strategy, I don't think is realistic, nor do entrepreneurs, the economic development community in the region. Many academics feel that strategic, targeted investments in areas of innovation, community economic development, entrepreneurship, and business development are extremely worthwhile. They've proven results, they're very effective, and they enjoy the support of members of the community, where the grassroots decisions are being made. I don't think a generalized, one size fits all policy, articulated from Ottawa, is necessarily the best approach for regional economic development in the country.

The Chair: Mr. Calder, did you want to ask a question or pass to Mr. Bagnell?

Mr. Bagnell.

Mr. Larry Bagnell: We're just working on regional economic development programming for the north, for the Yukon, and I'd just like to ask you, from your experience, what advice you could give us. You've created 61,000 jobs and 4,500 businesses. We only have 30,000 people, so there should be a lot of ways. What do you think are some of the successes, things we should look at from the experience? There's been regional programming in the Maritimes for, as was said earlier, 30 years, but I'm asking you to draw on your particular experience.

Mr. Gerry Byrne: Mr. Bagnell, I think it's a very interesting and relevant point that the Atlantic Canada Opportunities Agency can actually play a role if asked. We cooperate with other regional economic development authorities throughout the country, for example, Canada Economic Development in the regions of Quebec, where ACOA and that agency are doing joint analysis of the effectiveness of our programs, what should be targeted, and where we can improve services.

It really has to be tailored to the area that's affected. There are different strengths, different opportunities, and different dilemmas that have to be addressed in your area. One thing I do know, if you have a bottom-up approach, a grassroots approach that decentralizes decision-making, that takes into account the strategic and expert advice from community economic development planners, then you're provided with good advice, and that becomes a basis for strategic planning. That's one of the things we've done in ACOA. I've really sent a strong signal that community economic development will be paramount and we will listen to the strategic economic planners from the region. We trust them with the responsibility and the task of preparing for us county-based or region-based economic development plans for their area. We impose that trust on them, and they take it very willingly. We have to listen to them when they do provide us with advice, and I think the results are more tangible, more rooted in the community, and there's a greater buy-in from those who generated them to fulfilling the expectations and taking the opportunities.

So that's one piece of advice I can give you from the ACOA book. Simply do that. Have a grassroots approach, listen to those you ask advice from, and take into account their points of view.

À (1035)

Mr. Larry Bagnell: Thank you.

You mentioned, as did all the regional development agencies, that your concentration is on small and medium-sized businesses, but it seems a lot of opportunity for employment may come from big projects. Could there have been something done for the cod fishery, the seal hunt, when it was endangered, now natural gas? Have you got involved in any of those types of large initiatives that could have a major effect on employment in the Maritimes?

Mr. Gerry Byrne: That's an excellent point, Mr. Bagnell, because it gets to the fact that part of the role of the Atlantic Canada Opportunities Agency is advocacy and policy coordination. In Atlantic Canada we've seen and enjoyed the benefits of some significant mega-projects in resource development. The Atlantic Canada Opportunities Agency has been a major guiding force in ensuring that regional economic benefits, regional industrial benefits accrue to small and medium-sized enterprises from the area. We all know the very positive experience from oil and gas off Newfoundland and Nova Scotia. One of the most significant reasons St. John's, Newfoundland, is experiencing the tremendous economic growth it has is that not only is the mega-project of Hibernia, White Rose, and Terra Nova proceeding, but small and medium-sized enterprises are major suppliers, contractors to that initiative. That's through the advocacy role.

There are mega-projects in the Yukon, significant resource projects that will be springing forward. I'm sure you'll want to follow that very closely, but some 71% of all new jobs in the Atlantic region come from small and medium-sized enterprises, and that's why we take a very strategic and very targeted approach towards small and medium-sized enterprises. It is the engine of economic and job growth.

Mr. Larry Bagnell: How does this advocacy function work? Is it actually like the federal government hiring someone to attack the federal government? I agree with the point that advocacy could help us in our industry. I'm just curious how it works in practical terms.

Mr. Gerry Byrne: We have a group of people in ACOA who are dedicated, who are extremely competent professional civil servants, who understand the region, and who provide coordination and linkage with other government departments, in the region, within central agencies, and here in Ottawa, provide a perspective from the region about how things can be done, what can work, and help shape policy. That's part of the advocacy and policy coordination role.

It's much more cooperative. Our objective is to prevent the fights. We've got a willing, very able group of people working in partnership with each other within the mix of the federal government to provide that advice, and it's decentralized, it's regionalized. I don't think there'd be too many people around this table who would suggest that a one size fits all policy is appropriate. I'm sure there are people around this table who would suggest that the federal government really has to respond not only to the national aspiration, but also to the regional aspiration. Those people, I think, would be strong supporters of the role the Atlantic Canada Opportunities Agency plays, not only for the region itself, but as a role model for the federal government.

Mr. Larry Bagnell: Do they get involved in regulations in that advocacy work?

Mr. Gerry Byrne: They do provide input on a whole raft of issues and projects and discussions that occur around the federal government table. They provide advice and input on a variety of issues. It is seen as being very worthwhile.

Mr. Larry Bagnell: When you have an area like Labrador, when they're so distant... Parts of my riding are so distant, the populations are so small, there's so much cost for heating, distance to markets, distance to get people in to fix things, not many people there to buy the products. Do you have any recommendations on how you can build economies in those areas?

À (1040)

Mr. Gerry Byrne: That's a very good point. The Atlantic Canada Opportunities Agency has done some significant policy research and crafting of policy documents to help to shape and scope our role, how we can be effective, how we can support those initiatives. In Labrador there is an extremely vibrant business community. While the population is somewhat spread out, there are projects on-stream right now that provide economic prospects. Our challenge is to ensure that those firms have the tools to reap the benefits of those very significant projects.

This is why we have to be very careful about categorizing what we should and should not be involved in. There's a small community in Nain, Labrador, where the Atlantic Canada Opportunities Agency worked with the Labrador Inuit Development Corporation to develop a dimension stone quarry. That was an unheard of business activity in the past. In fact, you would think, because of logistical concerns, the transportation of dimension stone would be a very prohibitive, cost-ineffective activity. It turns out that it's an extremely viable operation. New employment opportunities have been generated, not just for Labradorians, but specifically for the Labrador Inuit. That's an important point.

I would say we have a whole raft of ideas to share with Labrador, but Labradorians have a whole raft of ideas to share with us. For example, talking about that logistical challenge in Labrador, we've been in partnership developing a potential small-scale cruise ship traffic to the area. That's providing an incredibly positive impact for local citizens.

The Chair: Thank you, Mr. Bagnell.

Mr. Brison.

Mr. Scott Brison: Thank you, Mr. Chairman.

Thank you, Minister, and your colleagues, for being here with us today.

How many community economic development agencies are there in Atlantic Canada?

Mr. Gerry Byrne: If you're referring to the regional economic development authorities, there are 41 in total. Of course, the Atlantic Canada Opportunities Agency, in most cases in partnership with provincial government, supports their activities financially.

Mr. Scott Brison: But are there any other community economic development agencies receiving ACOA money?

Mr. Gerry Byrne: Oh definitely, mostly on a project-by-project basis. For example, in Nova Scotia the black business initiative has been supported through the Strategic Community Investment Fund. It's got a targeted approach providing black entrepreneurs, the black business community, with an opportunity to fulfil business expectations, but really to unearth and unleash that talent in that particular community.

Mr. Scott Brison: How many of those agreements are there?

Mr. Gerry Byrne: There are several. For example, in Newfoundland there are development associations. I could provide a more thorough answer at a later date, but there are 52 community business development corporations in total. There are other organizations, of course, that help foster economic development in the region. Most of those are funded on a project-by-project basis.

Mr. Scott Brison: Has there been any effort to partner, for instance, with credit unions, lending agencies that are on the ground in the communities and, as cooperatives, share some of the values espoused by community-based economic development agencies? Some would argue that they have a greater level of commitment to communities, because of their ownership by the membership, than perhaps is shown by banks.

Mr. Gerry Byrne: We've got a very positive relationship with federations and cooperatives and cooperative organizations, and your point is extremely well taken. There's a credit union in Labrador, the Eagle River Credit Union; if it weren't for that organization, there would probably be no banking services along much of the Labrador coast. But also, that organization has proven so successful that they are now providing credit union services, financial services, to much of the northern Peninsula. They're providing business counselling, but they've also got a special role with the companies that are involved with them. They provide that hands-on service.

I'm now working with the Newfoundland and Labrador Federation of Cooperatives, for example, just one of many in Atlantic Canada, promoting the development of cooperatives and the business acumen that is inherent in them.

À (1045)

Mr. Scott Brison: How would the the criteria for investment of AIF differ from, say, the CFI criteria?

Mr. Gerry Byrne: I'll leave that to the Minister of Industry to comment on fully, but the Canadian Foundation for Innovation is a national program. One of the reasons AIF was devised, developed, and implemented was that the region was not fulfilling its own internal expectations on CFI funding levels. We were under-represented in that particular program.

The AIF, which I can comment on, is directed towards commercial projects. It's not based on pure science for science's sake, it's based on research development, innovation with commercial potential, and that, I think, is a very important aspect of the program that has to be underscored.

Mr. Scott Brison: One of the challenges facing CFI funding in the region was the fiscal capacity of provinces to provide matching funding. We represent a region, whether it's New Brunswick, Nova Scotia, P.E.I., or Newfoundland, where the provinces do not have the same fiscal capacity. My province, for instance, has the highest per capita debt in the country, so from a tax leverage perspective, from a debt servicing perspective, it's at a real disadvantage in trying to find those matching funds.

I think ACOA's budget in Nova Scotia is $160 million per year, approximately. Is that accurate?

Mr. Dennis Wallace (President, Atlantic Canada Opportunities Agency): That would be about right.

Mr. Scott Brison: If you took the net present value of $160 million per year revenue stream for the next 15 years, you'd have about a $3 billion to $4 billion figure there, depending on your assumptions of returns. That would eliminate about a third of the provincial debt. I'm not being provocative, I'm just saying that in your province and in my province we have some real fiscal imbalance issues between the capacity of the provincial governments and the federal government. Do you think, if we could find a way to address those issues more directly, it might accomplish more for our region, a significant reduction in debt and an improved fiscal capacity for the province, than a direct investment from agencies like ACOA?

Mr. Gerry Byrne: That's a very interesting question. There seems to be a consensus that the best way to be able to finance public services is to promote an economy. When an economy grows, tax revenues increase, and that is the basis of revenues for provincial governments to provide important primary services, such as health care, education, and social services. Without economic growth, you have flatlined revenue generation, and of course, that's one of the fundamental reasons the Atlantic Canada economy needs a stimulus.

If the point of view were taken that the answer may be simply to take regional economic development budgets and, as a temporary measure, say over five years, not invest any money in economic development, but put it in as a contribution to provincial governments to reduce debt, I think it would be worth an analysis, Scott, but I think the consequence could very well be an erosion of the ability of provinces to provide programs and services, because, of course, without economic growth, you don't generate revenue, and without revenue, you can't provide those services.

À (1050)

Mr. Scott Brison: When you speak about economic growth, if you look at the Ireland model, there were strong significant investments in post-secondary education--I said it even before Ms. Torsney--but there was also a significant investment of EU transfers towards creating a more aggressive and competitive corporate tax regime. ACOA's budget per year is around $360 million, federal corporate taxes in Atlantic Canada are around $380 million. Eliminating federal corporate taxes in Atlantic Canada would create probably one of the most competitive corporate tax zones in all of North America. Based on the Ireland example, what do you think of just the potential? Again, we're having a constructive discussion.

Mr. Gerry Byrne: Ireland is a model that's been studied very well, because it is an exciting prospect. However, if you look at tax returns from ACOA-sponsored projects, the net result is that there is an influx. We actually get a greater tax return as a result of ACOA spending than what the actual spending is, and that's a very important point to make. If we were to duplicate the Ireland example, we'd have a reduced tax regime and other incentives, but we'd also have a huge block of money that would flow into the region from a central agency.

The Chair: Thank you very much.

Ms. Torsney.

Ms. Paddy Torsney (Burlington, Lib.): Thank you.

This fits nicely with Mr. Brison's question about Ireland. Ireland is an example of a country that invested really heavily in education, and my relatives like to tell me it's not about the tax structure, it's about this huge pool of very talented people. I wonder, Minister, about your relationship with encouraging education and higher levels of education. As an agency, it's not exactly your area, but clearly you'll see benefits if young people are pursuing higher levels of education, if older workers are getting training. How does it work with the provincial ministers of education and our own Minister of HRDC in supporting the work you're doing?

Mr. Gerry Byrne: This is a topic I really enjoy talking about, because I strongly believe education is a key component of economic growth. In fact, among the primary recipients of funding activity under the AIF will be Atlantic Canadian universities and colleges. And we're extending this beyond the traditional university model. Community colleges have also provided the AIF with applications based on excellence, based on merit, based on promoting research and development and innovation in rural environments. The challenges are there, but the opportunities are there as well. We're seeing ACOA programming fit very well into that within the mandate, within our guidelines, within our jurisdictional capabilities. Of course, education and training are jurisdictions of the provincial governments, but here's a clear example of how we can work in partnership today and tomorrow with provincial governments, providing high end financial resources, but also expertise, promoting education for today's and tomorrow's economy.

Ms. Paddy Torsney: On creating that environment of entrepreneurship, creating the conditions where companies want to come to a community, I've been doing a little research myself on the web, for instance, on Newfoundland, and I've been thoroughly impressed by the wealth of information and the high quality of websites on different accommodations there and the whole tourism push, bringing some great revenue into very small communities. Clearly, there is an entrepreneurial spirit.

From time to time we have foreign companies that want to locate in Canada because of, for instance, our great tax credits for research and development and the skill of Canadians. We're caught sometimes in competition between different parts of the country. I recall being told by a company, it will depend on how good a member of Parliament is, whether they can ratchet up a whole bunch of dough from the federal government, and we're going to pit you against one of your colleagues. I have a very low unemployment area. We don't qualify for some of the different funds. I think they should be coming to locate in my community because it is the best place to be, but it would seem to me that we need to make sure we don't have different government agencies competing against each other. There should be some threshold of support for anyone, or some group of incentives or encouragement or whatever for any company that comes here to perhaps look at some of the high unemployment areas, to make sure they're getting an opportunity.

What is the process for you and your colleagues to sit around the table and negotiate or make sure you're not competing with FedNor or with Western Diversification, so that we're not upping the ante and seeing who can offer more money and really hurting Canadians in the long run?

À (1055)

Mr. Gerry Byrne: We have a very clear expectation that the companies have to make an investment decision themselves and indicate a location of activity before any funding decision is taken, so there can be no sort of playing off or enticements in that regard. We expect them to make that decision. That investment has to be there, it has to be real. Provinces quite often can take a lead role in some of this activity you're talking about.

One of the best ways we entice foreign investment and investment into Atlantic Canada is relying on fact. The KPMG study, for example, credited Canada as a leading preferred location for investment. I'm sure you're familiar with the study I'm referring to, which surveyed a number of different economic climates in a number of different countries throughout the world. Canada came up very high, obviously. Atlantic Canada came up particularly high. I'll be going to New York in the coming weeks with provincial premiers, trade ministers, and others and a plethora of very competent companies from Atlantic Canada. One of the things I'll be doing is simply presenting to interested parties the results of that KPMG report, simply informing them that Atlantic Canada is a fantastic place to do business. The investment climate is right, the political climate is right, the economic climate is right, and the cost of doing business.

The Chair: Thank you, Ms. Torsney.

We do have one minute, Mr. Fitzpatrick.

Mr. Brian Fitzpatrick: In regard to the employees and the cost of operations, I'm assuming that these items are included in the estimates. Could your department provide us with a percentage cost for administering the program, the employees' salaries and all the costs of operations, all that sort of thing?

Mr. Gerry Byrne: Yes, I'm pretty confident that would be possible.

Mr. Brian Fitzpatrick: Plus any of these other kinds of costs that are in the community futures and so on, because somebody's got to pay these people.

Mr. Gerry Byrne: Yes, I think we can undertake that. I think you'll be pleased with the results.

The Chair: Thank you very much. We must vacate the room because of the next committee. I'm sure there'll be more questions, Mr. Minister, and we'll have to get back to you. But we're going to take extra time next time, so that we can ask all the questions. So thank you very much to you and your staff for attending today. Have a good day.

Mr. Gerry Byrne: My pleasure, thank you.

The Chair: Meeting adjourned.