CANADA ECONOMICS

G7

Global Affairs Canada. April 24, 2018. G7 foreign and security ministers discuss building a more peaceful and secure world

Toronto, Ontario – Robust democratic institutions, a strong rulesbased international order and respect for diversity create the best conditions for growth for everyone. Canada and its G7 partners recognize the importance of working together to build a more peaceful, prosperous and sustainable world.

Today, G7 security ministers concluded their meeting, which took place on April 23 and 24, 2018, following the G7 foreign ministers’ meeting on April 22 and 23. The G7 meetings on building a more peaceful and secure world also included a joint session with the foreign and security ministers. That meeting was cochaired by the Honourable Chrystia Freeland, Minister of Foreign Affairs, and the Honourable Ralph Goodale, Minister of Public Safety and Emergency Preparedness.

During a joint press conference on April 23, ministers Freeland and Goodale addressed the tragic incident in Toronto in which pedestrians were struck by a van, resulting in fatalities and casualties. They offered their condolences to the friends and families of those killed and injured, and thanked the first responders for their remarkable work. The ministers also expressed their gratitude to G7 partners who extended their condolences.

During their respective meetings, foreign and security ministers reaffirmed their belief in open economies, open societies and open governments in which inclusion, respect for diversity and human rights and growth for everyone are valued. Ministers agreed that G7 partners can work together by providing advice to leaders for the Summit in Charlevoix on:

• outlining a coordinated approach to reinforce our democracies and respond to interference in countries’ democratic systems;
• coordinating action with respect to a rulesbased international order;
• bolstering conflict prevention efforts, and support for UN efforts and reform;
• implementing nonproliferation and disarmament measures;
• addressing transnational threats to security, including managing extremist travellers (including foreign terrorist fighters and their families) and countering violent extremism, as well as its use of the Internet;
• tackling threats to cybersecurity;
• combatting trafficking in persons; and
• advancing gender equality and the empowerment of women and girls.

G7 foreign ministers discussed their shared concerns about international peace and security issues, including Syria, Ukraine and North Korea. In discussing common challenges to the rules-based international order, the ministers broached the concerning pattern of destabilizing Russian behaviour, including Russia’s unacceptable actions in Syria, Ukraine and other neighbouring countries, its interference in democratic processes, and its disinformation campaigns. The ministers also considered ways of strengthening global collaboration to address the humanitarian and security crisis in Myanmar, and of alleviating the tragic impact on Rohingya, particularly women and girls. The ministers also addressed the worsening political and economic crisis in Venezuela and its grave humanitarian consequences.

G7 foreign ministers held a productive discussion with nonG7 women foreign ministers and members of the Gender Equality Advisory Council for Canada’s G7 Presidency. The participants highlighted that, in order to be effective and durable, initiatives addressing peace and security challenges need to include women’s meaningful participation at all levels of decisionmaking processes and address women’s and girls’ needs and rights.

G7 security ministers engaged in a constructive discussion with the Global Internet Forum to Counter Terrorism (GIFCT). This industry forum, comprised of Facebook, Google, Twitter and Microsoft, was established in 2017 with the aim of formalizing how these companies can work together to address the exploitation of their platforms by violent extremists and terrorists. The ministers and GIFCT discussed how they will work together to address terrorist use of the Internet.

The security ministers heard from the Gender Equality Advisory Council members, who provided advice regarding genderbased violence and protecting victims of trafficking, particularly trafficking for sexual exploitation. Jürgen Stock, the Secretary General of Interpol, participated in the security ministers’ meeting as an observer.

Quotes

“Canada and its G7 partners have an important role to play in building a more peaceful and secure world. Over the past two days, my counterparts and I had the opportunity to discuss and take concrete actions on some of today’s most pressing global challenges and issues, including defending democracy, the Rohingya crisis, Syria, Russia, Venezuela and North Korea. These conversations will shape, prepare and inform the essential discussions that the G7 leaders will have on June 8 to 9 in the Charlevoix region.”

The Honourable Chrystia Freeland, P.C., M.P., Minister of Foreign Affairs

“Canada is fully committed to working with its G7 partners to tackle the security threats we collectively face, including terrorism, violent extremism, cybersecurity and the trafficking of persons. As we take the next steps together, Canada will continue providing leadership to ensure that a more peaceful and secure world will be built on the principles of democracy, the rule of law, and respect for gender equality and all human rights.”

The Honourable Ralph Goodale, Minister of Public Safety and Emergency Preparedness

Quick facts

• The G7 is an informal grouping of seven of the world’s advanced economies consisting of Canada, France, the United States, the United Kingdom, Germany, Japan and Italy, as well as the European Union.
• When Canada held the G8 presidency in 2010, foreign ministers met in Gatineau, Quebec.
• Cochaired by Melinda Gates and the Ambassador of Canada to France, Isabelle Hudon, the Gender Equality Advisory Council is advising Canada in the context of its G7 Presidency on how to integrate gender equality and women’s empowerment across all themes, activities and initiatives.
• Foreign ministers from Colombia, Croatia, Ecuador, Ghana, Guatemala, Jamaica and Panama participated to the outreach session with nonG7 women Foreign Ministers, along with members of the Gender Equality Advisory Council for Canada’s G7 Presidency.

FULL DOCUMENT: https://g7.gc.ca/en/g7-foreign-and-security-ministers-discuss-building-a-more-peaceful-and-secure-world/

SEE ALSO IN "e-Gonomics": http://e-gonomics.blogspot.ca/2018/04/canada-economics-g7-ministerial-meeting.html

The Globe and Mail. 25 Apr 2018. G7 ministers press tech giants to remove extremist content faster, Goodale says
MICHELLE ZILIO, PARLIAMENTARY REPORTER TORONTO

Group of Seven security ministers are putting pressure on technology giants, including Facebook and Twitter, to remove extremist and terrorist content from their platforms faster, threatening “other action” if they fail to do so soon.

Public Safety Minister Ralph Goodale said he and his G7 counterparts made the appeal to members of the Global Internet Forum to Counter Terrorism, an industry group comprised of more than 70 technology companies, during a meeting in Toronto on Tuesday. Representatives of Facebook, Twitter, Google and Microsoft were in the room for the closeddoor session.

“The message is: Let’s pick up the pace on the improvement that we need to see to get rid of this vile material off the internet, and if we don’t see the pace improving fast enough, then we reserve the right to take other action,” Mr. Goodale said.

“I think the companies heard that message loud and clear.”

The minister did not indicate what “other action” could entail.

Mr. Goodale said the companies shared new statistics with the ministers on their handling of extremist and terrorist posts. For example, he said Facebook told them it “took action” on 1.9 million pieces of Islamic State or alQaeda content in the first quarter of this year – twice as much as in the quarter before that. He said 99 per cent of that content was dealt with as a result of Facebook’s internal monitoring, not in response to outsiders’ concerns.

Mr. Goodale said G7 security ministers also want tech companies to improve their ability to automatically remove extremist material, present users who consistently search for terrorist material with a “counter narrative” and report more regularly on their counterterrorism efforts.

The global internet forum was established in June of 2017 with a goal of preventing extremist and terrorist use of the internet. It recently created an industry database on which companies share unique digital identification codes of terrorist content, allowing them to find and remove material that violates their policies, and in some cases block it before it can be posted.

G7 ministers also discussed the domestic and global threat environment, as Toronto grappled with the aftermath of a vehicle attack that killed 10 people and injured at least 14 on Monday.

Mr. Goodale said the investigation into the attack is still in its early hours, noting that so far, there is “no discernible connection to national security” and no information to suggest it was linked to the G7. Security ministers also talked cybersecurity, foreign interference in liberal democracies and human trafficking. David Vigneault, director of the Canadian Security Intelligence Service, provided ministers with an overview of threats and other emerging issues. Tuesday’s meeting wrapped up a three-day summit of the G7 foreign affairs and security ministers. The G7 leaders will meet this June in Charlevoix, Que.

NAFTA

REUTERS. MEXICO. APRIL 25, 2018. Mexico's senate ratifies sweeping Asia-Pacific trade deal

MEXICO CITY (Reuters) - Mexico’s Senate on Tuesday voted to ratify a Asia-Pacific trade agreement, making it the first of 11 signatory countries to back the arduously negotiated framework that was rejected by the United States.

Senators voted 73-24 to approve the pact, which was signed in March without the United States after U.S. President Donald Trump pulled out of talks within days of taking office last year.

Mexico, which has been a leading proponent of free trade in Latin America, is currently in talks to renegotiate the North American Free Trade Agreement (NAFTA) with Canada and the United States. Trump has repeatedly threatened to scrap NAFTA if it is not reworked to benefit U.S. workers.

Despite striking a string of free-trade deals since the original NAFTA deal in 1993, Mexico still sends 80 percent of its exports to its northern neighbor.

Mexican President Enrique Pena Nieto said the new Asia-Pacific pact would open up more markets to Mexican goods.

“With this new generation agreement, Mexico diversifies its economic relations with the world and demonstrates its commitment to openness and free trade,” Pena Nieto said on his Twitter account.

The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) will reduce tariffs in countries that together amount to more than 13 percent of the global economy - a total of $10 trillion in gross domestic product.


The original 12-member agreement, known as the Trans-Pacific Partnership (TPP), would have represented 40 percent of the world economy if the United States had not dropped out.

The 11 remaining nations finalized a revised trade pact and stripped out some U.S. demands, including rules to ramp up intellectual property protection of pharmaceuticals.

Australia, Brunei, Canada, Chile, Malaysia, Mexico, Japan, New Zealand, Peru, Singapore and Vietnam signed the deal and a total of six counties will need to ratify the agreement for it to take effect.

Japan and the United States are currently at loggerheads on how to frame new trade talks between the two longtime allies. Trump has rebuffed Tokyo’s calls to rejoin the Trans-Pacific pact, instead preferring a two-way trade deal.

Current discussions regarding NAFTA have taken a more positive tone this week. Trump said on Tuesday a new deal could be agreed on quickly.

Ministers from the United States, Canada and Mexico are meeting in Washington to try to narrow differences on content rules for autos in the hope of making a deal in the coming days.

Reporting by Sharay Angulo and Diego Ore. Writing by Michael O'Boyle; Editing by Michael Perry

BLOOMBERG. 24 April 2018. Nafta Talks Ramp Up in Washington as Trump Says It's Going Well
By Eric Martin, Cyntia Aurora Barrera Diaz and Josh Wingrove

• Mexico business envoy sees potential for accord in 10 days
• Ministers said to be meeting again Wednesday, maybe Thursday
• Trump: 'Very Good Chance' at Making Trade Deal With China

As President Donald Trump says Nafta talks are “doing very nicely,” negotiations between ministers from the U.S., Mexico and Canada are ramping up in Washington in a redoubled push for a deal.

Mexican Economy Minister Ildefonso Guajardo and Canadian Foreign Affairs Minister Chrystia Freeland both attended meetings Tuesday at the U.S. Trade Representative’s Office in Washington. High-level meetings are expected to continue Wednesday and probably Thursday, according to an official familiar with talks, speaking on condition of anonymity. The push comes ahead of a U.S. trade mission to China, as Mexican and U.S. elections bear down.

The sides have picked up the pace in recent weeks, though the goal is unclear. The U.S. has mused about a deal “in principle”; Mexico says it’s seeking a comprehensive agreement to update a 24-year-old deal. Meanwhile, Trump’s latest comments are a mixed signal, saying talks are going well but expressing concern about a quick deal.

“Nafta as you know is moving along,” Trump said in a meeting with French President Emmanuel Macron on Tuesday in Washington. “I could make a deal very quickly, but I’m not sure that’s in the best interest of the United States. We’ll see what happens, but we’re doing very well.”

Under optimistic conditions, negotiators have a 75 percent chance of reaching a deal soon, Moises Kalach, the trade head for the Mexican business chamber known as CCE, said in an interview Tuesday with Grupo Formula radio. An agreement on an updated North American Free Trade Agreement could be reached in the next 10 days, he said.

If no deal is reached in the coming days, it could make sense to put negotiations on hold until the end of the year or early 2019, given the presidential election in Mexico in July and the U.S. congressional midterm vote in November, Kalach said.

Negotiating teams have agreed on nine or 10 more topic areas that are ready for ministers’ review and approval, Kalach said.

Washington Talks

Even so, wide differences remain on some of the toughest issues, such as tightening up the rules of origin for cars and their components, aimed at boosting American manufacturing but that could upend existing supply chains.

Negotiators have also finished work on the telecommunications chapter, two people familiar with the talks said last week, asking not to be identified discussing private negotiations.

Canada’s Freeland said Tuesday’s talks focused on automotive rules of origin -- a crucial sticking point, which she sees as the linchpin to a deal -- and noted that negotiators have been having constructive talks on the subject for some time, moved ahead in part due to some creative thinking put forward by the U.S. side last month.

Conceding that “there are other issues that still need to be resolved,” she maintained that “we think a win-win-win agreement is possible.”

Trump’s negotiators have been pushing for a deal by early May. That would meet the U.S. timeline for having an agreement approved, at the latest, by the lame-duck session that will follow U.S. congressional elections on Nov. 6, said two people familiar with the negotiations.

Guajardo said this month he sees an 80 percent chance of an agreement by the first week of May. Negotiators are also rushing for a deal as Mexico approaches elections on July 1. Mexican left-wing presidential candidate Andres Manuel Lopez Obrador, who has stoked investor concern with talk of canceling an airport and slowing an oil-industry opening, has consistently led in polls.

This week’s talks are set to cover the most ground since the final official negotiating round in Mexico City in early March, according to a preliminary agenda obtained by Bloomberg. Topics include automotive rules, agriculture, and legal and institutional matters such as dispute settlement mechanisms.

In the spirit of what Guajardo has called a permanent round of negotiation, Freeland told reporters on Tuesday that "we are going to be working hard late into the night based on some of the issues, some of the points that were raised today, and we’ll be back at it tomorrow."

— With assistance by Randy Woods

CANADA - PORTUGAL

1) Prime Minister of Portugal to visit Canada Ottawa, Ontario - April 24, 2018

The Prime Minister, Justin Trudeau, today announced that the Prime Minister of Portugal, António Costa, will visit Canada from May 2 to 5, 2018.

During the visit, Prime Minister Trudeau and Prime Minister Costa will discuss the benefits of progressive trade and how the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) will create good, middle class jobs and new opportunities for people on both sides of the Atlantic.

The two leaders will explore how our countries can work together to promote gender equality, protect our world’s oceans, address climate change, advance security and peace, and build economies that work for everyone.

Quote

“Canada and Portugal enjoy a strong and historic bond, with nearly a half-million people of Portuguese origin calling Canada home. I look forward to meeting with Prime Minister Costa to deepen our relationship and create economic opportunities that will benefit Canadians and Portuguese people alike.”

—The Rt. Hon. Justin Trudeau, Prime Minister of Canada

Quick Facts

• This will be the first formal meeting between Prime Minister Trudeau and Prime Minister Costa.
• Canada is home to a vibrant Portuguese-Canadian community with over 480,000 Canadians of Portuguese origin.
• Canada and Portugal enjoy a strong relationship, founded on common values, deep and significant people-to-people bonds, and mutually beneficial commercial relations. Two-way merchandise trade between Canada and Portugal totalled nearly $848 million in 2017, with Canadian exports valued at $270 million.
• On September 21, 2017, the provisional application of CETA took effect. CETA provides new opportunities for Canadian and Portuguese businesses, and will enhance trade and investment in both our countries.
• Portugal was the eighth European country to ratify CETA.

Canada and Portugal: http://www.canadainternational.gc.ca/portugal/bilateral_relations_bilaterales/canada_portugal.aspx?lang=eng

INVESTIMENT

StatCan. 2018-04-25. Foreign direct investment, 2017

The stock of Canadian direct investment abroad rose 3.4% to $1,121.1 billion in 2017 as increased investment activity in Europe and North America was partially offset by the downward revaluation effect of a stronger Canadian dollar against the US dollar.

The stock of foreign direct investment in Canada increased 1.9% to $824.0 billion, mostly reflecting funds invested by foreign direct investors in existing affiliates.

As a result, Canada's net direct investment position with the rest of the world widened by $22.1 billion in 2017 to $297.1 billion. Over the previous 10 years, the stock of Canadian direct investment abroad grew by 117.6%—nearly double the rate of foreign direct investment in Canada.

Chart 1: Canada's foreign direct investment position

Canadian direct investment increases in Europe and North America

The increase in the value of Canadian direct investment abroad in 2017 was mainly due to higher investment positions in Europe (+7.7%) and North America (+1.9%). The higher positions in Europe were partly attributable to the upward revaluation effect of a lower Canadian dollar against the Euro (-6.2%) and British pound (-2.4%). In North America, the appreciation of the Canadian dollar against the US dollar (+6.6%) offset some of the growth in investment into that region.

The stock of Canadian direct investment in the United States continued to rise in 2017, up 4.9% to $504.8 billion. The US share of overall Canadian direct investment abroad rose to 45.0% by the end of 2017, its highest level since 2008 but still well below the peak levels of the early 1990s.

In Europe, the stock of Canadian direct investment increased 7.7% to $288.4 billion following a small decline in 2016. The increase was mostly due to higher investment in the United Kingdom, Luxembourg and Netherlands. The stock of direct investment also increased in Asia and Oceania (+4.9%) and Africa (+3.7%). South America was the sole region to post a decrease in the stock of direct investment (-1.0%).

Foreign direct investment in Canada up on higher holdings from North America and Asia/Oceania

The increase in the stock of foreign direct investment in Canada in 2017 was driven by higher investment from North America (+4.6%) and Asia/Oceania (+6.5%).

The United States was responsible for most of the increase from North America, rising 4.2% to $404.5 billion. China led the increase in Asia/Oceania, up 7.5% to $16.4 billion. Meanwhile, holdings from Europe fell 2.6% to $288.9 billion. Declines from Netherlands (-5.4%) and Switzerland (-8.8%) overshadowed gains from the United Kingdom (+7.3%).

On an instrument basis, the foreign direct investment position in Canada, in the form of equity, grew 3.6% to $684.9 billion in 2017, while the position in the form of debt instruments declined 5.9% to $139.1 billion. Equity accounted for 83.1% of the stock of foreign direct investment in Canada, compared with 93.2% for the stock of Canadian direct investment abroad.

Increase in Canadian direct investment abroad concentrated in the transportation and warehousing industry

On an industry basis, Canadian direct investment abroad in the transportation and warehousing industry rose 43.6% on strong merger and acquisition activity in the United States.

Other significant increases in the stock of Canadian investment abroad in 2017 were seen in finance and insurance (+3.0%), and management of companies and enterprises (+5.1). These increases were partially offset by declines in the mining and oil and gas extraction (-5.2%) and manufacturing (-4.1%) industries.

The finance and insurance industry remained the primary destination for Canadian direct investment abroad at the end of 2017, with a 35.3% share of the total position, down from the peak of 39.6% reached in 2012.

Foreign direct investment in Canada up most in wholesale trade and finance and insurance industries, while largest decline is in oil and gas extraction

The growth in the value of foreign direct investment in Canada in 2017 was concentrated in the wholesale trade industry, up 8.6% to $74.7 billion, followed by an 8.0% increase in the finance and insurance industry to $137.0 billion. The stock of investment in oil and gas extraction dropped 7.4% to $ 162.2 billion, as direct investors from abroad sold some of their assets back to Canadian investors. Manufacturing declined 0.3%, mainly on a 15.8% reduction in the petroleum and coal products manufacturing industry. Despite the decrease, manufacturing remained the top industry for foreign direct investment in Canada, with a 21.4% share at the end of 2017.

Although it remains the largest industry for foreign direct investment in Canada, foreign investment in the manufacturing industry has not kept pace with overall investment trends over the past decade, with that industry's share down significantly from the 32.7% share it held in 2008. During the same period, the shares of management of companies and enterprises, finance and insurance and mining and oil and gas extraction have all increased. In the case of the management of companies and enterprises industry, some of these companies may also have activities that are tied to other industries such as manufacturing and mining and oil and gas extraction.

Chart 2: Selected industry shares of foreign direct investment in Canada

Foreign direct investment by ultimate investor, 2016

Measuring foreign direct investment in Canada on an ultimate investor basis, which looks through the country of the immediate direct investor to show the country that ultimately controls the investment in Canada, can result in substantial changes in the distribution of inward positions by country.

The difference between the immediate and ultimate investor concepts can be best illustrated with an example. Assume a firm in the United States wants to acquire a Canadian mining company for $1 billion. The US firm has a holding company in the Netherlands and chooses to route the $1 billion through the holding company. The immediate investing country is the Netherlands, while the ultimate investing country is the United States.

The United States, which is already the dominant direct investor in Canada on an immediate investor basis, further increases its share of overall investment when the data is presented on an ultimate investor basis. The stock of direct investment in Canada held by US investors in 2016 (the latest year for which information on an ultimate investor basis is available) increased from $388.3 billion on an immediate basis to $422.4 billion on an ultimate basis, a difference of 8.8%. The United States accounted for 52.2% of total foreign direct investment in Canada on an ultimate basis in 2016, compared with 48.0% on an immediate basis.

Other countries with notable increases in investment when measured on an ultimate investor basis include the United Kingdom, Brazil, China and Japan. On the other hand, moving to foreign direct investment on an ultimate investor basis results in a substantial reallocation of direct investment out of countries such as Luxembourg, the Netherlands and Switzerland. When measured on an ultimate investor basis, there is a 33.4% reduction in the stock of direct investment held by investors in Europe, which indicates that investors in other parts of the world often channel their investments into Canada through European countries.

When measured on an ultimate investor basis, there is also a very small proportion of foreign direct investment that ultimately comes from Canadian sources (known as "round-tripping" investment). In 2016, the value of this "round-tripping" amounted to $8.6 billion, which was equal to around 1% of total foreign direct investment into Canada. In other countries such as the United States, Germany and France, for which information on an ultimate investor basis is available, round-tripping typically accounts for a higher percentage of overall investment.

Chart 3: Foreign direct investment in Canada by immediate and ultimate investing country, 2016

FULL DOCUMENT: http://www.statcan.gc.ca/daily-quotidien/180425/dq180425a-eng.pdf

The Globe and Mail. 25 Apr 2018. Beyond pipeline politics: Canada’s love-hate relationship with FDI

GLEN HODGSON, Senior fellow at the Conference Board of Canada

Invest in Canada, the new federal agency to attract foreign direct investment (FDI), is a positive step forward, because it creates a centre of expertise that can align with initiatives by major cities, provinces and other parts of the federal government. To accompany a new agency, Canada should undertake a timely rethink of the Investment Canada Act, with primacy given to protecting national-security interests.

There are many dimensions to Canadian FDI policy that are complex and misaligned. In many prominent cases, specific regional or industrial concerns collide with broader national economic interests, and emotion threatens to crowd out evidence and thorough analysis. Kinder Morgan’s prospective investment in the expansion of the Trans Mountain pipeline is the latest test case of the overall coherence of Canada’s policy related to FDI.

Canada has a long and complicated history with FDI. Protectionist thinking in the 1960s and 70s led to the creation of investment-review legislation to blunt the impact of U.S. ownership and domination of Canadian manufacturing and resources. More recently, some high-profile cases have involved the possible acquisition and investment by Chinese state enterprises and private companies in Canadian firms.

Extensive research by the Conference Board confirms that FDI is critical to building global value chains and ensuring Canadian firms can reach global markets. FDI usually brings advanced technology, systems and management to the Canadian market, often with higher levels of productivity and related higher compensation and benefits to the workforce.

In the latest Conference Board report card on Canada’s economic performance, published in 2017, Canada ranked 6th among major Organization for Economic Cooperation and Development (OECD) member countries on inward greenfield foreign direct investment (FDI) performance, an improvement over the past decade. However, only three provinces – British Columbia, Ontario and Quebec – had a comparable performance score to Canada as a whole.

Canadian direct investment abroad (CDIA) allows companies based in Canada to gain access to overseas markets, resources and opportunities to exploit their competitive advantages to the fullest. Governments often have a hard time embracing CDIA in public statements, lest they be accused simplistically of “exporting jobs.” Business-development programs and risk-management initiatives in support of CDIA quietly proceed, but with limited fanfare.

Major Canadian cities have shown leadership in building a more co-ordinated approach to attracting foreign investment from places such as China and Europe, as well as the United States. The federal government is building on this city-led initiative and enhancing its own capacity to deliver on efforts to attract foreign investment. To achieve full effectiveness, that agency should operate with a governance model that provides degrees of freedom from core government.

Yet, the Investment Canada Act remains in place as a speed bump for many possible FDI transactions, perhaps creating the impression that the left hand and right hand are out of sync. Efforts have been made over the decades to relax elements of the legislation, such as investment amounts and specific sectors subject to review. But the core test is defined in the Act as “net economic benefit” to Canada, which is a vaguely defined notion that seems increasingly outdated in a globalized world economy.

Only with regular public review can we have confidence that the Investment Canada Act is still asking the right questions and regulating investments. For example, the overall scale of foreign investment, and possible competitive impacts, arguably could be guided by competition law, rather than an FDI review filter.

As a number of recent cases have shown, protecting our national-security interests is arguably the most critical policy issue today for investment flowing into Canada. National security is especially exposed to risk from possible investment from China, Russia and other countries where there is a close and often murky relationship between business actors and state interests.

Under the Investment Canada Act, there is no definition of “national security.” In our view, it is time to examine giving explicit priority to a well-defined national-security test. This review mechanism would assess whether foreign governments, or their stateowned enterprises, should secure access to Canadian technology, intellectual property, markets and talent, based on an assessment of Canada’s long-term interests. The law could also be modernized to make explicit the criteria being applied to determine whether a proposed investment should be approved or disqualified.

BLOOMBERG. 25 April 2018. Foreign Investment in Canada Is Only Really Slowing in Energy
By Eric Hertzberg

Outside of oil and gas, foreign investors haven’t given up on the Canadian economy.

That’s the takeaway from detailed industry data released Wednesday by Statistics Canada that showed the sharp slowdown in foreign capital inflows last year was energy-related.

The stock of foreign direct investment, including debt, in Canada outside oil and gas rose 4.7 percent to C$704 billion ($547 billion) in 2017 -- the fastest increase in three years. Investment in the oil and gas sector, on the other hand, fell by the largest amount in at least 17 years -- down 12.2 percent to C$120 billion.

While falling oil prices have made Canada’s energy industry less attractive, the pick up in other sectors is good news on one front: It suggests worries about the fate of the North American Free Trade Agreement didn’t make Canada’s economy, which led the Group of Seven nations in growth last year, a less appealing place to put money.

Increased foreign direct investment into Canada was led by the finance and insurance industry, which saw the stock of capital rise 8 percent on the year to C$137 billion. Retail sales, management, real estate, and wholesales also recorded gains.

There was a small drop in the stock of manufacturing FDI last year, but the collapse of investment in energy meant the factory sector remains the No. 1 destination for foreign capital.

The total stock of foreign direct investment increased 1.9 percent to C$824 billion, the slowest pace since 2011.

ECONOMY

BANK OF CANADA. April 23, 2018. Opening Statement before the House of Commons Standing Committee on Finance. Opening Statement. Stephen S. Poloz - Governor. House of Commons Standing Committee on Finance

Ottawa, Ontario - Good afternoon, Mr. Chairman and committee members. Senior Deputy Governor Wilkins and I are pleased to be with you today to discuss the Bank’s Monetary Policy Report (MPR), which we published last week.

At the time of our last appearance in October, we saw signs that the Canadian economy was moderating after an exceptionally strong first half of the year. That moderation turned out to be greater and to last a bit longer than we expected. Still, it is important to recognize that inflation is on target and the economy is operating close to potential. That statement alone underscores the considerable progress seen in the economy over the past year.

The slower-than-expected growth in the first quarter reflected two main issues. First, housing markets reacted to announcements of new mortgage guidelines and other policy measures by pulling forward some transactions into the fourth quarter of last year. That led to a slowdown in the first quarter that should naturally reverse. Second, we saw weaker-than-expected exports during the quarter. This weakness was caused in large part by various transportation bottlenecks. Some of this export weakness should also reverse as the year goes on.

So, after a lacklustre start to 2018, we project a strong rebound in the second quarter. All told, we expect that the economy will grow by 2 per cent this year, and at a rate slightly above its potential over the next three years, supported by both monetary and fiscal policies. The composition of growth should shift over the period, with a decline in the contribution from household spending and a larger contribution from business investment and exports.

Inflation should remain somewhat above the 2 per cent target this year, boosted by temporary factors. These factors include higher gasoline prices and increases to the minimum wage in some provinces. Their impact should naturally unwind over time, returning inflation to 2 per cent in 2019.

Of course, this outlook is subject to several important risks, and a number of key uncertainties continue to cloud the future, as was the case in October.

In terms of risks to the outlook, the most important remains the prospect of a large shift toward protectionist trade polices around the globe. I should be clear that our forecast already includes the negative effect of increased uncertainty on companies’ export and investment plans. Otherwise, it assumes that the trade agreements now in place will continue. The range of possible outcomes is far too wide to incorporate into an economic projection.

The four main uncertainties around the outlook for inflation are the same as six months ago, but good progress has been made on some of them. First, in terms of economic potential, our annual review led us to conclude that the economy currently has more capacity than we previously thought. As well, this capacity is growing at a faster pace than we expected. This means we have a little more room for economic demand to grow before inflationary pressures start to build. That said, some firms, particularly exporters, are operating at their capacity limits but are hesitating to invest. This hesitation may be due to trade uncertainty, transportation bottlenecks, shortages of skilled workers or other reasons. Regardless, it is limiting growth of our exports and economic capacity.

The second source of uncertainty concerns the dynamics of inflation. Here, recent data have been reassuring. Inflation measures, including our various core measures, have been behaving very much as forecast and are consistent with an economy that is operating with very little slack. This gives us increased confidence that our inflation models are working well.

The third area of uncertainty is about wages, and data here are also encouraging. Wage growth has picked up significantly over the past 18 months, approaching the 3 per cent growth rate one would expect from an economy that is running at capacity. However, the most recent figures are being boosted temporarily by the minimum wage increases in some provinces.

The fourth source of uncertainty is the increased sensitivity of the economy to higher interest rates, given elevated levels of household debt. The concern is that as interest rates rise, the share of household income going to service debt will also rise, leaving less to spend on other goods and services, and putting downward pressure on inflation. It will take more time to assess this issue, particularly because new mortgage guidelines are currently affecting the housing market and mortgage lending. However, the growth of household borrowing is slowing, which is consistent with the idea that consumers are starting to adjust to higher interest rates and new mortgage rules.

So, as you can see, there has been some progress on these four key areas of uncertainty, particularly the dynamics of inflation and wage growth. This progress reinforces our view that higher interest rates will be warranted over time, although some degree of monetary policy accommodation will likely still be needed to keep inflation on target. The Bank will continue to monitor the economy’s sensitivity to interest rate movements and the evolution of economic capacity. In this context, Governing Council will remain cautious with respect to future policy adjustments, guided by incoming data.

With that, Mr. Chairman, Senior Deputy Governor Wilkins and I would be happy to answer questions.

INFRASTRUCTURE

The Globe and Mail. 25 Apr 2018. CPPIB shuffles leadership to focus on growth areas. Changes are the product of CEO’s assessment of how the fund can better execute on investment opportunities. CPPIB chief executive Mark Machin, seen at the fund’s Toronto offices in January, 2017, is implementing a ‘planned renewal’ process, which includes rotating long-time staff.
JACQUELINE NELSON

The Canada Pension Plan Investment Board is replenishing its senior leadership team as the $337billion fund manager looks to regroup some of its investment strategies and add new viewpoints.

The changes bring a focus to some of the fund’s key areas of growth, such as Asia and emerging markets, and also rotate some long-time CPPIB staff to new parts of the organization. These new senior managing directors will begin their jobs on June 1 as part of the pension fund’s senior management team, and all of the appointees already work at CPPIB.

Over all, the changes are the product of chief executive officer Mark Machin’s assessment of how the fund can more quickly and easily execute on investment opportunities, and the way more than two dozen strategies should best be grouped together.

CPPIB has undergone a months-long “planned renewal” process, the fund said in a statement, which began with the announcement that three veteran executives would retire or otherwise leave the fund. CPPIB added a fourth exit on Tuesday as Pierre Lavallée, global head of investment partnerships, will leave the fund in early May. CPPIB is replacing these men but also reorganizing their roles into new positions. The fund said in a statement that this is “designed to inject fresh perspectives, experiences and ideas to a growing and evolving organization.”

John Graham is taking on a broader responsibility in credit and will now lead the credit investments team, which includes principal credit investments, private real estate debt and the newly created public credit functions. This is an example of of a change in thinking about investment groupings, as a former part of the real estate asset class moves to the credit team.

The role of head of Asia Pacific will be filled by Suyi Kim, and she will oversee CPPIB’s growing portfolio of investments in the region – a key area of focus for Mr. Machin. Ms. Kim joined CPPIB in 2006 and notably established CPPIB’s office in Hong Kong. She also spearheaded CPPIB’s private-equity business in Asia before taking on the role as head of Asia.

Deborah Orida will become global head of active equities after having most recently been the head of private equity in Asia. She will be responsible for leading thematic investing, where a team researches and invests in securities that are exposed to long-term structural changes such as demographic shifts. Sustainable investing, relationship investing and active fundamental equities will also fall under Ms. Orida’s leadership.

Poul Winslow will be elevated to the position of global head of capital markets and factor investing. The groups he will oversee include global capital markets, quantitative equities, external portfolio management, cash and liquidity and strategic tilting groups. Mr. Winslow was previously head of thematic investing and external portfolio management.

In addition, current senior managing director and global head of private investments Shane Feeney will become global head of private equity, where he will be responsible for overseeing direct private equity, funds, secondaries and co-investments, and private equity Asia.

“These appointments reflect an evolved investment department structure that provides for greater investment agility and the recognition of the importance of emerging markets,” CPPIB said in a statement, adding that it would also be looking for a new chief technology and data officer, and doing away with the chief operating officer role.

Several Canadian pension funds are in the process of renewing their leadership teams and there have been a series of notable exits and new promotions in recent weeks as senior executives and asset class leaders have jostled for new positions within the pension space and beyond.

The Globe and Mail. 25 Apr 2018. Ian McGugan looks at the options for investors as bond yields head higher. Canada Infrastructure Bank staffs up amid continuing search for CEO
ANDREW WILLIS

A number of potential CEO candidates turned down the job because it doesn’t pay well by Bay Street standards.

The Canada Infrastructure Bank has landed a chief financial officer, but the search for a CEO drags on, three years after the federal Liberals first promised the $35billion agency.

The Toronto-based bank announced on Tuesday that Annie Ropat will be its first CFO and chief administrative officer, overseeing all finance and corporate functions. Ms. Ropar was CFO of Aequitas Innovations Inc., which operates the NEO stock exchange, and is on the board of Ontario Growth Capital Corp., a provincial agency that supports ventureFukakusa capital investment. She will start at the bank on June 1.

The government-owned bank is meant to spur investment in infrastructure by providing minority equity stakes or loans to private-sector projects that might otherwise fail to get off the ground. Pension plans and other institutional investors are seen as potential partners. The infrastructure bank concept was initially promised by the Liberals in the 2015 election campaign and enshrined in legislation as part of the 2017 budget.

The bank is still looking for a chief executive officer and sources in the banking sector say chair and acting chief executive Janice is close to filling the role. Ms. Fukakusa is former CFO of Royal Bank of Canada.

A number of potential CEO candidates turned down the job because it doesn’t pay well by Bay Street standards – compensation is said to be in the $500,000- to $600,000-a-year range – and over concerns about potential government interference in the bank’s decisions. The federal cabinet must approve the bank’s investments.

Ms. Fukakusa has repeatedly said the bank plans to begin investing by the end of 2018.

Once the bank is fully staffed, Ms. Ropar and the still-to-benamed CEO can expect a long line of infrastructure executives to come knocking on their door.

At a packed breakfast presentation this month hosted by the Public Policy Forum, infrastructure bank interim chief investment officer Bruno Guilmette fielded semi-serious requests for money from several audience members. Via Rail Canada Inc. CEO Yves Desjardins-Siciliano asked for $4-billion to build a dedicated passenger link between Quebec City and Windsor, Ont. Mr. Guilmette asked for patience from those looking for funding from the agency and joked: “There are more good ideas in this room than employees at the bank.”

INTELLECTUAL PROPERTY

THE GLOBE AND MAIL. APRIL 24, 2018. Federal government to announce ‘patent troll’ crackdown as part of national IP strategy
SEAN SILCOFF

The federal government plans to clamp down on “patent trolls” and help train Canadian innovators to compete more effectively against global tech giants as part of its intellectual-property (IP) strategy to be unveiled Thursday.

The strategy, details of which have been obtained by The Globe and Mail, will be announced at an event in Ottawa to commemorate World Intellectual Property Day.

It is already being hailed as a success by former Research In Motion chairman and co-chief executive Jim Balsillie, Canada’s most vocal and persistent advocate for government to step up efforts to equip Canadians with the tools necessary to operate in a global economy increasingly shaped by patented technological advances.

“This is a first step towards an innovation strategy,” said Mr. Balsillie, whose former company settled a lawsuit filed against it by patent holding company NTP Inc. in 2006 by paying NTP US$612.5-million.

“[Intellectual property] is the currency for the knowledge-based economy, so these measures will go a long way toward building Canadian capacity in the 21st-century global economy. Innovation without an IP strategy is philanthropy, which is what Canada has been doing over the last 20 years,” Mr. Balsillie said.

The government plans to table legislation to regulate IP agents and to prevent bad behaviour by so-called trolls – paper firms that exist to buy patents and use them to shake down innovative companies for lucrative licensing income by claiming they infringe on their IP.

Ottawa will also help firms and Canadians learn about the importance and value of IP through education and awareness efforts and by providing IP advice to firms through legal clinics. As part of the strategy, the government will work with Indigenous Canadians to hone their knowledge about IP.

“Creating more in your own house and limiting your competitors’ ability to come after you are two strategies every scaling company needs to think about … because this is the reality of international business,” said Waterloo, Ont.-based patent lawyer Jim Hinton. “If you don’t, you’ll be subjected to lawsuits that will be a huge tax on your company and strategic focus” – as happened when Waterloo tech firms D2L Corp. and Sandvine Inc. and RIM (now BlackBerry) were sued for patent infringement.

Ottawa is aiming to cut the cost and time of settling IP disputes, introduce online “portals” to reduce the cost of accessing public sector IP, push for greater Canadian participation in international standard-setting bodies and create a “patent collective” that would pool and hold IP that small and medium Canadian firms could license to protect themselves from lawsuits. The government revealed some details of its IP strategy in the budget in February. It committed $85.3-million over five years with funds earmarked for the patent collective and strategic tools including an “IP marketplace” where public sector-owned IP would be made available for businesses to license.

The proposed measures “are fairly important, because a lot of companies I talk to don’t even know where to go and don’t have the big picture” on IP, said Peter Cowan, an IP consultant based in Victoria. “IP is more than filing patents, it’s about thinking how to grow your company and position it for venture capital. An online portal will [educate] and hopefully encourage companies to use IP as one of their growth pillars.”

IP has increasingly become a cornerstone of the global economy. Former U.S. president Barack Obama called it “America’s greatest asset” in a 2010 speech, while the U.S. Chamber of Commerce has estimated three-quarters of American exports are IP-based. But IP assets are vastly different than traditional physical assets, where infrastructure, supply chains and movement of goods across borders determine their value, and where trade liberalization increases competition and reduces prices.

By contrast, the value of IP – particularly in software – is determined by governments granting exclusive rights to restrict access to the assets. IP can be accessed by millions of people s imultaneously , making it hard to determine where it originates or controlling its movement across borders. Strong protections decrease competition, increase prices and have helped support the creation of “winner-take-all” digital businesses.

The world’s software giants are armed with thousands of patents and patent lawyers to protect their valuable knowledge-based interests: Alphabet Inc. and Apple Inc. spent more acquiring patents and litigating them than they did on research and development in 2011. That year, Google bought Motorola Mobility for US$12.5-billion primarily to improve its IP position in the wireless market.

Meanwhile, IP advisory firm Ocean Tomo LLC has estimated intangible assets such as IP accounted for 84 per cent of the value of companies on the U.S. S&P 500 Index in 2015, up from 32 per cent two decades earlier.

By contrast, the Canadian government repeatedly heard during consultations that Canadians innovators have a weak understanding of the importance of IP, matched by a low priority placed on IP protection by Ottawa. The cost and complexities of building patent war chests to defend and stake out their corporate interests were also seen as barriers.

That is consistent with the view Canadians are good inventors but poor at building successful home-grown businesses around their creations. Government data show the increase of global patent applications by Canadians has outpaced both GDP and export expansion by a factor of about two to one. “Revenue in technology comes from making people pay you for your IP,” said Mr. Balsillie. Only one Canadian company, BlackBerry, ranks among the list of the world’s top 300 IP owners.

A recent report by the Council of Canadian Academies on the state of research and development in Canada showed the country has a problem with patents draining out of the country, with 26 per cent of patented work in technical sectors leaving Canada in 2014, down from 4 per cent in 2003. Meanwhile, Canadians paid twice as much to use IP in 2015 as the country received in incoming payments.

Many Canadian inventions, including the touch screen and search engine, have been commercialized by foreign companies, while most of the top patent filers in Canada in the area of artificial intelligence are foreign companies, despite the fact Canadian research scientists achieved many of the key breakthroughs in the field, according to a recent article in the IAM patent journal. Google chairman Eric Schmidt went so far as to thank Canadian Prime Minister Justin Trudeau in person at a company event last fall for the fact Canadians “invent[ed] all this [artificial intelligence] stuff, because we now use it throughout our entire business, and it’s a major driver of our corporate success.”

“Every industry will be a digital industry whether they know it or not,” said Maithili Mavinkurve, co-founder of Toronto AI firm Sightline Innovation. “If Canadian companies want the rights to operate and ensure we have commercial success that needs to be embodied in IP.”

AVIATION

REUTERS. APRIL 25, 2018. Airbus, Bombardier hope to close CSeries deal by late May: sources
Allison Lampert

MONTREAL (Reuters) - Airbus SE (AIR.PA) and Bombardier (BBDb.TO) aim to close a deal giving the European planemaker a majority stake in the Canadian company’s CSeries jetliner program by the end of May, ahead of an initial timetable, two people familiar with the matter told Reuters this week.

An early closure of the deal would accelerate orders and efforts to reduce costs, the people added. A third source said the finalization is now “very close.” The deal was originally expected to close in late 2018, and then mid-year, pending regulatory approval.

The companies have almost completed the process of seeking clearances which must span multiple jurisdictions, the persons added.

All of the sources spoke on condition of anonymity because the talks are private.

An Airbus spokesman cited comments by Chief Executive Tom Enders who said this month the deal would close by mid-year.

Bombardier could not immediately be reached for comment.

In October last year, Airbus agreed to buy a majority stake in Bombardier’s CSeries jetliner program, grabbing control of a struggling competitor.

Completion of the venture could kick-start orders from airlines sitting on the sidelines at a time of industry consolidation, the people added.

Bombardier said in February there had been a “bit of a pause” in orders for its narrowbody jets as airlines waited for the company to complete the partnership deal. Separate talks aimed at a tie-up between planemakers Boeing Co (BA.N) and Embraer SA (EMBR3.SA) are also said to be advancing.

U.S. carrier JetBlue Airways Corp (JBLU.O) has said these developments prompted it to put off a decision whether to replace its fleet of about 60, 100-seater E-190 jets, in a campaign that pits the CSeries against its Brazilian rival’s latest model, the E190-E2.

Airbus SE
94.97
AIR.PAPARIS STOCK EXCHANGE
-1.74(-1.80%)
AIR.PA

AIR.PABBDb.TOBA.NEMBR3.SAJBLU.O

“The timing of the review moved a little based on what was happening out in the market with the OEMs,” said JetBlue CFO Steve Priest in an April interview.

“Obviously Airbus announced that they were taking a stake in the CSeries program from Bombardier, and there’s been some noise in the market around some sort of Boeing and Embraer (agreement). So we’ve been taking that into consideration as we’re going forward.”

Reporting by Allison Lampert in Montreal and Alana Wise in New York; Editing by Susan Thomas and Matthew Lewis

BLOOMBERG. 25 April 2018. Bombardier C Series Set to Become Just Another Airbus After Deal
By Benjamin D Katz and Frederic Tomesco

• ‘A200’ tag is said to be in the running for Canadian plane
• Renaming would incorporate jet in European company’s lineup

Airbus SE plans to cap its takeover of the Bombardier Inc. C Series jetliner by scrapping the Canadian plane’s 14-year-old branding, people familiar with the plan said.

Among the names under consideration for a plane in which Bombardier invested more than $6 billion is “A200,” according to the people, who asked not to be identified as no decision has been made. The designations A210 and A230 would be applied to the CS100 and CS300 variants, respectively.

Rebranding the jet, which would slot in below Airbus’s A320-family narrow-bodies, would help fold it into the European company’s lineup and provide some reassurance to potential buyers about its long-term future, the people said. The change is likely to be announced soon after the purchase of a controlling stake closes, potentially in time for the Farnborough Air Show in July.

The C Series branding was revealed at the Farnborough expo in 2004, where Bombardier said that it stood for “competitive, continental, connector.” The name also harked back to planemaker Canadair, which formed the core of Bombardier Aerospace following its acquisition in 1986, and hinted at the model’s aim of breaking the existing single-aisle duopoly, with “A” representing Airbus and “B” Boeing Co.

Toulouse, France-based Airbus is acquiring control of the C Series after the model struggled to attract sufficient orders amid concerns about its feasibility, resulting in cash injections from government backers. That in turn sparked complaints from Boeing that the plane had benefited from illegal aid, causing the U.S. to impose duties that threatened to kill off sales in the world’s biggest air-travel market. The tariffs were later blocked by a U.S. trade panel.

Supplier Talks

The “A200” designation would depart from Airbus’s practice of naming passenger jets based on the original A300 model -- which has reached A380 for the company’s superjumbo -- and would provide it with options should the C Series be used as a basis to develop new aircraft platforms.

C Series parts contracts will be reviewed once the deal closes with the aim of persuading suppliers to sweeten terms on the basis that Airbus’s scale and industrial clout are likely to swell orders and boost production volumes, Klaus Richter, the group’s procurement chief, said Wednesday at the Berlin Air Show.

“It’s no secret that the program today is not profitable,’’ Richter said. “The plane is too expensive. We’ll have a discussion with suppliers because it makes a big difference if you have 300 or 1,500 in your order book.”

The C Series had 348 firm orders as of Dec. 31, excluding a deal disclosed in November -- just weeks after the Airbus partnership was announced -- that ended an 18-month sales drought.

Customer interest in the C Series has increased exponentially since the Airbus accord was announced, Bombardier Chief Executive Officer Alain Bellemare said April 16. “All of a sudden, with the Airbus sales and marketing organization behind that, we have access to pretty much all airline customers around the world,” he said in Montreal, where the company is based.

TRADE PROMOTION - AMAZON

REUTERS. APRIL 25, 2018. Amazon.com plays catch-up in Brazil as local rivals thrive
Brad Haynes

SAO PAULO (Reuters) - Claudia Maria de Oliveira is leery of online shopping. But while browsing social media recently, the 49-year-old Brazilian spotted a bargain-priced sandwich press from local retailer Magazine Luiza SA (MGLU3.SA).

She swallowed her doubts and hit the “buy” button. Two days later she picked up her first-ever online purchase at a mall in Sao Paulo.

“I took the risk,” said Oliveira, who cleans offices for a living. “If I have any trouble with it, at least I know I can come back to the store.”

A reassuring physical presence and fast-growing online sales have vaulted Magazine Luiza into the upper echelons of Brazilian e-commerce, lifting shares over 500 percent last year and 20 percent so far in 2018.

The company is relying on deep roots in its home turf to survive an assault by Amazon.com Inc (AMZN.O), which is revving up operations in Latin America’s largest economy six years after entering the market.

Reuters has reported that Amazon is eyeing a major warehouse outside Sao Paulo, negotiating a nationwide air cargo deal and lining up local suppliers of everything from personal electronics to perfume and home appliances.

But the American giant may struggle to dominate retail in Brazil as it has elsewhere, according to a dozen executives, analysts and investors interviewed by Reuters. They compare the state of Brazilian e-commerce to that of the U.S. market 10 years ago — only Amazon’s slow rollout here gave rivals a chance to prepare.

Helped by Brazil’s richest man and search giant Google, competitors are copying many of Amazon’s signature moves. Those strategies have sped up delivery, earned customer loyalty and boosted offerings through partnerships with third-party sellers. And unlike Amazon, home-grown players such as Magazine Luiza have decades of experience with the country’s working-class consumers and tangles of red tape — key survival skills in Brazil’s retail jungle.

“We see room for several players,” said Eduardo Carlier, a fund manager at AZ Quest Investimentos, a major shareholder in Magazine Luiza. “We think the winner-take-all model that played out in the United States is going to be tempered in Brazil.”

Amazon declined to comment.

SLOW START

With a population of more than 200 million people, Brazil is key to Amazon’s global expansion plans. But as in China and India, where it ran into strong competition, Amazon is playing catch-up in Brazil.

Amazon entered Brazil quietly in 2012, peddling e-readers, books and then streaming movies in a fast-growing e-commerce market that has since doubled to $20 billion.

Like a predator lurking at the edges of the market, Amazon has kept competitors uneasy, wondering when it would attack their core business.


They got their answer in October, when the world’s largest online retailer opened a Brazilian marketplace for third-party sellers of an array of physical products.

Shares in Magazine Luiza, rival B2W Cia Digital (BTOW3.SA), and market-leading MercadoLibre Inc (MELI.O), fell nearly 20 percent on the news.

Yet all three rebounded quickly in the following weeks. Their shares have continued to climb this year as Brazil’s economy picks up and the companies employ strategies that could have been ripped from Amazon’s own playbook.

Brazilian billionaire Jorge Paulo Lemann and partners at 3G Capital, the investment firm behind the Kraft Heinz Co (KHC.O) merger, have invested heavily in B2W through its brick-and-mortar parent Lojas Americanas SA (LAME4.SA). Their backing has let B2W spend aggressively on in-house logistics, a third-party marketplace and efforts to integrate operations with Lojas Americanas.

In a cheeky move, B2W uses the name “Prime” for its shopping club offering fast shipping for annual membership fees, the same moniker used by Amazon for a similar service in other markets. Amazon uses “Prime” only for its streaming video offerings in Brazil.

Another online rival, MercadoLibre, was founded in Buenos Aires two decades ago to replicate the eBay Inc (EBAY.O) marketplace model across Latin America. It has held its own against Amazon in Mexico and leads the Brazilian market in online sales, according to market research firm Euromonitor. Its Brazil unit grew 80 percent last year, providing nearly 60 percent of net revenue.

Last year, MercadoLibre opened a warehouse near Sao Paulo to store and ship third-party goods, accelerating delivery using a model similar to the pioneering “Fulfilled by Amazon” service.

Brazilian retailers are also getting an assist from Silicon Valley. Alphabet Inc’s (GOOGL.O) Google briefed its Brazilian advertisers last year on Amazon’s forays into markets such as India and Mexico to help them prepare, two people with knowledge of the matter said.

Google’s head of retail in Brazil, Claudia Sciama, acknowledged that Brazilian clients had been asking what a ramp-up by Amazon could mean.

“What we’ve done is an exploratory study to understand how they might enter different markets,” Sciama said. She declined to provide details.

DIGITAL LEAP

Few Brazilian retailers have done as much to reinvent themselves in recent years as Magazine Luiza.

Founded six decades ago as a gift shop in the shoemaking hub of Franca, in Sao Paulo state, the unpretentious retailer became a national player in the 1990s selling appliances, furniture and electronics on credit to poor families ignored by bigger chains.

Chairwoman Luiza Trajano started on the sales floor as a teenager and in 1991 took over the company founded by her aunt. She steered it to a public listing in 2011, expanding operations to more than 800 locations across the country at present.

Yet Magazine Luiza’s digital leap, with her son at the helm, may be the most dramatic transformation yet. Frederico Trajano launched e-commerce operations in 2000 and has made it the company’s central focus since becoming CEO in January 2016.

Using brick-and-mortar stores as delivery hubs to cut costs and win over wary online shoppers, Trajano is accelerating both internet sales and new store openings. Digital sales channels grew 61 percent last year to make up nearly a third of revenue, while profit more than quadrupled.

Magazine Luiza plans to open about 100 new stores this year, up from nearly 60 in 2017, according to two people familiar with the matter. The company has said it may open more stores in 2018 than last year.

For Trajano, those outlets form the backbone of his digital strategy, putting inventory closer to consumers and cutting the cost of storage and order processing.

Trajano said fulfillment consumes up to 15 percent of Brazilian e-commerce revenue, compared to as little as 8 percent in the United States, due to Brazil’s lousy infrastructure, high borrowing costs and lower levels of automation.

Each new store is “a free distribution center,” Trajano said in an interview at Magazine Luiza’s unassuming headquarters by a highway in Sao Paulo.

“Why do you think Amazon bought Whole Foods?” he said.

CROWDED BACK ROOMS

To be sure, Trajano’s vision of seamless integration between e-commerce and physical stores is a work in progress.

When shopper Oliveira went to fetch her sandwich press, she joined a line of impatient customers waiting at the Aricanduva shopping mall on the gritty east side of Sao Paulo.

In the back room, Magazine Luiza staff hunted for her order on shelves piled with plates, shampoo, microwaves and tires. On a February analyst call, Trajano acknowledged the company’s stores need to be better retrofitted to handle the flow of online orders.

Magazine Luiza is also sharpening its home delivery operation. The company has around 1,500 dedicated truckers running its own app, updating routes and communicating with sellers, warehouses, stores and customers in real time.

Magazine Luiza SA
100.77
MGLU3.SASAO PAULO STOCK EXCHANGE
-0.34(-0.34%)
MGLU3.SA

MGLU3.SAAMZN.OBTOW3.SAMELI.OKHC.O

Trajano lauds Amazon founder Jeff Bezos as “the best CEO in the world,” but said his company will face a steep learning curve in Brazil, given its notoriously tough business climate.

Case in point: Brazilian consumers have long paid sales taxes on online purchases, unlike in the United States, where internet commerce got a break in its early years.

“If there’s one thing the Brazilian government knows how to do, it’s collect taxes,” Trajano said.

Reporting by Brad Haynes; Additional reporting by Jeffrey Dastin in San Francisco and Gram Slattery in Sao Paulo; Editing by Marla Dickerson

AUTOMOTIVE SECTOR

GM. REUTERS. APRIL 24, 2018. GM may raise investment plan for South Korean unit: source
Shinhyung lee, Hyunjoo Jin

SEOUL (Reuters) - General Motors Co (GM.N) and the South Korean government are considering raising the size of their investment in the U.S. automaker’s South Korean subsidiary from a previously proposed $2.8 billion, a senior government official with direct knowledge of the matter said on Wednesday.

GM President Dan Ammann will be also visiting South Korea on Thursday to meet lawmakers and government officials including Korea Development Bank Chairman Lee Dong-gull to discuss investment plans, people familiar with the matter told Reuters.

GM Korea averted bankruptcy on Monday after striking a last-minute wage deal with its labor union. Its parent has been in talks with South Korea’s government on providing financial support, and KDB’s Lee previously told Reuters a preliminary deal on any assistance is likely to be signed on Friday.

GM had said it would contribute its “portion of the $2.8 billion investment”, enabling two new sport utility vehicles to be built in South Korea. GM’s investment was to be over a 10-year period and was conditional on the company winning union concessions and getting government financial support.

State-run KDB previously said it may contribute about 500 billion won ($463.13 million), proportional to its 17 percent stake in GM Korea, to the total investment.


“GM has expressed its intention to increase the size of new money injection from its previous plan to normalize management, and asked the KDB to expand its funding proportional to its stake,” the person told Reuters, requesting anonymity as the matter was confidential.

The person declined to comment on the size of the increased investment.

South Korean online media MoneyToday reported on Wednesday that GM said it would expand the investment to more than 4 trillion won, meaning KDB’s spending would rise to 700 billion won.

GM and KDB declined to comment when contacted by Reuters.

GM in February unveiled a major restructuring plan for the money-losing unit, involving shuttering one of its four South Korean plants and voluntary redundancies for 2,600 workers.

GM Korea has since been receiving applications for a fresh voluntary redundancy program targeted at mainly the remaining 680 workers at the Gunsan factory which faces closure by May.

Some 240 people from Gunsan and other factories have applied for the program as of Wednesday evening, a union source told Reuters.

GM Korea last week said it would file for bankruptcy protection should it fail to gain concessions from the union by its extended deadline of Monday evening.

General Motors Co
37.84
GM.NNEW YORK STOCK EXCHANGE
-0.09(-0.24%)
GM.N

GM.N

An hour before the deadline, the union reached a preliminary deal to freeze base wages, skip bonuses this year and trim benefits, subject to a member vote on Wednesday and Thursday.

($1 = 1,079.6200 won)

Reporting by Shinhyung Lee and Hyunjoo Jin; Editing by Muralikumar Anantharaman and Christopher Cushing

________________

LGCJ.: