Investing the Nova Scotia way
So the Nova Scotia Business Inc divested itself of a position in High Liner, the province invested $5 million in High Liner Foods Inc. back in 1984, and just sold them off for $4 million. Taxpayers took in $5.3 million in dividends even after the capital loss of $1 million. Looks like a pretty good investment right? Wrong. A $4.3 million profit given a $5 million investment is not good if it took 26 years. That is only 2.4% a year, and that is less than the rate of inflation over the period. So taxpayers actually lost money on this investment. It would have been better to invest in the Toronto stock market (7.3% a year), or even Canadian Savings Bonds the lowest of the low investment vehicles. The shares weren’t even voting shares. Obviously this is not real investing but a politically directed subsidy to a local company. What other shares does NSBI hold?
May 3rd, 2010 at 10:52 pm
Sure, not a great investment. But giving investment money to Ontario corporations, I am not sure how that would be a good investment for the Atlantic.
May 4th, 2010 at 6:02 am
How is buying pre-owned shares traded in Toronto giving money to Ontario corporations? The sellers could be anyone. Also if you make a positive investment, regardless of the vehicle, how can that not be good?
May 7th, 2010 at 12:30 am
A couple of answers for your questions:
1.a) The bulk of corporations traded on the TSX are largely Ontario-based, which I simplified as Ontario corporations. When money is invested in companies’ stock, those companies gain by the positive push that gives to their financial outlook, which in turn will generally give them the market confidence to issue bonds and even further stocks. They benefit from our investment.
b) Companies’ that trade well on the TSX will continue to be listed on the TSX and will, consequently, continue to pay their sustaining fees to the TSX (an Ontario corporation). Moreover, the general gain on investments listed on the TSX will help them to attract more listers and to eventually increase their fees. Further, brokerage firms must pay fees to the TSX for the privilege of using their trading facilities. They – the TSX, if not also the often Ontario-based brokerage firm which will collect their own fee -benefit from our investment.
c) While there are no guarantees that the individual or individuals from whom the stocks derive are from any particular place or of any legal form, Ontario corporations, such as most of Canada’s major banks, have substantial activity on the TSX. If I were a betting man, I would say they benefit from our investment.
2. a)If by ‘positive’ you mean that one puts money into a corporation that acts as a responsible corporate citizen by avoiding exploitation of lower labour and environmental regulations makes a good return on an initial investment, it would altruistically be ‘good’ but perhaps economical uncompetitive and therefore unprofitable, that would not be good Atlantic Canada. (Don’t worry, I have covered the ambiguity of the term with the more likely meaning in the following points.)
b) If by ‘positive’ you mean that you make money off your original investment, that is in fact good for Atlantic Canada; however, if that money benefits corporations not in the Atlantic – see point 1 – and even that compete with Atlantic-based companies, that would not be good for Atlantic Canada.
c) Further, if the money of your investment goes either directly or indirectly to individual(s) that support policies of any type that would hurt the Atlantic, that would not be good for Atlantic Canada.
And, of course, investment in governmental terms generally means something other than making of money, for example: education (including work experience, training, and acquisition of skills), infrastructure, and employment. If our money does not support any of these in the Atlantic, I am not sure it would be a good investment for us.
May 26th, 2010 at 12:11 am
You have simplified what was a complicated decision. You can’t evaluate a governments investment in that manner. Ultimately, a number of other factors need to be considered – (including; rural employment, property taxes, payroll taxes, etc.). Are you unaware that High Liner has a fairly large office in Lunenburg? Before making this post did you actually do any research as to what the investment (by High Liner) was used for?
May 26th, 2010 at 6:57 am
I guess the point is government should not be supporting specific business with taxpayers money in theory. But also in practice, business subsidies hurt the overall economy. The private sector is hurt when government taxes money out and then sends it to a politically favored client. The opportunity cost must also be factored in and since the private sector is far more efficient than government the overall sum is surely negative.