Governments of all persuasions seem to love the idea of protectionism. It doesn’t matter whether you’re talking about China, the United States, Europe, or even Australia. Many governments bend to the populist left wing agenda that foreign companies are bad and local companies should be supported, at any cost. This is even though many foreign companies inject millions or even billions into local economies.
Whilst some forms of protectionism may be valid, particularly if it involves dumping of goods at lower prices, often the decisions are made for purely political reasons.
In Australia, we’ve seen the Federal government, under the cloak of FIRB, block several major international takeovers, sometimes in the lead up to elections. Shell was blocked from buying Woodside and a Chinese company was blocked from acquiring lithium producer Alita, with Mineral Resources swooping in with a ‘Team Australia’ cap to win the coveted prize.
In May, the Australian Treasurer, Jim Chalmers, announced a revamp of FIRB driven by ‘national security concerns’ and the Australian government’s new ‘Future Made in Australia’ policy. Overseas investors with a proven track are set to benefit from accelerated approvals (ie read Western-based companies), whilst others can expect more scrutiny when investing in sensitive industries (China et al). This continues the theme of ‘friend-shoring’ a term launched by the US Treasury Secretary in 2022.
In Canada this week, the government stepped up its opposition to China by reiterating that most critical minerals takeovers by foreign companies would be blocked. It wasn’t that blunt but said that it will only approve foreign takeovers of large Canadian mining companies involved in critical minerals production “in the most exceptional of circumstances,” according to the latest guidelines from Industry Minister Francois-Philippe Champagne (although they were originally announced in October 2022).
Canada has seen a swathe of major companies disappear over the past two decades, including nickel miner Inco and aluminium producer Alcan Inc., with mining giant Teck one of the last major companies still standing. Other big Canadian miners include fertilizer producer Nutrien Ltd. and uranium giant Cameco Corp., in addition to Ivanhoe Mines Ltd., which has large copper and zinc operations in the Democratic Republic of Congo.
Whilst it was viewed negatively by many in the media, particularly those outlets that cover the majors such as Glencore, Rio Tinto and BHP, there may be a silver lining for Australian companies, particularly at the small to medium end of the market.
With the focus predominantly on Chinese companies, it may be possible for Australian companies to get deals done, primarily using some of the tools available in the Australia-Canada Free Trade Agreement (which has been around since 1960). It is also likely that Australian firms will be viewed more favourably when considering medium sized deals due to the well-established political bonds between the two countries.
In the past five years, after an extended period of inactivity, Australian mining and exploration companies have built up a sizeable presence in Canada. Many of these companies are looking to use the exploration experience they developed in Australia to explore for lithium and gold in areas that have had little attention.
The success of some of these ventures and the local jobs that have been created are likely to ease concerns if some of these companies seek to expand through mergers and acquisitions.
As noted above, foreign companies can be valuable corporate citizens if they invest in the local economy, employ locally and pay their fair share of taxes (something to ponder in a future article). Large foreign internationals such as Shell, Chevron and Newmont have been active in Australia for decades and have an excellent corporate reputation.
Governments globally should be careful that the push to block foreign investment does not lead to a drought of capital, leading to underinvestment, slower job growth and reduced tax revenue. While it might be popular in the moment, it might be a costly game in the long run.
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Photo by Floriane Vita
