Help, is on the way

As Prime Minister Carney and the federal government move forward with the $25-billion Canada Strong Fund, it is a development that deserves our close attention. This sovereign wealth fund seeks to solve our domestic productivity crisis by de-risking massive infrastructure plays. While this ambition is laudable, we must ask a critical question about the architecture of such a fund: are we focusing on the tip of the iceberg while ignoring the engine room?

In the world of economic policy, major projects make for excellent press releases because they involve ribbon-cuttings and multi-decade timelines. However, the true pulse of the Canadian economy is found in our small and medium-sized enterprises. To put the scale into perspective, the latest data confirms that SMEs represent over 99.7% of all employer businesses in this country. These firms employ roughly 8 million Canadians, which accounts for nearly two-thirds of the entire private sector labour force. Furthermore, they contribute over 50% of Canada’s GDP despite operating with a fraction of the institutional support afforded to large-scale incumbents. We’ve also seen frankly, how long it takes to get large scale projects moving in this country.

When we talk about where Canadians actually earn and live, we are talking specifically about the SME sector. These are the companies that drive innovation, maintain local supply chains, and provide the primary income for the vast majority of Canadian households. The inherent risk with a sovereign-style fund focused on “National Champions” is that it tends to prioritize capital-intensive projects that already have the ears of policymakers. Meanwhile, the mid-market, the companies trying to scale from 50 to 500 employees, is where the “Valley of Death” often resides and where the biggest struggles are faced. The message to policy makers, is not to leave these smaller firms out in the cold with respect to accessing this Fund.

A key lesson can be drawn from the UK National Wealth Fund model, which utilizes Product-Based Flexibility. The UK system does not just provide a single pool of cash for large projects. Instead, it segments its offerings based on a project’s specific risk profile. This tiered approach is essential for smaller players with less collateral, allowing for mezzanine guarantees and credit enhancements that bridge the gap for mid-sized innovators. We should hope and expect that the Canada Strong Fund follows this lead, creating specific tiers that allow smaller, high-impact projects to compete for capital alongside the giants.

Perhaps the best way to view this imbalance is through a parallel to our resource sector. In Canada, we fundamentally understand the difference between mineral exploration and mining. Mining is the major project, the massive, capital-intensive operation that extracts known value. Prospectors and Mineral Exploration firms are the “SME” phase where high-risk innovation leads to new discovery. Without the juniors and the exploration companies, the pipeline for future mines eventually dries up. Yet, institutional capital and government policy consistently gravitate toward the safety of the established mine.

If this new investment vehicle focuses exclusively on the “Big Mines” of our economy, it misses the vital exploration phase of our next generation of businesses. For a healthy economic ecosystem, we must ensure that the “prospectors,” our small and medium innovators, have fair access to resources and capital rather than being left to pick up the crumbs from the big firms. The prime minister is right that we need a more strategic approach to domestic investment, but a sovereign wealth mindset should be about building the strongest things, not just the biggest things.

#CanadaEconomy #SME #Productivity #Mining #Innovation #EconomicPolicy #ScaleUp #MineralExploration