THE STANDING SENATE COMMITTEE ON FOREIGN AFFAIRS AND INTERNATIONAL TRADE
OTTAWA, Wednesday, April 14, 2010
The Standing Senate Committee on Foreign Affairs and International Trade met this day at 4:15 p.m. to study the rise of China, India and Russia in the global economy and the implications for Canadian policy.
Senator A. Raynell Andreychuk (Chair) in the chair.
The Chair: Honourable senators, we have before us today, from the Canada India Foundation, Aditya Jha, National Convenor. He is here in two capacities. He is also President and CEO of Karma Candy Inc., a contract manufacturer of branded and premium private label chocolate and candy products. He cannot sell it to us, so there cannot be a conflict. He is also the founder of the POA Foundation, which is a charitable Canadian private foundation that supports projects based on three distinct values: the promotion of accessible and high-quality education; the nurturing of entrepreneurship; and the strengthening of global civil society and governance. The foundation takes a special interest in nurturing prosperity and financial independence amongst Canadian First Nation communities and individuals. I have pointed out to Mr. Jha that we are in the Aboriginal Peoples Committee Room. However, today, I understand he will address the issues as he sees them with respect to the rise of India and the implications for Canadian global policy.
Aditya Jha, National Convenor, Canada India Foundation: Honourable senators, I thank you for this opportunity to share our views with you for your study on the rise of India. I am here to speak on behalf of the Canada India Foundation, which is exclusively focused on advocacy for public policy in the Canada-India corridor that addresses the mutuality of interests for both countries.
My presentation will be in two parts. I will speak briefly about the unique opportunity India represents for Canada. I will then suggest some bold public policy initiatives that Canada could take to move away from our incrementalist and so far safer traditional approach of engagement with India. I will not restate some of the suggestions that other distinguished witnesses have already presented before this august committee.
The first portion of my presentation includes some facts. In India, 50 per cent of the population is less than 23 years of age. Because of a larger working age population, the country’s savings rate as a proportion to GDP was 34 per cent in 2008, and it is expected to be 40 per cent by 2015. In 2020, the average Indian will be 29 years of age, compared to 37 years of age for China and the United States; 47 years for Western Europe; and 48 years for Japan. Because of the younger working population, India will spend much less on the social cost of dependents.
Around 80 per cent of India’s GDP is due to domestic consumption, and there is a massive infrastructure deficit in India. The Government of India has initiated progressive programs, policies and initiatives to attract investment in the infrastructure segment. It is considered the largest infrastructure investment in the history of the world. The significantly lower number of dependents in India will enable a new phase of what we call guilt-free consumption. A conservative definition of the middle class by the McKinsey Global Institute suggests that there will be 50 million middle-class individuals who will have the purchasing power parity of $30,000 to $125,000, and that is expected to grow by 2050 to 500 million individuals. These multiple forces will drive the growth rate of 6 per cent for India until 2050, a trend which, if happens as projected, will be unique and unprecedented in the economic history of the world.
Starting this year, China’s working age population will start falling. It is becoming grey before it becomes rich. By 2040, the number of pensioners in China will be second after India’s population.
As India is on this phenomenal growth path, Canada can boast home to 5 per cent of the Indian diaspora in the world, and almost 25 per cent of the affluent Indian diaspora lives in Canada. The Ryerson University study found another unique distinction. Unlike Indo-Canadians whose affluence has occurred through labour market outcomes related to high human capital assets, most Chinese Canadians have become affluent in Canada in a unique way, as most of them regularly use non-official languages at work. This suggests that the Chinese ethnic economy in Canada has provided them with a veritable alternate path to success. It clearly suggests that the large number of Indo-Canadians since the mid-1990s have become successful in mainstream Canada, and they can be the best source of bringing mainstream Canada to India and India to mainstream Canada.
For India, Canada has many similarities: being an English-speaking, democratic country; having a similar legal structure; being a potential reliable source of commodity needs and highly technologically advanced in energy and environment management; and having one of the largest Indian diaspora populations. The elite of Indian civil society view Canada as a voice of reason on the world political stage.
Even with all this and the attractive background for serving the mutuality of interests of both countries, our trade with India is pathetic, at 0.5 per cent of the total trade, while Canada’s trade with China is 6 per cent of the total trade.
Honourable senators, the bilateral trade between China and India will be $60 billion in 2009-10 and is growing 50 per cent per year-on-year basis. It is expected to be $100 billion in the next three years. This phenomenal growth in bilateral trade is the outcome of just a decade of new policies and trade focus. This highlights the fact that even bitter enemies have been able to make spectacular bilateral gains.
We in Canada seem to have an official line focused on facts like we are not counting our trade numbers properly and our growth is spectacular compared to the last year or so. This is the lame excuse from those who are only capable of leading us to mediocre performance. If export to India goes through middle countries for Canada for tax and logistical reasons, then a similar thing happens for trade with other countries as well.
Let me highlight some of the new initiatives for deepening our bilateral relationship as the second part of my presentation.
The biggest asset and the least utilized for Canada is how it can leverage its existing, large Indo-Canadian population and its largest growing segment of human capital. How will it leverage its future immigration policy, keeping in mind the Canadian economic agenda and ensuring that our new immigrants are targeted and will be ready to serve the needs of Canada?
Organizations like the Canada India Foundation have made a serious commitment by signing a $10 million endowment with the University of Waterloo for starting a public policy centre exclusively focused on the Canada-India corridor. How can the governments at different levels bring academia, public policy people, businesses and civil society together to pool their resources and create platforms for a multi-agency, collaborative framework for a serious engagement? There is a strong need to establish an India foundation where we can involve the Government of India with other above-stated Canadian stakeholders.
In the world of a changing economic centre of gravity, it makes perfect sense to move away from the bureaucratic appointment of the High Commissioner to India. Rather, we should send a strong message that Canada is serious in engaging with India by making the High Commissioner to India a political appointment.
The trade commissioner’s role is highly important but when the trade commissioner is housed inside a heavily fortified embassy, it creates a barrier of access and also makes the trade commissioners think that they have some special status. Subsequently, they behave like representatives of an elite diplomatic group rather than a group of individuals that is ready to hustle for business.
It is worth considering embedding individuals from businesses and chambers of commerce on a secondment basis. Even in an emerging country like India, the top brass of the chamber of commerce like the Confederation of Indian Industry have weekly access to the prime minister to advice on trade-related matters. These organizations have been given a significant role with foreign visits of ministers and especially the prime minister.
The absence of Canada’s brand in India is a major stumbling block for a stronger relationship. India was also supposed to be slow in marketing itself and reaching out. India took the progressive step of forming the India Brand Equity Foundation, IBEF, a public-private partnership for the Ministry of Commerce, the Government of India and the Confederation of Indian Industry for building a credible global Indian brand. In 2006 at the World Economic Summit in Davos, Switzerland, India enlisted top Indian corporations, Confederation of Indian Industry and government officials and gave matching grants of $4 million each. That launched India Everywhere, a massively successful branding campaign. We should consider seriously a similar kind of partnership if we want to move away from the incremental path of engagement with India.
We have seen several government led visits to India but rarely have there been a consultative presence of non-bureaucratic individuals. Businesses have been present there in a symbolic way and for the photo opportunities. However, the role of the chamber of commerce and businesses in charting the goal and planning the details of the trade mission is generally seen as undesirable and interfering.
India has a larger part that is starving for the partnership, investment and trade, but almost all of our trade visits provincially or federally are destined for major cities like Delhi, Bangalore, Chennai and Mumbai – and Chandigarh for political reasons. It is amazing that we are joining the queue and lining up behind only those places that receive a great deal of worldwide attention. They are tremendously busy and we have not figured out how we can carve a niche for ourselves in other provinces of India. In those provinces, where we will be able to build lasting relationships, we will receive a red-carpet welcome and special concessions.
Conventional wisdom dictates that the lasting partnerships between nations begin with strong relationships with public figures, opinion builders, business leaders and civil society leaders. We should be extra careful about the sensitivities and the things that can become irritants for each another. As public policy leaders, parliamentarians have extra responsibility to be aware of such sensitivities.
Our local political considerations sometimes need to appease the fringe elements and that should not overshadow what is good for Canada in the long run. We should not give in to local extreme groups just because they are louder. We need to see how the same community issues are relevant in countries like India as sometimes small immigrant groups tend to overplay the issues which may have already died down in the native countries, as the country and its people may have moved on. India is very sensitive to the issues of terrorism and matters related to sovereignty. We should exhibit due consideration and respect for the same.
It would be highly desirable if our various levels of governments considered setting up a public-private India investment fund to encourage Canadian ventures in India. In a decade or so, India will need expertise and services in all segments of its public and private life similar to previously developing societies. It is important that Canadian businesses and institutions establish local footprints so that, when India needs those specialized goods and services, we are present at the local level.
Singapore’s sovereign fund invested close to $400 million in Bangalore Software Park more than two decades ago. Another example is the Warburg Pincus investment of $1 billion during the early revolution of telecom in India. That investment netted them more than four times the return within less than a decade. They are left with a sizeable investment. We suggest that there is strong need of public-private partnership to define the engagements architecture for India and Canada.
Thank you so much for giving this opportunity to the Canada India Foundation.
Senator Nolin: Thank you, Mr. Jha, for visiting us. Recently, the Indian government tabled its budget. Three areas were quite interesting. The first one is that they will introduce a new GST. Is that correct?
Mr. Jha: Yes.
Senator Nolin: They are talking about the details of that GST. Second, they are focusing on the reform of regulations concerning foreign direct investment. Third, they want to divest their stake in Crown corporations. Can you give us more details? Who will benefit from that divestment?
Mr. Jha: I have not studied the Indian budget, but I have some comments, especially the last issue. India has many public sector companies. Divesting them will free up a lot of money for India to invest in other areas, especially in the infrastructure segment.
The realities of India, because it is a multi-party government with lots of push and pull and all the public sectors are unionized, I do not know how much success they will have in that area. However, if it happens, it will give a lot of funds for India and foreign companies to come in and help them with that investment.
Senator Nolin: As a Canadian, what is your reaction to the fact they will introduce a GST?
Mr. Jha: Our organization does not have any stated policy on that subject, but governments do need funds to run their programs. Their team has been studying the Canadian GST, and I met with the team when they came here to do that.
Senator Nolin: You probably helped them.
Mr. Jha: There must be some national uniformity of tax and how the revenues will be shared. India is lacking in that area.
Senator Nolin: Are you aware of the rate of that tax?
Mr. Jha: No, I am not.
Senator Nolin: Will there be an exemption as we have in Canada on food? You are not aware of that, are you?
Mr. Jha: I am not qualified to answer that question.
Senator Segal: I want to take you to page 4 of your presentation, which I found most helpful and thoughtful. I do this clearly aware that our distinguished chair was a Canadian high commissioner abroad and was not appointed for political reasons but because of her immense background, expertise and service in the Department of Foreign Affairs and International Trade prior to that appointment.
I am interested in you suggesting that is not the kind of person we should appoint. Rather, we should appoint a political or a business person. I want you to follow that logic with me. We had the privilege of hearing from India’s previous high commissioner here at this committee. I would not have made a formal distinction as to whether he or she was someone who came out of the Indian public service or foreign service, or if he or she came from business. If the Indian government had said they wanted him to represent India’s interests here in Canada, I assume that he or she would have been a person of immense competence, ability, skill, sagacity, judgment, wisdom and all the rest.
I am interested in understanding why you think a public servant or a long-time diplomat with some consular experience in India or other experiences in the region might not be appropriate and why only a businessperson is appropriate. I would like you to make the distinction. What criteria for judging that business person would you want to see the Minister of Foreign Affairs for Canada impose prior to making that kind of appointment?
Mr. Jha: First, I am not questioning the appropriateness of the appointment of any individual. I am saying that it would be much more appropriate, given the situation where India is and what potential India has, for that person to be a politician or business person.
When you listen to ambassadors like Mr. Gavai, you have to be one of the top 50 in India to be selected in the foreign services. That is the kind of examination they go through, and nationally only the top 50 are selected for the foreign services. It is one of the toughest examinations in India. I do not mean to belittle them. We have had illustrious members from our diplomatic core.
Let us look backward. In less than a decade, China has gone to a $60 billion trade with India, and there is a great deal of animosity between India and China. We are happy, and we keep saying that $4 billion is at least 20 per cent more than the last year, or our numbers are not counted or highlighted. The results speak for themselves. Even if you have the most intelligent and qualified person, we are in a world where results demonstrate if that is the route to go or if we should try something different. It is possible that the new thing will not work, but Canada has seen many political appointments in the diplomatic core for the U.S. and also for the U.K. India is important enough now and I think it will send a positive message. Our results and past performances on the trade front are not acceptable and should not be acceptable. We need to try something different, and that is why I make this suggestion.
Senator Segal: Your document makes serious and constructive suggestions of what we can do to expand the Canadian trade opportunity with India. Implicit in that is a criticism that we have been doing it all wrong, or mostly wrong, or not as right as we might have done. To put on your Canadian hat, it would be helpful to this committee if you could be as explicit and specific as you might care to be about what Canadian business and government have missed the boat on and what we have to reorganize ourselves to do a better job of. Is it a matter of policy? Is it a matter of laziness? Is it a matter of it is far away so we do not care? Is it a matter of organization and structure?
I know that this committee will want to take seriously your testimony, with others, and recommendations that might emerge from there. I would be interested, because of your unique position, if you could share with us where you think we could make the most difference in the kinds of recommendations that might emerge, including being frank about what has not worked in the past.
Mr. Jha: Thank you so much for giving me this opportunity and asking that excellent question.
I am a business person. I have been in Canada for 15 years. I have been in business for the last 10 years. What has benefited me tremendously is my ability to meet and consult with groups of people. As a business person, you are much more inclined to do that. In a bureaucratic setting, you have strict protocols in the way you do things. It is not necessarily that those protocols are not right, but sometimes they are restraining.
I do not know if you had a chance to go to the Canadian High Commission in New Delhi. It is like a fort. This is the second fort, after Red Fort in Delhi. Imagine if you are passing by and you want to meet with the trade commissioner, and you have to jump through all the hoops. The walls are thicker than the safe walls at the Royal Bank of Canada. That may be needed from a consular point of view, but from a trade point of view, it is not. I suggest that we make it a much more open place that invites people to meet and share ideas.
Secondly, I believe we should embed business people and a chamber of commerce with trade commissioners. I am not saying to only embed the ethnic chamber of commerce. The Canadian Chamber of Commerce, Ontario Chamber of Commerce and Canadian Council of Chief Executives are excellent organizations. Let us get them there. Let us collaborate. Let us figure out why it has not worked thus far. Such a great country like Canada has done so well in many areas, but with India, $4 billion? We should send a message that it is totally unacceptable. We should have something like a sales quota target and say, “If you do not perform, you cannot go there.” I am talking about one extreme, but I would say that the results will drive me to make a position about who should run it. The next person should try and, if that does not work, then try something else.
Senator Fortin-Duplessis: Mr. Jha, I want to tell you how much I appreciate your appearance before our committee to share your views with us.
The province I represent, Quebec, is fully supportive of a free trade agreement between Canada and India, which would open extraordinary opportunities for our two economies.
In your excellent recommendations, you mention that the Canadian life and health insurance industry encourages our government to try to negotiate new trade agreements. Indeed, India has some very high tariffs. In the automobile industry, for example, foreign manufacturers who want to sell on this market are subject to tariffs as high as 40 per cent. One observes that tariffs are much lower in those sectors where India has pressing needs, such as infrastructure construction. Your country has developed an ambitious plan that would see $500 billion invested over the next 5 to 10 years.
In the view of the association you represent, what should be the scope of any trade agreement between India and Canada? Are there sectors that we Canadians should not try to get into?
Mr. Jha: I will answer the last question first. Our suggestion is that we should avoid the segments where we are able to touch the large population in terms of adversely impacting them or where it can become a politically difficult decision for the government of India to make. It is not that they do not understand or want to do it, but the realities of democracy will not allow them to do it.
However, there are areas in which we can have tremendous results. One is in the area of energy. India needs help in this area and Canada has the technology and the expertise. Mining is another major area. Our organization has focused on those two areas. Last year, we had an energy conference, and top officials and top business people from India came. This year, we are doing one on metals and mining.
Education is a third area where we can have tremendous presence. The other speakers who appeared before the committee spoke about how a country like Australia has the lion’s share of educational revenue from India and we have the smallest, not even 3 per cent or 4 per cent of that.
Our suggestion is to be engaged. Let us build up a close relationship with multiple layers. It is not about one bureaucrat to another. If we want to engage with a country like India, it will be through targeted areas of public policy. Senator Di Nino has gone to India several times. I urge you individually and collectively to go there and target some individuals, not necessarily in Bombay or Mumbai or Delhi, but go to smaller provinces where there will be literally not only a red carpet but also the elephants sent to the airport to greet you. I am joking about that, but you will get a wonderful welcome. Let us take that segmented approach for closer relationships and be sensitive about what they can easily do. Let us go after the low-hanging fruits. Let us not lecture or argue with them.
Senator Finley: Welcome. The Canada India Foundation has recommended, for example, that we strike a strategic partnership similar to the one that exists between India and the United States. Could you describe what benefits you would see with an immediate strategic partnership? Second, please lead that into a slightly broader discussion about what barriers you might see to a free trade agreement between Canada and India?
Mr. Jha: First, moving from multilateral agreements to bilateral agreement has been a major development.
There are a couple of things that we could do. If you see the U.S. with the issue of Kashmir or some of the internal divisive issues, America is not hands-on with that. We should be sensitive to that because we have a larger population here which may have different views, as I mentioned in my initial introduction.
Senator Finley: Could this be like Gujarat?
Mr. Jha: We singled out that one issue. We had no reason or stated policy but we were totally disengaged. Gujarat is a province that has the largest growth. It had more than 12 per cent growth annually, year after year. It has one of the most industrious groups of individuals, even in North America. About 40 per cent of the three-star hotels and below in North America are owned by this group of perhaps 100,000 people. It is that kind of group and we did not want to trade with them. We are still hesitant to do so.
We should leave some things with the country where it belongs. The political things belong there. Let us respect their democracy. If the people of that country elect someone and no guilty charges have been proven, we should not disengage.
I am glad that Senator Di Nino and other individuals have gone to Gujarat. We need to get engaged like that with India in a targeted and segmented way.
Our Canada brand is very weak in India. The key thing is not about what policies will help but what do we need to do so that the Canada brand becomes visible, credible and known? From the immigration point of view, there is lopsided immigration. The rest of the province does not even think much of immigration to Canada; the rest of India does not think that way. They only think about migrating to America. Even for education, most of the students go to America or Australia. Now that there are difficulties in America, they mostly go to Australia. We need to take the kind of practical approach that Australia takes.
Senator Finley: Would that be part of a strategic partnership?
Mr. Jha: Yes. I think that free trade would be desirable but we are still signing off on FIPA, the Foreign Investment Production Agreement. Free trade has many implications. In Indian democracy, the presence of leftist parties and the fact that India is so impacted by gun-toting leftist groups, which are the largest in the world, are big issues for them. They will have to be careful.
We should be helpful in those areas where we benefit the most and they also find it easy to do.
Senator Stollery: You mentioned Gujarat, I think, but it sailed over my head. You said 100,000. What was that about?
Mr. Jha: In North America, there is small population of people of Indian origin who are from Gujarat. This is the most prosperous provinces in India. In the hospitality industry, that group owns almost 40 per cent of the hotels in North America. They are worthy of a case study.
Senator Finley: What was Canada’s disengagement from Gujarat caused by?
Mr. Jha: First, there was no stated policy. This is another thing about Canada: We do things but we do not have a stated policy on it. It was a quiet disengagement. In the U.S., there are all kinds of lobby groups and one group said we should disengage because the premier of that province was alleged to be involved indirectly in the Hindu Muslim riot. There was a commission which did not implicate him. He is a premier and was re-elected by a massive margin again; the local political parties tried that allegation as well. The U.S. officially disengaged. We quietly followed that but we did not say it publicly.
We are thankful for the initiatives of this government. We tried to reason with that but it is not about the chief minister of the province. It is about the province, which is the most industrious and prosperous province. It has yearly growth of 12 per cent or more. How can we not engage with that province?
Senator Stollery: Did we not engage? I am not trying to do that but this has still has gone a bit over my head. I did not know that we had done anything.
Mr. Jha: We have now opened up a trade commissioner’s office in Gujarat.
Senator Jaffer: I will take you to another topic. I was interested when you talked about not having ethnic chambers of commerce at the trade mission. There is no separation in our country; we are all the same. Why would you not be keen on people who have knowledge of India to be in our trade offices? They can only be an asset to us.
Mr. Jha: I think I may have miscommunicated. I said that we must engage chambers of commerce, but I assumed there would be reservations sometimes about ethnic chambers of commerce because they do not engage seriously with anyone. I said maybe from the pecking order point of view, even if they do not want to involve ethnic chambers of commerce. We do have sending-off parties before trade missions, but there is no consultation about the agenda, what we should do, who we should meet and how being involved can benefit effectiveness. I do not see that kind of involvement of chambers of commerce on trade missions. It is more from the office of whoever is going there. They know the political business, but we have a lot to contribute to trade missions.
Definitely, we would like the Canada India Foundation, the Indo-Canada Chamber of Commerce and the Canada-India Business Council to be actively involved. These are the organizations which are seriously engaged.
We signed an MOU to put in a $10 million endowment at the University of Waterloo because we recognize that intellectual bandwidth and proper advocacy around that is lacking, so that we get deeply engaged in the Canada-India corridor.
Senator Jaffer: A number of times, you mentioned the United States. Besides the U.S., is any other country engaging with India in a more aggressive way than we are? If so, what are they doing correctly?
Mr. Jha: Even Chile does more trade than we do. Even Scandinavian countries do more. The United Kingdom is deeply engaged and China is massively engaged. It is amazing that, if there was a choice between China and someone else, Indians would buy from other countries. It is not that there is anything wrong, but there is this patriotic feeling and a history there. However, business realities have brought both the countries together.
Singapore is deeply engaged. A small country like that is massively engaged. Twenty years ago, they invested $400 million in the software park, as I mentioned. They put their money in Bangalore, which has become the “silicon valley east.”
Senator Jaffer: Mr. Jha, you have said a number of times that we need to be deeply engaged and I agree with you. What are some of the things we need to do to be deeply engaged?
Mr. Jha: We need to embed businesses and chambers of commerce into the public policy formulation and execution; that is number one. We need to identify the key areas where we will have the least resistance, like mining and metals, energy and education.
Think of agriculture. India needs massive help in this sector. We have 46 per cent cultivatable land, compared to 10 per cent in China, yet India produces less. We can benefit massively from an engagement in agriculture. Food security has become a matter of national security for India. Canada can help India in a major way. We did it in the green revolution days in India. We were the ones who helped them. This is the second time we need to help in that area.
We should think about this investment fund, which should include private organizations. I am just throwing out a number, but it could be a $5 billion or $10 billion fund where private organizations put $5 billion and we have $5 billion from the provinces and the federal government, and we would encourage mainstream Canadian businesses to invest in India. Today, we do not seem to do the electronic fare implementations of buses and trains like in Malaysia or Singapore, but all those things will need to be implemented in India. Who will do it? Again, will it be someone else, or we will have some local footprint there in India?
Senator Jaffer: You are very much involved in the Indian diaspora. How do you think the Indian diaspora should be engaged so that we might increase trade with India?
Mr. Jha: The Indian diaspora should be more engaged in helping and guiding the fear of the unknown that many Canadian businesses have. The bureaucratic setup we have is, “Do not ask; I do not need your help.” We can play a significant role there.
Senator Smith: It is good to see you again. As you know, I have some personal and business interests and great confidence in India, and also in your organization. Senator Di Nino and I, with several other parliamentarians, had a great dinner with the Canada India Foundation in Toronto, technically Mississauga, last week, and it was an excellent event.
I have great confidence in the ability for trade to take off. A large part of it has to do with the entrepreneurial connection in Canada of Indians who are astute and successful businessmen. I also applaud your University of Waterloo connection. I know there are other ones as well. These business school connections are an excellent way to strengthen those ties.
On page 6 of your submission, you suggest that the “various levels of government consider setting up a public-private India fund to encourage our ventures in India.” You give the example of Singapore’s sovereign fund. I suppose part of the challenge there is that it is great for us and the department to have offices there for trade and support, but in terms of investments, are you talking about investment dollars coming from governments, or are you talking about basically a catalyst role that triggers it off from the other sectors? Was that the point you were making? It is a little tricky if you decide we will pick one country and put investment dollars in there.
Mr. Jha: Thank you so much for your kind remarks about our organization. What I meant was a venture fund. I suggested that it could be a private-public fund. Let us say it is $20 billion from the different levels of government and $20 billion from private people. This becomes a venture fund. When a business person brings forward an opportunity in India, we would have a venture fund to support Indian business opportunities here. We do so only when we see a good return coming from this money. It is not a government investment or subsidy. It is a good return investment fund. The business people know that the likes of the Royal Bank will not fund them for investment in India. Maybe we should give that fund to EDC or EDC and private people together so that they have more money available to go and support businesses or some of the other initiatives in India.
Senator Smith: The catalyst role and the support of the department is a little easier. Once you start investing in one country, it is a bit of a precedent, and there might be a long line-up at the door.
Senator Finley asked about where we have missed the boat. That is the sort of thing we really need to hear from you. Whenever you hear of a situation where somehow something did not happen and we missed the boat, we would like to hear about that. It may not be on your mind today, but for the future on an ongoing basis.
Mr. Jha: The Canada India Foundation will be submitting a formal submission at a certain stage to the committee, and I am grateful for that chance, although I may not be able to answer all the questions today.
Senator Smith: Thank you very much.
Senator Di Nino: I should confess that the witness and I have been friends for a long time. Senator Smith referred to the latest opportunity that we had to exchange some thoughts.
Senator Segal: We can forgive the witness.
Senator Di Nino: That is a very good point. I want to put on the record as well, Madam Chair, that my eight visits to India have all been as a private citizen and not in any capacity dealing with government or Parliament.
I want to pick up a little bit on some of the comments about the potential opportunities that the witness defined for Canada. Would you agree that in areas such as infrastructure and transportation, the need for power in India is huge, pretty well all over India, maybe not in the north, but pretty well central and south, and even agricultural? These are all areas were there can and should be additional resources put in to explore opportunities for mutual benefit.
Mr. Jha: Senator, thank you again for your kind words about our organization. I agree with you that there are these segments where India has a massive appetite. Recently, the minister of transportation and infrastructure visited Canada, and he eloquently presented how much India needs Canadian investment, especially in the area of public-private partnership. We have that expertise. Our companies have that expertise. There is some inertia. We have to find out why we are not that aggressive. What do we need for our companies to go to India and get that business? Where can our governments help? India has had spectacular growth, even last year. The fastest growth was in Bihar, the poorest province in India. They are building roads like no one’s business, and we could be there.
I agree with everything you said. There is massive opportunity. Each area has some opportunity or the other. As I said in the beginning, we need to choose a few areas where we will be the natural and easy choice. It will be easier for India to accept us and for us to execute our business interests.
Senator Di Nino: My visit to Gujarat last year after the Chennai visit for the Parvasi conference was quite an eye-opener. It was impressive that everywhere I went; the word “Canada” attracted a lot of attention. It certainly was not me, because I was not a known person in that sense.
There is a tremendous appetite to have Canadians participate in some of these business opportunities. I was given an opportunity to meet and discuss bilateral relations, even though, as I said, I had no official capacity. There were numerous business opportunities from some very highly placed industrialists and investors, including Chief Minister Modi, whom I met on two occasions. For my colleagues, I was asked to address the conference and I have never seen so many people in one room: There were 30,000 people. I thought I was addressing a city.
The reason I mention that is because Canada’s presence was missed. There were very few Canadian companies present.
Is it something that we should be doing a lot more of? I know you have said this already, but I have passion for this country and for the opportunities that exist. I do not think that either the government or the business community is putting enough resources into the research and development and the exploration of opportunities that exist in India, particularly in Gujarat, which will lead India as the engine of its growth.
Mr. Jha: I did not mention something when I was reading my brief. I find when I go to Canada-India events and presentations at different levels, we are still in the PowerPoint mode of engagement. All of it is lots of talk. We need to move into the project plan mode. We know things. How do we execute them? Who will do them? What are the time lines? Are you the right person to do it? That is lacking in the whole thing.
On top of that is the Canadian brand. A long time ago I remember hearing David Letterman saying that Canada is the nice neighbour you like but never invite to parties. That is the kind of thing I mean. We need to be invited to the party and that will happen with our brand, where we have established areas of engaged focus.
In addition, there is inertia in our country. Whatever inertia is here, we pass along anecdotes and information in bits and pieces. All that is bothering us and the inertia is holding us back. How far do we push and how do we have one or two major wins and how do we celebrate some company’s success in India? If Sun Life has a very successful entry in India, we need to celebrate that nationally and prominently.
Senator Fortin-Duplessis: My second question is about security. Recently, on April 6, there was a massacre of 76 members of security forces who were savagely killed by Maoists militants in Central India. This is one manifestation of the security threat that still exists despite a military offensive launched last year in order to eradicate the rebellion. Arguing that the security of all of India is now threatened, the media and the opposition in India are pressing for a harsh and quick government response. An article published in the Hindustan Times even claims that if India continues to lose battles, it will lose the whole war. It is reported that there are between 10, 000 and 20,000 Maoists. They claim to fight for landless peasants. Mainly active in the poorest states of India, they appeal to villagers who do not share in the benefits of growth.
My second question is about security. Recently, on April 6, there was a massacre of 76 members of security forces who were savagely killed by Maoists militants in Central India. This is one manifestation of the security threat that still exists despite a military offensive launched last year in order to eradicate the rebellion. Arguing that the security of all of India is now threatened, the media and the opposition in India are pressing for a harsh and quick government response. An article published in the even claims that if India continues to lose battles, it will lose the whole war. It is reported that there are between 10, 000 and 20,000 Maoists. They claim to fight for landless peasants. Mainly active in the poorest states of India, they appeal to villagers who do not share in the benefits of growth.
Could you tell us more about the origin of this violence in those places and what the reasons are? I imagine you would not advise Canadians to go and do business in those areas.
Mr. Jha: Canadian businesses are involved in areas of the world where even those countries would not want them to be when it comes to mining. We have done it for years and years, so we have already shown that industriousness.
India has a serious Maoist problem, but India gives one hope. In the 1970s, there was a major issue in the West Bengal. It looked like the Naxal movement would overpower everything but India put it to rest completely. We saw Punjab boiling in the post-1984 era. Today, you see Punjab as one of the most peaceful states.
India’s democracy is its major strength, but that is the biggest hurdle it has because there are a billion-plus individuals. The agriculture sector engages the majority of the population. What we all talk about – the types of businesses – does not touch the majority of Indians. That is why I tried to highlight that agriculture is one area. For the benefit of peace in the world, it will be very beneficial business wise and otherwise that we help India in agriculture.
How can India use 46 per cent of cultivatable land and have such poor productivity? China produces more from the 10 per cent of the land than India does from 46 per cent.
For historical reasons, there is poverty, and I believe that if you curb violence with violence, that begets more violence. We think that security forces will go and do it, but that will not work. Prime Minister Singh has put greater emphasis on rural development. You may have seen that, in the past few weeks, they have passed legislation that every child has to go to school. It has become mandatory. The budgets of the municipalities are now the largest in India. They have mandated that only women can be the heads of many village councils. When you live in a society where the representative participation of the larger percentage is not there, then there will be problems. It happens in every society that there are some abnormalities. You try to correct them. There will be further deterioration during the transition period. However, countries like India have more resilience.
This country is a miracle. All the indications of where democracy can work is that you must have $5,000 per capita income. All the best books say democracy will not thrive otherwise, but here you have a country where it will take some time to reach per capita income of $5,000; but still there is a thriving democracy. More than that, the civil institutions of India – judiciary, election commission – are the models in the world.
India’s biggest problem is the Naxal movement. However, as someone who grew up there, I am hopeful. There are brilliant people and they have good administrators. You were praising the high commissioner. That kind of calibre of individual you find in every district in India because you only get selected through an all-India level examination.
It is a challenge, but we should go there because we will not be invited to the party when they are just opening the champagne bottle. They want us to be there when the things we will do will allow them to open the bottle of champagne.
The Chair: Mr. Jha, we have come to the end of our time. You have displayed your enthusiasm for the topic and your knowledge and all of the areas of our possible relationship between Canada and India have been canvassed through you. We thank you for generating such an enthusiastic discussion.
We look forward to preparing our report, where I hope some of your ideas will be visibly displayed thanks to your presence here. Thank you, Mr. Jha.
Honourable senators, I welcome to the meeting from the Canadian Life and Health Insurance Association, Frank Swedlove, President; Michael Landry, Vice President, Corporate Development, Manulife Financial; and Janice Hilchie, Vice-President, Legislative Relations.
The Canadian Life and Health Insurance Association, CLHIA, established in 1894, is a voluntary trade association that represents the collective interests of its members and health insurers. The association’s membership accounts for 99 per cent of the life and health insurance in force in Canada.
Frank Swedlove, President, Canadian Life and Health Insurance Association: On behalf of the life and health insurance industry, I would like to thank the committee for inviting us here today to share our perspective on the rise of Russia, India and China in the global economy and the policy implications it has for Canada.
Members of CLHIA are an international success story, with over half of the industry’s income generated from outside Canada while a majority of its employees reside in Canada. While active in over 20 foreign markets, Canadian insurers have had a particularly longstanding presence in China and India that dates back over a century.
As the industry is not active in Russia, I will confine my remarks to the growing importance of the Indian and Chinese economies vis-à-vis our industry in Canada more broadly.
China and India present a compelling business opportunity for Canadian life insurers due to their large and increasingly affluent populations, as well as their continued strong economic growth. Future success of Canadian life insurers in these countries will in turn also benefit the Canadian economy in terms of job creation, increased tax revenue and other in-Canada investments.
With that being said, with opportunities also come challenges. Competitors to Canada, such as Australia, the European Union and the U.S., have been actively courting the RICs to sign bilateral trade and investment agreements. At the same time, firms headquartered in these countries are rapidly expanding their businesses in RIC markets. Ensuring that Canadian companies are able to compete and succeed in these markets requires closer collaboration between the business community and government.
The Canadian life and health insurance industry strongly supports the development of policies that will foster closer ties and align Canada’s interests with those of the RICs.
The industry encourages the government to continue to push for new and ambitious trade agreements involving these countries, either bilaterally or multilaterally. We would also urge the Canadian government to engage the RIC countries at the political level on a more consistent basis.
Lastly, the government should seek to nurture Canada’s services sector, including building its services export capacity and bolstering its share of knowledge-intensive service jobs through the creation of a services sector innovation strategy.
Once established in a country, given the nature of the business and the long-term investments that are made, insurers are strongly inclined to operate in that country for the long term. Investments made by life insurers are typically long dated in order to reflect the long-term commitments they have to policy holders. As such, their investments are concentrated in government bonds or infrastructure projects which in turn are supportive of a country’s development. This long-term commitment to the host country also has implications for the insurers approach to corporate social responsibility and to maintaining a positive image in the country.
This was the case, for example, in May of 2008 when Canadian life and health insurers operating in China gave generously to the reconstruction effort in Sichuan province which was struck by a devastating earthquake. For developing countries, the presence of life insurance companies is recognized as playing an important economic and social role. Insurers are an important source of employment in their offices as well as through their network of agents.
Life insurance products such as annuities can promote financial stability for families. In developing countries, this type of product has the additional advantage of compensating for a lack of a strong social safety net, as is currently the case in India and China.
Micro-insurance products also have a positive social role to play in developing countries. In providing micro-insurance, Canadian life insurers facilitate the uptake by underprivileged portions of society and provide a valuable stream of income and financial security.
It can also be said that in developing countries with an underdeveloped life insurance sector, the arrival of foreign-invested life insurers can be an important source of foreign direct investment. Life insurance companies promote trade and commerce, both directly and indirectly, which is also recognized as an important driver of economic development.
With compound annual growth rate for the Indian and Chinese economies between 2006 and 2020 expected to be 5.6 per cent and 5.2 per cent respectively, they are the two fastest growing economies in the world. In light of this trend, key competitors to Canada are busily seeking out greater access to these emerging markets.
Australia, which is in negotiations with China on a free trade agreement, recently completed its fourteenth negotiating round, while the EU and India are committed to their own FTA.
Canadian life and health insurers have had a long-standing presence in both India and China going back over a century. However, companies operating in both these jurisdictions continue to encounter restrictions that impact directly upon their business activities.
Private sector insurance has been permitted in India since 1999, although the government has a significant stake in the industry — equal to 70 per cent of the country’s insurance market — through the government-owned Life Insurance Corporation of India. Entry barriers for foreign life insurance companies have been reduced over the last decade. Nevertheless, the industry remains tightly regulated by the Insurance Regulatory Development Authority or IRDA.
Sun Life operates in India on a joint venture arrangement in which they hold 26 per cent of the company. It sells various individual life insurance, group life insurance, group savings, wealth management and mutual fund products in India. To serve India’s large rural population, there are basic life and health insurance plans and, as of last year, group micro-insurance products such as term life were introduced.
The most onerous restriction on conducting business in India is the existence of a 26 per cent foreign equity cap. Amendments to the Indian insurance act that would raise the foreign equity cap from 26 per cent to 49 per cent have been introduced in the Indian parliament and the bill is currently before the standing committee on finance.
While there appears to be some willingness on the part of the Indian government to lift the equity cap, there remains strong domestic opposition to the idea. The CLHIA has joined an international coalition of industry associations in advocating for the passage of this piece of legislation. There is little doubt that more Canadian life insurers would be interested in doing business in India if the foreign equity cap were raised.
The industry also feels it is important to remove the cap on compensation contained in the IRDA act so that companies have the flexibility to design agent compensation plans that are aligned with their respective business strategies. In the absence of this, the professionalism of the sales agents is constrained as companies are forced to work with a part-time agency force, potentially leading to issues pertaining to sales practices and market conduct.
In China, Canadian life and health insurers have had a long-standing presence where they are among the largest and most active players in the country. There are a number of life, health and other income replacement products, both for individuals and groups, currently being sold by Canadian life and health insurance companies. We are also starting to see the introduction of annuity products into the marketplace that target the needs of individuals in terms of education, wealth management, retirement, as well as some tailored products to suit individual needs. Canadian life and health insurers are also hopeful of eventually being granted licences to provide enterprise annuity products in China and would be grateful if the Canadian government would support them in encouraging China to develop its private pension system.
While committed to remaining in the Chinese marketplace, the industry continues to face a number of market access restrictions, some of which appear to run contrary to the country’s WTO commitments dating back to its accession nine years ago. It continues to be the case for foreign life insurers that the approval of their branch expansion can only occur one at a time, on a consecutive basis, despite assurances from the China Insurance Regulatory Commission, CIRC, that they are eligible for multiple branch approvals on a concurrent basis.
Finally, China should give consideration to the removal of the foreign equity restriction in domestic life insurance companies. We believe that it is in the best interests of China’s market, in attracting foreign direct investment, to allow foreign partners to increase their capital investments in China. At the same time, their Chinese joint venture partners would benefit from being able to redeploy their capital elsewhere, as they see fit.
Looking ahead, it is also our hope that China will allow foreign life insurers the choice of juridical form, as either a joint venture, branch or a subsidiary.
The CLHIA is encouraged by the Indian and Canadian governments’ decision to explore the possibility of a free trade agreement. We hope that the Canadian government will continue to pursue new agreements with other key emerging markets. Not only do these agreements eliminate impediments to Canadian businesses operating in these foreign markets, but they ensure a level playing field between Canadian companies and other competitors. In the end, the competitiveness and future success of Canadian companies operating in these important markets is at stake especially when considering that, as a percent of its GDP, Canada’s exports to the RICs are performing at about the middle of the pack when compared to our peers.
In addition, Canada should also continue to support the work of the World Trade Organization. The WTO offers Canada the prospect of reduced barriers to trade across all 153 member countries, including the RICs and all within a rules-based system. In parallel with this, the government should continue to push for an agreement in the WTO’s long-running Doha round.
The more frequent travel by Canadian government ministers to India and China, as well as the recently completed visit by the Prime Minister, to both countries, are welcome steps to improving Canada’s relations with these countries. Canada, against its key competitors and as a trade-dependent country, must continue to view a strong political dialogue with the RIC markets as being both necessary and reflective of these countries’ growing economic size and importance.
Competitors to Canada, like the U.S. and the EU, hold regular bilateral summits with these key emerging markets, bringing together senior political figures from both sides. Having a regular dialogue at the political level will complement the work already being done by the Canadian business community — through, for example, its various business council chapters — to raise Canada’s profile and address issues of concern in these lucrative yet increasingly competitive markets.
Lastly, I would like to take the opportunity to speak about the importance of the service sector to the Canadian economy as well as the importance of exports in services. Michael Landry, who is with me today, also serves as the chair of the Canadian Services Coalition. He has a great deal of background with respect to the services sector in Canada and I am sure he would be happy to field any questions you might have on this issue.
Canada is a services-based economy. Roughly 72 per of GDP is linked to the services sector. The services sector is also the major contributor to Canada’s economic and employment growth, year over year. Relative to other sectors, services generally account for the most knowledge-intensive and highly educated jobs. However, when compared to Canada’s OECD peers, Canada’s services exports are among the lowest as a share of total exports, equalling only 13 per cent versus 28 per cent in the U.S. and 23 per cent in Australia and the European community.
Leveraging Canada’s services sector at home will translate into more exports abroad and will be key to Canada’s long-term prosperity. To do this, the government should consider establishing a services sector innovation strategy.
For example, at present the Canadian government collects little in the way of statistic on services. Without the proper metrics, good public policies and strategies to bolster the sector will prove difficult.
Service providers in Canada, including in the insurance sector, are having difficulty finding qualified individuals to fill key positions. Without re-examining our education system to address the skills shortages being witnessed in the services sector, Canada will continue to underperform its peers. Canada should also make further strides in streamlining its immigration policies in order to attract the highly skilled workers needed to fill services sector jobs.
A number of recommendations for developing a services sector innovation strategy are found in our written brief to the committee.
I thank you and the committee members for this opportunity and I, with my colleagues, would be pleased to respond to your questions.
Senator Fortin-Duplessis: In your brief, you state on page 11 that Canada is a services-based economy. Roughly 72 per cent of GDP is linked to the services sector which is also the major contributor to Canada’s economic and employment growth, year over year. Relative to other sectors, services generally account for the most knowledge intensive and highly educative jobs. However, when compared to Canada’s OECD peers, Canada’s service exports are among the lowest as a share of total exports, equalling only 13 per cent.
In view of the importance of the services sector as such, what changes to the present policy and regulation framework would you like to see in order to promote the vitality and competitiveness of the services-based sector in Canada?
Michael Landry, Vice President, Corporate Development, Manulife Financial, Canadian Life and Health Insurance Association: I believe that it is inevitable that the future of the Canadian economy will be driven by the services sector. As our economy changes, so will the nature of those companies that drive it. I think we are seeing that now. I do believe we are beginning to see recognition in policy of that fact.
Mr. Swedlove raised the issue of our understanding of the industry itself, where the jobs and services are and how they are made up. Industry Canada is now dedicating increased effort and resources for that purpose. They are working with Statistics Canada to better gain understanding of all those factors that go into the changing of our economy.
The organization that I head at the moment, the Canadian Services Coalition, is very much part of that effort in trying to raise consciousness of the importance of services. We are in the life insurance industry and it is a services-based industry. Our company’s Canadian operation is located in the Kitchener-Waterloo area. It is an economy that is thriving and is based on services: RIM, Sun Life, Manulife, the universities and also Toyota. Many of those jobs are services based.
As we create a better awareness and understanding, individual sector’s needs are being recognized. I cannot speak sector by sector as to what those might be, but I can speak from my sector as we grow. Much of our growth is outside of Canada. We have the support of the Government of Canada and its institutions.
Senator Di Nino: Welcome, witnesses. Tell us the different treatment that Canada seems to have in dealing with particularly China and India. You are dealing in both countries. Are we dedicating similar types of resources? Do we have available similar types of services, or are we concentrating more on one side or the other?
Mr. Swedlove: Are you talking about the participation of government agencies such as DFAIT?
Senator Di Nino: Yes, I am asking about the Canadian government’s contribution to your efforts.
Mr. Swedlove: The service we get from the Department of Foreign Affairs and International Trade is good. We use the embassies in terms of maintaining relations with governments and for organizing events. There has been a strong focus in China for many years, and that is happening increasingly in India as it reflects the growth of India over the last number of years.
DFAIT has served us very well. We would like to see a real push in attempting to get bilateral arrangements and more high level contacts using the highest levels of government; for example, leading missions and that kind of thing. In that way, we can more effectively penetrate those markets.
Senator Di Nino: In both countries, or in one or the other?
Mr. Swedlove: In both.
Senator Di Nino: We have heard a number of times that there have been some problems with visas for Chinese and Indians to visit Canada or to come to Canada. Have you seen that at all? Have you had any indication in your dealings that such has been a problem?
Mr. Landry: In our case, we have not. I hear the stories and know the complexities. However, it has not been an issue for our visitors who are here for a very short period. Occasionally, we have brought over students, for example, to work in our company here in Canada. I cannot think of an incident but I certainly would not want to speak for others who may have experienced issues.
Senator Di Nino: Are you talking about anything specifically?
Mr. Landry: I am talking about China.
Senator Di Nino: What about India?
Mr. Landry: I cannot talk about India; we are not there.
Mr. Swedlove: We have hosted a number of delegations from India and I do not remember any problems.
Senator Di Nino: The last couple of years, Canada has been aggressive in its political involvement in India. Have you seen any difference in the relationship that your companies have had with Indian counterparts? Has this helped? Has this been useful? Can you actually see whether this has improved the relationship between the two countries from the standpoint of trades and services or anything else?
Mr. Swedlove: One must be consistent in keeping the more senior representation and sending more delegations to these countries. You cannot do it once and leave; you must be consistent. It is important that ministers, prime ministers and senior government officials visit these countries on a continual basis and have that dialogue. It is very much a way of doing business in China. In India, it is probably more difficult in terms of fostering those kinds of relationships, or at least allowing that to have a major effect.
We have seen a real slowness in getting this legislation changed, moving from 26 per cent to 49 per cent participation in any company. That has been an ongoing battle for several years now, not only by Canadian insurance companies but by companies from other countries as well. It has been a difficult struggle and continues to be so.
The progress we have made in China has been more rapid in that regard. Mr. Landry could talk about other frustrations in China in more detail, but at least we have that 49 per cent participation and we seem to be getting more movement in a number of areas.
Senator Di Nino: If you could write one recommendation for our report to the Government of Canada, what would it be?
Mr. Swedlove: We could make several, but it is what you noted in terms of continued senior representation in missions and also the opportunity for bilateral negotiations with these countries. We see our competitors doing that. Clearly, there is an advantage when one does so by bilateral deal. We would aggressively want to see a push on bilateral trade agreements with these countries.
Senator Banks: Mr. Swedlove, is there in Canada a foreign equity cap on the operation of foreign insurance providers in health or life insurance or any other impediment that you know of to the operation of foreign equity or foreign corporations selling life or health insurance in Canada?
Mr. Swedlove: No, there is not. Most of our members are foreign in terms of numbers, and they can operate here as a branch or 100 per cent owned subsidiary. There is no cap.
The only restriction — and one could debate as to whether it is a foreign equity restriction — is on the ability of anyone, whether Canadian or foreign, to acquire a demutualized insurance company, particularly Manulife and Sun Life. There are restrictions in the Insurance Companies Act of Canada with respect to acquiring those companies. That is national treatment in the sense that it applies to both Canadian and foreign companies. Aside from that, there are no restrictions that I can think of.
Senator Wallin: Mr. Swedlove, our previous witness said that Canada is a PowerPoint country. We make great arguments about why we should have more trade, do more business and be more open. He said that we are weak on the action side and we need to do more.
When it comes to your industry in particular, it seems that the world is your oyster because 50 per cent of the population is younger than 23 years. You have a burgeoning future market. You have 50 million people in India who are already in the middle class and have high savings rates. I think 34 per cent is the figure we were given in 2008, so their mindset is already there about buying insurance. This should be a bit of a cakewalk. What is stopping you?
Mr. Swedlove: The record of the life insurance industry is a good one in terms of export activity. If you look at the overall industry, almost 56 per cent of the assets of the industry are abroad. We are a Canadian success story when it comes to exports. Unlike, for example, the banking industry, which has had a bit of a record coming in and out of countries, the life insurance industry, when they make investments, are there for the long term. That is recognized and respected by foreign governments and regulators. I think we have an excellent record in that regard.
You are right; there is immense opportunity. That is why our companies want to see some of these restrictions and barriers removed, so they can better serve these markets and grow their businesses.
In China, one must obtain individual licences for each branch one wants to open up in a new city. Manulife and Sun Life would be extremely keen to open branches as quickly as possible in as many cities as possible, but because of China’s bureaucratic structure, that has been a longer and more onerous exercise. Obviously, the Chinese government has its reasons for operating that way.
The difficulty with India, at a level of 26 per cent ownership of any company, Sun Life has made the decision that is something it is willing to live with for the time being. Sun Life hopes the level will be increased soon, but their business plan has allowed them to do that.
A low level of equity investment at 26 per cent is still relative to the rest of the world. That is why I said in my comments that we are optimistic if it moves to 49 per cent, we will get other Canadian companies into the Indian market, but there must be that movement in order to make the business case.
Mr. Landry: For our company, we use rough numbers to give a sense of our international operations. While we are certainly based here in Canada, 75 per cent or so of our business is outside Canada. Our growth market, to a large extent, is in Asia. We have been there for 15 years. We are in more cities than any other foreign insurance company operating in China, and we continue to grow.
What Mr. Swedlove has underlined is certainly a factor. We would cover the country more extensively if we were allowed to obtain licence’s on the same basis as domestic companies. Nonetheless, the cities that we are in represent 300 million people. It is a growing area, and the wealth creation of China is certainly immense.
In my view, we are well served by our foreign service. For Senator Di Nino’s question, it is important to keep it as strong, well-respected, staffed and resourced so that we can continue our activities. I can say unequivocally that if it were not for that support, we would not have been an early entrant into China 15 years ago. In fact, we were only the second foreign insurer allowed in at that time, and we did not have nearly the presence in Asia that we have today. That shows that when those resources are dedicated to the kinds of activities that we have in mind, it can be very successful. We have to ensure that the system is resourced in order to allow that to continue.
Senator Nolin: We have rather large Chinese and Indian communities in Canada. In your international expansion strategies, since these regions are a large growth area for you, in what measure do you do business with the Canadian members of these diasporas in order to assist you to better penetrate international markets, especially those of China and India?
Mr. Landry: Certainly that market is very important here in Canada and if you broaden from mainland China to include Taiwan and Hong Kong, it is especially so. We have a natural affinity, and it is a strong market for us in Canada.
Senator Nolin: My question is more precise. In your strategy here in Canada, do you use Chinese Canadians and Indian Canadians to partner with you in getting involved in those foreign markets?
Mr. Landry: Not especially. Our strategies in Asia are driven by our Asian operations. Our strategy in China is driven by the needs of the Chinese market in China and in the cities and provinces where we operate.
Senator Nolin: Do you not see a need to have some kind of a partnership with other Canadians of those communities to raid those markets?
Mr. Landry: Not that way, no. We certainly are very close to especially the Chinese community in Canada, and we are active in it, but in terms of leveraging it back into China, I do not think so.
There are other ways, through our education system and our development activities, where Canada has a great deal to offer developing markets. We talk about our health and our pension system here in Canada. Those lessons and our expertise are very much valued in developing countries, for example, in China, as they think forward to how they will structure and build their safety net, if you will. In our education system, thousands upon thousands of Chinese students, and Indian students I am sure as well, are studying here in our universities and our colleges. Those initiatives are hugely important in developing those relationships and for an ongoing understanding of what our country has to offer.
We really cannot overstate the respect with which we are held in those countries, as we are, I think, virtually everywhere, but certainly we are looked to in many different ways for the expertise we have and the society we have been able to build here.
Mr. Swedlove: The way the Canadian life and health insurance companies have approached foreign markets is to allow autonomy for those operations in those markets. In other words, with Manulife or the Sun Life operations in China, we want to be considered Chinese companies and we want to be perceived as Chinese companies. We have done an excellent job in integrating ourselves into those markets using Canadian expertise, while educating the Chinese and Indian population to develop their own internal expertise in the marketplace. That is how we operate in the life insurance sector, and that is one of the reasons we have been so successful and have been able to grow as substantially as we have.
I know a number of Canadians who have particular knowledge and language capabilities. These people are often hired to help work with the local populations in India and China.
Senator Nolin: That is the kind of relationship or partnership.
Mr. Swedlove: That does exist, yes.
Senator Stollery: The committee is dealing with India, but we have been in China, led by Senator Di Nino. We saw how dynamic you have to be. This committee saw the incredible economy when we travelled from Peking, Shanghai, Canton, Chongqing and Hong Kong. There is no question that it is overwhelming.
Senator Nolin talked about the diaspora, and we had testimony here the other day that in the U.S., with about 300 million people, they have 1million people of Indian background. I think that is what the witness said. We have a much larger group of Canadians with Indian background at 2 million. Yet, today we learned that Chile has more trade with India than Canada has with India. I think we should fix that situation. That is incredible, actually. Those are my observations.
You are talking about the insurance business and India. I know north India quite well, but I have never been in south India. I am using the old names because that is my age. I remember Bombay and Calcutta when they were big, dynamic places. We all know that when they became independent, they adopted a rather self-contained economy, saying they would do it from within and all this sort of thing.
In the insurance business, for example, what are your markets in India? Let us talk of places to which I can relate. You can talk to me about Bombay and I get it, or Calcutta or Madras or Bangalore. Where is this market? You are not going to be doing much insurance business in the rural areas, where we learned that 16,000 farmers commit suicide every year.
Have you any thoughts about where Canada’s efforts should be? I am not trying to promote anything. I agree that parliamentarians should be going to these places. It is important to show the flag. That is what I think, but what do you think? Where is this market that you have in the insurance business?
We had Minister Kamal Nath here a couple of weeks ago, and he said there is a huge market in the rural areas because they are building roads. He did not really say where. Would you like to be a little bit more specific?
Mr. Swedlove: Certainly, senator. There is no question that the Indian market is burgeoning. One advantage of India versus China is that once established in the marketplace, you can operate anywhere. Sun Life is the only example I can provide since it is our only company there. The company started in 1999, but it has 600 sales offices in India. It is called Birla Sun Life, and Sun Life has 26 per cent ownership. It employs over 1,200 people and has an agency sales force of over 167,000 financial advisers in 294 cities. They are the fourth largest insurance company in India; so for them it is the entire Indian market, and that includes the rural areas. That is why they are so aggressive in looking at this micro-insurance opportunity. That is the kind of product that you can sell in rural areas – very simple kinds of products that are needed by that population.
That is one of reasons we are looking at things like compensation of the agency sales force so that we can have quality agents that can serve those markets, urban and rural, and so that there can be even greater opportunities in the marketplace. As Senator Wallin said, the world is your oyster in terms of serving such a large market and the opportunities that exist.
There is a wide range of products that I described in my opening remarks that are already available, but ones that are also tailored to the marketplace in, for example, the rural areas. Again, they are very simple products that the customer can understand but the agent can also understand in selling it, because your reputation is everything when you are a financial institution. If you have a bad reputation, you are not going to sell your product.
Sun Life and Manulife in China are very aware of the importance of proper market conduct behaviour in the selling of their products, and that is what they do.
The Chair: Just going back to the foreign equity cap and some of what you have just said, is your assessment that it is protectionism or is it a bureaucracy that is entrenched from historic practices and ideologies that have to be overcome?
I say this because of the World Trade Organization. On the one hand, you say openness but on the other hand, you put all the impediments that make openness impossible. Therefore, you somewhat comply with all these international rules but you go it your own way.
We need to get at how these structures and these impediments are there. What are the purposes of them in the eyes of the countries? If we do not attack those, we will never break into those markets.
We have heard testimony on both sides of the issue.
Mr. Swedlove: In a previous life, I was a WTO negotiator specifically dealing with this issue, and specifically a lot of dealing with India and then China.
You cannot help but believe there is an element of maintaining domestic ownership when you have these kinds of restrictions and barriers. In discussions that I have had with trade negotiators from these countries, they realize the advantages associated with more open markets. They are supportive of the concept, but they often are very concerned about rapid change.
What they focus in on is, sure, our markets will liberalize but at a pace that is acceptable to our country and that will ensure that our domestic companies have a chance to compete in an international environment. That is their approach and philosophy.
Part of my old job as a WTO negotiator was to speed up that process. My sense was that for the negotiators from those countries, their objective was to slow it down as much as possible.
All countries realize that they are on some kind of path to eventual liberalization because they see the value of open markets and open trade and investment, particularly by financial institutions that have much to share and a great deal to offer to the domestic country in terms of building up their financial markets and infrastructure.
The Chair: Is part of your answer that these countries have yet to embrace the full value of international rules and regimes, that they are hesitant to rely on those? I say Canada probably does rely on having the compliance with the rules-based international system, where they are not quite convinced.
Mr. Swedlove: One of the achievements of the Uruguay round in the 1990s in the WTO was an acceptance by countries that services and financial services in particular, can be part of a system and the disciplines of a trade agreement. Before that, it was only goods and not services that were part of the trade mentality.
Through the Uruguay round and subsequent work in bilateral trade agreements and in Geneva, increasingly it is accepted that services, just like goods, are something that are tradable items and can be subject to a discipline system.
I am optimistic that we will get there. The issue is how fast and how many opportunities we can create for our companies.
The Chair: We have run out of time. I thank you for coming and sharing your experiences and expertise. It will be very helpful in our study.
Mr. Swedlove: Thank you.
(The committee adjourned.)