Característica 32: políticas, programas y servicios de bienestar institucional

Finding #11: IIP investment funds allowed for limited investments in economic development; about 30% of the funds were actively invested by P/Ts.

INs, prior to their admission to Canada, were required by the program to make a one-time refundable investment to be granted permanent residence. Given the different expected outcomes associated with the IN class, the following section examines the investment capital mobilized through the IIP. It discusses how this money was distributed among participating P/Ts and how P/Ts invested it for the purpose of economic development.

INs are asked to make a one-time capital contribution of $400,000 (for those who applied prior to 2010) or $800,000 (for post-2010 applicants) to Canada in the form of a 5-year loan that is refundable without interest at the end of the term. These capital contributions made by INs are redistributed to the P/T funds for investment in economic development. The IRPR state that these P/T funds should use monies received for the purpose of creating or continuing

employment in Canada to foster the development of a strong and viable economy. The IN capital fund approach was redesigned in 1999 following consultations with the provinces/territories.

Under the new design, there were no specific requirements for the proportion of the capital that had to be placed in active investment. This represented a change from the pre-1999 arrangements that required 70% of the capital to be placed in active investments.⁴² This was done to allow participating P/Ts to maintain a balanced portfolio of investments with varying term lengths and levels of risk. Although it was not required to invest 70% of the capital in active investment anymore (as per the 1999 arrangements), the aim was for P/Ts to maintain a balanced portfolio of both shorter term, more secure investments and direct, longer term investments in job creation activities. As such, the intent was that P/Ts would invest directly in economic activities that created or allowed for the continuation of employment.

For comparison purposes, this section looks at investment capital raised through both the federal and Quebec investor programs. From 2007 to 2011, $6.42B of investment capital was raised through the two IIPs combined. The amount of investment funds available from the federal IIP for distribution to the provinces is a direct function of the number of investor immigrants admitted under the federal program. From the annual targets for all business immigrants, including both the federal and Quebec BIP, 41.6% of investor immigrants entered under the federal IIP between 2007 to 2011. The amount of investment funds available from the federal IIP for distribution to the provinces is a direct function of the number of investor immigrants admitted under the federal program; the rest of the IIP funds investments made by investors under the Quebec program go directly to Quebec to account for the number of immigrant investors it selected. As such, less than half of that amount ($2.67B) was raised through the federal IIP (See Table 5.7).

42 Section 92(f) of the IRPR states that Immigrant Investor Program Fund provincial allocations be used “for the purpose of creating or continuing employment in Canada to foster the development of a strong and viable economy.” Provinces are allowed to determine how to use IIP funds to generate employment in their economies most effectively, allowing for a balance of shorter-term secure investments (such as provincial government bonds) and longer-term active investments in job-creation activities, such as extending loans to businesses, or for private or public sector infrastructure improvements. However, provinces are not allowed to use IIP funds for general government programming, and are required to place investments directly and to report on the number and type of jobs created as a result of these investments.

Table 5.7: Investment capital raised by IIP programs, 2007 to 2011

Year Federal IIP Investment

capital raised Quebec IIP Investment capital raised

Total investment capital

% of investment from Federal IIP

2007 $ 392,000,000 $ 680,000,000 $ 1.072B 36.6%

2008 $ 570,400,000 $ 580,000,000 $1.15B 49.6%

2009 $ 523,600,000 $ 720,000,000 $1.24B 42.2%

2010 $ 681,200,000 $ 920,000,000 $1.60B 42.6%

2011 $ 504,400,000 $ 848,800,000 $1.35B 37.4%

Total $2.67B $3.75B $6.42B 41.6%

Source: CIC, NHQ – Immigration, and Ministère de l’immigration, de la Diversité et de l’Inclusion (MIDI).

The formula for distribution of these investment funds to the provinces is not related to the numbers of investors destined for each province. The formula includes two criteria: (1) one half of the federal IIP funds are divided equally among the participating provinces/territories, and (2) the other 50% is distributed based on the proportion of total GDP in each province/territory.

The structure of this formula helps to ensure that smaller provinces/territories receive a

somewhat larger amount of the federal IIP funds than would occur based on single demographic or economic criteria.

The amounts transferred to P/T Funds are net of commissions paid to ‘approved facilitators’

(financial institutions) that provide administrative services to transfer the investments to CIC.

Note that during the key informant interviews, the financial institutions stated that most INs borrowed money from those institutions to cover their five-year capital investments. The full interest costs to finance these loans are pre-paid by INs to the financial institutions when the loans are issued. Commissions on the pre-2010 $400,000 investment amount were $28,000 and

$40,000 on the post-2010 $800,000 investment amount. The P/T Funds repay the full amount to CIC at the end of the 5-year term, including commissions, which may be equated to the P/T Funds’ cost of borrowing the capital. This cost is equivalent to a compound interest rate of about 1.5% per annum for 5 years for the $400,000 investments and 1.1% per annum for the $800,000 investments. The P/T Funds would be expected to cover their cost of borrowing from returns earned on their investment activities.

The P/Ts IIP fund reports received by CIC showed that, of the $2.67B raised though the federal program, $2.483B of IN investment funds were transferred to participating P/T funds as 5-year loans after commissions have been deducted, with Ontario (41.9%) and British Columbia (14.3%) receiving the highest amounts (Table 5.8).

Table 5.8: Summary of federal IIP allocations of investment funds by province/territory, 2007-2011

Province/Territory Year began participating Investment funds allocated 2007-2011

Newfoundland & Labrador 2005 $233,531,721 9.4%

Prince Edward Island 2000 $198,867,196 8%

Nova Scotia* 2008 $186,182,196 7.5%

New Brunswick* 2010 $48,032,642 1.9%

Ontario 2000 $1,039,724,748 41.9 %

Manitoba 2004 $262,813,725 10.6%

Saskatchewan* 2010 $50,025,111 2%

British Columbia 2001 $365,820,161 14.3%

North West Territories* 2003 $106,973,240 4.4%

Total Allocations - $2,483,979,999 100%

*NOTE: The highlighted jurisdictions did not receive allocations in all 5 years considered (2007-2011).

Source: CIC NHQ-Immigration, 2013

The P/T reports on the use of the funds also showed that of the total amount transferred to P/Ts, only $751.8M was allocated to active investments for 5 years (such as business loans, infrastructure projects and venture capital funds). This represents approximately 30% of the total IN funds transferred to the P/T funds from 2007 to 2011. The balance of the capital is held in a combination of interest-earning investments (such as bonds) and cash equivalents to ensure liquidity for loan repayment to CIC by the P/T funds.

The share of funds that was actively invested increased over the years considered, never

exceeding a third of the amount being actively invested. A CIC analysis⁴³ has demonstrated that in 2008, only 11% of the total IIP capital was actively invested in economic development projects (6% in infrastructure projects and 5% in loans to SMEs), and that by 2011, 33% of the total IIP capital was actively invested (23% in infrastructure projects, 9% in loans/grants to SMEs and 1%

in venture capital projects).

Review of information submitted by the P/T funds to CIC on investments of IIP funds from 2007 to 2011 shows that the proportions invested in active investments vary across the provinces depending on their investment strategies. The share of funds that were actively invested is

strongly influenced by figures from Ontario (41.9%) since it received a major portion of the federal IIP funds, and the Ontario fund was not undertaking ‘active’ investments during the period from 2007 to 2011.

Based on data reported to CIC by the P/T funds, a total of 10,781 FTEs were created through these P/T fund investments.⁴⁴ However, as P/Ts did not submit reporting to the extent required under section 95 of the IRPR, it reduced the ability of the evaluation to explore the nature and type of positions created through the use of the funds.

43 CIC – NHQ Immigration, Provincial Use of Immigrant Investor Program (IIP) Funds, (internal working paper, provided April 4, 2013).

44 It was not possible for the evaluation to determine whether these jobs would have been created or not in the absence of the IIP.

As agreed to with P/Ts during consultations on the program design, the aim was for P/Ts to hold a balanced portfolio of both shorter term, more secure investments and direct, longer term investments in job creation activities.⁴⁵ The review showed that, over the period considered, this balance was not achieved. As there was a limited proportion of the P/T funds (30%) that was actively invested between 2007 and 2011, if more had been invested actively, the impact on the development of a strong and viable economy may have been greater.