22 MARCH 1957, Page 29



A CITY invitation to see a colour

film on the laying of the gas trunk

Zei;, pipeline in British Columbia re- minds me that a comment on the in- creasing flow of investment funds to Canada is overdue. Each time that some quarrelsome section of British industry is paralysed by an unnecessary strike, the British investor looks longingly at Canada. Surely, he says, it is far better to receive a 24 per cent. to 3 per cent. yield on a dollar equity, which grows in non-taxable capital value, than a 5 per cent. to 6 per cent. yield on a British industrial which sooner or laters runs into trouble. That an increasing number of people are coming to, that proper conclusion is suggested by the lift in the investment dollar premium, which rose even when sterling was improving and is now 8/ per cent. But to make matters awkward for the investor the Canadian dollar is now at a premium of over 41 per cent. on the American dollar. This is extraordinary enough seeing that the deficit on the Canadian trade account last year (after a 20 per cent. rise in imports) reached the unprecedented total of nearly $1,400 million. A great flood of American capital poured in to fill the trade gap. Is there anything alarming in all this for the British investor?

Certainly it would be dangerous if Canada tried to maintain the incredible pace of her 1956 in- crease in investment and imports. Capital spend- ing last year at $7,900 million was 24 per cent. higher than in 1955: it comprised no less than 26i per cent. of the gross national product. No other country put so much into investment. That this overstrained the economy is clear from the fact that of this 24 per cent. money increase 7 per cent. was due to a rise in prices. Wage earnings over the twelve months rose by 11} per cent.— half the increase being due to greater employ- ment, half to higher wage rates. There was a 5 per cent. rise in the labour force—a rise which cannot be maintained this year in spite of the heavy immigration. It is therefore not surprising that Canada is now planning—with a tight money policy—a much slower advance in 1957. The new capital investment programme is estimated at $8,500 million—an increase of 8 per cent. or, allowing for the rise in prices, a physical increase of only 6 per cent. This involves a physical reduc- tion of no less than 22 per cent. in housing against an increase of 15 per cent, in `other' construction and 10 per cent. on machinery and equipment. On balance the new investment programme makes only moderate demands on construction materials and labour. On the whole Canada is wisely slowing

down for a time the pace of her expansion in order to check inflationary developments. * *

The long-term future is as rosy as ever. The much-travelled Royal Commission, under the chairmanship of Mr. Walter Lockhart Gordon, which was appointed eighteen months ago to inquire into the long-term prospects of the Canadian economy, recently issued a preliminary report which will warm the hearts of the 'bulls.' On the basis of an assumed net immigration of 75,000 a year the Commission estimates a popula- tion of 26.6 million by 1980—an increase of 70 per cent. over 1955 or 2.8 per cent. per annum. It projects over this period an increase of about 200 per cent. in the gross national product as compared with 1955, of .100 per cent. in the out- put of newsprint, of 400 per cent. in the value of aluminium production, of 300 per cent. in iron ore, of 100 per cent. in copper and in nickel, of 900 per cent. in oil, and of 1,400 per cent. in natural gas. The estimates for the phenomenal increases in oil and natural gas will explain the rush of investors into these equity groups. The potential oil output in 1980 is expected to be 75 per cent. to 100 per cent. more, and the potential output of natural gas 50 per cent. more, than the anticipated domestic requirements. If the result- ing exports are realised on this scale the net export surplus in oil and gas alone by 1980 will be over $1,000 million a year—which means that the present import surpluses need not occasion alarm.

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The Commission does not appear to be worried by the increasing use of foreign resources in financing Canadian growth. By 1980 it thinks that Canada may be a net exporter of capital—thanks to the relatively greater increase in exports than in imports. Canada needs today, it says, not only foreign capital but foreign technology and skills. It could not develop its oilfields without American help or its iron ore in Labrador without the aid of the American steel companies. The capitalist in Canada is obviously going to have a square deal. This understanding undoubtedly encourages the foreign investor to put his capital into Canadian companies with absolute confidence. I think the British investor is therefore fully justi- fied in having a large part of his fund in Canadian equities and in spite of the irritating premium on the Canadian dollar, which may last some time, an investment today in the leading equities in the oil, gas, mining and utility industries (includ- ing banks) will be fully justified on the long term. But I would avoid the secondary industries for the time being.