State-owned and other public financing bodies are important in supporting corporations in research and development, in innovation, and in financing exports to the global markets. This is true for all developed countries. In western countries it is essential to produce high value-added products because low-income countries are more cost-efficient places to produce high volume mass-market products. This requires a healthy, highly-educated workforce and cost efficient, well managed companies that can rely on a well-functioning infrastructure for transport, energy and security.
When comparing Nordic public financiers to our peer competitors it is essential to be careful to recognize that our competitors may have a comparative advantage by being better organized that us. We cannot be lax in making such comparisons because it takes years to establish such entities, and then have them up and running in a smooth and effective manner. Significant losses of market share can be lost overnight with little chance of a swift recovery if ministers and civil servants do not react proactively.
One only must look at the United Kingdom where the Green Investment Bank was created to develop green infrastructure with ambitious plans some 15 years ago. A change to a neo-liberal government saw the quick sale to a private Australian bank at a low price killed off all hopes of new infrastructure projects. The Brits are now talking about setting up the same bank again!
In 1989, the Swedes merged their own Sveriges Investeringsbank AB, (established in 1967 to finance big public infrastructure) into PKBanken. This is now part of a private bank called Nordea and hey have little interest in such projects except to maximise their profits for shareholders at the expense of taxpayers.
The Finns, Norwegians and the Danes also have no infrastructure banks, other than the municipal banks in each country, and that includes Sweden. The municipalities have a significant role in building and maintaining infrastructure and the system has worked well in a cost efficient manner.
State-run infrastructure in all of the Nordic countries has had a messy history with various ministries trying their best to make investments without much success. All four countries need to have a centralised centre or body to mange these investments in infrastructure because knowledge and skills must always be centralised to get the best results. Ad hoc committees and working groups across ministries for individual projects seldom work well.
The Canadians have not wasted time with stop/go solutions – they have been systematic and inclusive in how they have been planning export and infrastructure solutions. The Canadian government is enterprising – they have developed a strong export financing body called Export Development Canada (EDC) and more recently in 2017 they have established the Canadian Infrastructure Bank (CIB).
EDC was established 75 years ago and now has a broad mandate to support Canadian companies and exporters which includes both equity and loan investment services for large and small companies. They have some 20 offices in many countries and an excellent reputation as a proactive partner with other financial institutions in the private and public sector around the world.
EDC has a somewhat wider mandate than the Nordic Export Credit Agencies. The closest entity to them is Finnvera followed by the Danish, Norwegian and Swedish export credit agencies – EKF, Eksportktreditt and Swedish Export Credit.
The CIB is a newly created bank (established by law in 2017) owned by the state and under the control of the Ministry of Finance. It focuses on five sectors: green infrastructure, clean power, public transit, trade and transportation and broadband infrastructure.
CIB is committed to expand infrastructure in Canada by engaging I collaboration with federal, provincial, territorial and municipal governments which are the public sector sponsors and asset owners for infrastructure across the country. The CIB attracts and leverages private sector and institutional investment in revenue-generating infrastructure projects that are in the public interest, and help to achieve public sector priorities. Each province and territory have their own financing bodies that operate in the same manner as the Nordic Municipal Banks.
The CIB has three main functions as a centre of expertise: Advisory, Investments, and Knowledge and Research:
- The Advisory function supports governments in assessing the suitability of potential projects, and will foster awareness and education about innovative financing models.
- The Investment function structures proposals, undertakes due diligence, manages risk transfer, negotiates agreements and supports project delivery as appropriate.
- The Knowledge and Research function will report on relevant data to improve analysis and inform investment decision-making.
CIB can best be described as a center of knowledge that ensures that major projects are planned and managed using best practices.
Concentration of market knowledge and skills with good people are essential in these types of activities. This cannot be done on a shoestring nor can it be done if there are too many small players spread across the country. The Canadian experience is worthy of careful study and worth emulating, especially at a time when banks are more concerned about maximizing short term profits rather than long term benefits for exporters and society. Naturally every banker and fund manager will express their deep interest to finance infrastructure and exports, but they all want the public sector to be on the hook providing guarantees or other security to reduce their risks at costs that are well above what the public sector can arrange. It is also worth recalling that the private sector has no monopoly on efficiency. Just consider the enormous costs these last decades of banking failures and bank recovery programs borne by taxpayers across the western world.