Webinar Recap - Looking Ahead to 2021: Where Do We Go From Here?
Experts look at the road ahead for the US-Canada relationship, the prospects of a federal election, vaccine distribution, and Alberta’s economy
In 2020 we saw the pandemic transform the way we work, socialize and interact with others, accelerating our reliance on technology by perhaps a decade and transforming almost every sector of the economy.
As the McCarthy Tétrault’s Chief Client and Innovation Officer, Judith McKay takes the pulse of our clients’ evolving needs as we look forward to 2021 and identified the following as the three top areas of focus:
Understanding government priorities for the year ahead including the fine balance between protection of health and preserving jobs;
Getting the vaccine out quickly and keeping the flow of goods and services as well as talent across the border and internationally; and
Seizing opportunities ranging from enhancing their ESG performance to accelerated technology adoption and economic diversification.
These areas of focus animated a recent panel discussion between Judith McKay and three distinguished practitioners:
Paul Zed, Counsel and Strategic Advisor, McCarthy Tétrault, was Chairman of the President’s Advisory Board at Rogers, Chairman of the President’s Advisory Board at Cisco and was elected 3 times as an MP in Ottawa where he chaired several important government committees
Hartley Lefton, partner in McCarthy Tétrault’s Financial Services Group, including the Insurance and Reinsurance Group in Toronto. He is recognized as a leading transactional, commercial, governance and regulatory/compliance advisor to clients within the financial sector in Canada, including Fintech/Insurtech companies. Hartley is a member of our firm’s Government Law and Political Risk team.
John Osler, QC is a partner in our Business Law Group in Calgary, a member of our board of directors and the chair of the McCarthy Tétrault Foundation. John's practice focuses on mergers and acquisitions, securities and corporate law matters for senior issuers. He has represented many of Canada’s largest corporations in a variety of public and private transactions.
The discussion has been edited for brevity and clarity.
Judith: Following the American election, what policy shifts should our expect will have the greatest impact on US-Canada relations and international relations, for example, with China?
Paul: Canada and the United States share the largest undefended border in the world; more trade is done between the two than any other bilateral relationship in the world. Our interconnection is intricate and broad-based. Prime Minister Pierre Trudeau said it best on a visit to Washington in 1969 when he remarked that “Living next to you is in some ways like sleeping with an elephant. No matter how friendly and even-tempered is the beast, if I can call it that, one is affected by every twitch and grunt.” Indeed, we continue to be so affected.
I expect that the new Biden presidency will be a calming force on the relationship, with the Americans reclaiming their leadership role at international institutions like the G7 and generally being more empathetic towards Canada’s interests. That said, Biden’s proposed “Buy American” provisions in spending bills could hamper Canadian contractors’ access to US government procurement. The Trump administration’s protectionism is here to stay in some form, with disparate impacts on the ongoing softwood lumber dispute as well as for Canada’s trading relationship with China.
Ultimately, expect a thinning of border controls in 2021 as the two countries work together on vaccine distribution and privacy issues, including perhaps a new cyber-compact. Finally, although Biden has expressed opposition to the Keystone XL pipeline, a coalition of governors, senators and labour groups may yet get him to hold his nose and approve it, though they certainly have their work cut out for them.
Judith: The winds are certainly shifting in the US…here in our own country do you see an election happening any time soon and what do you see as the top campaign issues?
Paul: Governments are defeated, not necessarily elected. The primary question on the minds of Canadians during this pandemic is who is doing a good job keeping them safe and executing on the vaccine while keeping the economy going. Though a segment of the population always grows tired of any government, the real question is whether a big enough segment is tired enough. Because we are in a minority government, the Prime Minister is in a precarious position, under pressure in parliament not only from the opposition but also from his partners, the Bloc and the NDP. He has little room for maneuver and must deftly weigh every decision for its impact on the stability of his coalition. All the while, Conservative Leader Eric O’Toole is trying to overcome negative perceptions of the Conservative Party left over from the doctrinaire Reform Party that preceded it. He is a talented politician with a better chance at success than any of his recent predecessors.
In 2021, watch closely the Canada-China relationship, which will increasingly impact internal politics as well as the Canada-US relationship. There are pro- and anti-China ridings throughout Canada whose swings one way or another may have determinative electoral consequences.
Judith: A key factor our clients are keeping their eye on is on how effectively the vaccine will be distributed. What will be the key challenges on distributing vaccines in Canada and what solutions are being considered or underway?
Hartley: The approval of vaccines last week and their distribution is something that we are giving a lot of thought to as a firm – we have one of the first advisory groups in Canada dedicated to assisting clients with issues relating to the transition from COVID, through the vaccination process, and on to the move to what we all hope is normal.
Issues that we are thinking about include:
- Getting enough of the vaccine, to a country or region, as well as to a population
- Administration of the vaccine
- Moving the vaccine from a central location to local hubs and then to places where vaccines will be administered, such as hospitals, doctors’ offices, pharmacies, potentially workplaces
- As Paul alluded to, we are thinking about tracking who has received the vaccine and giving those people the equivalent of a green card – put differently, once I have been administered the vaccine, then how do I prove it?
- Employers and businesses are figuring out what reopening looks like in transition, including accommodating employees and customers who have not had the vaccine, or cannot take it because of issues relating to allergies for example, or do not want to take it yet, or do not want to take it at all
This is a massive global logistical effort. The best comparison that I can think of is the Y2K transition process in advance of the year 2000, but without the lead time, or established budgets.
On top of that, Canada is competing with governments around the world representing 8 billion people, each of which wants to get more vaccine to more of their people, faster.
These are some of the issues that we are thinking about and that our clients are asking us about.
Judith: Vaccine distribution likely marks the beginning of the end of the pandemic. With light at the end of the tunnel, what kind of recovery should our clients be expecting?
Hartley: COVID has been both a health crisis and a financial crisis and governments have been straddling the two over the past nine months. When the health piece takes on less importance through vaccine delivery and administration, governments will pivot away from keeping the financial lights on to the financial recovery and long-term investments to increase competitiveness. As an increasing share of the population gets vaccinated and infection rates drop, borders will reopen and restrictions will lift.
Judith, yours is a big question, but I want to give some highlights as to what we are thinking about. In Canada, we expect that stimulus will endure for some time, though it will continue to be targeted in such as way that it is drawn on by those who need it most. This thinking drives policy design. For example, governments will likely eschew corporate tax credits or other traditional levers such as accelerating depreciation, because non-profitable companies cannot benefit from a tax break. Instead, we expect perhaps a temporary payroll tax cut and investments in traditional infrastructure such as roads, bridges, sewers and of course subways. Do not ignore the public policy pressure for “green” climate-positive infrastructure – certainly, this would include carbon dioxide reduction, and also NOx and SOx. I expect that some the government support programs that we have gotten used to this year will stay in the current or revised form, and also that governments will make available lists of businesses that received financial support, similar to what happened in the United States.
We are also thinking about non-traditional stimulus solutions. That is, COVID has done so much damage to government balance sheets that governments will favour public policy solutions that yield infrastructure-like benefits – increased employment levels and tax revenue and so-called economic “multipliers” – but without governments necessarily writing the cheques that infrastructure usually requires. Fundamentally: how can the public sector inspire the private sector to engage in infrastructure-like activity – building plants or renovating buildings, preferably with a climate-positive impact, as I mentioned earlier?
Examples include tax credits and full or partial loan guarantees. The initiatives taken earlier this year by the Department of Finance and OSFI, the federal financial regulator, with respect to lender requirements provide a pathway to making this sort of policy and a sense of what the regulatory thinking could be.
Governments will also think about what they can do to help the recovery that will not cost money. Here, I am thinking of regulatory review or a so-called “red tape” review. COVID has made us question why certain regulations are on the books – for example, in Ontario why grocery deliveries could not be made 24 hours – and whether certain approval processes are necessary. The easiest example here is the accelerated timeline for approval of COVID vaccines – which is intended to be taken by nearly 100% of the population – relative to the approval process for other vaccines and therapies.
I expect a thorough review of regulations and outreach to industry. Saskatchewan is reviewing its corporate legislation on this point. In Ontario, there is a dedicated Minister of Red Tape Reduction whose job continues apace.
And the last trend I am watching for is government asset sales, or so-called asset recycling to sell certain assets in order to invest in other assets. his is a trend that began prior to COVID – for those of you in Ontario, the sale by the former Liberal government of a share of Hydro One and investment in public transit initiatives is an example of this.
Judith: Our clients will certainly need to keep their eye on government policy as the situation evolves, especially in Western Canada, particularly Alberta. The province has been dealing with not only from the pandemic, but from the massive challenges the oil and gas industry is facing. What opportunities might we see in Western Canada as we move into a post-pandemic world?
John: Like other parts of the country, the economic fallout in Alberta from the COVID 19 pandemic was probably less severe than expected. However, the Alberta economy was already suffering from the steep decline in oil prices. There is optimism that the recovery may be stronger than expected in 2021. That said, it isn’t clear whether Alberta’s fiscal capacity can recover to what it was, and if Alberta can return to its place as the engine of the Canadian economy. There are some reasons to be optimistic. Trans Mountain is being built and Enbridge’s Line 3 expansion looks to be proceeding. The West Texas Intermediate price for a barrel of oil, an industry benchmark, is at a 9‑month high. Recent consolidation in the industry and exciting mergers and acquisitions represent a big and renewed bet on the sector and confidence in its long term viability. Our investment banking friends tell us that money that has been long on the sidelines is returning to the sector, looking for opportunities in Alberta’s world-leading assets.
However, questions remain as to exactly how strong a recovery will be. Alberta also recognizes that it has to diversify its economy in a changing world. There are encouraging signs, such as a growing tech sector, agricultural innovations, and the development of and investments in hydrogen.
Politics remains a concern, with global sentiment increasingly unfavourable to the hydrocarbon industry due to climate change concerns and a widening gap among partisans on the issue.
Judith: What is the one thing you would advise our clients to think about as they gear up for 2021?
John: Employers need to think about their employees with a lot of empathy. We expected and received much from our employees in 2020 as we adapted to the COVID-19 environment, with these demands lasting longer than most would have expected. These demands will continue in 2021 as the economy recovers and business activity returns to more normal levels, something that could happen very quickly.
Judith: Thank you all for the insightful discussion; it has been a pleasure.