Little Canada

Canada has always had a suspicious attitude towards foreign investment; understandable, perhaps, in a country that shares "the world's longest undefended border" with the United States. Back in the 1970s, all incoming foreign direct investment was subject to scrutiny by an agency known as FIRA, the Foreign Investment Review Agency (though it often seemed as if the "R" stood for "Rejection").

FIRA is long gone, but large swathes of the Canadian economy remain off-limits to foreigners: the banking sector, for example. Now there are plenty of signs that the spirit of FIRA is stalking the land again. Last year a takeover bid for Potash Corp by BHP Billiton was inderdicted by the government on national interest grounds. Currently a merger proposal between the London Stock Exchange and Canada's leading exchange, TMX (basically the Toronto and Montreal exchanges) looks likely to be gazumped by a hastily cobbled together rival bid fronted by Canadian pension funds and banks.

The argument being advanced against the LSE-TMX deal is that it would dilute the Toronto exchange's supposed expertise in mining financing, an argument that looks downright ludicrous in light of this week's flotation of Glencore on the London exchange. The fact is that the counter-offer is nakedly nationalistic, right down to the name of the special purpose company put together to launch the bid: Maple Group.

While the nationalist tide has been building at home, Canadian firms have been enthusiastically and without hindrance snapping up foreign assets. Canadian banks have been expanding at amazing speed in the US, even though US banks would never be allowed to do the same in Canada. My own former employer now has more branches in the US than in Canada, and remains in acquisitive mode. Here in the UK, Canadian money has focused on infrastructure assets: the high-speed rail line from London to Kent, for example, is now owned by a Canadian pension fund. (It's not as if this brings any synergies in the way that the LSE-TMX or BHP-Potash deals would ondoubtedly have done. In terms of modern railway expertise, Canada ranks second to just about everyone).

It's all very anachronistic. What's all the more surprising is that it's taking place under the supposedly pro-market Harper government. FIRA was eventually abolished because it turned out to be counter-productive and frankly embarrassing, but right now, leaving aside a few snarky editorials in the UK business press, nobody outside Canada seems to be paying a lot of attention.

UPDATE, May 21: No sooner was the above piece posted than the TMX announced it was rejecting the Maple Group bid and pressing ahead with the LSE merger. It cited potential regulatory concerns as the main reason for its decision. The flag-waving and politicking should get REALLY interesting now.