Investing in Canada’s Future

Programs for Immigrant Investors

With 1.8 percent GDP growth, Canada was one of the ten best countries in which to do business in 2013, according to a recent issue of Forbes Magazine. Doing business in a globally competitive world requires a constant refinement of strategies, initiatives and programs to ensure that we remain in the forefront as a nation – and that we’re on the leading edge of continued economic growth and prosperity.

One of the determinants of how well this country moves forward rests on our ability to attract the best in foreign investors – those eager to assimilate into the flourishing dynamics of this country’s future.

“The Government of Canada recognizes the important contribution of immigrant investors in terms of job creation and economic growth,” states Remi Lariviere, Media Relations, Citizenship and Immigration Canada. “However, Canada is in a position to be selective. Immigrant investors are eager to come here. The best thing we can do for our reputation is making sure our programs are designed in such a way that Canada and Canadians are getting the maximum benefit.”

One of those programs to which Remi refers is the Federal Immigrant Investor Program (FIIP). In 2012, 3.6 percent of all immigrants to Canada applied to the FIIP, one of the most renowned Immigrant Investor Programs worldwide. Initiated in 1985, the FIIP is one of Canada’s two Immigrant Investor Programs created to encourage immigrant investors to consider Canada as the place to do business while gaining permanent resident status for themselves and their families.

The nation’s other Immigrant Investor Program is the Quebec Immigrant Investor Program, QCIIP, initiated by the provincial government in 1986. Although the selection criteria are similar under both programs, the Quebec Program operates independently of the FIIP.

The need for improvement

Gradual qualification changes have been made for FIIP applicants since its inception. Up until 2010, a $C400 000 investment and a personal net worth of $C800 000, obtained legally, was one of the requirements. In 2010, the investment requirements were doubled to $C800 000 and $C1.6 million respectively; these amounts are the same under the QCIIP. Additionally, for both programs, the applicant must meet security and health requirements and demonstrate at least two years of business management experience.

Under the FIIP, an investor’s investment of $C800 000 is allocated, by Citizenship and Immigration Canada (CIC), between the eight provinces agreeing to participate in the program. The provinces participating include British Columbia, Saskatchewan, Manitoba, Ontario, New Brunswick, Prince Edward Island, Newfoundland and Labrador and Nova Scotia. Each province decides on funds allocation for a five year period whereupon the money is returned to the investor, interest free.

“By joining the program, each province is guaranteed a share of monthly allocations of immigrant investor funds,” Remi explains. “Each participating jurisdiction uses the FIIP allocations they receive in different ways to meet various provincial objectives.” Remi notes that some of the funds are used to support SME business development, infrastructure projects and venture capital initiatives.

In July 2012, Citizenship and Immigration Canada placed a moratorium on the FIIP to enable the processing of the severe current backlog of applications (at least 15,000) and to review the program. It’s been determined that it could take upwards of 10 years or more to process all current applications.

“This pause on new applications will continue until further notice,” explains Remi. “It will not affect annual admissions under this program as admissions are set in the Annual Immigration Levels Plan and CIC has a sufficient number of applications in our existing inventory to meet current and future targets.”

Speaking about the future of the FIIP, Remi shares that since April 2012, Citizenship and Immigration Canada has been consulting with provinces, territories and stakeholders on ways that the FIIP can be reformed, “in order to maximize the economic benefit to Canada.” These discussions are ongoing to determine ways that future backlogs may be eradicated to “ensure the future effectiveness of the program.”

First of its kind

Remi also discussed another recently launched program that is generating huge interest worldwide. Canada’s Start-Up Visa Program is the first of its kind in the world meant to attract the best entrepreneurs who will establish businesses to support innovation, contribute to economic growth and create jobs. The program began accepting applications on April 1, 2013, and as a pilot program will run for a five year period. There is a cap of no more than 2,750 applications per year.

“The focus of the Start-Up Visa Program is on the quality of the applications, not the quantity,” Remi explains. “The Start-Up Visa Program provides Canadian private sector organizations with access to a broad range of entrepreneurs – including the world’s best and brightest – in whose ideas they may wish to invest.”

In order to apply for the Start-Up Visa a foreign entrepreneur’s business venture must be supported by a designated organization. This organization will evaluate a business proposal in terms of viability and growth potential. Evaluation criteria are dependent upon the designated organization participating in the program. These organizations include angel investor groups, venture capital funds and business incubators or accelerators.

An applicant is not required to invest their own money. The minimum investment will come from either the angel investor or the venture capital fund; amounts of $C75 000 or $C200 000 respectively. For the Business Incubator stream, an application may consist of a team of up to five entrepreneurial partners, all of whom must hold 10 percent of voting rights and be active members of the venture team. Again, no securing of an investment is required through the business incubator stream although acceptance into a business incubator program is the criterion.

As part of the Start-Up Visa Program, the Business Incubator stream, which began accepting applications in October 2013, has four requirements including:
• a commitment from a designated business incubator program
• an ability to communicate in either English or French
• completion of at least one year of study at a post-secondary institution and
• sufficient funds to cover living expenses prior to earning an income

“The new Business Incubator stream will complement existing venture capital and angel investor streams,” relates Remi. “It will attract early-stage and high growth businesses and entrepreneurs who can contribute to a culture of innovation and commercialization in Canada.” Linking immigrant entrepreneurs with private sector organizations experienced in start-ups is important, he stresses. “Newcomers often require assistance to successfully navigate the Canadian business environment.”

Ensuring global competitiveness

Remi acknowledges that there’s no guarantee that every business venture will succeed. However, the Start-Up Visa Program is designed so that risk is shared between the public and private sector. “Generally speaking, private sector organizations will not invest in individuals that they think will fail. At the same time, CIC officers will work to ensure that foreign entrepreneurs meet the necessary criteria to succeed as permanent residents,” he adds.

Remi emphasizes that, “The Government of Canada hopes to attract innovative entrepreneurs who have the potential to build dynamic companies that will create jobs in the Canadian labour market and compete on a global level.”

Refining solutions to promote foreign investment

Sharing his feedback on both the Federal and Quebec Immigrant Investor Programs, immigration lawyer David Cohen of Campbell Cohen Canada Immigration Law Firm, Montreal, indicates that, “To me there were always two aspects to the program. It was a nice influx of capital because the $800 000 went to the provincial economy… [aside from Quebec], the provinces would write a promissory note to the applicant saying that at the end of five years, the money would be returned. The province would have that money to use for a five year period.”

Under the Quebec Immigrant Investor Program, the province makes good use of the $C800 000 investment by lending it, at below market rates, to small and medium sized businesses that help create employment, relates David. To him, it’s a system that works, whether passive or active, unlike the other eight provinces participating in the federal program.

The other provinces were essentially holding on to the money and returning it, minus interest, after five years, rather than providing funding for various provincial programs, contends David. “The accountability was part of the problem with the program. It was left to the provinces’ own devices to decide what to do with that money… my understanding is that the federal government was dissatisfied that the provinces weren’t using this money in a way that benefited the province.”

Another issue facing the Federal Investor Program was that some perceived it as a venue through which rich immigrant investors could essentially buy their way into Canada – not the premise of what the program was meant to achieve. The Program’s objective was to attract immigrant investors with not only the investment requirements but the business management experience to start businesses in their home country or initiate business and work in this country. “The optics weren’t great,” says David. “You would have people in parliament saying, ‘What is this? If you’re rich you can come to the head of the line in Canada, whereas if you have good skills or a genuine asylum case you’ve got to languish at the back.’ Often the principal applicant was not in fact coming to Canada but was using [the application] as an insurance policy that if they ever needed to come to Canada, they would have a permanent resident visa.”

A big issue with the Federal Immigrant Investor Program is the long waiting time for applicant processing, one of the reasons for a moratorium. The backlog of thousands of applications could take years to process. This could mean that foreign investors will seek out other countries in which to invest such as the U.S., which has its own Immigrant Investor Program. “There is competition,” says David. “For US$500 000 you can go in to a U.S. program. There’s risk associated. You could lose your money, but they process you within a year.”

David believes that a moratorium on the Federal Immigrant Investor Program suggests that, “This government is not enamoured of that particular program… they’re certainly not in any rush to bring something back that is similar to this type of program. Frankly, I’m not sure why.” He suggests that a Federal Program modelled after the Quebec Program where there is accountability as to how an investment is used is “probably a better driver of jobs and the economy in general.”

Reflecting on immigrant investors’ role in driving Canada’s economy forward, especially with an aging population and rising health care costs, David suggests that, “Generally these [investors] add something to the Canadian economy. Will it be enough to offset the aging factor? No, I don’t think that will ever be. That’s either going to have to come from a higher birth rate in Canada or importing, if you will, more taxpayers. That’s the only thing that’s going to make that progression in to 2030 and 2050.”