Economic Environment and Business mid Term Group

Case Report Submission

IMT Nagpur PGDM 2016-2018

January 30th 2017 Submission

Section C Group 3
Country: Canada Total pages: 4

Sr No. NAME Roll No

1 Aayushi Seth 201600109

2 Natasha Kapoor 201600213

3 Jyotirmoy Mondal 201611124

4 Rinku Kundu 201611317

5 G Sri Tejwaswani 201600201

6 Rohit Semwal 201601326

7 Nikunj Rallabhandi 201601308

 CORPORATE WELFARE ON BOMBARDIER-PUSHING CANADIAN ECONOMY

(BRIEF SUMMARY)
BACKGROUND

Canada being a mixed economy (more inclined towards market economy) adopts a market
oriented economic system combines private enterprise with government regulation. Its
inclination towards market economic policies has made it attractive and competitive location
to do business. Though policies favour growth and productivity but reality is something else.
Economist all across the globe is pointing towards the fact that Canadian economy is in a
verge of collapse sooner or later. Few key points to support the logic are

One factor is the countrys dependence on natural resources, which account for
roughly 20% of GDP. Recent price volatility in the oil and gas sector, in particular,
has weakened the economy. Canadas economy shrank for two consecutive quarters in
2015, putting the country officially into recession. Unemployment substantially crept
up to 7.2%
The sharp drop in oil prices in 2014 and 2015 also had a negative impact on
government finances, which threatened the previous ruling Conservative Partys
commitment to a balanced budget in the 2015 fiscal year. The Bank of Canadas
lending rate sits at 0.5%, which leaves little room for a further reduction to stimulate
growth in a country with heavily indebted consumers and some evidence of a housing
price bubble in major cities, especially Vancouver and Toronto.
Liberal Government lead by Justin Trudeau has increased the government spending
reached a record high at 350922 CAD in the second quarter of 2016.
Increased government spending lead to issue government bonds to central bank.
Therefore Bank of Canada took some decisions to increase the supply of narrow
money. Key steps taken were selling of entire Reserve gold. Increasing foreign
reserve. Lending Liberal government hugely which aims at creating jobs or rather
bringing back the jobs to Canada. Specially creating new projects in manufacturing
sector. Which will increase the productivity and increase income. Therefore mixed
effect lead to increase of M0 to all time high in November 2016 at 83861 million
CAD.
Increase in money supply is causing inflation to creep up at a substantial rate in
Canada. Central Bank is trying to take substantial step to keep inflation rate in
between 1% to 3%. They sold of all their gold reserve. Increased intangible assets like
 government bonds. Real Estate sector prices are growing up substantially. Private
loans related to housing sector has gone up immensely. It pressurizes the central bank
to give loans to commercial banks too.
Canadian economy is highly indebted. Its private debt ratio is one of the highest in the
world. Decreasing value of Canadian dollar in compared to its US counterpart, adds
up to further decrement of confidence investment in Canada. In such a situation if
Liberal Government need to stand up to its election promises of bringing back the
jobs to Canada. It need to go for expansionary fiscal policy by increasing Government
spending and influencing manufacturing sector to increase investment in Canada. That
is where BOMBARDIER comes into picture.

BOMBARDIER GIANT IN WORLD BUSINESS AND AN ANGEL TO CANADIAN

ECONOMY

Bombardier Inc. Is a Canadian multinational aerospace and transportation company. Starting

as a maker of snow machines or snowmobiles, over the years it has grown into a large
manufacturer of regional airliners, business jets, mass transportation equipment, recreational
equipment and a provider of financial services. Bombardier is a Fortune Global 500
conglomerate company.

Liberal Government is looking to manufacture C-Series passenger Jet on account of their

expansionary fiscal policy. On account of this Bombardier and the Quebec government have
reached a definitive agreement for the province to invest US$1 billion towards the C Series
passenger jet program.

The direct investment on Bombardier increased a buzz in the nation. Reasons are quite
interesting

Bombardier was in verge bankruptcy in 2015. Shares were falling all-time at low.

There have also been thousands of announced job cuts worldwide.

The company announced it would cut another 7,500 jobs, about 10 per cent of the
global work force of about 70,900. The number of aircraft development programs has
also been reduced.
 A $1-billion (U.S.) investment from the Quebec government, the $1.5-billion sale of a
30-per-cent stake in the rail division to the Caisse de dpt et placement du Qubec,
and other funding secured by the company helped to shore up the manufacturers cash
position

In simple terms a government is trying to invest its money by increasing its expenditure on a
company which need necessary oxygen from federal government for survival.

On defence Bombardier said that they like many technology and aerospace companies in

Canada, has benefited from government investment and it has helped Bombardier become
one of the worlds largest train and airplane manufacturers.

They claim that they had returned $733-million, 125 per cent of the original
investment, to its government investors.

Combining the direct program repayments and taxes paid, Bombardier has been the
source of almost $17-billion in government revenue, a very favourable return for the
total $1-billion combined investments including the C Series. The return is even
greater when one includes the billions of dollars of taxes paid by the thousands of
Canadian suppliers who support their activities.

The 93 per cent of Bombardiers consolidated revenue, and therefore its government
tax payments, are generated outside Canada. In other words, Bombardier injects
significant foreign money into the Canadian economy, which creates jobs and helps
to fund government spending programs.

Bombardier has proven to be a sound partner for governments and taxpayers.

Bombardier according to their report they said that they returned 129 per cent of a
$586-million investment by the federal, Quebec and Ontario governments.
Bombardier has actually returned 125 per cent of the investment.
In simple words they are actually dependent on business with Canadian government in
order to generate revenue.

Bombardier in past received US dollar 2.5 billion investment. New government further
investing 1 billion USD in the company. Government in simple terms bailing out bombardier.
When government was under scanner it said.

After investment Quebec Government now owns 49.5 per cent of a new limited
partnership of the C Series aircraft program, including larger versions of the plane
beyond the CS100 and CS300 should they be developed.
"These are good-quality jobs that pay 60 per cent above the average manufacturing
salary," Navdeep Bains, the honourable innovation minister of Canada said. "We want
good-quality jobs here in Canada. We want to focus on research and development and
we want to set up the company for long-term success.

Opinion polls across the across various social networking sites over nation opposed the
decision furiously since

When the economy is moving towards a long term recession, prices are going up in
daily basis. Economy is in verge of collapse. People of the nation would like
government to act sensibly.
Increase in job means, increase in productivity but this effects will be seen only in
long term. Presently to create a good quality job, government need not to invest huge
lump sum on a bankrupted company which makes no sense.
Its pushing economy in a worse situation, by investing a huge sum of money in a
particular company, government is paying off the opportunity cost since it will not be
able to invest substantial amount on other sectors of the economy. It will affect badly,
to the struggling GDP of Canada.

According to common people of Canada this is not any kind of joint venture between
Federal Government of Canada and Bombardier Inc. Its just a corporate welfare, a
straight forward investment to increase its expenditure to create jobs in Canada in long
term by paying the cost in form of sluggish economy.