Municipality Of Chatham-Kent

Chief Administrative Office

Economic Development Services

Information Report

To: Mayor and Members of Council

From: Michael Burton, Director, Business Attraction & Government Relations

Date: June 8, 2018

Subject: Foreign Direct Travel 2011-2017 – Return on Investment ______________________________________________________________________

This report is for the information of Council.

Background

At the May 14, 2018 Council meeting, Councilor Sulman requested a report from administration on travel expenses and the return of investment of Foreign Direct investment sales/trade missions.

Comments

Business Attraction Strategy

While Economic Development Services (EcDev) has expended considerable effort

focused on the Canadian market for business attraction, this report will outline the

strategy and costs associated with attracting business investment from off-shore

prospects and efforts throughout the USA to facilitate job creation for the community.

A key element of the strategy also includes assisting local manufacturers, food

processors and service companies to promote their products in new international

markets. The EcDev effort creates awareness of Chatham-Kent (CK) and introduces

investors to advantages and assets available in Chatham-Kent to promote consideration

of locating in the community.

International site selectors are another target group for the strategy. Many companies

engage site selectors to search out appropriate locations for operations expansion.

EcDev has been active in introducing CK to site selectors in both the USA and Europe.

Awareness of our unique assets is key to get site selectors’ consideration when they are

engaged in a project. EcDev works with Invest Ontario on both international and site

selector files to ensure they are aware of the “CK story”. Whenever possible, EcDev

Foreign Direct Travel 2011-2017 – Return on Investment 2

staff have coordinated attraction efforts with the Province in order to leverage their

activities and to attract as many potential investors to an event or trade show as

possible.

At the end of the day, the investor decides where to locate. EcDev can only control

activities design to ensure that investors are aware of the benefits of locating in CK and

that the Municipality will welcome their operation.

EcDev and the Mayor’s office work closely in collaboration with the Province of

Ontario’s Ministerial levels to maximize impact and to leverage their assistance to

attract new business.

The goals of the EcDev business attraction effort is to provide:

Sustainable future assessment growth;

Job creation;

Assistance to local business to explore new markets;

Attraction of senior government funding for companies.

During the period 2011 – 2017 the sectors targeted for business attraction included:

Advanced manufacturing;

Food processing;

Greenhouse supply chain;

International education;

Fertilizer production.

Fertilizer Production

This was a major opportunity pursued with a number of investor groups from China,

Egypt, India, Canada and the USA. Each file involved serious industry players looking to

expand operations in North America. Chatham-Kent staff in collaboration with Union

Gas pursued these Chinese prospects on two sales missions. There were two assets

that made Chatham-Kent attractive for this investment. One was Chatham-Kent’s

geographic location and ready access to the US’s mid-west via rail. The second was the

Dawn Hub, which provides transparent gas trading and a reliable supply of natural gas.

A fair question is “what went wrong?” As reported to Council in September 2017, three

factors impacted our efforts negatively. The first was a major drop in urea pricing in

2016 in the US market. The second, albeit less critical to producers, was the need to

amend the community’s Official Plan to allow chemical production.

This amendment/change required at least one year in terms of timing and approximately

$1 million investment from Chatham-Kent along with the support of the local property

owners. The property owners adjacent to the rail line indicated they were not prepared

to sell their properties. Administration determined that the $1 million investment would

Foreign Direct Travel 2011-2017 – Return on Investment 3

only be justified if there were firm commitments from an investor /producer and there

was an interest from the property owners to sell their property.

Geographic Strategy

Over the past seven years we have focused attraction efforts in Asia, specifically China

and India, in Europe with a focus primarily in Germany and in the US. In consultation

with investment attraction staff at the provincial level, these areas were considered most

productive and potentially the best regions to attract investors. These areas allowed CK

to leverage the promotion and trade show activity funded by the Province.

Policy and Criteria for Chatham-Kent Missions

As previously reported to Council, there are a number of different objectives related to

overseas efforts.

EcDev in conjunction with the Mayor’s Office are responsible for the planning,

coordination and execution of trade missions abroad led by elected officials and senior

EcDev departmental staff on behalf of Chatham-Kent. In developing plans for specific

trade missions, EcDev liaises with internal stakeholders within the Municipality such as

the Mayor’s Office and the Executive Management Team. Business community

stakeholders are included in planning missions abroad. Generally, all Chatham-Kent

businesses are welcome to participate in municipally sponsored and organized trade

missions if they are deemed to enhance the potential of attaining the mission’s

objectives.

Specific Purpose of International Business Meetings

In addition to prospecting trade missions, EcDev staff participates with business

partners on confidential, international business trips. These business trips differ from

trade missions as they are planned in conjunction with a business partner to address a

specific project or opportunity with an international partner. In most cases, these

discussions are covered by confidentiality covenants that restrict the participants

involved. Unless requested by the business partner, invitations to participate on these

business trips will not be sent out to the Chatham-Kent business community.

Senior Government Sponsored Missions

Both the Provincial and Federal governments sponsor sector specific trade shows and

missions abroad. Advice is gleaned from senior government departments and agencies

to clearly understand the mission objectives and fit with the interests of local companies.

Chatham-Kent EcDev staff will invite local companies to participate based upon the

criteria specified by the government involved. When appropriate to encourage

participation by C-K business, EcDev may participate on a cooperative basis with local

companies to participate. These missions generally have new export market oriented

objectives.

Foreign Direct Travel 2011-2017 – Return on Investment 4

Foreign Business Attraction Results

Investor Delegations

There has been considerable success in attracting investors from China. Chatham-Kent

has hosted 18 investor delegations from China, 1 from Egypt, 1 from Korea, and I from

Peru. In addition, there was a Media Introduction Tour from the US. In a number of

cases, there were 10 to 15 company employees on the visits. Considering the expense

of the visits for the companies involved, these delegation visits were a criteria to gage

their level of seriousness and interest. In a number of instances, they made multiple

visits to Chatham-Kent. We also received an investor delegation from Peru. Several

members of Council were invited to meet company executives in either social settings

or business meetings to support the attraction effort.

There have been MOU’s signed with Chinese companies for heavy machinery

manufacturing, international education, urea production and rubber products

manufacturing.

Current Open Files

At any given time, EcDev has had up to 20 active foreign direct investment files opened.

As an example the current files include:

An Automotive Innovation and Research Centre - Chinese auto investors

An International Food Innovation, Processing and Distribution Centre –

Canadian, Chinese and Peruvian investors

A major automotive parts supplier – Portugal

A major commercial development – US investors

Electronics and Refrigeration Project – Italian investor

Agriculture Structures Project - India

Results

New business attraction:

Secured Krinner GmbH investment from Germany, which currently has 21

employees manufacturing ground screws.

Secured an international school that has purchased property in Wallaceburg with

a planned international student residence. The school is projecting 10 new jobs.

Secured investment in a greenhouse supply chain and maintenance company

from the Netherlands with projected employment to average 20 new jobs along

with seasonal ramp-up to 50.

A consortium of companies out of Peru have visited Chatham-Kent to explore the

establishment of a Global Food Processing and Distribution Centre with the

potential importation of bulk food from Peru for North American markets and the

Foreign Direct Travel 2011-2017 – Return on Investment 5

export of Chatham-Kent grown food for South American markets. We are

seeking seed money from the Province and private investors to launch this

initiative. An investor is planning a trip in late June to continue investment

discussions, which began in China.

Due to a relationship developed during our FDI attraction efforts in both China

and India, we have been successful in attracting investors that purchased two

local companies that were in danger of closing. These investments resulted in

saving 200 jobs, i.e. 100 jobs in each company. Both companies are projecting

growth in terms of hiring more employees.

Local Company Foreign Market Development

As noted earlier in this report, new market expansion for local CK companies has also

been a focus of the FDI strategy. We have participated with eight local companies on

missions to both China and Europe. This group included Union Gas; Dajcor; KSR

International; Aarkel; Sinteris; GWS Tube; Lambton Conveyor and Scribendi. This

market development effort assisted a local service company to expand their Chinese

footprint. Local automotive parts companies also acquired a number of new contracts as

a direct result of the European trade missions.

Challenges

International marketing whether it is to promote a city or a product is subject to

developments in countries, which is well beyond the control of the parties either

investing or trying to attract new business from a particular country. It takes many years

for these investment decisions to reach a positive conclusion. Over that period

government policy changes. These policy developments may be trade barriers,

currency restrictions, tariffs, etc. As you are well aware, business does not like

uncertainty. This is especially true when considering a major investment in new

operations. Two such developments impacted our FDI results beginning in late 2016.

Currency Restrictions

The first was a decision by the Government of China to introduce foreign currency

restrictions overnight. The Chinese government approves all foreign currency

investments by private companies. Private companies were not able to get approval to

invest abroad. This put an immediate halt on the discussions with our Chinese

prospects.

It is noteworthy that of the companies we were working with, only one has since made

an investment in a competing jurisdiction. The one exception was the government–

owned national railcar company, which was looking at CK and a number of competing

locations in Canada. That company did proceed with Chinese Central Government

approval and did make an investment in New Brunswick for railcar manufacturing.

Foreign Direct Travel 2011-2017 – Return on Investment 6

North American Free Trade Agreement

The second development was the insistence by the Trump Administration to renegotiate

the North American Free Trade Agreement. Investors look to Canada as a base of

operations to enter the US market. Every file and discussion with investors over the

years has had the US market objective as the main attraction. Now that the Free Trade

Agreement is uncertain, investors will wait the outcome of those negotiations before

moving forward.

Consultation

No other departments were consulted in the preparation of this report.

Financial Implications

The following is a summary of the FDI expenses.

FDI Expenses 2011 to Present:

Mayor’s Expenses (Attachment A):

Expenditure Total Amount

Transportation $43,274.52

Accommodations $23,518.44

Meals $4,321.00

Translation/Translators $11,628.99

Meeting Qualification Consultants $25,799.60

Delegation Visit Gifts $3,826.35

Other $9,579.32

Total $121,948.22

Average Mayor’s Annual Cost: $ 17,421.17

Foreign Direct Travel 2011-2017 – Return on Investment 7

Economic Development Staff Expenses (Attachment A):

Expenditure Total Amount

Transportation $103,063.44

Accommodations $76,949.02

Meals $14,180.57

Translation/Translators $17,153.82

Meeting Qualification Consultants $67,807.66

Delegation Visit Gifts $6,548.41

Other $30,629.89

Total $316,332.81

Average Economic Development Annual Cost: $ 45,190.40

Total Foreign Direct Investment Travel Expenses $ 438,281.03

Total Foreign Direct Investment Advertising $ 38,748.82

Total Delegation Hosting Expenses $ 155,933.89

Total Foreign Direct Investment Expenditures $ 632,963.74

Less Federal Funding Received (2013-2017) - $ 126,009.87

Net Foreign Direct Investment Costs $ 506,953.87

Total Average Annual FDI Expense $ 72,421.98

Appendix A includes the detailed travel expenses for Foreign Direct Investment for the

period 2011 to 2017.

The Foreign Direct Investment activities outlined in this report have resulted in several

economic benefits. Commercial tax revenues increased by approximately $250,000 in

2017. In total, 271 jobs were either created or saved as a result of these investments.

Additional indirect jobs were created through the economic stimulus of the 271

employees purchasing products and services.

Foreign Direct Travel 2011-2017 – Return on Investment 8

The additional direct and indirect jobs can reasonably be expected to benefit the

Municipality of Chatham-Kent by generating additional residential property taxes. It was

beyond the scope of this report to project the exact increase in residential taxes that

resulted from these jobs. The estimated additional tax revenue from the 271 new jobs

alone is over $700,000 per year.

Estimated increase in property taxes:

The CK Workforce Planning surveys reports 94.4% of our workforce lives in CK.

Average residential property tax in CK is $2,828 per year.

271 jobs * 94.4% workers living in CK * $2,828 av. property tax = $723,470/year

In short, the Foreign Direct Investment activities over the period 2011 to 2017 has

resulted in a positive contribution to our economy.

Prepared by: Reviewed by:

____________________________ __________________________ Michael Burton Don Shropshire Director, Business Attraction and Chief Administrative Office Government Relations

Attachment: Attachment A: Foreign Direct Investment Travel

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