Canada: After COVID-19: How Will The Government’s New Focus On National Security Affect Canadian Business?

In a new essay, our partners Shawn Neylan and Marc Barbeau examine one key factor that could change the world of business after COVID: an intensified governmental focus on national security. In the Canadian setting, they write, this is likely to involve a shift in industrial and economic policy to incentivize investment in critical sectors such as health, as well as placing renewed attention on the potential impact of foreign investment on Canada’s ability to respond to future crises.

Executive Summary

The discussion is organized around three related topics:

  • Preparation for future national security crises;
  • Impacts on critical infrastructure sectors; and
  • Implications for M&A transactions and financings.

The authors’ consideration of these issues, as outlined below, leads to the conclusion that Canadian business is likely to be profoundly affected by the social need for improved crisis preparedness, not only with respect to pandemics and other health issues but also potentially in areas as diverse as national defence and energy security.

Preparation for future national security crises

Businesses will be looking for new opportunities that will inevitably arise from concerted governmental efforts to prepare for future crises. Examples discussed in the essay include health care and national defence procurement, as well as improvements in business continuity logistics to mitigate the effects of future emergencies.

Impacts on critical infrastructure sectors

As the authors note, at least six of the ten critical infrastructure sectors identified in the 2009 National Strategy for Critical Infrastructure are already being significantly affected by the pandemic. These sectors, and some of the related issues that are examined in the essay, include the following:

  • The health sector will see renewed focus on preparedness developed out of the extraordinary efforts of health professionals in responding to the crisis;
  • In finance and energy, greatly increased governmental expenditures and the devastating impacts on the energy sectors are likely to lead to reconsideration of the importance of facilitating oil exports;
  • Greater self-sufficiency in the food sector will undoubtedly be a major policy theme post-COVID, with particular attention to domestic and global supply-chain security;
  • The importance of transportation infrastructure and logistics in mitigating the effects of a crisis, particularly in an online environment, has never been so apparent and will almost certainly be a focus of government attention; and
  • A resurgence of domestic manufacturing is likely to be a key target of post-pandemic governmental industrial policy, as there is limited capacity to respond to emergencies without the facilities to manufacture needed goods and medicines that may be unobtainable on a timely basis from international suppliers in times of crisis.

Implications for M&A transactions and financings

The essay looks at some of the effects that the growing emphasis on national security may have on transactions and financings. One key consideration is the possibility that, as more Canadian businesses become part of health care sector supply or other critical infrastructure supply chains, the national security review process under the Investment Canada Act may create unanticipated limitations on the pool of potential buyers for those businesses. As the authors discuss, this may be particularly challenging where potential buyers are controlled by persons in the People’s Republic of China or other higher scrutiny jurisdictions.

From a timing perspective, it is likely that intensified post-pandemic concerns about national security issues may lead to lengthier Investment Canada Act reviews. The full essay discusses the review process, and the various Government of Canada entities that are involved in it, in more detail.

From a sectoral perspective, the likelihood of significant acceleration of defence procurement is discussed, including areas such as aircraft and naval vessels that may, in the post-pandemic environment, be moved up in the Government of Canada’s list of spending priorities.

The complete essay by Shawn Neylan and Marc Barbeau is available here.