Article Summary
The big idea that arises from this article is whether or not
the Canadian government is allowing foreign takeovers. The problem in this
article first arises in Malaysia. Malaysia is currently suffering from
diminishing energy reserves as they are experiencing a gas supply shortage.
From this year’s forecasts it is expected that the nation’s underground gas
reserves should last 37 years. This is a 2 year drop from last year’s
reporting’s, though there has been a 3.6% increase in the reserves. Moreover,
the natural gas output has declined 5.3% in the past year. In summary,
Malaysia’s energy reserves and future prospects are not in mint condition.
But in order to solve such an ordeal, Malaysia’s State Oil
Company, has looked towards foreign investments, in particular a strategic
takeover of Canadian Oil Companies. It has recently offered to takeover
Progress Energy Resource Corp., a Calgary-based Oil and Gas company for $5.23
Billion CAD. But under the Investment Canada Act, any company takeover valued
over $330 Million, must be reviewed and accepted by the national government. In
this case, the Harper administration shockingly rejected the offer, as it did
not meet “Net Benefit”. With such a rejection, this casts Canada in a large
concern in the investment world as investors now believe that Canada is not
open for business. With this denial, Canada might be setting itself in great
international business concerns as it is closing its borders to globalization.
How it Relates to the Course
The content
demonstrated within the article heavily relates the content of the course. This
can be demonstrated through the following examples:
In this
course, we have heavily focused on the concepts and theories of Supply and
Demand. This article demonstrates this in the beginning passages regarding the
problem seen in Malaysia. Malaysia as highlighted is currently having issues
with their gas supplies as they have a shortage. This means that there is a
greater demand than there is supply, causing the prices to peak over the market
equilibrium price.
In addition,
it is shown that Gas is a tangible resource that falls under the heading of
land, a resource belonging to the government/corporations. But what is
interesting about gas along with other tangible assets is their scarcity. Gas
cannot currently be synthetically created to meet demands at low and productive
costs, as it is a limited natural resource, making it a scare asset, a topic
that we highlighted in class.
This returns to the Economic Problem that we
discussed, where humans have unlimited needs and wants but limited supply to
satisfy them. This is the case in this scenario, where humans have an unlimited
demand for gas as they need it for daily activities, but we only have certain
supply of it to satisfy the wants.
And it is
how we satisfy these wants that determine our economy. This in turn leads to
the topic of types of governments that was discussed in class. We went over a
variety of different types, from communism to mainstream capitalism. This article highlights how the Canadian
Economy is leading into a more Socialist platform. If it was just pure
capitalism, the government would not intervene in such matters, and leave the
companies as a separate entity from the nation, but in fact the Canadian
Government is intervening in such transactions, taking over the business world
by a storm, fixating it for the greater good of the people. It is more concerned about the majority of
the population and other small businesses than it cares about the good of the
elite, making the national priority the greater good of the majority of the
people, opposed to the high-class elite running such major corporations.
This article
also demonstrates a variety of different Economic methods. It demonstrates
different examples of positive and normative statements. Examples include the
following:
Positive
Economics (Descriptive Statement – facts portraying things as they are in the
present or have been in the past): “Shares of Nexen dropped 4.5 percent to
$24.01 at 12.04 p.m. in New York, about 13 percent below Cnooc’s $27.50 offer
price. Progress Energy shares plunged 10 percent to C$19.40 in Toronto, 12
percent below the C$22 per share offered by Petronas”.
This is a
clear demonstration of a descriptive statement as it simple portrays stats as
they were, perfectly meeting the definition.
This article
also demonstrated a variety of different fallacies. Examples include the
following:
Fallacy of
Composition (mistaken beliefs that what is good for the economy as a whole is
good for individuals): “Foreign investment, generally speaking, is of benefit
to the Canadian economy, and as a general rule, we obviously welcome interest
in the Canadian economy,” Harper said.
Foreign
investment is good for the economy as a whole but may harm smaller financial
units as they can no longer compete with these international corporations. In
addition, if such large companies begin to monopolize nations, they will be
given unlimited power and they may do whatever they please, which can greatly
harm the standard of living if they decide for example to eliminate minimum
wage.
Fallacy of
Single Causation (a single factor caused a particular event when in fact there
may have been other contributing factors): Shares of Nexen dropped 4.5 percent
to $24.01 at 12.04 p.m. in New York, about 13 percent below Cnooc’s $27.50
offer price. Progress Energy shares plunged 10 percent to C$19.40 in Toronto,
12 percent below the C$22 per share offered by Petronas”.
It states
that the share prices dropped because of the rejection by the Canadian
Government when in fact there may have been other contributing factors which
could have led to the downfall.
The reason
in which the Canadian Government rejected the takeover was because it failed to
meet the requirements by Industry Canada as a net benefit. As stated before,
the requirements were the following:
employment; the degree of participation of Canadians in the business;
the impact on productivity and technology development; the effect on
competition; the compatibility of the investment with “national industrial,
economic and cultural policies”; and the contribution to Canada’s ability to
compete globally. This is specifically a majority of the Canadian Economic
goals we studied in class, as these are the business goals that the Canadian
Government strives to achieve, and so they can guarantee their fulfillment by
controlling business transactions, in this case business takeovers.
Comments
There is much to be said regarding this article. The reason
I have personally decided to select this article is because of its relation to
my interests. For the last several months, I have been in deep interest with
Canadian energy companies. I believe that there is great potential in this
nation’s energy reserves, especially as a long term prospect. I believe that
these Oil companies, will either witness great development themselves, or will
be taken over as apart of foreign investment. If major corporations takeover
these Canadian oil companies due to their potential, there will be large gains.
I am personally on the verge of deciding whether or not to investment my
personal funds into small corporations like Alberta Oil Sands. Foreign
takeovers is a great concern for such a matter as it demonstrates the potential
and strength of the industry and corporation. Therefore I did much research
into the topic. That is when I stumbled upon the article, and decided to select
it for this assignment.
This article was of great importance to my decision
regarding my investment. It demonstrated that the Canadian government has
rejected many propositions made by foreign private and crown corporations. This
would not be great news for my investment, as I would have relied on foreign
aid to help ever expand or takeover the company, as I aimed at companies such
as PetroChina and ExxonMobil for foreign inquisitions. However, if the Canadian
Government is to deny such foreign takeovers, this would be catastrophic news
for the industry, and would be a bad personal investment for me. Therefore, this article was of great
significance to me, due to my personal interests in the field.
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