The merged SGF's mandate must be redefined, according to a Montreal Economic
Institute study

MONTREAL, Oct. 7 /CNW Telbec/ - The announced merger of two government corporations, the Société générale de financement (SGF) and Investissement Québec, offers a good opportunity to take stock of the SGF's historical results and to re-examine the relevance of its mandate. In an Economic Note published today, Claude Garcia finds that the SGF has obtained a negative rate of return (-1.0%) since its creation in 1962. Moreover, the public company has had a negligible influence on the creation of large-scale Quebec businesses.

To evaluate the performance of the SGF, it must be placed in context and compared to other indexes, like the average annual rate of return of the Toronto Stock Exchange for the past half-century, which is 9.9%. This comparison shows that the SGF has been costly: a $7.4-billion loss for Quebec taxpayers, according to Mr. Garcia's estimates. He believes this discrepancy stems in part from the fact that the SGF's portfolio is a disparate assortment of investments with no unifying thread.

"None of the 'jewels' of the Quebec economy needed the SGF to develop. Only a few large businesses, already at an advanced stage of development, benefited from SGF investments," Mr. Garcia explains.

The SGF's method of intervention, namely direct participation of the government in business capital, is a model that is increasingly being abandoned around the world in order to let the private sector assume the risks associated with business development. "Given the inconclusive historical results, the government should seriously consider redefining the role of the new organization that will result from the merger and should abandon the part of its mandate that consists in buying direct shares in the capital of various companies," Mr. Garcia believes.

The Economic Note prepared by Claude Garcia, associate researcher with the Montreal Economic Institute (MEI) and former president of Canadian operations at Standard Life, entitled What should be the mandate of the merged Société générale de financement?, can be consulted free of charge at www.iedm.org.

The Montreal Economic Institute is an independent, non-partisan, not-for-profit research and educational organization. Through its studies and conferences, the MEI stimulates debate on public policies in Quebec and Canada by proposing wealth-creating reforms founded on market mechanisms.

For further information: interview requests: Ariane Gauthier, communications coordinator, Montreal Economic Institute, Tel.: [phone] ext. 2231, Cell: 514 603-8746, Email: [email protected]