Emergency law adds to Canada’s worsening risk trend

Photo: Reuters

The decision by prime minister Justin Trudeau’s Liberal minority government to invoke the Emergencies Act for the first time since it was established in law 34 years ago was surprising, but also perhaps inevitable.

Largely it reflected the belated and initially weak response to protests that erupted as opposition to vaccine mandates for truck drivers crossing the border from the US before morphing into a self-styled ‘Freedom Convoy’ demanding an end to pandemic restrictions.

Although including some of the more extreme, flag-waving, xenophobic nationalists that, in turn, also motivated the government to pursue an anti-hate bill, the convoy was also favoured by softer libertarians preaching freedom and anti-discrimination, enabling it to spread by becoming more appealing.

The blockades ended and the Emergencies Act was rescinded on Thursday after being imposed for nine days. Trudeau seemed satisfied that existing laws would be sufficient to handle the situation, with the threat now considered less acute.

Even so, the episode was startling for Canada – and for investors assessing the political risks.

Erik Henningsmoen, a researcher based in Toronto, Canada, is one of several Canada-based contributors to Euromoney’s country risk survey who believes the Emergencies Act invocation is a troubling moment for Canadian politics.

“It is intended to give the Canadian government exceptional powers when faced with existential threats to the country,” he says. “It’s questionable as to whether the Freedom Convoy protests met the bar to invoke the act. The Canadian Civil Liberties Association has strongly criticised the Act’s invocation.”

In the short-medium term, his use of the Emergencies Act to restore order in downtown Ottawa will work … But the long-term symbolics may come back to haunt Trudeau 

 - Nicolas Firzli

Henningsmoen goes on to state that the Emergencies Act, and its predecessor the War Measures Act, is the dark horse of Canadian national security legislation because of its unparalleled power and potential for abuse.

As such, he is concerned that the precedent this sets will encourage future Canadian governments to reach for the Act first when dealing with difficult governance problems rather then follow the normal legal and democratic process.

Henningsmoen adds there is a reason that liberal democracies, such as Canada’s, offer attractive investment climates. It is because of the political stability that the democratic institutions produce, with strong legal protections on financial assets and private property.

“While I do not think that investors will, in the short term, stay away from Canada due to the invocation of the Emergencies Act, these developments could have a long-term corrosive effect on investor perceptions of Canada and its democratic institutions,” he warns.

Nicolas Firzli, director of the Singapore Economic Forum (SEF) and advisory board member of the World Bank Global Infrastructure Facility (GIF), believes the crisis has laid bare the ideological ambiguities of the “Trudeau coalition”, an unorthodox grouping of pragmatic Liberal Party moderates – from eastern Canada, Toronto, Montreal and Vancouver – and more radical cultural Marxists eager to remodel Canadian society along real or imaginary ethnicised, gender and class fault lines; a small, albeit influential, group of Liberal MPs and ideologues.

“In the short-medium term, his use of the Emergencies Act to restore order in downtown Ottawa will work,” he says. “Apart from western Canada and, perhaps, parts of Quebec, the so-called Freedom Convoy never enjoyed broad based support.

“But the long-term symbolics may come back to haunt Trudeau, reinforcing the perception of a Liberal government run by rich socio-cultural progressivists removed from the realities of blue-collar workers from the Canadian heartlands.”

Given myriad concerns, ranging from the pandemic and the provincial divide making the environment, oil production and immigration populist issues, to the recent rise in inflation pressuring central banks to tighten monetary policy, Canada’s risks have been increasing over time.

Economic growth, improving some of Canada’s macroeconomic risks in recent months, has seen the country’s risk score stabilize since Q4 2021. It is, nevertheless, down by almost 15 points during the past five years.

This has seen Canada slump 17 places in Euromoney’s global risk rankings since 2016, and four last year alone, to 26th out of 174 countries. That puts it on a par with Uruguay and Slovakia, and eight places below the US in the lower half of tier two, the second of five risk categories.

Toronto-based Johan Krijgsman, of Krijgsman & Associates, had already considerably lowered his scores for the relevant risk factors, and says that within a relatively short period, the protest issue will be seen as a distraction, bred of frustration with Covid and some agitation from elements outside Canada.

“In view of the volume of social media impressions generated by this protest (eg Canadian flags in Paris), external investors considering Canada should evaluate their sources of information carefully, particularly in regard to possible ideological biases and exaggeration,” he says.

However, he goes on to say the fallout from the protest may have consequences for the opposition Conservative Party, which recently forced out its centrist leader, Erin O’Toole.

The party's strong support for the anti-vaccination protesters seems to be ignoring the fine line between the rights of protesters and the duty of protesters to behave responsibly, he says, but “the overall success of the Freedom Convoy-movement suggests that there is political real estate open in Canada for a robust right-of-centre populist movement”.

More activism from a right-of-centre populist movement in Canada is inevitable 

 - Erik Henningsmoen

HESA’s Henningsmoen adds that the political energy produced by the Freedom Convoy remains, with little the government can do – even under the auspices of the Emergencies Act – to dissipate this energy.

While a large majority of Canadians do not support the Freedom Convoy protesters, he mentions that a fifth of Canadians fully support the protesters and their tactics, according to Maru Public Opinion.

“Over the past few weeks, the Freedom Convoy protesters have been able to establish a base of support, develop a robust, if currently illegal, fundraising pipeline in Canada, the US and internationally, form a network of activists who worked together closely during these demonstrations and identify leaders for their movement,” says Henningsmoen.

“More activism from a right-of-centre populist movement in Canada is inevitable.”

The SEF’s Firzli adds that on top of the unprecedented clipping of their personal freedoms, which is unheard of in Canada since the 19th century, many working-class Canadians resent the high cost of living that preceded the Covid crisis.

“In Montreal and parts of Ontario and British Columbia, monthly rental costs have climbed to unhealthy levels and home ownership is no longer conceivable for many middle-class families,” he says.

“The opioid crisis is spreading fast, and, for the first time in the country’s history, an increasing number of private-sector retirees face the prospect of living in poverty for the rest of their lives.”

These are real social issues, says Firzli, that Trudeau’s government will need to address.