Canada lag­ging on busi­ness in­vest­ment — and it’s get­ting worse, re­port finds

Cap­i­tal in­vest­ments well be­low av­er­age of OECD na­tions, with gap widen­ing

Calgary Herald - - FP CALGARY - JAMES MCLEOD

Canada has a prob­lem with busi­ness in­vest­ment, and it’s threat­en­ing our eco­nomic com­pet­i­tive­ness, ac­cord­ing to a new re­port by the C.D. Howe In­sti­tute.

And the trend looks like it’s get­ting worse.

The re­port, ti­tled Tool­ing Up: Canada Needs More Ro­bust Cap­i­tal In­vest­ment, finds that Canadian busi­nesses will make cap­i­tal in­vest­ments equal to $13,900 per worker, well be­low the av­er­age of $19,700 per worker across Or­gan­i­sa­tion for Eco­nomic Co-op­er­a­tion and De­vel­op­ment coun­tries, and even fur­ther be­low the $23,200 in the United States.

The study noted that his­tor­i­cally Canada’s cap­i­tal in­vest­ment has lagged be­hind that of our neigh­bours to the south, but in the last decade we pulled closer to even.

In re­cent years, the in­vest­ment gap has been widen­ing again.

“From a for­ward-look­ing per­spec­tive, if busi­ness in­vest­ment is fall­ing, espe­cially per-worker, it sort of gives you a clue or an in­di­ca­tion of the prospects for the econ­omy,” said Jeremy Kron­ick, as­so­ciate direc­tor of re­search with C.D. Howe, and one of the au­thors of the re­port.

“If work­ers aren’t re­ceiv­ing the tools to do the work that they’re de­signed to do, that’s a con­cern.”

Dig­ging into the de­tails, the data paints a pic­ture of two Canadian economies, with Al­berta’s oil-driven in­dus­try tied to com­mod­ity prices and the rest of the coun­try fol­low­ing dif­fer­ent fun­da­men­tals.

It makes sense that cap­i­tal in­vest­ment took a hit around 2014 when the price of oil col­lapsed, but Kron­ick said the big­ger con­cern is that the money hasn’t started flow­ing again as oil prices re­bound.

Part of that may be ex­plained by the de­lays and ob­sta­cles fac­ing the Trans Moun­tain pipe­line, Kron­ick said. “If you’re any­one that is at least tan­gen­tially re­lated to the pipe­line in some ca­pac­ity, you’re go­ing to say to your­self, ‘Am I go­ing to bother in­vest­ing if I’m not sure this pipe­line will ever get built?’” he said.

Mean­while in On­tario, Que­bec and the Mar­itime prov­inces, C.D. Howe re­ported that cap­i­tal in­vest­ment is run­ning at less than $10,000 per worker this year — less than half of what Amer­i­can com­pa­nies are in­vest­ing.

CIBC chief econ­o­mist Avery Shen­feld said this is an im­por­tant met­ric to watch be­cause cap­i­tal in­vest­ment is the main av­enue for eco­nomic growth right now. “Com­ing out of a re­ces­sion, there’d be lots of ca­pac­ity to grow ex­ports with­out hav­ing a new plant open up, but at this stage of the busi­ness cy­cle, if we’re not get­ting busi­nesses cut­ting rib­bons on new fa­cil­i­ties, we’re go­ing to be lim­ited on the amount of head­room we have to grow ex­ports,” Shen­feld said.

Doug Porter, chief econ­o­mist with BMO, said he’s got some ques­tions about the method­ol­ogy in the C.D. Howe study, but broadly the met­ric is worth watch­ing, be­cause it’s a lead­ing in­di­ca­tor.

“We re­ally do have to fo­cus on strength­en­ing com­pet­i­tive­ness,” he said. “It is a fun­da­men­tal build­ing block of eco­nomic growth, and if you have rel­a­tively weak busi­ness in­vest­ment now, it likely means you’re go­ing to have soft busi­ness growth in the fu­ture.”

Kron­ick said that the fac­tors driv­ing busi­ness in­vest­ment are fairly com­plex, so it’s not easy to point to any one way to make Canada more com­pet­i­tive, but he said that the gov­ern­ment should look at re­duc­ing elec­tric­ity prices and taxes to at­tract more in­vest­ment.

He also said ac­cess to cap­i­tal may have con­trib­uted to the grow­ing gap be­tween Canada and the United States, espe­cially af­ter the global eco­nomic down­turn when the as­set-backed pa­per mar­ket dried up.

Kron­ick said the same riska­verse bank­ing sys­tem that shielded Canada from the worst of the fi­nan­cial cri­sis is today shield­ing Canada from get­ting the most out of the re­cov­ery.

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