Temperature Check: Canada’s Investment Climate

Foreign Direct Investment (FDI) can make or break a smaller economy, and for an economy like Canada’s, it is a measure of international confidence and stability. While Canada’s FDI took a hit from 2015-17 because of the exodus of capital from the country’s oil patch, it rebounded strongly in 2018, up by 144 per cent in the first half of the year to close at $51.3 billion over the year, the highest total in three years.

Before the Bell assembled a panel of business, academic and government stakeholders to

examine what needs to be done to keep Canada’s investment climate competitive.

Ihor Korbabicz, executive director of Abacus Data, said there is a tone of pessimism among Canadians as 68 percent of those polled in a survey on their standard of living felt that the changing economy would bring more threats than opportunities. As well, 69 percent of those surveyed felt that corporations make too much profit, and 66 percent of those surveyed felt that government regulation of business is necessary to protect the public interest, even among identified Conservative voters.

During the pulse segment hosted by David Akin, Elizabeth Roscoe, senior vice-president and national practice leader of public affairs at Hill+Knowlton Strategies, said that foreign direct investment is a net benefit for Canada, because we live in a global world and capital knows no borders.

“All countries, ourselves included, learn from technology, human resources and other innovations,” said Roscoe. “To close off our economy from those advancements is not advised.”

Rachel Curran, principal at Harper and Associates, said that the government is not doing enough to attract investment given the drop in recent years, and wondered if there was something about the regulatory or taxation environment that is making investors think twice.

“It’s critical that we get this right, and foreign investment is a really important piece of economic growth,” said Curran. “We don’t have a plan right now and the numbers are bearing that out.”

Susan Hutton, partner with Stikeman Elliott LLP, said that when it comes to the Investment Canada Act, it has become less onerous for foreign investors, with fewer and more focused restrictions.

“We’re saying the right things about welcoming foreign investment and wanting to attract more, but we need to look at the underlying investment climate, and are we doing enough to help Canadians invest in Canada — not just foreigners,” said Hutton.

During the policy segment, hosted by Catherine Clark, Bob Masterson, president and CEO of the Chemistry Industry Association of Canada, said that the Canadian chemical sector has not seen the same level of global investment that the Americans have, even though Canada has a lot of the fundamentals in place.

“We have all the ingredients to succeed,” said Masterson. “They will benchmark Canada as their next investment, and then they sell that against other jurisdictions, and we always lose.”

Masterson noted that some provinces, like Alberta, have done the heavy lifting to attract new investment in the sector.

Goldy Hyder, president and CEO of the Business Council of Canada, said that Canada can be its own worst enemy because of a sense of complacency.

“We need to change the narrative in Canada,” said Hyder. “We’re not immune from what’s taking place globally – the anger, the frustrations that we’ve seen with the Yellow Vests, Brexit, and what’s taking place in a very polarized America – that is at our shores now. Canada cannot afford to be a place where it’s opposed to trade, opposed to immigration, and opposed to investment.”

Aniket Bhushan, adjunct professor at Carleton University, said that while the data shows that the investment climate has deteriorated, the business of attracting investment into an economy is a contact sport.

“It is a very competitive market to attract investment out there, and we also do ourselves a disservice if we’re looking at emerging – or emerged – economies seeking energy security, or resource security and invest in Canada,” said Bhushan. “But it’s also Amazon looking for a new headquarters, or a video game developer looking for skilled and relatively cheaper workers. It’s also an e-commerce company looking for an AI hub. There are many layers and levers, but the question is whether there is a strategy that adequately encompasses this.”

Ian McKay, CEO of Invest in Canada, noted that in 2018, FDI into Canada increased by 60 percent, reversing a ten-year trend of decline, and that within that increase, there was more global capital flowing into Canada, through more deals from more sources, into more sectors.

“Traditionally, the big-ticket items for investment into Canada were energy, mining, and advanced manufacturing,” said McKay. “The new sectors that Canada is attracting – I’m talking technology writ-large, but it includes AI, cyber-security, and fintech [financial technology]. Canada has a currency which is global talent, and the world is looking at it. We’re starting to win that game.”