Foreign Direct Investment In Canada Fell 26% In 2017; Lowest Level In Nearly A Decade

Foreign direct investment in Canada declined 26% in 2017 to $33.8 billion – its lowest level since 2010 – amid growing concerns about Canada’s competitiveness.

Statistic Canada reports that foreign direct investment declined sharply last year to $33.8 billion, continuing a trend of declining interest by foreign firms. Perhaps most troubling, for the first time since data collection on foreign direct investment began in 2007, foreign firms sold more Canadian companies than they bought last year.

Finance Minister Bill Morneau disappointed some industry associations this week with a federal budget that did not lower business taxes in response to major tax reductions in the United States. In comments on Thursday, Minister Morneau reiterated his intention to take the time to review the U.S. tax cuts and regulations before responding.

“We recognize that this presents an important issue for us to consider in terms of our competitiveness,” he said, according to a transcript of his remarks following a speech at the Canadian Club of Toronto. “We will look at those changes as they come forward.

“With respect to investment in Canada, we do recognize that as a result of the discussions around NAFTA there are some businesses that are concerned about their opportunity to invest. It will be important for us to maintain our focus on NAFTA in a way that can assure that we have a strong agreement that can work for all three countries.”

Canada’s long-held tax advantage was undercut by U.S. President Donald Trump’s January 1 tax reform package that slashed business taxes to 21% from 35% and allowed for full expensing of capital expenditures. In Canada, the average combined federal and provincial tax rate is 26.7%, according to the Business Council of Canada.

Data on the record net outflow of foreign money from Canada came one day after a separate report from Statistics Canada showed a steep decline in capital spending to extract oil and gas. Capital expenditure is expected to fall for a fourth consecutive year in the sector, the agency said, declining 12% from 2017 to $33.2 billion. The biggest decreases are expected in the oil sands, where spending will fall by a fifth to $10.2 billion.

“The bottom line is there really is a need for more urgency on the competitiveness front,” said Doug Porter, Chief Economist at BMO Financial Group. “We’ve got a sluggish picture for business investment in 2018 and now a report showing record net outflow of FDI. It all suggests that even before we had the U.S. tax changes, there was a challenge facing Canadian business investment.”