Mosaic made by pieces of Canadian banknotes
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A Fraser Institute study has found that business investment growth was sluggish in several provinces for years before the current economic crisis.

Capital Investment in Canada’s Provinces: A Provincial Report measured growth in business investment at the provincial level from 1990 to 2018, the most recent year available.

Quebec, Nova Scotia, New Brunswick and Prince Edward Island experienced below-average growth in investment for the entire period studied.

Meanwhile, Alberta and Saskatchewan saw above-average annual investment growth from 1990 to 2014, but investment growth in both provinces stagnated afterward. Alberta averaged 0.1% annual growth from 2014 to 2018, while Saskatchewan’s growth rate during the 2014-2018 period dropped two percentage points from its 1990-2014 rate, to 1.3%.

Conditions are unlikely to improve soon, observed the report.

“The recent collapse in oil prices related to the Covid-19 pandemic, as well as the current global oil price war led by Saudi Arabia and Russia, augurs poorly for the near-term recovery of investment in Alberta and Saskatchewan,” the report said.

Prospects for stronger-performing provinces — notably, B.C. and Ontario — are slightly more optimistic.

“While the investment laggards are still lagging, even the previous bright spots in Canada’s business investment landscape are currently dim,” said Steven Globerman, a Fraser Institute senior fellow and co-author of the study, in a release.

B.C. experienced annual growth of 1.5% from 2014 to 2018, above the national average of 1.1%.

“Much of B.C.’s investment growth, however, is the result of the province’s strong construction and real estate sectors,” the Fraser Institute noted in its release. “Investment outside of these sectors has been comparatively weak.”

If B.C.’s population continues to grow, “its relatively large real estate sector should contribute to the continued relatively strong growth in residential capital assets in the province,” the report said. “The same may also be the case for Ontario.”

Ontario’s annual investment growth rate from 2014 to 2018 was 1.7%, primarily due to the province’s real estate, finance and insurance sectors.

The report predicted that Ontario’s large financial sector “could be one of the stronger industries in Canada in future given the need for escalating financial intermediation as governments increase their debt issuance” in the wake of pandemic-related spending.

Globerman said the report’s findings offer insights into a potential path forward.

“Given how important business investment will be post-recession, policymakers should pursue policies, including implementing regulatory reform and competitive tax rates, that are known to attract investment,” he said.