Why Canada is struggling to attract foreign investment

By Staff | July 26, 2018 | Last updated on July 26, 2018
2 min read

Canada’s ability to attract foreign direct investment (FDI) faces serious headwinds, says a report from the C.D. Howe Institute.

“Foreign Direct Investment in Canada—The Case for Further Openness and Transparency” argues for more open and transparent foreign investment rules in Canada.

Since 2014, net flows of FDI into Canada have decreased as a proportion of world FDI, says the report. In 2017, Canada had less net FDI flows than Australia (a smaller resource-based economy) and Mexico.

“Uncertainty over the fate of NAFTA and access to the U.S. market—and recently enacted U.S. corporate tax reform—are weighing on otherwise strong investment intentions in Canada generally for 2018,” says the report.

Read: Tax burden makes Canada less competitive: survey

Barriers to foreign investment

Canada ranks low on the OECD’s FDI restrictiveness index because of low scores for foreign equity restrictions across a number of sectors and screening and approval procedures. In most of these sectors, Canada’s formal barriers are only surpassed by those of New Zealand, Mexico, China and Russia, the report says.

Those screening mechanisms include requiring investors making foreign acquisitions above a certain threshold to show a “net benefit” to Canada, and restrictions on equity investment in Canadian sectors or companies, says the report.

Canada could address these restrictions, the report suggests, by requiring the government to state why a proposed investment is not in the national interest and must be rejected, or why it is rejecting an investment on principled grounds.

The report also recommends that Canada eliminate its restrictions on share ownership in an industry or company and retainonly those that are necessary to achieving clear public policy objectives and do not discriminate among investors.”

Read the full report here.

Also read:

Causes and effects of Canada’s lower growth

Portfolio transformation top of mind for Canadian biz

Advisor.ca staff

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.