Canada seems to be losing its charm as a destination for nervous money. Although still attracting slightly more than its “fair” share of global foreign direct investment (FDI), its share has dropped significantly in recent decades, according to the Conference Board’s latest release of its How Canada Performs series.
“For some time now, the Conference Board has argued that one of the causes of Canada’s slipping economic performance relative to both peers and emerging economies is insufficient inward FDI,” said Louis Thériault, director, international trade and investment centre, with the Conference Board. “Canada is caught in a paradox. It needs to attract more FDI as a means of improving labour productivity. Yet, the evidence suggests Canada’s low labour productivity lessens its attractiveness as an FDI destination.”
A strong loonie doesn’t help matters either. “The low Canadian dollar helped to maintain our international competitiveness, in spite of weak productivity growth,” said Thériault. “Now that the loonie is at par with the U.S. dollar, Canada needs investment to make its firms more productive. FDI benefits Canada by bringing investment, technology and innovative practices into the country.”
That said Canada’s share of global FDI relative to its share of global GDP is still greater than one. This means that the country is still attracting more inward FDI than its economic size would warrant.
Canada’s share of global inward FDI flows, however, dropped to 3% in 2009 at a time when it grew in the U.S., China and India.
“The fact that Canada’s ranking is slipping is an issue, because inward FDI boosts productivity by providing access to new technology, business and manufacturing processes and management know-how,” said Thériault.