Foreign direct investment (FDI) refers to the total value of equity, long-term debt and short-term debt held by foreign enterprises.
Investments made by Canadians or Canadian companies abroad are referred to as Canadian direct investments abroad (CDIA), or outward FDI. Direct investments made by foreign entities in Canadian enterprises or projects are known as FDI in Canada, or inward FDI.
The Canadian economy is strongly oriented towards foreign direct investment. Expressed as a percentage of gross
domestic product (GDP), the total stock of Canadian investment abroad is well above the G-7 average
Within the G-7, only the UK and France invest more abroad as a share of GDP.
Similarly, the value of FDI in Canada is much higher than the G-7 average, as a percentage of GDP
Canada attracts proportionately less investment than the UK and France, but significantly more inward FDI than
the other G-7 countries.
Unlike in the G-7 as a whole, inward and outward investment in Canada (as a % of GDP) did not rise significantly
from 2000 to 2006
However, this is not because Canadian investment has grown more slowly, but rather, because the Canadian economy
has outperformed the G-7 average over that period.
Nevertheless, Canada’s Importance as a global destination for FDI is in decline. Similarly, the share of global FDI
going to the United States has been falling. By contrast, developing countries have attracted a growing share of
FDI, especially since 1990. The European Union has also seen its share of foreign direct investment rise.
Sources and Destinations
Although its importance is declining, the United States remains Canada’s most important source of, and destination
for, foreign direct investment by far. In 2007, the United States accounted for nearly 58% of the total stock of
FDI in Canada
while about 44% of the stock of CDIA was in US markets
On balance, the value of Canadian assets held by US interests in 2007 exceeded the value of US assets held by Canadians by $62.5 billion. The US has historically been a net source of FDI in Canada.
Europe is also a major direct investment partner for Canada. In 2007, European countries accounted for 31.4% of the total stock of FDI in Canada. While most of this investment comes from the EU, non-EU countries like Switzerland are also significant sources of FDI in Canada.
The percentage of Canadian direct investment stocks in Europe in 2007 was about 26.2%. Europe is growing in importance as a destination for Canadian investment.
Canada was a net investor in Europe from 2002 to 2006, but, because of a surge in European investment in Canada in 2007, that is no longer the case. In 2007, the value of FDI originating in Europe exceeded the value of CDIA stocks in Europe by about $23 billion.
Latin America and the Caribbean is also emerging as a major destination for CDIA (Figure 4). So-called tax-haven countries like Barbados, Bermuda, Bahamas and the Cayman Islands are popular investment destinations for companies from around the world that set up subsidiaries or non-operating companies to take advantage of favourable tax treatment in those countries.
Canadian companies are also involved in South America, where CDIA is concentrated in financial services and in energy and mining.
Foreign Direct Investment by Industry
The largest stock of FDI in Canada by industry is in the finance and insurance sector
where it reached $93.0 billion in 2006.
The fastest growth in FDI stocks, however, has been in energy (and mining). When oil prices were at their most recent trough in the late 1990s, the total stock of FDI in the energy sector was less than $30 billion. Investment soared alongside energy prices after that, rising to $87.1 billion by 2006.
By contrast, FDI in the auto sector and other transportation equipment industries fell by 19.3% from 2002 to 2006.
The finance and insurance industry dominates Canadian direct investment abroad
Moreover, its share of total CDIA is growing, rising from 33.8% of total CDIA in 2000 to over 44% ($230.7 billion)
Canadian investment in energy and mining is also rising, buoyed by higher commodity prices. However, while Canada is a net global investor in mining, it is a net destination for investment in energy.
Another way of looking at FDI in Canada is to examine the level of foreign ownership by industry, as measured by
the percentage of total assets held by foreign interests
With the exception of certain types of financial services (non-depository credit intermediation), the manufacturing sector has the highest degree of foreign ownership in Canada.
The degree of foreign ownership is also high in oil and gas extraction, but has, in fact, been falling in recent years because the value of the Canadian energy sector is growing faster than is foreign participation in that sector. The same is true of the mining industry.
Canada is a net investor in the world; the stock of CDIA has exceeded the stock of FDI in Canada every year since
In 2007, the stock of CDIA reached $514.5 billion, while the stock of FDI in Canada was $500.9 billion.
Inward investment has grown more quickly than outward investment in recent years. Since 2001, CDIA stocks have increased by an average of 4.3% per year, compared to an average of 6.6% per year for the stock of FDI in Canada.
Foreign direct investment generates income for the investing country through interest payments, dividends and retained earnings.
Even though Canada is a net investor in the world, foreign-held assets in Canada have typically generated more
profits for foreign companies than have Canadian-held assets abroad
However, the gap has closed considerably. Canadian direct investment profits from abroad have surged since 2003, aided by high commodity prices and a rising Canadian dollar. In 2007, Canadian direct investment profits reached $29.2 billion, only slightly below the value of foreign profits generated in Canada ($33.7 billion).
The nature of Canadian investment abroad differs from foreign investment in Canada
From 2002 to 2007, acquisitions of Canadian companies and other interests accounted for the majority of investment
flows into Canada.
By contrast, Canadian investment flows abroad were relatively evenly divided across equity acquisitions, reinvested earnings and increasing claims on existing assets through higher long-term debt holdings.
† Papers in the Library of Parliament’s In Brief series are short briefings on current issues. At times, they may serve as overviews, referring readers to more substantive sources published on the same topic. They are prepared by the Parliamentary Information and Research Service, which carries out research for and provides information and analysis to parliamentarians and Senate and House of Commons committees and parliamentary associations in an objective, impartial manner. [ Return to text ]