Canada, a vast and diverse nation renowned for its stunning natural landscapes, friendly citizens, and robust economic landscape, has continued to be a prime destination for foreign direct investment (FDI).
In this article, we will delve into the key facts surrounding Canada’s competitiveness for foreign investment.
May 2023: Key Highlights
As of May 2023, Canada stands as a beacon of economic stability, a thriving job market, and an increasingly attractive environment for businesses looking to expand their global footprint.
Economic Growth and Stability
One of the standout features of the Canadian economy is its remarkable growth. In 2022, Canada’s economy soared, boasting an estimated growth rate of 3.4%. It is anticipated to maintain this momentum, positioning itself as one of the leading G7 economies for growth in both 2023 and 2024. The International Monetary Fund (IMF) projects that Canada will achieve a growth rate of 1.5% in each of these years.
Employment and Population Growth
Canada takes pride in its employment and population growth rates. In 2022, it claimed the top spot in the G7 for these vital statistics. This trend is expected to persist, as Canada’s job market continues to flourish, with a projected employment growth rate of 1.2% in 2023 and 1.0% in 2024, according to the IMF.
Inflation is a worldwide concern in 2023, and Canada is no exception. The country faces inflationary pressures, with the rate reaching 4.4% in April. However, Canada remains favourable compared to the United States, where inflation has surged to 4.9%. Canada’s prudent fiscal policies and financial management contribute to its ability to maintain a stable economic environment.
Kearney FDI Confidence Index
The Kearney Foreign Direct Investment (FDI) Confidence Index is a critical indicator of a market’s attractiveness to foreign investors. Canada shines in this regard, ranking second overall among the 25 countries assessed, closely following the United States. This reflects the confidence that investors place in Canada’s stable economic climate.
Clean Energy Leadership
Canada is a frontrunner in the transition to clean energy. A remarkable 68% of the nation’s energy generation stems from renewable sources. This abundant and reliable clean energy supply not only supports environmental sustainability but also serves as a strong selling point for businesses seeking greener operations.
Canada’s Welcoming Stance for Foreign Investment and Business
Canada has consistently embraced foreign investment, and it’s projected to be the best country for doing business in the G20 from 2023 to 2027. This is further reinforced by Canada’s enduring presence among the top two countries for business-friendly environments, according to the Economist Intelligence Unit.
Here are the other factors that make Canada the best country to do investments and business;
Ease of Starting a Business
Canada’s welcoming approach extends to the ease of starting a business. Among the G7 nations, Canada ranks third, indicating the nation’s commitment to reducing bureaucratic hurdles and fostering entrepreneurship.
Less Business Complexity
Canada stands out among G20 countries as one of the least complex jurisdictions for conducting business. TMF Group’s Global Business Complexity Index underscores Canada’s business-friendly environment, further boosting its appeal to foreign investors.
Canada is the second-best performer in the World Competitiveness Index among G20 countries. This index measures a nation’s ability to create and maintain a conducive environment for businesses, highlighting Canada’s commitment to fostering competitiveness and growth.
FDI Stock to GDP Ratio
In 2021, Canada boasted the second-largest foreign direct investment (FDI) stock-to-GDP ratio among G20 countries. This showcases the trust foreign investors place in Canada’s economic stability and potential for substantial returns.
Strong Fiscal Foundation and Economic Resilience
In April 2023, the Bank of Canada, in response to a notable drop in inflation rates, opted to maintain its overnight rate at 4.5%. This decision was coupled with a continued commitment to its policy of quantitative tightening, reflecting the nation’s proactive approach to preserving economic stability and managing monetary policy. Such measures underscore Canada’s prudent and vigilant approach to financial governance as it adapts to evolving economic conditions.
Additionally, Canada’s fiscal soundness shines through its consistent position as the G7’s leader in maintaining the lowest net debt to GDP ratio. This impressive record, with a ratio hovering at approximately 14% in 2022, is forecasted to persist for the next six years, as per the IMF’s World Economic Outlook for April 2023. This sustained fiscal responsibility fortifies Canada’s economic resilience and fortifies its standing as an attractive destination for foreign investment.
Low Tax Environment
Canada’s attractive tax environment is a significant pull for investors. The combined federal-provincial statutory corporate income tax rate in Canada is among the lowest in the G7 at 26.2%. This places Canada in a favourable position for businesses looking to optimize their tax liabilities.
Moreover, the tax treatment for new business investment in Canada is exceptionally competitive. At 13.0%, it is below the Organization for Economic Co-operation and Development (OECD) average and significantly lower than the United States’ rate of 17.8%. This tax regime ensures businesses can maximize their profitability and reinvest in their growth.
Canada’s Accelerated Investment Incentive is a robust program that allows businesses to recover the initial cost of their capital investment quickly. This initiative reduces the financial risk associated with investing, offering a compelling reason for businesses to choose Canada.
Canada is committed to implementing the OECD Global Minimum Tax of 15% for multinational enterprises with annual revenues of €750 million or more, effective from January 2024. This demonstrates Canada’s alignment with international tax standards, providing a predictable and stable tax environment for businesses.
Green Business Support
Canada has prioritized green business initiatives, offering significant advantages to environmentally conscious companies. The nation has the lowest statutory corporate income tax rate (17.9%) for zero-emission technology manufacturing and processing among G7 countries. Additionally, Canada ranks second among 18 countries for cleantech companies likely to substantially impact the market over the next five to ten years.
Businesses investing in machinery and equipment for manufacturing or clean energy can enjoy a full tax deduction in the first year, easing the financial burden associated with these investments.
Moreover, the Canada Growth Fund (CGF), with a budget of $15 billion over the next five years, aims to attract investments that support Canada’s climate goals, diversify the economy, promote low-carbon industries, and bolster critical supply chains.
Canada boasts a highly educated and competitive workforce. In 2022, the country recorded the highest population growth rate in the G7 at 1.7%. This trend is projected to continue, reinforcing Canada’s position as a fertile ground for skilled labour.
With 62% of its population aged 25 to 64 having received tertiary-level education, Canada holds the most educated talent pool in the Organization for Economic Co-operation and Development (OECD). This skilled workforce is a valuable asset for businesses looking to harness innovation and productivity.
Canada’s linguistic diversity is a distinct advantage. Nearly one in four Canadians speaks one of over 200 languages in addition to English or French. This multicultural and multilingual environment fosters a global perspective and enhances the ability to reach diverse markets.
Global Skills Strategy
Canada’s Global Skills Strategy ensures that businesses can bring in highly skilled foreign workers with ease. The strategy boasts a high approval rate of 93% for applications received, facilitating the arrival of over 100,000 foreign workers between June 2017 and October 2022.
Gateway to Global Markets
Canada’s strategic location and numerous free trade agreements make it a gateway to both North America and the world. The country has 15 active free trade agreements that cover 50 countries, enhancing the access of Canadian businesses to a vast global market. These agreements not only simplify cross-border trade but also promote economic growth and prosperity.
One of the most significant factors contributing to Canada’s status as a global gateway is its proximity to the United States, the world’s largest economy. Cross-border Canada-U.S. trade thrives, with a daily value exceeding US$2.8 billion. Remarkably, 16 of Canada’s 20 largest cities are situated within a 90-minute drive of the Canada-U.S. border. This proximity accelerates trade and ensures a seamless flow of goods and services.
As a member of the Canada-United States-Mexico Agreement (CUSMA), Canada offers foreign investors preferential access to a combined market with a real GDP exceeding US$30 trillion, hosting over 500 million consumers. Furthermore, the agreement provides virtually tariff-free access to the vast U.S. and Mexican markets, solidifying Canada’s position as a prime entry point into North American commerce.
Enabling Environment for Innovation
Canada’s commitment to fostering innovation is a driving force behind its economic prowess. The country has made substantial investments, allocating an additional $750 million through 2028 to support the growth and development of Canada’s Global Innovation Clusters. These clusters facilitate collaboration between industry leaders, small and medium-sized companies, and post-secondary institutions in various pioneering sectors, including digital technologies, plant proteins, advanced manufacturing, artificial intelligence supply chain applications, and ocean sciences.
In addition to its focus on innovation clusters, Canada ranks second in the G7 for research and development (R&D) spending in post-secondary research as a share of GDP. This demonstrates Canada’s dedication to research and development, a cornerstone of fostering cutting-edge industries.
Canada offers one of the most generous R&D tax incentive programs in the G7 through its Scientific Research and Experimental Development (SR&ED) tax incentive. This program annually provides $3 billion in tax incentives to businesses engaged in R&D activities. These incentives are designed to spur technological advancement, driving Canada’s competitiveness and economic growth.
Stable Financial Sector
Canada’s financial sector stands as one of the world’s most stable, ranking second in the G7, fourth in the G20, and tenth globally out of 63 countries. This strength provides investors with confidence in the soundness of the nation’s financial institutions.
Six of the world’s 50 safest and most dependable banks are headquartered in Canada, as recognized by Global Finance Magazine. This accolade underscores the robustness and reliability of Canada’s financial institutions, making it an attractive destination for financial services and investments.
Beyond its economic advantages, Canada offers one of the world’s highest standards of living. Citizens enjoy a high quality of life, with access to top-tier healthcare, education, and social services. This enriches the overall well-being and satisfaction of those residing and working in the country.
In terms of social progress, Canada stands as one of the leaders in the G20. It ranks eighth globally for well-being and third for environmental quality. Additionally, it secures the top spot for security and ranks fifth for justice and third for equal opportunity among G20 countries. This combination of factors ensures that Canada remains an exceptional place to live, work, and prosper.
Canada also shines in the realm of economic freedom, securing the fourth position among G20 countries. The Heritage Foundation’s Index of Economic Freedom recognizes Canada’s commitment to fostering a free-market economy with minimal government interference. This environment is conducive to entrepreneurial endeavours and fosters economic growth.
In summary, Canada’s attractiveness for foreign direct investment is underpinned by a myriad of factors that make it an appealing destination for businesses seeking to expand globally. With a stable and growing economy, a highly educated workforce, a business-friendly tax environment, and a commitment to innovation, Canada stands as a beacon of opportunity.
Foreign investors continue to choose Canada, recognizing its strengths and the robust opportunities it presents. As a nation that welcomes and supports businesses from around the world, Canada remains a shining example of economic stability and prosperity, making it a top contender for foreign direct investment in the years to come.