Foreign capital is vital to building Canada, but Canada is at a crossroads in the competition to attract continued international investment. Direct investment in 2017 fell to its lowest level since 2010, and since the Canadian Bureau of Statistics began collecting data in 2007, M&A activity has led to the first outflow of capital from Canada.
Leading public policy expert Jack Mintz said the problem is not in the tax system but in regulation. The strange thing is that the “canary in the coal mine” is the service industry, not the energy sector.
As a place to operate, Canada has a lot to do – from a highly educated workforce to a good infrastructure and a stable political situation. But Dean of the School of Public Policy at the University of Calgary, Mintz pointed out that some of the impact on Canada is its small market, scattered population and cold climate.
However, although these strikes are not new, the mystery is why Canada’s performance in attracting foreign investment has stagnated in the past few years. Mintz said that this is not just because of the chaos in the energy sector.
Regulatory issues are like an all-encompassing term, including carbon taxes, pipeline uncertainty, difficulty getting goods to market, and delays in obtaining other frictions such as building permits. These issues have affected Canada’s competitiveness.
But it is also undeniable that the US tax reform and the ability to write off capital expenditures have caused the company to notice and transfer the investment there.
“So now we are in a Canadian, a small market and all these regulatory issues, we don’t look as hot as the investment location,” Mintz said.
After Kentucky became the first state to reduce corporate and personal tax rates, he also expects to cut taxes at the state level.
Canada’s capital tax has not changed much in recent years, but the share of private investment in the economy has been declining.
Canada’s marginal effective tax rate is in the middle. But Canada’s serious lag is the share of private investment in GDP – especially in services. According to an analysis written by Mintz about Australia’s investment challenges in response to US tax reforms, it ranks last among 19 OECD countries.
Canada ranks last in the private sector of services in this group of countries. (courtesy of Philip Bazel and Jack Mintz)
This means that in combination with US sanctions capital expenditures, US companies are being motivated to adopt new technologies such as artificial intelligence and robotics. “In our [Canada] system, we do very little to actually encourage adoption of technology. .
RBC President and CEO Dave Mackay said in an interview with Canadian media that capital loss could lead to brain drain (human capital). The loss in Canada is the benefit of the United States.
A new federal agency investing in Canada wants to change the narrative. International Trade Minister François-Philippe Champagne is on a cross-country tour to promote it.
The agency will work with governments at all levels to help global investors understand Canada’s investment prospects. It will take several months to equip and plan, but Mintz believes that its measures cannot overcome the economic and policy challenges facing Canada.
“I think if Canada really wants to attract investment, then in addition to building a store and saying ‘we are a great country,’ more needs to be done,” he said.
Mintz said that as a one-stop shop can alleviate some of the regulatory costs, but it can’t do anything about the energy sector, and the energy sector needs to build pipelines.
Enerplus is a perfect case, in progress. The Canadian-based oil company now has 80% of its production coming from the US, and 10 years ago it would spend the vast majority of its projects in Canada.
“The United States has always been a very attractive business environment,” Enerplus CEO Ian Dundas said in an interview with BNN.
Mike Colledge, president of Ipsos Public Affairs in Canada, said that most Canadians like their sovereignty and do not want to lose control of their assets, but they do not fully understand the need for foreign investment. “‘Why can’t we leave it in Canada?’ This is the mentality,” he said in a telephone interview.
According to the Ipsos survey conducted at the end of January, 75% of Canadians agreed that the government should stop selling Canadian companies to foreign investors. If the acquirer is a state-owned enterprise, this percentage will rise to 79%.
He added that 75% is a “stable number” that dates back to 2012, so there has been no recent public opinion that has spiked with foreign ownership.
Currently, one in eight Canadians (1.9 million) work for foreign companies in Canada.
Most foreign investments are under the radar. But in extreme cases, in addition to determining whether the investment is in Canada’s best interests, the federal government can also conduct a comprehensive national security review as it is acquiring infrastructure giant Aecon through the state-owned China Communications Construction Co., Ltd. The company has a record of fraud and has been banned from participating in the World Bank project for eight years. The Ipsos survey shows that 73% of Canadians object to this particular sale. The review deadline for the potential $1.5 billion transaction has been postponed until July 13.
On the surface, Canada seems to be a good place to do business, and the Canadian Investment Authority aims to promote this information. But what is striking is the regulatory issue, even the misunderstanding of the acquisition of non-state-owned enterprises, which is conducive to job creation, economic growth, and the introduction of new expertise and technology in the country.
However, Canada is seeing a distressing reduction in foreign capital, not only in the energy sector, but also in the larger service sector.