Foreign direct investment

Assets held by Canadians at the end of 2002 in the form of direct investments abroad increased from a year earlier at twice the pace of comparable Canadian liabilities. As a result, direct investment now contributes $82.4 billion to the wealth of Canadians, up from $56.1 billion in 2001.

Assets held by Canadians in the form of direct investments abroad rose to $431.8 billion, up 10.8% from 2001. This rate of growth was, however, slower than the 14.6% average over the past 10 years.

On the other hand, the liabilities of Canadians in the form of direct investments came to $349.4 billion, up 4.7% from the level observed at the end of 2001. This is the slowest rate of increase since 1993 and less than half the 9.9% average growth rate posted in the past 10 years.

This generally faster growth in the position of foreign direct investment of Canadians observed over the past 30 years was mainly due to the dynamism of Canadian businesses in foreign markets and, more recently, to the depreciation of the Canadian dollar against the American dollar. Since 1997, net direct investment has made a positive contribution to Canada's wealth, which it had never done before.

Fewer enterprise acquisitions abroad

The majority of the rise in the position of foreign direct investment abroad is related to the outward movement of funds to affiliated companies for working capital purposes. Over the two previous years (2000 and 2001), Canadian acquisitions of foreign companies had accounted for most of the growth in the foreign direct investment abroad assets of Canadians. The fact that the global economic situation has been less favourable toward acquisitions certainly played a part in this change in trend.

Even though the Canadian dollar appreciated in relation to the American dollar in 2002, the depreciation in the Canadian dollar in relation to the euro played a significant part in the increase in the level of direct investment abroad last year. Variations in the Canadian dollar in relation to foreign currencies added $6.6 billion (or 15.7% of the increase in the position between 2001 and 2002) to the foreign direct investment position of Canadians.

At the end of 2002, Canadians held assets in the form of foreign direct investment mainly in the finance and insurance sector (41.3%).

US share of direct investment abroad falls

Even though the United States remained our main partner in terms of the level of direct investment, its share continued to fall, reaching 46.7% (or $201.8 billion) of total Canadian direct investment abroad at the end of 2002. This proportion, which was down from 48.5% in 2001, meant that foreign direct investment by Canadians was more evenly distributed across foreign markets. The level of direct investment by Canadians in European Union countries increased by $18.5 billion to $99.8 billion, or 23.1% of the total. The proportion of direct investment directed to all other countries represented 30.2% of the total.

Slow rise in foreign direct investment in Canada

The growth in the foreign direct investment position in Canada was partly due to acquisitions by American interests of Canadian companies, mostly in the energy and mining sectors early in the year. Very few acquisitions took place in the second half of 2002, and this contributed to the slow growth rate in the foreign direct investment position in Canada. At the same time, capital inflows from parent companies located abroad were relatively low as the general strength of Canada's economy generated internal sources of funds.

At the end of 2002, the direct investment positions of foreign investors were mainly in the finance and insurance sector (19.2%) and the energy sector (16.2%).

American investors held a total of $224.3 billion in direct investments in Canada at the end of 2002. They retained the same 64.2% share of the total foreign direct investment in Canada that they held in 2001. Americans continue to hold more Canadian assets than Canadians hold American assets in the form of direct investments. The European Union saw its share of foreign direct investments change to 26.9% of the total, or $94.0 billion. Foreign direct investment in Canada by all other countries came to only 8.9% of the total position at the end of 2002.

Available on CANSIM: tables 376-0038, 376-0051, 376-0053 and 376-0054.

Information on methods and data quality available in the Integrated Meta Data Base: survey number 1537.

For more information, or to enquire about the methods, concepts or data quality of this release, contact Christian Lajule (613-951-2062) or Éric Simard (613-951-7244), Balance of Payments Division.