Foreign control in the Canadian economy

Foreign control in the Canadian economy (as measured by share of assets for all corporations) remained virtually unchanged for the second straight year in 2002.

Foreign-controlled firms held just over one-fifth (21.7%) of assets, which was similar to levels recorded in the mid-1990s, and up only slightly from those of the early 1990s.

Growth in assets of Canadian-controlled enterprises kept pace with those of foreign-controlled enterprises in 2002, both rising by just over 4% from the year before. Canadian-controlled enterprises reported just over $3.4 trillion in assets, while foreign-controlled assets rose to just over $950 billion.

The value of corporate assets almost doubled between 1992 and 2002. Gains were marginally higher for foreign-controlled than Canadian-controlled corporations. While foreign-controlled corporations doubled their assets to just under $1 trillion in 2002, Canadian-controlled corporations reported a 93% gain to $3.4 trillion.

On the other hand, a second measure, the share of operating revenues earned by foreign-controlled firms, paints a slightly different picture. Using this measure, foreign control has stabilized around the 30% mark since 1999 after increasing steadily through much of the 1990s.

In the case of operating revenues, corporations under domestic control recorded the larger gain in 2002. Their revenues reached just over $1.7 trillion, up 2% from 2001, while those for foreign-controlled corporations dipped 2% to $704 billion.

United States by far biggest foreign player

The United States continues to be the biggest foreign player in the Canadian economy. As Canada's nearest neighbour and largest trading partner, the United States continues to dominate foreign-controlled corporations operating in Canada.

US-controlled corporations accounted for 61.7% of foreign control in assets and 65.4% in operating revenues in 2002, little changed from 2000.

The importance of the United States becomes evident when its role is compared against that of the European Union. Operating revenue generated by US-controlled corporations operating in Canada were triple those of EU-controlled corporations in both 2001 and 2002.

Among individual countries, Germany continues to place second, as it has since 1999, using operating revenue as the measure. Germany accounted for 7.2% of foreign-controlled revenue in 2002, good enough for second place but well behind the United States.

Germany had just edged out Great Britain by a single point. This is a change from 1999 when Great Britain placed second.

Foreign control more prevalent in the non-financial sector

Foreign control continues to be more prevalent in the non-financial sector of the economy where foreign interests held 28.0% of assets and generated 29.5% of operating revenues in 2002.

By comparison, foreign-controlled firms only accounted for 14.9% of assets and 23.7% of operating revenues in the finance and insurance industries in 2002, reflecting tighter regulatory controls in this sector of the economy.

Foreign control continues to be most prevalent in manufacturing and oil and gas. Foreign-controlled and Canadian-controlled firms share roughly equally in the operating revenue held by manufacturing firms.

For 2001, foreign interests generated 52.8% of manufacturing revenue, and for 2002, they generated 51.8%. Similarly for oil and gas, 49.9% of its operating revenues came from corporations under foreign control in 2002.

Foreign control peaked in the early 1970s among non-financial industries

Foreign control was at its peak in the late 1960s and early 1970s for the non-financial industries. This came after a period of record growth that also saw the introduction of the Canada-US Auto pact.

After reaching its peak in 1971, foreign control declined steadily until the mid-1980s. During this period, the Canadian economy suffered through a recession and a major oil crisis.

By the late 1980s, foreign control was on the rise again with a surge in mergers and acquisitions activity. Foreign control continued to rise steadily throughout much of the 1990s as "globalization" picked up steam and international trading partnerships (such as NAFTA, the European Union and the Association of South-East Nations) were formed.

By 2000, foreign control had levelled out at 31.1% of operating revenue, well below the peak of 37.6% in 1971.

Operating profits hold steady

Operating profits held steady at $172.7 billion in 2002. Profits of Canadian-controlled corporations rose slightly to $122.9 billion in 2002, compared with a slight dip in profits to $49.9 billion for foreign-controlled corporations.

Canadian-controlled corporations continue to generate a strong majority of the profits in both the non-financial industries and the finance and insurance industries.

In the non-financial sector, Canadian-controlled corporations continue to account for two-thirds of the profits. In the financial sector, Canadian-controlled corporations continue to account for close to 80% of profits.

Manufacturing posts highest operating profits of any industry

Manufacturing reported operating profits of $38.0 billion in 2002, the highest of any industry. Foreign-controlled corporations accounted for 50.8% of these profits.

A distant second was banking and credit unions, which generated nearly $17 billion in operating profits. By contrast, virtually all of these profits (94.0%) were generated by Canadian-controlled firms.

In the oil and gas industry, foreign-controlled corporations generated $6.6 billion, or 45.2%, of the industry's $14.6 billion in profits in 2002. Profits were considerably higher in 2001 at $20.4 billion, yet the split between foreign-controlled and Canadian-controlled profits remained the same.

Available on CANSIM: table 179-0004.

Definitions, data sources and methods: survey number 2503.

The report Corporations Returns Act: Foreign Control in the Canadian Economy, 2001 and 2002 (61-220-XIE, $32) will soon be available.

For more information, or to enquire about the concepts, methods or data quality of this release, contact David Sabourin (613-951-3735), Industrial Organization and Finance Division.