Foreign direct investment

Canadian direct investment abroad increased by more than 10% through 2004, mainly as the result of acquisitions and increases in the working capital of foreign affiliates. At the same time, foreign direct investment in Canada rose by only 3%.

As a result, the net direct investment position (the difference between Canadian direct investment abroad and foreign direct investment in Canada) rose to a record $79.4 billion at the end of 2004. This was a $30.5 billion gain from the previous year.

The largest takeover in history by a Canadian enterprise of a foreign company drove Canadian direct investment abroad to $445.1 billion at the end 2004, up $41.7 billion from the year before.

The appreciation of the Canadian dollar, largely against its US counterpart, lowered the position by $18.0 billion as Canadian direct investments abroad are denominated in foreign currencies. However, the value of capital transactions more than offset this effect.

The increase in 2004 was in sharp contrast with the 7% decline observed at the end of 2003 when the Canadian dollar had appreciated strongly vis-à-vis most foreign currencies.

At the same time, foreign direct investment in Canada rose by only 3% to $365.7 billion, up from the revised level of $354.5 billion observed at the end of 2003. This rate of increase was well below the average rate of over 9% observed during the last decade. Moreover, revised data based on the 2003 survey results show that there was virtually no increase in foreign direct investment in Canada between 2002 and 2003. This was the lowest annual increase since the declines observed during the 1930s.

In 2004, the Canadian dollar gained 7.9% in value against its American counterpart, 2.9% against the Japanese yen and 0.5% against the pound sterling but was virtually unchanged vis-à-vis the Euro.

Direct investment in the United States jumps

Direct investment assets in the United States increased $27.5 billion, or 17%, to reach $193.9 billion. US assets accounted for 44% of total Canadian direct investment abroad, up from the 41% observed a year earlier but well below the 63% observed in 1989.

Capital infusions and the reinvestment of funds in existing foreign affiliates more than offset the effect of the strengthening Canadian dollar, which lowered the value of direct investment assets in the US by about $12 billion.

The value of Canadian direct investment in the United Kingdom increased $3.0 billion to $44.0 billion. The United Kingdom was the second most popular destination for Canadian foreign direct investment. Four other European countries were in the top 10 countries for Canadian direct investment abroad namely Ireland, Netherlands, France and Hungary. The European Union countries accounted for 27% of the total direct investment abroad at the end of 2004. This proportion was at 19% in 1989.

Canadian enterprises increased five fold their direct investment abroad in the last 15 years and are diversifying their portfolios abroad, with more assets in European markets and in emerging economies with potential for development.

Between 1989 and 2004, the proportion of direct investment in Asia/Oceania countries increased from 7% to 8%. At the same time, the proportion of direct investment in the Caribbean countries more than double from 6% to 14%.

At the end of 2004, foreign direct investment assets were mainly in the finance and insurance industry (45%), in the energy industry (11%) and in the metallic minerals industry (11%).

Foreign direct investment in Canada increases slightly

The 3% increase in foreign direct investment in Canada was mostly the result of capital inflows to existing Canadian operations from foreign parents. Again this year, net acquisitions by foreign direct investors were negative as Canadians on balance repatriated companies from foreign investors during the year.

American investors still hold most of the investment with over 65% of the total or $238.2 billion at the end of 2004. The United Kingdom is now the second largest with 8% or $29.5 billion of the total foreign direct investment in Canada, replacing France which was Canada's second largest foreign direct investor in the previous four years. European Union countries accounted for about 25% of the total. All other nations combined held about 10% of direct investment in Canada at the end of 2004.

In the last 15 years, direct investment in Canada has tripled in value but foreign investors continue to be concentrated in the United States and Western Europe. In 2004, the United States, the European Union countries and the Asia/Oceania countries accounted for almost the same proportion of the total as at the end of 1989.

The energy industry and the finance and insurance industry each represented 18% of total foreign direct investment in Canada at the end of 2004. The remaining foreign direct investment was well diversified.

Canada's net direct investment position increases

The net direct investment position (the difference between Canadian direct investment abroad and foreign direct investment in Canada) increased to a record value of $79.4 billion at the end of 2004, up from $48.9 billion a year earlier. More than three-quarters of the countries with Canadian direct investment abroad and/or foreign direct investment in Canada have a positive net direct investment position.

However, the United States and France recorded a significant negative net direct investment position of $44.3 billion and $17.4 billion respectively. The net direct investment with these two countries has never been positive.

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

Definitions, data sources and methods: survey number 1537.

For general information or to order data, contact Client Services (613-951-1855; infobalance@statcan.gc.ca). To enquire about the methods, concepts or data quality of this release, contact Éric Simard (613-951-7244; eric.simard@statcan.gc.ca) or Christian Lajule (613-951-2062; christian.lajule@statcan.gc.ca), Balance of Payments Division.