Foreign direct investment

Foreign direct investment in Canada increased three times faster than Canadian direct investment abroad through 2005, mainly as the result of the soaring Canadian dollar which lowered the value of existing investments abroad.

Foreign direct investment in Canada increased by more than 9% while Canadian direct investment abroad rose by only 3%.

Foreign direct investment in Canada reached $415.6 billion at the end of 2005, up $34.6 billion from a year earlier. This increase mostly came from acquisitions and injections of funds from the parents in the working capital of Canadian affiliates. Foreign direct investment in Canada has continually increased since the mid-1930s.

At the same time, Canadian direct investment abroad reached $465.1 billion, up from $451.4 billion at the end of 2004. The appreciation of the Canadian dollar lowered the position by $30.0 billion as Canadian direct investments abroad are denominated in foreign currencies. However, the value of capital transactions during the year more than offset this effect.

As a result, the net direct investment position (the difference between Canadian direct investment abroad and foreign direct investment in Canada) decreased to $49.5 billion at the end of 2005, down from a revised $70.4 billion a year earlier.

In 2005, the Canadian dollar gained 3.4% against the US dollar, 15.2% against the pound sterling, 19.0% on the Japanese yen and 18.3% on the Euro.

Direct investment up in the United States, down in European countries

Direct investment assets in the United States increased $17.4 billion to $213.7 billion, mostly as a result of capital outflows to existing operations located south of the border.

The share of US investment increased for a second consecutive year, accounting for 46% of total direct investment abroad at the end of 2005, up from 43% a year earlier.

The strengthening Canadian dollar against the euro and the pound sterling had a negative impact on direct investment assets in European countries. The value of Canadian direct investment in the United Kingdom fell $1.7 billion to $42.7 billion although the United Kingdom remained the second most popular destination for Canadian direct investment abroad.

Canadian direct investment in France fell a significant 14%, as did investment in the Netherlands (-19%). However, these countries are still favourites for Canadian direct investors abroad. France, the Netherlands, Ireland and United Kingdom were the only European nations in the 10 top countries for Canadian direct investment abroad at the end of 2005.

Canadian direct investors continued to invest in Caribbean countries at the end of 2005. Barbados with $34.7 billion of direct investment, a 13% gain, was the third most popular country for direct investment after the United States and the United Kingdom.

Brazil was the only new country in the top 10 at the end of 2005, replacing Japan where investments declined 13% to $7.4 billion. Canadian direct investment in Brazil increased 14% to $8.0 billion.

Canadian direct investments at the end of 2005 were spread over 150 countries on all continents, including more than 30 countries with at least $1 billion in investment.

At the end of 2005, foreign direct investment assets were mainly in the finance and insurance industry (44%), in the energy industry (12%) and in the metallic minerals industry (11%). The share of Canadian direct investment in finance and insurance sector has doubled in the past two decades while the share of the metallic minerals sector decreased from 17% to 11%.

United States holds nearly two-thirds of foreign direct investment in Canada

American investors held $266.5 billion in the form of direct investment at the end of 2005, up $18.0 billion from 2004.

About $11.6 billion of this gain went to the energy sector, which is the favourite for American direct investors. American direct investors have increased their position in the Canadian energy sector by more than 150% since 2000.

American direct investors were still by far the most important in Canada, holding nearly two-thirds (64%) of the total. Four European countries followed in order — the United Kingdom with $29.9 billion in foreign direct investment in Canada; France, $28.4 billion; the Netherlands, $21.7 billion; and Switzerland, $13.0 billion.

As it did for direct investment abroad, Brazil was the only new country to join the top 10 list of Canada's major partners for direct investment in Canada.

The 10 major investor countries accounted for 95% of the total, suggesting foreign direct investment in Canada is concentrated among major developed countries. However, almost 100 countries had direct investment positions in Canada at the end of 2005.

The finance and insurance sector accounted for 21% of foreign direct investment in Canada at the end of 2005, followed by the energy sector at 20%. The share of the energy sector in foreign direct investment has almost doubled since 1999, going from 11% to 20%, the same as it was in 1987.

Decline in Canada's net direct investment position

Canada's net direct investment position declined $20.9 billion to $49.5 billion at the end of 2005. The nation's net direct investment position has been positive for the last nine years and has contributed positively to the increase in Canada's net international investment position.

Canada has a positive net direct investment position with most of its partners. However, at the end of 2005, the net direct investment position of Canada with the United States was a negative $52.8 billion.

Net direct investment with the United States has never been positive. In other words, American direct investors have always held more assets in Canada than Canadian direct investors have held assets south of the border.

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.