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As a result of a wave of acquisitions of Canadian firms by foreign investors and a weaker Canadian dollar compared to European currencies, both Canadian direct investment abroad and foreign direct investment in Canada recorded the highest percentage increase in six years at the end of 2006.
Canadian direct investors had foreign assets worth more than half a trillion dollars. Direct investment abroad hit $523.3 billion, a gain of $63.7 billion or 13.8% from the end of 2005, the fastest percentage increase since the technology boom of 2000.
The value of capital transactions during the year accounted for about three-quarters of the increase. The depreciation of the Canadian dollar against foreign currencies increased the position by another $18.0 billion, as Canadian direct investments abroad are denominated in foreign currencies.
Note to readersDirect investment is a category of the international investment position which refers to investment of a resident entity in one country obtaining a lasting interest in an enterprise resident in another country. The lasting interest implies the existence of a long-term relationship between the direct investor and the enterprise and a significant degree of influence by the investor on the management of the enterprise. In practice, direct investment is deemed to occur when a company owns at least 10% of the voting equity in a foreign enterprise. This report presents the cumulative year-end positions for direct investment. In the Canadian statistics, direct investment is measured as the total value of equity, net long-term claims and net short-term claims held by the enterprise across the border. Direct investment is often channelled through intermediate holding companies or other legal entities before reaching its ultimate destination. Since these entities are generally in the financial sector, this sector accounts for a larger share on an immediate investor basis than if the ultimate destination were known. Industry and geographic details There has been a significant improvement to the data available on a detailed industrial basis combined with a geographical breakdown for Canadian Direct Investment Abroad (CDIA) and Foreign Direct Investment in Canada (FDIC). CANSIM table 376-0052 has been modified and expanded, with both CDIA and FDIC presented on a North American Industry Classification System (NAICS) basis for up to 40 industry groupings and 5 countries or regions, namely the United States, America, Europe, Asia/Oceania and the rest of the world. These revised data are available for the years 1999 to 2006. |
Meanwhile, foreign direct investment in Canada hit $448.9 billion at the end of 2006, up $41.3 billion, or 10.1%, from the end of 2005. This was also the fastest percentage gain since 2000. The increase was mostly the result of acquisitions of major Canadian firms by foreign investors, which was also the case in 2000.
As a result, the net direct investment position (the difference between Canadian direct investment abroad and foreign direct investment in Canada) increased to $74.4 billion at the end of 2006, up from $52.0 billion a year earlier.
In 2006, the Canadian dollar lost ground against European currencies. It depreciated by 12.4% against the pound sterling, 10.4% against the euro and 7.4% against the Swiss franc. The dollar remained stable compared to the US dollar (+0.2%) and gained 0.7% on the Japanese yen.
Canadian direct investment abroad increased in most countries
Holdings of Canadian direct investment abroad were up in all major destinations. Direct investments in the United States rose by $19.0 billion to $223.6 billion. This was mostly as the result of capital outflows of Canadian firms to existing operations in their US affiliates.
However, the share of investment in the United States remained little changed from a year earlier. Canadian direct investment abroad has become more diversified across other countries. The share of direct investment in the United States was just 43% of the total, down from 52% 10 years ago and 69% 20 years ago.
The depreciation of the Canadian dollar against the euro and the pound sterling had a positive impact on direct investment assets in European countries. About 29% of investment was in European countries at the end of 2006, up from 28% in 2005.
Canadian direct investment in the United Kingdom rose by $10.1 billion to $59.0 billion and represented the second most popular destination for Canadian direct investment abroad. Canadian direct investment was also important in other European countries at the end of 2006. Among the top 10 countries for holdings of investment abroad were Ireland, with investments totalling $24.7 billion; France with $16.9 billion; the Netherlands, $12.1 billion; Hungary, $9.9 billion, and Germany, $9.4 billion.
Canadian direct investments in Caribbean countries were still high at the end of 2006. Direct investment in Barbados increased to $38.4 billion while direct investment in Bermuda hit $15.6. In the past few years, Canadian investors have invested growing amounts in these countries.
Australia, a new country on the top-10 list, had $9.6 billion in direct investments at the end of 2006. Brazil was close behind with a significant increase.
Acquisitions drove foreign direct investment in Canada
Foreign direct investment in Canada was still led by American investors at the end of 2006. They held $273.7 billion in the form of direct investment, up $14.7 billion from 2005. They were still by far the most important direct investor in Canada, holding 61% of the total, but down from 64% in 2005.
Direct investment from the United Kingdom rose by 30% to $39.0 billion, the gain coming mainly from acquisitions. Four other European countries were on the list of top nations with foreign direct investment in Canada. They were France with $29.5 billion; the Netherlands at $22.6 billion; Switzerland with $14.1 billion; and Germany at $9.9 billion.
Holdings of foreign direct investment from Brazil surged to $9.4 billion, more than triple the total a year earlier. Acquisitions of Canadian interests explained almost all of the change. Brazil is the investor country with the highest percentage increase over a four-year period.
Outward investments in services, inward investments in goods industries
Canadian direct investment abroad was mostly oriented to service industries as opposed to goods. At the end of 2006, the share of services industries totalled 61%, compared with 55% in 2000. Increased investment in holding companies or other management companies contributed to this change.
Specifically, most Canadian direct investment assets were in the finance and insurance industry and in the manufacturing industry at the end of 2006.
At the same time, 55% of foreign direct investments in Canada were in goods industries at the end of the year. This share was down slightly from 59% in 2000.
Manufacturing industries accounted for 37% of foreign direct investment in Canada at the end of 2006. This sector was still the most important, even though its share of foreign direct investment in Canada was down from 48% in 2000.
Mining and oil and gas extraction accounted for 16% of the total, double the proportion in 2000.
Increase in Canada's net direct investment position
Canada's net direct investment position increased $22.4 billion to $74.4 billion at the end of 2006. The increase was due to exchange rates and other valuation changes, as transactions for foreign direct investment into Canada were higher than outward transactions.
Canada had a positive net direct investment position with most of its partners including the United Kingdom and Caribbean countries.
However, at the end of 2006, Canada had a negative net direct investment position with important partners, such as the United States, France, the Netherlands, Switzerland and Japan. The net direct investment position of Canada with the United States was negative $50.5 billion.
| Foreign direct investment positions at year-end | ||||
|---|---|---|---|---|
| 2003 | 2004 | 2005 | 2006 | |
| $ billions | ||||
| Canadian direct investment abroad | ||||
| United States | 169.6 | 198.9 | 204.6 | 223.6 |
| United Kingdom | 43.9 | 44.3 | 48.9 | 59.0 |
| Barbados | 25.7 | 27.1 | 33.6 | 38.4 |
| Ireland | 19.6 | 19.7 | 19.9 | 24.7 |
| France | 11.8 | 14.6 | 14.5 | 16.9 |
| Bermuda | 10.9 | 12.4 | 12.8 | 15.6 |
| Netherlands | 11.0 | 12.4 | 10.6 | 12.1 |
| Hungary | 9.3 | 8.2 | 7.1 | 9.9 |
| Australia | 8.1 | 8.3 | 8.0 | 9.6 |
| Germany | 9.0 | 8.1 | 7.2 | 9.4 |
| All other countries | 93.3 | 95.0 | 92.3 | 104.0 |
| Total | 412.2 | 449.0 | 459.6 | 523.3 |
| Foreign direct investment in Canada | ||||
| United States | 238.1 | 246.8 | 259.0 | 273.7 |
| United Kingdom | 26.0 | 26.3 | 30.0 | 39.0 |
| France | 36.2 | 33.4 | 28.4 | 29.5 |
| Netherlands | 17.7 | 20.0 | 22.1 | 22.6 |
| Switzerland | 7.1 | 7.9 | 13.2 | 14.1 |
| Japan | 9.9 | 10.1 | 10.5 | 11.3 |
| Germany | 6.9 | 7.4 | 9.6 | 9.9 |
| Brazil | 1.1 | 1.9 | 3.1 | 9.4 |
| All other countries | 30.8 | 29.7 | 31.7 | 39.3 |
| Total | 373.7 | 383.5 | 407.6 | 448.9 |
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.
