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Foreign direct investment
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The stock of foreign direct investment in Canada recorded the largest gain in eight years, led by a continued wave of acquisitions by foreign investors, particularly in resource-based industries. At the same time, Canadian direct investment assets declined despite strong Canadian corporate investment flows in 2007, while the rise in the Canadian dollar against major foreign currencies resulted in a decrease in Canadian dollar direct investment holdings by year-end.
Foreign holdings of Canadian firms grew strongly in 2007
Foreign corporate investment inflows to Canada were booming in 2007. As a result, foreign direct investment holdings in Canada hit the half a trillion dollar mark at the end of 2007, a marked increase of 14.4% over 2006. This increase was led by a continued wave of takeovers of Canadian firms by foreign investors. Foreign direct investment acquisitions activity surpassed that realized during the high-tech bubble of 2000.
On the other side of the ledger, Canadian direct investors' holdings amounted to $514.5 billion, a decrease of $15.4 billion compared with 2006. This was only the second annual decline in this series, with the previous one occurring in 2003. On both occasions, the appreciation of the Canadian dollar played a significant role.
Note to readersDirect investment is a component of the international investment position that 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, as well as 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. This is especially the case for Canadian direct investment abroad. |
The change in Canadian direct investment holdings for 2007 can be broken down into substantial investment flows amounting to just over $53.0 billion, which were more than offset by a downward revaluation of foreign currency denominated assets of just over $67.0 billion. The Canadian dollar reached parity with the US currency by the end of 2007. It gained strongly against the US dollar (+18%), the British pound (+16%) and, to a lesser extent, against the Euro (+6%).
Net direct investment position narrows substantially
Canada's net direct investment position, the difference between Canadian direct investment abroad and foreign direct investment in Canada, narrowed to $13.7 billion at the end of 2007, down from $92.2 billion a year earlier. This was the smallest surplus since this account moved out of deficit in 1997.
Acquisitions drove foreign direct investment in Canada, especially from non-US countries
For the second consecutive year, the increase of foreign corporate investment in Canada was led by major acquisitions originating mainly from non-US countries. The United Kingdom and other European countries accounted for a large portion of this activity.
The total foreign direct investment position in Canada was still dominated by holdings of American investors at the end of 2007. American corporations accounted for 58% of the total, down from 61% in 2006. Nevertheless, their direct investment holdings stood at $288.6 billion, up $21.4 billion from 2006.
Direct investors from the United Kingdom rose significantly for the second consecutive year (+37.5%) to $54.7 billion, the gain principally arising from acquisitions. The Netherlands, France, Switzerland, Germany and Sweden comprise the other European countries among the top 10 nations with foreign direct investment in Canada.
Foreign direct investment positions in Canada arising from Asia/Oceania increased steadily in the past five years, still mainly driven by corporate investors from Japan.
Holdings of Canadian direct investors abroad declined in most countries
Holdings of Canadian direct investors abroad were down in all major geographical areas, mainly a reflection of the appreciating Canadian dollar. The direct investment position with the United States decreased to $226.1 billion, accounting for approximately 30% ($4.3 billion) of the overall decline.
Although the share of Canadian direct investment abroad in the United States (44%) remained little changed from a year earlier, it was down from 10 years ago (51%), as this form of investment has become more diversified across countries.
Canadian direct investment in European countries decreased $5.4 billion to $134.6 billion in 2007. The United Kingdom continued to represent the second most popular venue for Canadian direct investment abroad with the investment position at $54.6 billion. Ireland ($19.3 billion) and France ($14.6 billion) were also in the top 10 European countries for Canadian direct investors.
The proportion of Canadian inter-company investment in some Caribbean countries remained high at the end of 2007. Investment in Barbados, Bahamas, Bermuda and the Cayman islands stood at 16.5% of the total Canadian direct investment abroad, up sharply from 5.4% in 1997.
Australia and Brazil, among the top 10 destinations for Canadian corporate investment in 2007, were the only countries which recorded an increase in the value of the Canadian direct investment abroad position.
Foreign holdings of direct investment in Canada concentrated in manufacturing and oil and gas industries
Foreign corporations directed the majority of their investment in Canada into the manufacturing and oil and gas industries, which accounted for more than half (55.0%) of the total foreign direct investment positions in Canada at the end of 2007. Financial, insurance and management industries combined amounted to 22.7%.
Canadian direct investment abroad focused in financial, insurance and management industries
On the other hand, Canadian direct investors placed almost half of their portfolio of investment abroad (49.4%) into financial, insurance and management industries. Investment in the manufacturing and mining and oil and gas industries sector abroad accounted for 34.9% of the total outward investment.
At the end of 2007, Canada had a negative net direct investment position with key partners such as the United States, France, the United Kingdom, the Netherlands, Switzerland and Japan. Canada had a positive net direct investment position with most of its other partners.
The net direct investment position of Canada with the United States was negative $62.5 billion, a deficit position which expanded by $25.5 billion in the year. This largely reflected the impact on Canadian direct investment positions of an appreciating Canadian currency vis-à-vis the US greenback.
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 Christian Lajule (613-951-2062; christian.lajule@statcan.gc.ca), or Komal Bobal (613-951-6645; komal.bobal@statcan.gc.ca), Balance of Payments Division.
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