Tuesday, March 22, 2005

SPOTLIGHT: Investment abroad

‘Tax havens’ rising in popularity

CANADIAN companies are steering more of their financial assets away from the United States and into other nations, including so-called “tax havens”, many of which are in the Caribbean, according to a new report.

Between 1990 and 2003, Canadian enterprises invested substantial and growing amounts in countries known as ‘offshore financial centres’ (OFCs).

During this time, Canadian assets in OFCs increased eight-fold, from $11 billion to $88 billion. These centres include countries that are often referred to as “tax havens”, as well as those with an especially important financial sector, such as Switzerland.

OFCs accounted for more than one-fifth of all Canadian direct investment abroad in 2003, double the proportion 13 years earlier.

11 nations

Among them, the largest growth in Canadian direct investment during this time occurred in Barbados, Bermuda, the Cayman Islands, the Bahamas and Ireland. By 2003, these five were among the 11 nations with the most Canadian assets.

Meanwhile, the share of Canadian direct investment going to the United States, Canada’s main economic partner, has declined considerably. In 2000, Canadian enterprises held fewer assets in the United States than in all other countries combined.

Since 1999, the financial sector has accounted for more Canadian assets than any other sector, ahead of processing, services and manufacturing.

Direct investment mainly serves to finance the creation of new enterprises, the acquisition of existing ones and the activities of foreign affiliates.

Growth of assets

This report analyses Canadian direct investment in OFCs between 1990 and 2003. It also provides an analysis of the distribution of Canadian direct investment assets in OFCs and elsewhere in the world by industry. And it measures and analyses their contribution to the growth of assets held abroad by Canadian enterprises.

The $88 billion in assets invested in OFCs were mainly concentrated in the financial sector, which alone accounted for $72 billion, including $53 billion in banking services.

In the financial sector, Canadian companies are investing far more of their assets in OFCs than they are in either the United States or elsewhere in the world.

The average annual rate of growth of Canadian direct investment was higher in these countries (+18%) than in the United States (+8%) and in other countries (+14%).

You can read the full report “Canadian direct investment in offshore financial centres” free on our web site.

For more information, contact François Lavoie (613-951-5416), Balance of Payments Division.

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© 2004, 2005 Statistics Canada.