Canada's State of Trade: Trade and Investment Update 2010

VI. Overview of Canada's Investment Performance

The world economic crisis strongly impacted foreign direct investment (FDI) inflows in 2009, which declined 38.7 percent (US$657.1 billion) to just over US$1 trillion. This is approximately half the value of inflows in 2007, preceding the crisis, when they totalled just under US$2 trillion. Canada’s inward and outward investment flows were also impacted, but began to bounce back in the second half of 2009.

Despite the challenging economic environment, during the second half of the year Canadian Direct Investment Abroad (CDIA) outflows nearly recovered to their pre-crisis levels, reflecting Canada’s relatively strong economic performance during the crisis. Although the stock of CDIA fell in 2009, this was entirely due to a revaluation adjustment as a result of a higher Canadian dollar.

On the other hand, the fall in FDI inflows to Canada in 2009 was greater than the global drop, following large inflows in 2007 and 2008 from mergers and acquisitions (M&As) in resource industries. FDI inflows also rebounded in the second half of the year, but are still below what they had been before the crisis. Canada’s stock of inward FDI grew only marginally in 2009, due in part to weak growth in investment from Canada’s largest source, the United States. The decline in U.S. investment, combined with strong growth fromother source economies, has led to increased diversification among countries holding FDI stock in Canada. Canada’s stock of inward FDI from China jumped by over two thirds in 2009, mostly due to Chinese investment in Canada’s resource sector.

On a sectoral basis, the share of manufacturing continued to decline for both inward and outward investment stocks in 2009, as energy and mining increased reflecting the growing importance of this sector in the Canadian economy. The finance and insurance industries continued to dominate CDIA stocks, and now account for over 40 percent of the total.

Global Capital and Direct Investment Flows

Increased global capital market integration played a critical role in the rise of globalization over the last few decades, with total cross-border investment flows1 rising dramatically in both developing and developed economies. However, net cross-border capital flows dwindled in 20082 (down 83.9 percent) as a result of the global financial crisis and the resulting uncertainty in financialmarkets, with a few countries,most notably the United Kingdom, experiencing a net capital outflow for the year.

Figure 6-1
Global Capital Inflows*

Figure 6.1 depicts annual global capital inflows (direct and portfolio investments as well as other capital inflows in US$ trillion) to the World as well as foreign direct investment (FDI) inflows alone over the period 2000 to 2008. World inflows were US$3.6 trillion in 2000. They fell to US$1.9 trillion in 2002 before starting a continuous expansion to reach US$10.2 trillion in 2007, but collapsed to US$1.6 trillion in 2008. FDI Inflows were US$1.3 trillion in 2000, dipped to US$0.5 trillion in 2003, gradually recovered to US$2.0 trillion in 2007 before falling back to US$1.6 trillion in 2009.

* Includes direct investment, portfolio investment, other investment flows (includes bank loans and deposits), and reserve assets.

Source: International Monetary Fund, IMF.

Data: IMF. Global Financial Stability Report and IFS. Total does not include Taiwan.

Figure 6-2
Global FDI Inflows

Figure 6.2 depicts Foreign Direct Investment (FDI) inflows to the world, developed and developing countries in US$ billion over the period from 2000 to 2009. In 2000, FDI inflows were US$1,381.7 billion (of which US$1,117.8 billion was to developed and US$257.0 billion to developing countries), followed by a decline to US$565.2 billion in 2003 (of which US$361.3 billion to developed and US$184.0 billion to developing countries). After several years of expansion FDI inflows reached a peak at US$1,978.8 billion in 2007 (of which US$1,358.6 billion was to developed and US$529.3 billion to developing countries), but fell back to US$1,040.3 billion in 2009 (of which US$565.6 billion to developed and US$405.5 billion to developing countries).

Source: UNCTAD World Investment Report 2010.

Foreign direct investment (FDI) proved to be the most stable of all the capital flows throughout the crisis (Figure 6-1). The year 2007 was the high-water mark for global direct investment flows (Figure 6-2), which hit US$1.98 trillion before declining 14.2 percent to US$1.7 trillion in 2008, and falling a further 38.7 percent in 2009 to just over US$1 trillion. This marks a dramatic turnaround from previous years, where between 2004 and 2007 global FDI flows more than doubled as a result of strong global economic growth, increased corporate profits, higher stock prices, growth in private equity and hedge funds, and the increasing role of state investment agencies in emerging economies. The severity of the impact of the global financial crisis is also evident in the abrupt end to decades of uninterrupted growth in the world stock of FDI, which fell 4.8 percent in 2008 to US$14.9 trillion.3

The decline in 2009 flows was heavily driven by a sharp decline in cross-border mergers and acquisitions (M&As), which accounted for 71.0 percent of the overall decline. This led to a sharp increase in the greenfield share of FDI, rising to 76.9 percent in 2009 (Figure 6-3).

FDI inflows to developed countries contracted themost sharply, falling 41.2 percent in 2009 to US$565.6 billion (Table 6-1). However, unlike in 2008, flows to developing economies also fell in 2009, contracting by 34.7 percent to US$405.5 billion as the global downturn spread. Despite this drop, the share of flows to developing countries as a proportion of total global FDI continued to increase, reaching 39.0 percent, up from 36.6 percent in 2008.

Among developed economies, the United Kingdom and the United States stand out for the magnitude of their declines, with FDI inflows falling 92.7 percent to US$7.0 billion in the United Kingdom, and 57.0 percent to US$135.9 billion in the United States. These two countries together were responsible for 41.1 percent of the total global decline. Canada’s FDI inflows also declinedmore strongly than the global average. As a result, Canada’s share of global inflows fell from 2.6 percent in 2008 to 1.9 percent in 2009.

Figure 6-3
Mergers and Acquisitions Share of FDI Inflows (2009)

Figure 6.3 depicts the share of global FDI inflows in 2009 accounted for by Mergers and Acquisitions (23.1 percent) and Greenfield investments (76.9 percent) respectively.

Source: UNCTAD Global Investment Trends Monitor, January 19, 2009.

Figure 6-4
Global Direct Investment Outflows (2008)

Figure 6.4 depicts the percentage share of global Direct Investment Outflows accounted for by various geographic destinations in 2008. The EU accounted for 45.1%, the US for 16.7%, Canada for 4.22%, Other developed economies for 15.0%, China for 2.8%, Transition economies for 3.1% and Other developing economies for 12.9%.

* UNCTAD regional category “Transition” includes Russia, the CIS, and several countries in South East Europe.

Source: UNCTAD World Investment Report 2010.


FDI inflows to EU countries as a whole experienced a smaller decline than the global average. Excluding the United Kingdom, the decline is reduced to just 14.0 percent, far below the nearly 40 percent decline in world inflows. Two major EU economies, Italy and Germany, experienced growth in FDI inflows in 2009, which increased 75.5 percent to US$29.9 billion in Italy, and 40.7 percent to US$35.1 billion in Germany.

Inflows into Asia and Oceania4 were down less than the global average, at 32.1 percent to US$264.1 billion.Within the region, inflows to China stand out because they remained relatively unchanged, falling just 2.6 percent to US$90.0 billion in 2009, making China the second-largest destination for FDI inflows, after the United States. India experienced amore significant decline, with inflows falling 19.0 percent to US$33.6 billion.

FDI inflows to Japan5 remained weak for a large economy in 2009, experiencing a sizeable decline of 53.4 percent to just US$11.4 billion. This represents only 1.1 percent of world inflows, and Japan averaged just 0.85 percent of world inflows since 2000.

FDI inflows to Latin America and the Caribbean declined to US$85.5 billion, a drop of 40.7 percent. Inflows to Brazil were down sharply by 49.5 percent to US$22.8 billion. Inflows to Mexico also dropped significantly by 40.8 percent to US$13.0 billion.

Inflows to Africa also fell, dropping 36.2 percent to US$55.9 billion.While down significantly over 2008, this level remains much higher than in years prior to 2006, with Africa having seen considerable growth in FDI inflows since 2000.Within the continent, flows into Egypt were down 13.9 percent for the year to US$8.2 billion, and FDI inflows to South Africa fell even further, down 24.6 percent to US$6.8 billion.

FDI inflows to countries in South East Europe and the Commonwealth of Independent States fell 39.4 percent to US$69.3 billion. Russia is the dominant recipient of inflows among these countries, although they fell 41.1 percent in 2009 to US$41.4 billion.

Global direct investment outflows in 20086 continued to be dominated by developed economies, which were responsible for 81.1 percent of outflows (see Figure 6-4), although the share from developing countries continues to increase. EU countries were the largest source of outflows with a 45.1 percent share, while the United States was the largest individual country source of FDI outflows at 16.8 percent. Despite increases in Chinese direct investment abroad, China’s share of total outflows remains low at 2.8 percent—smaller than Canada’s 4.2 percent share.

Table 6-1
Global FDI Inflows for Selected Regions and Economies, 2004-2009 (US$)
 20052006200720082009Growth 2008/09Share of World Inflows 2009
1 UNCTAD data for Canada is not available for 2009, Canada's inflows for 2009 are calculated using data from Statistics Canada converted to US$ using the annual average exchange rate.
* Does not include finance.
Developed Economies$613,100,000,000$972,800,000,000$1,358,600,000,000$962,300,000,000$565,600,000,000-41.2%54.4%
United States$104,800,000,000$237,100,000,000$271,200,000,000$316,100,000,000$135,900,000,000-57.0%13.1%
E.U. 27$498,400,000,000$590,300,000,000$842,300,000,000$503,500,000,000$356,700,000,000-29.2%34.3%
United Kingdom$176,000,000,000$156,200,000,000$183,400,000,000$96,900,000,000$7,000,000,000-92.7%0.7%
Developing Economies$329,300,000,000$433,800,000,000$529,300,000,000$620,700,000,000$405,500,000,000-34.7%39.0%
Asia and Oceania$214,000,000,000$283,400,000,000$332,700,000,000$388,700,000,000$264,100,000,000-32.1%25.4%
Hong Kong$33,600,000,000$45,100,000,000$54,400,000,000$63,000,000,000$36,000,000,000-42.8%3.5%
Latin America and the Caribbean$77,100,000,000$93,300,000,000$127,500,000,000$144,400,000,000$85,500,000,000-40.7%8.2%

Source: UNCTAD World Investment Report 2009 and Global Investment Trends Monitor January 2010.

Canada’s Direct Investment Performance

Figure 6-5
Canada’s Inward and Outward Stocks of FDI

Figure 6.5 depicts Canada’s inward and outward stocks in C$ billions of foreign direct investment (FDI) over 2000-2009. The stock of outward FDI was valued at $356.5 billion in 2000, gradually increased to $513.1 billion in 2007, jumped to $641.6 billion in 2008 before tapering off to $593.3 billion in 2009. The stock of inward FDI was valued at $319.1 billion in 2000, expanded gradually to $510.1 billion in 2007, $540.8 billion in 2008, and $549.4 billion in 2009.

Source: Statistics Canada.

FDI provides benefits to Canadian firms through the transfer of knowledge, technology and skills, and increased trade related to the investment, all of which enhance Canada’s productivity and competitiveness. FDI is also one of the ways in which Canadian companies can integrate into global value chains.

The global financial crisis hit with force in the second half of 2008, triggering a sharp decline in both inward and outward FDI flows, a slowdown in the growth of inward direct investment stocks and, as a result of a valuation adjustment due to currency changes, a sharp drop in CDIA stocks in 2009. Canada had experienced significant growth in both inward and outward stocks of FDI over the last 25 years. Prior to the global downturn, inward investment had accelerated dramatically between 2004 and 2007 as a result of a jump in cross-border M&As, strong economic growth, and investment in the resource sector.

Despite tough economic conditions, Canada saw inward investment stocks continue to increase modestly in 2009 (up 1.6 percent to $549.4 billion), albeit at a slower pace then in previous years (Figure 6-5). The stock of CDIA on the other hand declined by a significant 7.5 percent ($48.4 billion) in 2009 to $593.3 billion. However, the entire decline in the value of the CDIA stock in 2009 is due to a valuation readjustment resulting from the appreciation of the Canadian dollar against many currencies (in particular the U.S. dollar). This appreciation subtracted $72 billion (around 11 percent) from the overall Canadian outward direct investment position. Discounting this adjustment, CDIA would have increased by about $23.7 billion. Despite the drop in themeasured value of the stock of CDIA, Canada maintained a positive net direct investment position (the difference between CDIA and FDI in Canada) of $43.9 billion, although down from $100.8 billion in 2008. For the thirteenth consecutive year CDIA in 2009 exceeded inward FDI, making Canada a net exporter of capital since the mid-1990s. Canada’s net direct investment position with the United States, which had been positive for the first time in 2008 ($14.2 billion), turned negative (-$27.0 billion) in 2009 as a result of the appreciation of the Canadian dollar.

Canada’s Inward FDI Flows

For the second consecutive year, Canada experienced a sharp decline in FDI inflows, which fell 53.7 percent to $22.1 billion (Figure 6-6). This is down 81.0 percent from the peak year in 2007 when inflows reached $116.4 billion, and continues a pattern of volatility over the 2000s. The quarterly FDI statistics show a modest rebound in Canadian inflows in the second half of 2009 (Figure 6-7). This is amarked improvement fromthe negative flows in the first two quarters (disinvestment) but is still well below the average of inflows over the 2000s. The declines in 2008 and in 2009 were partly the result of fewer foreign acquisitions of large Canadian mining and energy companies (Figure 6-8), compared to 2007 when a number of very high profile sales took place.7 While inflows were down over recent highs, they still remain above recent lows in 2003 and 2004.

Figure 6-6
Canadian Direct Investment Flows

Figure 6.6 depicts Canada’s inward and outward annual foreign direct investment (FDI) flows in C$ billions over 2000-2009. Outward FDI flows were $66.4 billion in 2000, gradually declined to $32.1 billion in 2003, rebounded to $82.9 billion in 2008 before slumping to $46.3 billion in 2009. Inward FDI flows were $99.2 billion in 2000, tumbled to negative $0.6 billion in 2004, reached a peak of $116.4 billion in 2007 before falling back to $47.7 billion in 2008 and to $22.1 billion in 2009.

Source: Statistics Canada.

Figure 6-7
Canadian Quarterly FDI Inflows

Figure 6.7 depicts Canada’s quarterly foreign direct investment (FDI) inflows in C$ billion 2007-2009. Inflows in Q1/2007 were 19.6, reached 48.3 in Q4/2007 before dropping to 5.6 in Q2/2008 and a low of negative 2.1 in Q2/2009 before rebounding to 17.1 in Q3/2009 and 7.9 in Q4/2009.

Source: Statistics Canada.

Figure 6-8
Foreign Acquisitions of Canadian Companies ($5 billion CDN)

Figure 6.8 depicts a number of foreign acquisitions of Canadian companies, including the C$ billion transaction value. In 2009; Addax Petroleum Corp. acquired by Sinopec International Corp. for $8.3 billion. In 2008; Duvernay Oil Corp. acquired by Royal Dutch Shell for $5.9 billion, Prime West Energy Trust acquired by Abu Dhabi National Energy Corp. for $5.0 billion. In 2007; Alcan Inc. acquired by Rio Tinto plc. for $39.8 billion, Ipsco Inc. acquired by SSAB Svenskt Stal AB for $8.5 billion, Western Oilsands Inc. acquired by Marathon Oil Corp. for $7.1 billion, Novelis acquired by Hindalco Industries Ltd. for $7.0 billion.

Source: FP Infomart.

Internationally, Canada’s decline in inflows was greater than that of the rest of the world. In 2009, Canada’s share of world inflows declined for the second consecutive year, reaching 1.9 percent. This is below Canada’s share of world GDP (2.3 percent), and a sharp drop from Canada’s share in 2007 (5.5 percent) and in 2008 (2.6 percent).

Regional Composition of Canada’s Inward FDI Stock

Figure 6-9
Canada’s Inward and Outward Stocks of FDI

Figure 6.9 depicts the respective percentage share of the inward FDI stock in Canada in 2009 by country or region of origin. The US accounted for 52.5% of inward FDI stock in Canada in 2009, UK for 11.6%, Netherlands for 8.5%, Switzerland for 3.9%, France for 3.3%, Brazil for 2.7%, Germany for 2.5%, Japan for 2.4%, Luxembourg for 1.8%, China for 1.6%, and all other countries for 9.3%.

Source: Statistics Canada.

Investors from the United States now hold only just over one half of Canada’s inward FDI stock, with a 52.5 percent share valued at $288.3 billion (Table 6-2; Figure 6-9), down fromnearly two thirds five years ago. In 2009, the recent trend of weak investment growth from the United States continued, with an increase of just 1.7 percent, and a five-year annual growth rate of just 3.4 percent (compared with 7.7 percent for all countries). This trend led to a reduced U.S. share of direct investment in Canada, which had been 64.1 percent in 2004. The U.S. share has shifted to investors from the U.K. (up 4.9 percentage points), and Asia- Oceania whose share has increased by 4.6 percentage points.

Table 6-2
Stock of Foreign Direct Investment in Canada by Region
 2004200820092004 Share2009 ShareGrowth 2008/09Growth1 2004/09
1 Compound average annual growth rate
North America and Caribbean$248,000,000,000$288,500,000,000$292,500,000,00065.4%53.2%1.4%3.4%
South and Central America$2,000,000,000$14,800,000,000$15,300,000,0000.5%2.8%3.4%50.4%
Top-10 Sources
United States$243,300,000,000$283,500,000,000$288,300,000,00064.1%52.5%1.7%3.4%
United Kingdom$25,300,000,000$66,800,000,000$63,500,000,0006.7%11.6%-5.0%20.2%
Emerging Economies

Data: Statistics Canada, stocks.

In 2009, the stock of FDI from the EU decreased by 1.2 percent to $163.7 billion. Despite this drop, European countries still account for six of the top ten sources of FDI in Canada and 34.0 percent of Canada’s inward stock. The United Kingdom remained Canada’s second-largest source of FDI, despite a 5.0-percent decline ($3.4 billion) to $63.5 billion. The stock of FDI from the Netherlands also fell, by 5.4 percent to $46.5 billion, while that of Luxembourg jumped by 41.1 percent to $9.9 billion. Investments from France grew by a more modest 3.3 percent to reach $18.2 billion, while the stock of investment from Germany remained flat at $13.9 billion.

FDI from South and Central America continued to grow in 2009, albeit at a slower pace than in recent years, rising 3.4 percent to $15.3 billion. FDI from this region has risen dramatically in recent years, with a five-year annual growth rate of 50.4 percent. This growth is almost entirely attributable to investment from Brazil, which has a 96.9 percent share of the region’s stock of FDI in Canada. Brazil remains in sixth place among all investors in Canada, and ahead of all other BRIC and developing/emerging economies for direct investment in Canada.

Investors from Asia and Oceania continued to lead growth in 2009, up 11.0 percent despite the economic downturn, raising the total stock from the region in Canada to $52.7 billion. Japan remains the largest investor fromthe region, with a 24.9 percent share of the Asia and Oceania stock after growing 2.0 percent in 2009 to $13.1 billion. Nevertheless, Japan’s share has fallen dramatically in recent years, down from 52.4 percent in 2004, as emerging Asian economies, notably China, have increased their investments in Canada. China’s stock of direct investment jumped 69.0 percent in 2009 to $8.9 billion, in part the result of M&As in the energy andmining sectors. This increase is remarkable given China held only $113 million in direct investment stocks in Canada as of 2004. Investment from the United Arab Emirates has also increased, from nearly negligible levels in recent years to hit $4.4 billion in 2009, although up only 1.9 percent from the previous year.

The stock of FDI from African countries grew marginally in 2009, rising to $1.8 billion. While little changed year over year, investment from Africa has grown strongly since 2004, when the investment stock sat at just $532million.

Sectoral Composition of Inward FDI Stocks

Inward direct investment in 2009 grew slowly inmost industries, with the exception of transportation and warehousing where it grew123.0 percent to $8.9 billion (Table 6-3). Growth in FDI in mining and oil and gas extraction slowed in 2009 after several years of very strong growth, with a five-year average annual growth rate of 15.2 percent. The FDI stock in oil and gas extraction and support grew2.7 percent in 2009 to $78.8 billion, for a 14.4 percent share among all industries (nearly double its share in 2000).Meanwhile mining, which had experienced strong growth since 2000, grew only 0.6 percent in 2009 to $25.4 billion.Within themining and energy industries there were large swings in the ownership of FDI,with theU.S-held stock increasing $3.6 billion, the stock held by emerging and developed economies outside the OECD and the EU increasing by $3.8 billion, and the stock fromtheUnited Kingdom declining by $4.4 billion.

Manufacturing remains the largest destination industry for direct investment, but rose only marginally in 2009 at 0.4 percent to $195.2 billion. The share of direct investment in manufacturing has steadily eroded over the 2000s, standing at 35.5 percent in 2009, down substantially from 48.4 percent in 2000. The decline was widespread but led by beverage and tobacco productsmanufacturing (-7.0 percentage points), computer and electronics (-4.2 percentage points), electrical equipment (-2.9 percentage points), and transportation equipment (-2.9 percentage points). The decline in the manufacturing category would have been more severe if not for an increase in direct investment in primary metal manufacturing (+5.3 percentage points) as a result of large M&As in 2007, and steady growth in petroleum and coal products (+2.8 percentage points).

Table 6-3
Stock of Foreign Direct Investment in Canada by Industry
 200820092009 ShareGrowth 2008/09Growth1 2004/09
1 Compound average annual growth rate
All Industries$540,830,000,000$549,400,000,000100.0%1.6%7.7%
Primary Metal$41,406,000,000$38,679,000,0007.0%-6.6%41.5%
Transport Equipment$24,914,000,000$25,436,000,0004.6%2.1%1.0%
Petroleum and coal$29,638,000,000$31,027,000,0005.6%4.7%15.6%
Paper and Wood products$11,765,000,000$11,049,000,0002.0%-6.1%-1.5%
Mining and Oil and Gas extraction$102,033,000,000$104,272,000,00019.0%2.2%15.2%
Oil and Gas extraction and support$76,764,000,000$78,840,000,00014.4%2.7%12.7%
Transportation and warehousing$3,991,000,000$8,901,000,0001.6%123.0%30.2%
Finance and Insurance$73,082,000,000$71,936,000,00013.1%-1.6%6.5%
Management of Companies$59,657,000,000$59,931,000,00010.9%0.5%2.7%
Information and communication technologies (ICT)$20,932,000,000$21,561,000,0003.9%3.0%1.6%
All Other$86,818,000,000$87,648,000,00016.0%1.0%7.8%

Data: Statistics Canada

Foreign Affiliates in Canada

Figure 6-10
Foreign Controlled Assets in Canada

Figure 6.10 depicts the percentage share of foreign controlled assets in all industries and manufacturing over the 2000 to 2007 period. The share of foreign controlled assets in all industries remained relatively constant at 20-21 over the entire period. The share of foreign controlled assets in manufacturing was 45% in 2000, rose to 47% in 2006 and to 53% in 2007.

Source: Statistics Canada, Corporations Returns Act.

Information on foreign-controlled affiliates in Canada is gathered through the Corporations Returns Act (CRA), and provides information on foreign subsidiaries not available in the FDI data. CRA asset measures include the sourcing of funds domestically, giving a broadermeasure of foreign interests; as well, the CRA provides information on sales, employment, firm size, and profitability, data which are not available from the direct investment statistics. Among other things, this allows the performance of foreign-controlled firms to be compared with that of domestic firms within the Canadian economy.

In 2007,8 foreign-controlled firms accounted for 21.3 percent of all corporate assets in Canada, 29.4 percent of all operating revenues, and produced 26.2 percent of all operating profits.9 Despite large increases in the stock of inward FDI in recent years, these shares have remained relatively flat (Figure 6-10) implying that domestically controlled firms expanded at a relatively similar rate, thereby keeping pace with the higher levels of foreign investment in the Canadian economy.

Foreign firms operating in Canada are much larger on average than their domestic counterparts (Table 6-4). Of the 1.34million enterprises operating in Canada in 2007, only 0.4 percent were foreign controlled. However, foreign-controlled firms made up 15.4 percent of medium-sized firms, and 39.7 percent of all large enterprises.

The United States had by far the largest share of assets10 among foreign-controlled firms at 58.9 percent, although the U.S. share has fallen in recent years, down from 66.1 percent in 2002. This is not unexpected as the U.S. share of direct investment in Canada also declined over this period. The United Kingdom, at 9.2 percent, and the Netherlands, at 5.6 percent, had the next largest shares, and combined with the United States accounted for nearly three quarters of the assets of foreign-controlled firms in Canada in 2007.

The distribution of foreign-controlled firms tends to be concentrated in certain industries such as manufacturing, mining and quarrying, and oil and gas extraction (Table 6-5). Finance and insurance have a lower share of foreign presence than the average (15.6 percent of assets of firms in those industries).11 By contrast, more than half (52.8 percent) of manufacturing assets in Canada in 2007 were foreign owned (Figure 6-10), which represents the highest proportion of foreign control among nonfinancial Canadian industries. This share had been stable for most of the 2000s until 2007, when there was a large influx of FDI into the manufacturing sector in Canada through M&As. U.S. enterprises accounted for the largest share (32.0 percent) of total foreign-controlled manufacturing assets in Canada.

Table 6-4
Foreign Control by Size of Enterprise (number of firms, 2007)
 ForeignCanadianTotalForeign Share
Small Enterprises5,7631,324,5661,330,3290.4%
Medium Enterprises1,1116,0957,20615.4%
Large Enterprises1,3151,9953,31039.7%

Data: Statistics Canada, Corporations Returns Act, 2007

Table 6-5
Foreign Control of Assets by Industry (non-financial), 2007
1 Data from 2006
Mining and quarrying (except oil and gas)147.6%
Wholesale trade41.8%
Oil and gas extraction and support activities38.5%
Overall non-financial industries27.1%
Retail trade22.8%
Accommodation and food services18.3%
Administrative, waste management, remediation17.3%
Repair, maintenance and personal services16.4%
Arts, entertainment and recreation13.4%
Professional, scientific and technical services12.6%
Real estate and rental and leasing10.2%
Transportation and warehousing7.6%
Information and cultural industries6.4%
Educational, healthcare and social assistance services1.7%
Agriculture, forestry, fishing and hunting1.6%

Data: Statistics Canada, Corporations Returns Act, 2007

Intra-firm and Affiliate Trade Between Canada and the United States

Figure 1
Canada-U.S. Intra-Firm Goods Trade

This figure depicts the value (US$ billion) of Intra-Firm trade between Canada and the U.S. and the share (percent) of Canada-U.S. trade Intra-Firm trade accounted for over the period from 1990 to 2007. The value of Intra-Firm Canada-U.S. was US$72.4 billion in 1990, rose to US$138.6 billion in 2000, fell back to US$123.8 billion in 2002 before gradually expanding to US$177.9 billion in 2007. The share of Intra-Firm trade was 41.0% in 1990, fell gradually to 33.0% in 2001 and to 31.2% in 2007.

Source: U.S. Bureau of Economic Analysis, BEA.

Canada has the second-lowest share of intra-firm trade with the United States among the G7 nations, however, U.S. affiliates operating in Canada account for a larger share of trade than between any other G7 country. The latter includes U.S. affiliates in Canada exchanging goods with their U.S. parent (intra-firm trade) as well as with unrelated U.S. companies. These trendsmay actually reflect a higher degree of integration between Canada and the United States as U.S. firms find Canada an attractive location from which to serve the, as shown by the high share of affiliate trade. But when exporting to the United States, affiliates deal directly with their customers without needing to go through their U.S. parents, as indicated by the low share of intra-firm trade.

Nevertheless, the share of both intra-firmand U.S. affiliate trade between Canada and the United States has been on the decline. This is likely due to a combination of structural changes in the automotive industry over the past few years (as firms vertically disintegrated production, a number of auto parts suppliers located in Canada, previously affiliated with large U.S. automakers, have become independent companies), an overall decline in the share of highly integrated auto trade relative to overall Canada-U.S. trade, and the declining share of manufacturing in overall Canada-U.S. trade.

Intra-Firm Trade

Figure 2
Canada-U.S. Intra-Firm Goods Trade by Industry

This figure depicts the share of Canada - U.S. Intra-Firm Trade (percent) by Industry in 2007. Transport equipment accounted for 38.6%, Chemicals for 5.1%, Machinery and equipment for 2.1%, Fabricated metals 1.5%, Other manufacturing for 11.1%, Wholesale trade for 27.2%, Food for 2.5%, Mining for 4.6% and All other industries for 7.3%.

Source: U.S. Bureau of Economic Analysis, BEA.

In 2007, the latest year for which data is available, 32.1 percent of Canada- U.S. trade in goods was intra-firm, equivalent to bilateral trade of US$177.9 billion. Although the value of intra-firm trade has more than doubled since 1990, the share of Canada-U.S. trade that is intra-firm has decreased over the same period, falling by about 10 percentage points since 1990, notwithstanding small increases in 2006 and 2007. This is due to faster growth in overall bilateral trade in goods between Canada and the United States which has outpaced growth in intra-firm trade.

In 2007, 60.9 percent of Canada-U.S. intra-firm trade was in manufacturing, down from nearly 80 percent at the beginning of the decade. Transportation equipment makes up the largest portion of Canada-U.S. intra-firm trade by far, accounting for 38.6 percent of the total. By contrast, mining accounts for a relatively small share (4.6 percent.) These two sectors are responsible for the decline in the intra-firmshare of Canada-U.S. trade, due to a decline in the auto sector in recent years as well as less intra-firmtrade within that sector, and growth in raw materials trade that is less intra-firm intensive.

Canada also had the second-lowest share of intra-firm trade with the United States among the G7 countries, after Italy. Almost all of Japan’s trade with the United States was intra-firm(97.6 percent), due to the importance of wholesale trade affiliates, which accounted for nearly three quarters of Japan-U.S. intra-firm trade, while about two thirds of Germany-U.S. trade was intra-firm. Nonetheless, despite having a lower share, the magnitude of Canada’s intra-firm goods trade with the United States ranks second among the otherG7 economies, due to the significant size of Canada-U.S. trade. About 36.1 percent of all Canadian goods exports to the United States were intra-firm, while only a quarter (24.8 percent) of Canadian goods imports from the United States was intrafirm. The bulk (80.4 percent) of intra-firm trade involves goods traded between U.S. parents and their affiliates rather than Canadian parent companies and their affiliates.

Affiliate Trade

Figure 3
Share of U.S. Manufacturing Imports from U.S. Foreign Affiliates in 2007

This figure depicts the share (percent) of U.S. bilateral trade with various countries in 2007 that was Intra-Firm Trade; Canada 33.5%, Mexico 26.4%, UK 23.6%, France 15.8%, Germany 7.9%, China 2.1%, Japan 0.79%.

Source: U.S. Bureau of Economic Analysis (BEA) & U.S. Department of Industry, Trade and Commerce (ITC).

Although Canada has one of the lowest shares of intra-firm trade with the United States among the G7, it has the highest share of trade accounted for by U.S. affiliates. In 2007, about 30.9 percent (US$176.3 billion) of Canadian trade in goods with the United States involved affiliates of U.S. companies operating in Canada. It is the latter that sets Canada apart and likely reflects the greater integration and levels of familiarity between the two economies. Unlike other foreign companies, Canadian and U.S. companies do not feel the need to establish a foreign presence in order to conduct trade. However, this type of trade has also experienced a decline in share of total trade over the past decade, down from about 40.9 percent in 1998. This was largely due to the manufacturing sector: U.S. affiliates’ trade in this sector accounted for 22.8 percent of the total Canada-U.S. trade in goods in 2007, down from 34.7 percent in 1998.

In 2007, close to three quarters of the Canada-U.S. trade in goods carried out by affiliates of U.S. companies operating in Canada was in the manufacturing sector, with exports and imports reaching US$74.1 billion and US$55.8 billion, respectively. In fact, about a third of overall Canadian manufacturing exports to the United States were produced by affiliates of U.S. companies operating in Canada, a significantly higher share than other major U.S. import sources, such asMexico or China. This in part reflects the integration of the Canada-U.S. automotive industry, since many affiliates of U.S. auto companies are still located Canada. The transportation equipment sector was responsible for 45.1 percent of Canadian goods exports by U.S. affiliates to the United States, representing over 61.5 percent of manufacturing exports by U.S. affiliates.

Canadian Direct Investment Abroad

CDIA outflows declined significantly in 2009, falling 44.1 percent to $46.3 billion. While CDIA outflows were low in the first half of the year, they picked up significantly in the second half as the economic recovery took hold. During the final two quarters of 2009, CDIA outflows had roughly returned to their 10-year average (Figure 6-11). It is also worth noting that CDIA outflows have been stronger and less volatile than inflows (Figure 6-6). Canada has also emerged as an important source of global direct investment outflows12 with a 4.2-percent share, larger than Canada’s share of world GDP (2.3 percent). Canada’s annual share for the 2000s was 3.9 percent, compared to 3.0 percent over the 1990s, despite the growing importance of emerging economies in outward flows.

Regional Composition of CDIA Stocks

CDIA stocks in the United States, Canada’smost important destination, fell by over 12 percent ($36.4 billion) in 2009 to $261.3 billion (Table 6-6; Figure 6-12). However, a stronger Canadian dollar was the cause of the decline, reducing the value of Canadian-held investments in the United States by $41 billion when converted back into Canadian dollars. Although the United States’ share of CDIA (44.0 percent) fell in 2009, it remains close to the ten-year average (45.1 percent).

CDIA stocks in Europe decreased slightly (1.6 percent) in 2009 to $160.0 billion, although Europe’s share of CDIA edged up slightly to 27.0 percent as it did not fall by as much as in other destinations. CDIA in the United Kingdom, the largest destination for CDIA in Europe, grew 9.3 percent ($5.6 billion) to $65.4 billion, despite a 4-percent appreciation of the Canadian dollar relative to the British pound. CDIA in Ireland fell 7.0 percent to $22.7 billion and in France fell 7.4 percent to $15.9 billion. Together, these three destinations account for 65.0 percent ($104.0 billion) of the total CDIA in Europe.

CDIA in the Caribbean countries (including Mexico) and Bermuda fared slightly better than average, declining by 7.3 percent to $99.5 billion. After strong growth in recent years, the value of CDIA in offshore financial centres Barbados and the Cayman Islands fell by 11.0 percent to $40.8 billion, and 13.7 percent to $19.4 billion, respectively. The region’s share of CDIA remained virtually unchanged at 16.8 percent.

Figure 6-11
Canadian Quarterly CDIA Outflows (billions)

Figure 6.11 depicts Canada’s quarterly foreign direct investment (FDI) outflows in C$ billion 2007-2009. Outflows in Q1/2007 were $20.2 billion, reached $29.8 billion in Q1/2008, dropped down to a low of $2.1 billion in Q1/2009 before rebounding to $26.0 billion in Q3/2009 and $14.0 billion in Q4/2009.

Source: Statistics Canada.

Figure 6-12
Shares of CDIA in 2009

Figure 6.12 depicts the respective percentage share of the Canadian (outward) FDI stock abroad (CDIA) in 2009 by country or region of destination. The US accounted for 44.0% of CDIA in 2008, UK for 11.0%, Barbados for 6.9%, Ireland for 3.8%, Cayman Islands for 3.3%, Bermuda for 3.1%, France for 2.7%, Australia for 2.2%, Hungary for2.1%, Bahamas for 2.0%, Brazil for 1.9%, and all other countries for 17.1%.

Source: Statistics Canada.

Table 6-6
Stock of Canadian Direct Investment Abroad by Region
 2004200820092004 Share2009 ShareGrowth 2008/09Growth1 2004/09
1 Compound average annual growth rate
North America and Caribbean$260,200,000,000$405,000,000,000$360,800,000,00058.0%60.8%-10.9%6.8%
South and Central America$21,200,000,000$30,200,000,000$28,300,000,0004.7%4.8%-6.3%6.0%
Top-10 Destinations
United States$198,500,000,000$297,700,000,000$261,300,000,00044.2%44.0%-12.2%5.7%
United Kingdom$44,400,000,000$59,800,000,000$65,400,000,0009.9%11.0%9.3%8.1%
Cayman Islands$9,700,000,000$22,500,000,000$19,400,000,0002.2%3.3%-13.7%15.0%
Emerging Economies

Data: Statistics Canada, stocks.

Canada’s direct investment in South and Central America declined 6.3 percent ($1.9 billion) in 2009 to $28.3 billion. The largest destination remains Brazil where the stock was up 16.0 percent to $11.4 billion, followed by Chile where CDIA declined 13.6 percent to $8.3 billion. As with inward FDI, CDIA in Brazil is greater than in the three other BRIC countries combined.

Asia and Oceania was the only region where the value of CDIA stock grew in 2009, edging up 2.2 percent to $39.1 billion. CDIA in Australia surged 47.1 percent to $12.8 billion, offsetting declines in Hong Kong (down 12.3 percent to $5.8 billion), Japan (down 14.0 percent to $3.6 billion), and India (down 23.4 percent to $601 million). CDIA in China was down 2.4 percent to $3.3 billion. Direct investment across the region is widely distributed, with nine countries having over $1 billion each in CDIA.

Table 6-7
Stock of Canadian Direct Investment Abroad by Selected Industry
 200820092009 ShareGrowth 2008/09Growth1 2004/09
1 Compound average annual growth rate
Mining and Oil and Gas extraction$104,507,000,000$89,943,000,00015.2%-13.9%7.3%
Oil and Gas extraction and support$78,862,000,000$65,786,000,00011.1%-16.6%10.1%
Finance and Insurance$231,874,000,000$240,080,000,00040.5%3.5%14.2%
Management of Companies$91,402,000,000$61,392,000,00010.3%-32.8%-4.4%
Transport and warehousing$21,598,000,000$22,047,000,0003.7%2.1%7.7%
Information and cultural industries$18,445,000,000$22,145,000,0003.7%20.1%3.0%
Information and communication technologies (ICT)$17,585,000,000$18,177,000,0003.1%3.4%-6.5%
All industries$641,641,000,000$593,291,000,000100.0%-7.5%5.8%

Data: Statistics Canada

The CDIA stock in African countries fell 9.3 percent ($522 million) in 2009 to $5.1 billion. Despite this drop, CDIA in Africa has grown significantly over the 2000s, at an average annual rate of 9.2 percent over the last five years.

Sectoral Composition of CDIA Stocks

Although the value of CDIA for most industries fell in 2009, the declines were far from evenly distributed. The largest drop was in the management of companies and enterprises category, which declined by over $30 billion (32.8 percent) to $61.4 billion. The next largest decline was in manufacturing where CDIA fell 14.8 percent ($16.6 billion) to $96.0 billion, followed by mining and oil and gas extraction where it fell 13.9 percent ($14.6 billion) to $89.9 billion.

Despite widespread declines, some industries saw substantial increases in the stock of CDIA. The finance and insurance industries, the largest recipients of CDIA, experienced a 3.5-percent increase ($8.2 billion) to $240.1 billion. CDIA has become increasingly concentrated in the finance and insurance industries, with this category now representing 40.5 percent of the CDIA stock. Information and cultural industries posted a substantial gain of 20.1 percent ($3.7 billion) to $22.1 billion and “all other industries”, a catch-all for smaller industries, experienced an increase of 173.5 percent ($4.9 billion) to $7.7 billion.

The year-over-year decline in CDIA stocks inmanufacturing, at 14.8 percent, was greater than average, and brought manufacturing’s share of CDIA down to just 16.2 percent. The share of CDIA in manufacturing is much lower than that of inward FDI. Nevertheless, manufacturing remains the secondlargest recipient of CDIA, followed closely by mining and oil and gas extraction.

Canadian Affiliates Abroad

Foreign Affiliate Trade Statistics13 (FATS) are a complementary source of information to CDIA statistics, providing an enhanced picture of the international activities of the affiliaties/subsidiaries of Canadian MNEs located abroad. While current data extend only to 2007, which precedes the economic crisis, these data provide evidence of greater diversification of Canadian MNEs’ sales and employment away fromthe United States and the EU toward emerging markets. FATS also show declining Canadian affiliate activity inmanufacturing industries, but with substantial growth in mining and energy, and finance.

Figure 6-13
Canada’s Foreign Affiliate Sales ($ billions)

Figure 6-13 depicts Foreign Affiliate Sales of Goods and Services, in C$ billion, over the period from 1999 to 2007. Foreign affiliate sales of goods was 198.7 in 1999, sales of services 117.7 for a total of 316.4; in 2000 sales of goods was 226.7, services 140.4 for a total of 367.1; in 2001 sales of goods was 221.1, services 143.4 for a total of 364.6; in 2002 sales of goods was 219.1, services 135.5 for a total of 354.6; in 2003 sales of goods was 218.5, services 119.2 for a total of 337.8; in 2004 sales of goods was 249.9, services 131.3 for a total of 381.2; in 2005 sales of goods was 267.2, services 134.3 for a total of 401.5; in 2006 sales of goods was 295.9, services 146.4 for a total of 442.3; in 2007 sales of goods was 305.9, services 152.6 for a total of 458.4.

Source: Statistics Canada.

Growth in global sales and employment by Canadian affiliates was strong in 2007 (Table 6-8; Figure 6-13), with sales increasing by 3.6 percent to $458.4 billion and employment increasing by 4.6 percent to 1.1million. Sales and employment activity over the five preceding yearsmirrored the brisk growth observed in CDIA, with a fiveyear annual growth rate of 5.3 percent for sales and 4.8 percent for employment.

By region, growth among affiliates in 2007 continued a trend of faster expansion among emerging economies and developed economies outside the EU, providing further evidence of the diversification in the activities of Canadian companies internationally. Sales of affiliates based in the United States were nearly flat, declining by 0.2 percent to $238.2 billion, with employment increasing only marginally by 1.9 percent to 599,000. Sales and employment for affiliates based in the United Kingdom both declined, with sales falling by 1.4 percent to $32.8 billion and employment falling by a substantial 8.1 percent to 68,000. Growth was stronger among affiliates based in “Other EU” countries, with sales increasing by 6.4 percent to $55.8 billion and employment rising 10.3 percent to 161,000. Non-EU, non-U.S. OECD affiliates experienced even stronger growth, with sales rising 11.3 percent to $38.9 billion and employment growing 15.3 percent to 83,000. The highest growth in sales occurred among affiliates in “All Other” countries, which includes emerging economies, with sales growing by 11.8 percent to $93.1 billion and employment rising 9.3 percent to 224,000. Affiliates in these countries now account for 20.3 percent of all sales by Canadian affiliates, and 19.7 percent of employment.

Among goods-producing industries, a movement away frommanufacturing toward energy and mining continued, in parallel with the shifting weight of these industries domestically. Sales among all goods-producing affiliates in 2007 rose 3.4 percent to $305.9 billion (Table 6-9), and employment increased by 1.7 percent to 698,000. The industry which grew the most in 2007 was once again mining and oil and gas extraction, which experienced 18.4 percent annual growth in sales over the preceding five years, reaching $105.1 billion, but a slower rate of growth (5.9 percent) in employment to 153,000. Despite sales declining by 3.7 percent and employment declining by 0.9 percent in 2007 to $186.7 billion and 527,000, respectively, manufacturing remains the largest industry for Canadian affiliates, accounting for 40.7 percent of total sales and 46.4 percent of total employees.

Table 6-8a
Canada’s Foreign Affiliate Sales by Region
 2007Yearly growth5 year CAGRShare
United States$238,152,000,000-0.2%1.8%52.0%
Other EU$55,805,000,0006.4%7.7%12.2%
Other OECD$38,556,000,00011.3%11.5%8.4%
Table 6-8b
Canada’s Foreign Affiliate Employees by Region
 2007Yearly growth5 year CAGRShare
United States599,0001.9%3.4%52.8%
Other EU161,00010.3%11.4%14.2%
Other OECD83,00015.3%5.7%7.3%

Source: Statistics Canada

Foreign affiliates are an important vehicle for Canadian companies selling services into international markets: while foreign affiliate sales of goods are only about two thirds as large as Canadian exports of goods, affiliate sales of services are more than twice the value of services exports. The higher reliance on foreign affiliates for services may be because a local presence is needed for the delivery of some services. While accounting for a lower share of total sales and employment among Canadian affiliates than goods-producing industries, growth in foreign affiliate services’ sales has outpaced that of sales exports in recent years, growing 4.2 percent to $152.6 billion in 2007, and employment climbing 9.8 percent to 437,000.

Within services, the finance industry is by far the largest by sales, with sales growing 11.5 percent in 2007 to $56.0 billion, and employment up 2.3 percent to 44,000. Strong growth in the finance industry may be the result of acquisitions in recent years of foreign institutions by large Canadian banks and insurance companies, predominantly in the United States and Latin America. Unlike the strong growth seen in the finance industry in 2007, the affiliate sales of retailers plunged 16.1 percent to $19.9 billion, with no growth in employment. Nevertheless, five-year growth in this industry has been robust,with 31.4 percent annual growth in sales and 47.2 percent growth in employment.

Comparing Canadian foreign affiliate sales with exports provides insight into the strategies Canadian MNEs employ to service international markets. Global foreign affiliate sales of goods and services have risen faster than exports in recent years, and as of 2007 were equal to 86.0 percent of exports, up from 74.8 percent in 1999. This growth is driven mostly by the sales of goods, which have risen from 53.8 percent to 66.0 percent of the value of goods exports over the same period. This shows that the affiliate sales route is gaining in importance relative to exports for goods, although it is still far from the level of services, where affiliate sales of services are more than double services exports (almost 220 percent their value, which is unchanged from 1999). The ratio of foreign affiliate sales-toexports varies greatly by region, with Canadian firms much more likely to serve the U.S. market through exports than through affiliate sales. The proportion of such sales relative to exports to the United States rose slightly in 2007, to just over 60 percent. By contrast, for the EU, affiliates accounted for 176.4 percent of sales in relation to exports, and more than 174.1 percent from non- OECD countries.

Table 6-9
Canada’s Foreign Affiliate Sales by Industry
NAICS2007Change5 year CAGRShare
Goods and services$458,417,000,0003.6%5.3%100.0%
Agriculture, forestry, fishing and hunting$1,884,000,00036.1%9.7%0.4%
Mining and oil and gas$105,045,000,00014.3%18.4%22.9%
Utilities, construction$12,247,000,00039.7%16.6%2.7%
Wholesale trade$11,219,000,000-2.5%2.9%2.4%
Retail trade$19,873,000,000-16.1%31.4%4.3%
Transport and warehousing$10,173,000,00012.5%-3.6%2.2%
Information and cultural$18,041,000,00016.3%-10.6%3.9%
Finance (non-bank) and insurance$55,961,000,00011.5%4.2%12.2%
Professional, scientific, technical services$8,109,000,0006.2%-4.8%1.8%
Other services$9,997,000,000-5.0%-8.3%2.2%

Source: Statistics Canada

1. Includes direct investment, portfolio investment, other investment flows (includes bank loans and deposits), and reserve assets.

2. Year of most recent available data.

3. Data: UNCTAD FDI database.

4. UNCTAD country aggregates are used to report global inflows.

5. Note that UNCTAD aggregate for Asia and Oceania excludes Japan.

6. Year of most recent available data.

7. Note that not all of these investments may meet the definition of direct investment (or may do so at a different recorded value than the announced or market sales price) and are therefore not directly comparable with official direct investment statistics.

8. Year of most recent available data.

9. Corporations Returns Act, Statistics Canada.

10. Excludes financial industries.

11. ‘Non depository intermediaries’ is the one area of the financial industry with high levels of foreign control of assets, at 59.5 percent. Examples include firms who issue credit cards.

12. In 2008, year of most recent available data for global outflows.

13. For the purpose of FATS, a foreign affiliate of a Canadian company is a subsidiary where the Canadian parent owns more than 50 percent of the firm, a stricter definition than direct investment statistics which only require 10-percent control. Statistics Canada collects data on Canadian affiliates’ sales and employment abroad with a limited breakdown by region and industry.