Canada's State of Trade: Trade and Investment Update 2011
VI. Overview of Canada’s Investment Performance
The ebb and flow of regional economic prospects is reflected by the movements of capital faround the world. On the global scale, investment is increasingly being directed toward Asia, Latin America, and Africa. These are precisely the areas where Canadian investors have been concentrating their efforts, as direct investment flows to the non-OECD rest of the world increased and stocks of direct investment with these areas were on the rise. At the same time, ongoing problems and weak outlook for many European nations has reduced the attractiveness of that region and Canadian investors have responded by divesting from that area.
The prudentmacroeconomic and fiscal stewardship in Canada going into and coming out of the recession is a positive in the eyes of investors. That, coupled with Canada’s relatively strong economic outlook among the developed economies, has made Canada an attractive place to invest. Accordingly, investment into Canada was on the rise in 2010, led by North American and Asian investors.
Global Foreign Direct Investment Flows
Global inflows of foreign direct investment (FDI) were stagnant in 2010, rising marginally fromUS$1,114 billion in 2009 to almost US$1,122 billion in 2010, according to the United Nations Conference on Trade and Development (UNCTAD) (Table 6-1).1 A strong rebound in FDI flows to developing Asia and Latin America offset declines in inflows to developed countries.
The source of funding also shifted as increased profits of foreign affiliates, especially in developing countries, boosted reinvested earnings, while the uncertainties surrounding global currency markets and European sovereign debt resulted in negative intracompany loans and lower equity investments. Moreover, cross-border mergers and acquisitions (M&As) increased by 37 percent in 2010, while international greenfield projects fell both in number and in value.
|FDI inflows||FDI outflows|
|1 Preliminary estimates by UNCTAD.|
|Latin America and the Caribbean||116.6||141.1||21.1||12.6||47.6||83.9||76.4||6.2|
|Asia and Oceania||303.2||333.6||10.0||29.7||205.5||228.1||11.0||16.9|
|South, East and South-East Asia||233.0||274.6||17.8||24.5||186.4||228.2||22.4||17.0|
|Hong Kong, China||48.4||62.6||29.2||5.6||64.0||76.1||18.9||5.7|
|South-East Europe and the CIS||69.9||70.5||0.8||6.3||48.7||60.6||24.3||4.5|
The year wasmarked by a drop in flows during the second quarter, a rebound in the third quarter, and a flat fourth quarter.Moreover, the pattern of investment inflows was uneven among regions. In particular, FDI inflows to developed countries contracted further in 2010, while those to developing and transition economies recovered, surpassing the 50-percent mark of global FDI flows for the first time.
FDI inflows to the developed countries fell 6.9 percent to US$526.6 billion. This was in spite of a 43-percent surge in FDI in the United States. At US$56.2 billion, this was the single biggest increase in FDI among the major economic regions.
FDI to European nations fell most sharply, down 19.9 percent (US$72.1 billion) to the EU and 21.9 percent (US$83.0 billion) to the continent as a whole. The Netherlands and Luxembourg saw significant declines: the Netherlands experienced negative FDI flows (or divestment) in the amount of US$24.7 billion after having attracted US$26.9 billion in investment in 2009, while investment flows to Luxembourgmore than halved over the year, falling US$15.2 billion. In addition, uncertainties about sovereign debts also caused declines in FDI, with the largest impacts seen in Ireland and Italy (down US$16.6 billion and US$10.8 billion, respectively). Elsewhere, FDI in France and Germany, the region’s major economies, fell only slightly (down US$2.2 billion and US$1.2 billion, respectively).
FDI inflows to Japan plunged 83.4 percent (US$9.9 billion) due to a number of large divestments (e.g. Liberty Group, Ford).
In contrast to the developed economies, FDI flows to developing economies rose 9.7 percent to US$524.8 billion in 2010, due to a relatively fast economic recovery and increasing South–South flows. The value of cross-border M&As—an increasingly important mode of FDI entry into developing countries—more than doubled. Notwithstanding this general increase, significant regional disparities were observed as Latin America and South, East, and South-East Asia experienced strong growth in FDI inflows, while West Asia and Africa saw declines.
FDI inflows to South, East, and South-East Asia rebounded strongly in 2010. After a 17.5-percent decline in 2009, investment into the region rose by 17.8 percent in 2010, to US$274.6 billion. Booming inflows in Singapore, Hong Kong, China, Indonesia, Malaysia and Vietnam were behind the increase, while India registered a notable decline (31.5 percent).
A surge in cross-border M&As was behind the significant increase in FDI flows to Latin America and the Caribbean in 2010. Overall, FDI into the region reached US$141.1 billion. Compared with negative values in 2009, M&As reached US$32.0 billion in 2010, and nearly reached the peak values registered in the region during the 1990s. By sector, the targets of these deals were mainly in the oil and gas, metal mining, and food and beverages industries. Brazil (US$30.2 billion) was the largest recipient country for the fourth consecutive year. Mexico (US$19.1 billion) and Chile (US$18.2 billion) also experienced significant inflows last year.
After peaking in 2008, inflows to Africa have fallen for the past two years. In 2010, FDI inflows to the region were down by 14.4 percent, to US$50.1 billion in 2010. Subregionally, inflows to North Africa appear to have stabilized, while in sub-Saharan Africa, inflows to South Africa declined to roughly a quarter of their 2009 level. Overall, increased FDI fromdeveloping Asia and Latin America to Africa was insufficient to offset the decline of FDI from developed countries, which still account for the largest share of inward FDI flows to many African countries.
FDI flows to West Asia, at US$57.2 billion, were 16.2 percent lower than they were in 2009. The picture varied by country, with inflows to the United Arab Emirates rebounding modestly from relatively low values in 2009, to little change in performance for Lebanon, to a drop in Saudi Arabia.
The transition economies of South-East Europe and the Commonwealth of Independent States (CIS) registered a marginal increase of 0.8 percent in FDI inflows in 2010, to US$70.5 billion, after falling more than 40 percent in the previous year. FDI flows to South-East Europe were down by nearly a third due to sluggish investments from European Union countries (traditionally the dominant source of FDI in the subregion). In contrast, investment in the CIS economies rose by some 5 percent, due to stronger commodity prices and a faster economic recovery.
Turning from a source-based analysis to a destination-based analysis, global FDI outflows rose fromUS$1,189 billion in 2009 to US$1,346 billion in 2010, an increase of 13.2 percent according to the most recent UNCTAD statistics.2 Notwithstanding the increase, outflows remain 40.6 percent below their peak level, set in 2007.
The statistical anomaly in which global outflows do not equal global inflows is the result of various reasons, including different methods of data collection between host and home countries, different data coverage of FDI flows (i.e. treatment of reinvested earnings), and different times used for recording FDI transactions. In addition, the fact that outflows exceed inflows suggests that part of flows recorded as outflows in home countriesmay not be necessarily recorded as inflows of FDI in host countries.
Source : UNCTAD, Global Investment Trends Monitor, n° 6, April 27, 2011.
According to UNCTAD, the rise of FDI outflows in 2010 reflected an improvement of corporate profits and the increasing internationalization of multinational corporations. The financial crisis has caused firms to rationalize their corporate structure and increase efficiencies wherever possible, often by relocating business functions to cost-advantageous locations.
For the developed countries, FDI outflows for 2010 rose to US$969.5 billion, up 9.9 percent over the previous year. This was, however, only half of the peak level recorded in 2007. Reflecting the divergent economic situations in the major economies of the developed world, trends in FDI outflows differed markedly across countries and subregions, and also in their three components—equity investment, reinvested earnings, and other capital flows (mainly intracompany loans).
Outflows from the United States were up US$77.4 billion (31.2 percent) to US$325.5 billion. Increased cross-border M&A deals by U.S. firms, which more than tripled in 2010, accounted for about 80 percent of the overall increase.
Outflows from Europe were also up, but only slightly (2.6 percent), reaching US$516.7 billion in 2010. However, in contrast to their U.S. counterparts, cross-border M&A deals carried out by European companies fell 67.1 percent last year. In some European countries, outflows weremostly driven by intracompany financing to affiliates located abroad (for example, for Germany and Switzerland). For the United Kingdom, traditionally one of the largest investor countries, net outflows tumbled 44.1 percent to US$24.8 billion—a level last seen in 1993—as parent firms withdrew or were paid back loans from their affiliates in order to strengthen their balance sheets at home.
Similarly, for Japan, outward FDI fell by 24.1 percent to US$56.7 billion, as declining intracompany loans and reinvested earnings outweighed a 77.8-percent increase in cross-border M&As.
For the developing countries, FDI outflows were up 22.7 percent over 2009 to reach US$316.1 billion last year. However, there was an uneven pattern among regions, with Latin America and the Caribbean and developing Asia posting strong increases while outward flows from Africa and West Asia declined.
Outward FDI from South, East, and South-East Asia rose by 22.4 percent in 2010, led by Hong Kong, China, Korea, Taiwan and Malaysia. Companies from China continued on a buying spree, actively acquiring overseas assets in a wide range of industries and countries, as outward flows rose by US$11.5 billion to a record US$68.0 billion. Cross-border M&A purchases by companies from the region as a whole surged to US$93.5 billion in 2010, with China (US$29.2 billion) and India (US$26.4 billion) accounting for nearly 60 percent of the region’s M&A activity.
For Latin America and the Caribbean, outward FDI flows were up sharply in 2010, rising 76.4 percent (US$36.3 billion) to US$83.9 billion. The advances were underpinned by a US$12.0-billion hike in cross-border M&A activity. The region’s multinational firms have increased their acquisitions abroad, particularly in developed countries where investment opportunities have arisen in the aftermath of the crisis. For example, according to UNCTAD, Brazilian companies such as Vale, Gerdau, Camargo Correa, Votorantim, Petrobras and Braskem have undertaken acquisitions in the iron ore, steel, food, cement, chemical, and petroleum refining industries in developed countries. At the same time, Mexican firms such as Grupo Televisa, Sigma Alimentos, Metalsa and Inmobiliaria Carso also purchased firms in the United States in industries such as media, food, motor vehicles and services.
FDI flows from Africa fell for the third consecutive year, slipping to US$4.0 billion last year from US$4.5 billion in 2009. Outflows fell significantly from the two major outward investors—Libya and South Africa—which together accounted for more than half of the regional total in 2009. Outflows from Egypt were up strongly in 2010, more than doubling to US$1.2 billion.
Firms inWest Asia withdrew capital in 2010. This was due to a combination of divestment and falling investment values. According to UNCTAD, the largest divestment deals included the US$10.7-billion sale by Zain Group (Kuwait) of its African operations to Bharti Airtel (India), and the $2.2- billion sale by International Petroleum Investment Company (Abu Dhabi’s sovereign wealth fund) of a 70-percent stake in Hyundai Oilbank in the Republic of Korea. At the same time,West Asian greenfield projects abroad—mainly in other developing countries—dropped in value as government- controlled entities—West Asia’s main outward investors—redirected funds homeward to support their home country.
In 2010, FDI flows from the transition economies of South-East Europe and the Commonwealth of Independent States (CIS) grew by 24.3 percent, reaching a record US$60.6 billion. As in past years,most of the outward FDI projects were carried out by Russian companies, followed by those from Kazakhstan.
As developed countries are still confronting the effects of the crisis,manymultinationals in developing and transition economies are investing in other emerging markets, where the recovery is strong and the economic outlook better. For 2010, UNCTAD estimated that 70 percent of investment by developing and transition economies was directed toward other developing and transition economies, compared with a 50-percent share by investors from developed countries.
Canadian Direct Investment Performance
After more than halving in each of the two previous years, FDI inflows into Canada picked up, rising 5.4 percent ($1.2 billion) to $22.5 billion in 2010 (Table 6-2). However, this level is less than one fifth of the record $123.1 billion posted in 2007. The bulk of the inflows came in the form of long-term inflows to Canadian-based subsidiaries of foreign firms, as only some 31 percent of the inflows were directed to net purchases of existing interests in Canada.
|Rest of the World||$4,242,000,000||$6,542,000,000||$2,300,000,000||54.3%|
Source: Statistics Canada.
The advance was due to a sharp rise in investment levels from the United States, the non-OECD rest of the world (ROW), and Japan. At the same time, EU levels tumbled and there was a divestment of funds by other OECD investors. Inflows from the United States, at $16.1 billion, accounted for 71.5 percent of the total inflows. Next in terms of investor importance was the ROW, at $6.5 billion (29.1 percent of the total), followed by Japan, at $1.9 billion (8.4 percent of the total). Investment from the EU into Canada fell to $1.3 billion last year, or 5.9 percent of the total. The overall EU performance can be explained by a $3.8-billion investment from other EU investors accompanied by a $2.5-billion divestment by U.K. investors. It was the second consecutive year that U.K. outward investors have redirected funds homeward, although last year’s amount was somewhat less than the $4.1- billion divestment registered in 2009.
By sector, 44.9 percent of the inflows were directed to energy and metallic minerals, followed by finance and insurance (20.0 percent), services and retailing (12.7 percent),machinery and transportation equipment (4.1 percent), and wood and paper (3.0 percent). The remaining 15.2 percent went to all other industries.
Inward FDI Stock
With the increase in the flow of investment into Canada in 2010, the stock, or cumulative holdings, of direct investment also rose for the year. Foreign direct investment in Canada reached $561.6 billion in 2010, up $14.0 billion (2.6 percent) over 2009 levels (Table 6-3). This represented 34.6 percent of GDP. The gains came mostly from North American investors, as investment fromthis region was up by $14.5 billion. Investors fromAsia and Oceania increased their holdings by $1.7 billion while those from South and Central America and the Caribbean were up by $0.1 billion. Holdings by European and African investors dipped by $1.8 billion and $0.5 billion, respectively.
Investment from North America is dominated by the United States, which increased its FDI holdings in Canada by 5.1 percent to $306.1 billion in 2010, up $14.8 billion over 2009. Partially offsetting the advance were declines from Bermuda and Barbados. With the United States accounting for all of the gains in FDI in Canada, the U.S. share rose to 54.5 percent of all FDI in Canada. This was the first time the United States increased its share since 2004. Notwithstanding the increase, the U.S. share has been trending down since 1999 when the United States accounted for 69.7 percent of all FDI in Canada.
|United Arab Emirates||3,752||3,824||72.0||1.9%|
Data: Statistics Canada.
Countries from the Asia and Oceania region increased their holdings of FDI in Canada by $1.7 billion (2.8 percent) to $62.8 billion in 2010. Japan led the advances with a gain of $1.6 billion, followed by China (up $1.2 billion), Korea (up $0.6 billion), and the United Arab Emirates (up $0.1 billion). However, Australian companies reduced their holdings by $1.9 billion (42.5 percent) to limit the overall gains from the region.
Investment from South and Central America and the Caribbean was up $102million to $14.9 billion in 2010. Brazil (up $139 million) and Argentina (up $39 million) posted notable gains, while losses elsewhere lowered the overall gain.
FDI into Canada from Europe fell by $1.8 billion (1.0 percent) in 2010, to $171.4 billion. Notwithstanding the overall loss, some countries registered notable gains including: France (up $1.3 billion), Luxembourg (up $1.2 billion), Russia (up $0.5 billion) and Germany (up $0.4 billion). A number of other countries registered smaller increases as well. However, declines were posted by a few countries, most notably by the United Kingdom (down $2.6 billion), Switzerland (also down $2.6 billion) and the Netherlands (down $0.5 billion).
The holdings of African investors were $537 million lower in 2010 (down 25.8 percent) than in 2009, with FDI from South Africa alone down $92 million.
Approximately three quarters of the overall increase in FDI into Canada in 2010 went to services-producing industries, and one quarter to goods-producing industries (Table 6-4). Within services, the sector that has attracted the most inward FDI over the years is finance and insurance, and this was again the case in 2010. FDI into this sector rose 7.0 percent, to $82.2 billion, an increase of $5.4 billion over 2009. Information and culture was the next most attractive sector to foreign investors in 2010, as the stock of investment in this sector jumped 20.5 percent ($2.2 billion). Retail trade was up $1.4 billion (9.4 percent) and management of companies and enterprises was up $1.2 billion (1.7 percent), while professional, scientific, and technical services posted the only decline on the services side, at $1.1 billion (down 9.1 percent).
|Total, all industries||$547,578,000,000||$561,616,000,000||$14,038,000,000||2.6%|
|Agriculture, forestry, fishing & hunting||$960,000,000||$1,292,000,000||$332,000,000||34.6%|
|Mining and oil and gas extraction||$87,354,000,000||$92,205,000,000||$4,851,000,000||5.6%|
|Transportation and warehousing||$5,067,000,000||$5,113,000,000||$46,000,000||0.9%|
|Information & cultural industries||$10,564,000,000||$12,730,000,000||$2,166,000,000||20.5%|
|Finance and insurance||$76,839,000,000||$82,213,000,000||$5,374,000,000||7.0%|
|Real estate & rental and leasing||$5,282,000,000||$5,350,000,000||$68,000,000||1.3%|
|Professional, scientific and technical services||$12,023,000,000||$10,933,000,000||-$1,090,000,000||-9.1%|
|Management of companies & enterprises||$72,600,000,000||$73,847,000,000||$1,247,000,000||1.7%|
|Accommodation & food services||$2,915,000,000||$2,967,000,000||$52,000,000||1.8%|
|All other industries||$16,301,000,000||$17,042,000,000||$741,000,000||4.5%|
Data: Statistics Canada.
On the goods side, all sectors posted increases in FDI, with the exception of manufacturing. Advances were led by a $4.9-billion increase in investment in mining and oil and gas extraction—particularly oil and gas extraction, which attracted three quarters of the overall sectoral investment. Investment in utilities was up $734 million over the year, followed by construction (up $606million), and agriculture, forestry, fishing and hunting (up $332 million). Overall FDI in manufacturing fell by $2.9 billion, as large declines in primary metal manufacturing (down $3.5 billion), chemicals (down $1.8 billion), and transportation equipment (down $0.9 billion) outweighed small gains in many other manufacturing industries, which were led by petroleum and coal products (up $1.5 billion) and plastic and rubber products (up $0.6 billion).
Canadian direct investment outflows fell for the second consecutive year, down 14.4 percent ($6.4 billion) to $38.0 billion in 2010, after falling by 48.5 percent the year before (Table 6-5). A sharp decline in investment flows to the EU was responsible for the decline. After having invested $12.8 billion in the EU in 2009, there was an $8.3 billion divestment in the region in 2010. This generated a $21.1-billion swing in outward flows last year over 2009 levels. Similarly, there was a $22-million divestment with Japan last year, following $16 million in investment a year earlier. Partially offsetting these declines were increases to the ROW (up $10.6 billion), to the other OECD countries (up $3.4 billion), and to the United States (up $831 million).
|Rest of the World||$9,592,000,000||$20,164,000,000||$10,572,000,000||110.2%|
The bulk of the outward flows were invested in the finance and insurance sector, which accounted for 73.6 percent of the total outflows. Energy and metallic minerals was next in importance (at 20.8 percent), followed by wood and paper (7.6 percent) and services and retailing (7.4 percent). In addition, there was divestment in machinery and transportation equipment and in all other industries equal to 0.2 percent and 9.2 percent of the total, respectively.
Looked at another way, some $23.4 billion of the funds were directed toward net acquisitions of direct investment interests while the remaining $14.7 billion comprised other flows of funds to existing affiliates, such as net long-term loans and re-invested earnings.
Outward FDI Stock
Changes to the stock of Canadian direct investment abroad (CDIA) are primarily affected by two factors. The first factor is, of course, the flow of outward direct investment over the year. If all other factors are held steady, one would expect the stock of outward FDI to increase with net additions to outward flows and to decline with net subtractions to outward flows. The second factor is the change in the exchange rate. This affects CDIA because the value of direct investment abroad is usually denominated in the foreign currency where the investment is held. The exchange rate comes into play when those foreign-denominated values are converted to Canadian dollars to calculate the stock of foreign investment abroad. When the value of the Canadian dollar is appreciating, the restatement of the value of direct investment abroad in Canadian dollars decreases the recorded value. The opposite is true when the dollar depreciates.3
The Canadian dollar appreciated against most foreign currencies in 2010, in particular, the U.S. dollar, the euro, and the pound sterling. Thus, despite the net acquisitions and the strong investment in existing affiliates over 2010, the valuation effect on foreign currency-denominated holdings lowered the value of direct investment holdings abroad by $35.5 billion, contributing to the overall decrease in the value of CDIA.
Canadian direct investment abroad declined in value for a second consecutive year in 2010, nudging down 0.7 percent to $616.7 billion, a decline of $4.5 billion from 2009 (Table 6-6). Losses were concentrated in Europe (down $19.1 billion). Partially offsetting those losses were gains in Asia and Oceania (up $11.8 billion), South and Central America and the Caribbean (up $2.8 billion) and Africa (up $0.4 billion). A small decline ($0.4 billion) was also posted for North America.
At 59.7 percent of the total, North America was the most important destination for CDIA, with assets valued at $386.0 billion. Notwithstanding the 5.7-percent appreciation of the Canadian dollar against the U.S. dollar, the value of CDIA to the region fell by only 0.1 percent ($377 million). Declines were led by the United States, where holdings were down by $2.5 billion (1.0 percent). Smaller losses were also registered for Bermuda and the Bahamas, two countries whose currency is pegged one-toone against the U.S. dollar, and Mexico, whose currency also depreciated against the Canadian dollar in 2010. Partially offsetting the losses were gains to the Cayman Islands, the British Virgin Islands, and Barbados of $1.0 billion, $0.7 billion, and $0.5 billion, respectively.
|British Virgin Islands||2,939||3,678||739||25.1%|
|Congo, Democratic Republic||0||123||123||-|
Source: Statistics Canada.
The bulk of the losses in CDIA originated from Europe. Similar to the North American situation, the appreciation of the Canadian dollar against the principal currency of the region—the euro—led to widespread declines in the reported value of CDIA. There are no data for 5 of the 17 euro zone countries, and only 3 of the remaining 12 (Luxembourg, Italy and Spain) registered increases in their CDIA values in 2010. Losses were notable for France (down $6.9 billion), the Netherlands (down $5.1 billion), Ireland (down $1.5 billion) and Germany (down $1.0 billion). Elsewhere across the continent, CDIA was down by $3.2 billion in the United Kingdom and by $1.2 billion in Hungary. Overall, CDIA in Europe fell 10.9 percent to $157.1 billion last year.
Fast-growing Asia is a region of keen interest to Canadian investors. The value of CDIA in Asia and Oceania jumped 27.1 percent to $55.2 billion in 2010. About two thirds of the increase was with Australia, where holdings increased by 57.9 percent ($7.7 billion) to $21.0 billion. Other important gains were registered for China (up $1.3 billion), Japan (up $0.7 billion), Mongolia (up $0.6 billion), Singapore (up $0.5 billion) and Indonesia (up $0.4 billion). Korea posted the largest decline, at $0.4 billion.
CDIA in South and Central America and the Caribbean increased 9.3 percent, to $33.2 billion in 2010. Most of the gains were concentrated in Brazil (up $1.2 billion), Chile (up $1.1 billion) and Argentina (up $0.5 billion), with smaller gains in Peru and Colombia. At the same time, Canadian investment in Venezuela was reduced by 60.6 percent ($0.6 billion) during the year.
Investment in Africa rose by 15.9 percent to $3.0 billion in 2010, led by a $123- million gain in the Democratic Republic of the Congo.
An $8.1-billion increase in investment in services-producing industries was completely offset by a $12.6-billion reduction in investment in goods-producing industries, to account for the overall $4.5-billion decline in CDIA in 2010 (Table 6-7). On the services side, investors increased their holdings in finance and insurance by $12.5 billion to $242.3 billion. Investments in transportation and warehousing were up also by $2.7 billion, while those in miscellaneous services industries, and retail trade were up by $2.0 billion and $1.5 billion, respectively. Holdings in management of companies and enterprises services were lower by $9.4 billion, to $80.6 billion, while those in information and cultural industries, and in wholesale trade were reduced by $1.1 billion each. Overall, two thirds of all CDIA was placed in services-producing industries at the end of 2010.
|Total, all industries||$621,181,000,000||$616,689,000,000||-$4,492,000,000||-0.7%|
|Agriculture, forestry, fishing & hunting||$2,760,000,000||$2,906,000,000||$146,000,000||5.3%|
|Mining and oil and gas extraction||$100,022,000,000||$105,535,000,000||$5,513,000,000||5.5%|
|Transportation and warehousing||$22,150,000,000||$24,828,000,000||$2,678,000,000||12.1%|
|Information & cultural industries||$24,204,000,000||$23,113,000,000||-$1,091,000,000||-4.5%|
|Finance and insurance||$229,760,000,000||$242,272,000,000||$12,512,000,000||5.4%|
|Real estate & rental and leasing||$9,883,000,000||$10,816,000,000||$933,000,000||9.4%|
|Professional, scientific and technical services||$8,028,000,000||$8,414,000,000||$386,000,000||4.8%|
|Management of companies & enterprises||$90,025,000,000||$80,582,000,000||-$9,443,000,000||-10.5%|
|Accommodation & food services||$2,617,000,000||$2,213,000,000||-$404,000,000||-15.4%|
|All other industries||$2,444,000,000||$4,450,000,000||$2,006,000,000||82.1%|
Source: Statistics Canada.
Investment holdings in goods-producing industries fell by 5.7 percent to $208.4 billion last year. Advances in mining and oil and gas extraction and agriculture, forestry, fishing and hunting (up $5.5 billion and $0.1 billion, respectively) were not enough to displace losses in construction, utilities, and manufacturing. CDIA in the construction sector declined by $0.1 billion in 2010 while that in utilities was lower by $2.0 billion; however, investment in manufacturing accounted for most of the losses, down by $16.1 billion. Within manufacturing, CDIA was down in 12 of the 21 major manufacturing sectors and unchanged in 2 others. Declines were most prominent for primary metals (down $4.2 billion), chemicals (down $3.6 billion), non-metallic minerals (down $2.1 billion), printing (down $1.8 billion), plastics and rubber (down $1.5 billion), fabricated metal products (down $1.5 billion), and computer and electronic products (down $1.5 billion). Partially offsetting the losses were gains to transportation equipment (up $1.0 billion), paper manufacturing (up $0.6 billion) and wood products (up $0.6 billion).
The 2008 Performance of Canadian Affiliates Abroad
Canadian goods and services can be sold abroad in two ways. First, they can be sold directly as an export from a Canadian company. Alternatively, they can be sold indirectly via a foreign-located subsidiary of a Canadian company. Sales by majority- owned foreign affiliates of Canadian businesses1 are an increasingly important avenue by which Canadian companies engage in international commerce, having risen from the equivalent of three quarters of the value of Canadian exports of goods and services in 2000 to slightly over 90 percent in 2008, the latest year for which data are available.
Sales by Canadian Foreign Affiliates Abroad vs Canadian Exports of Goods and Services, 2000-2008
Source: Statistics Canada.
Sales of goods and services by foreign affiliates of Canadian businesses rose to $507.8 billion in 2008, up 5.5 percent ($26.4 billion) over 2007 (Figure 1). This was the same rate of expansion as for Canadian exports of goods and services in 2008, and the fifth consecutive year of increase.
Gains were led by increased sales in the United States and the non-OECD rest of the world (ROW). For the United States, Canadian subsidiaries reported increased sales of $15.4 billion (6.3 percent) to $259.3 billion, or roughly the equivalent of 63.4 percent of total exports of goods and services to the United States in 2008 (Figure 2). Sales by subsidiaries grew faster in the ROW, although not by as much, as they were up 12.3 percent ($12.7 billion) to $115.8 billion. Subsidiaries are the preferred route of delivery of Canadian goods and services in this region and were equivalent to 188.3 percent, or nearly double, the value of direct exports of goods and services from Canada to the ROW in 2008. Partially off setting the gains were lower sales in the EU and in other OECD countries (including Japan). Sales by Canadian subsidiaries in the EU were 1.2 percent lower in 2008 than in 2007, as they fell by $1.1 billion to $92.0 billion. For other OECD countries, Canadian subsidiaries experienced a 1.4- percent reduction in sales, as sales slipped by $0.6 billion to $40.8 billion in 2008
Sales of Canadian Affiliates Abroad by Region, 2000-2008
Source: Statistics Canada.
Sales by goods producers advanced in 2008, while those for services producers declined. For goods producers, the bulk of the gains came from mining and oil and gas extraction, with the other three major sectors also advancing but by lesser amounts. Sales by Canadian affiliates in mining and oil and gas extraction rose by $22.4 billion to $133.1 billion, a 20.2-percent increase. Supporting the overall increase by goods producers, affiliates in the manufacturing sector reported a $6.5-billion (3.3 percent) increase in sales, followed by utilities and construction at $0.4 billion (2.6 percent), and agriculture, forestry, fishing and hunting at $0.2 billion (6.6 percent).
Declines were registered for five of the eight major services producers. Sales by affiliates in management of companies and enterprises services posted the largest decline at $3.7 billion (20.0 percent). Finance and insurance was down $2.4 billion (4.2 percent), retail trade was down $1.8 billion (8.1 percent), and information and cultural industries was down $1.1 billion (6.0 percent), all notable declines. Partially offsetting the declines were particularly strong increases in transportation and warehousing, up $3.5 billion (30.9 percent), and professional, scientific and technical services, up $2.2 billion (25.6 percent).
With the gains, goods producers accounted for 69.2 percent of all sales by foreign affiliates in 2008, up from 66.9 percent in 2007. Over the longer term, the share held by the goods-producing affiliates has been on the rise, up considerably from the 61.7-percent share held in 2000.
Employment in Canadian-owned Foreign Affiliates
As the global recession took hold and economic activity weakened, firms across the globe shed jobs. Canadian multinationals were no exception, as they reduced their overseas labour force by 17,000 persons in 2008 to 1,141,000, a decline of 1.5 percent. The losses were widespread, with all regions posting lower employment levels, except for the other OECD countries where employment was unchanged in 2008 from 2007. However, losses were more heavily concentrated in the United States and the United Kingdom. Canadian companies shed some 11,000 jobs in the United States (64.7 percent of all jobs losses) and another 3,000 jobs in the United Kingdom (17.6 percent of all job losses). However, the United States only accounted for between 53 to 54 percent of total employment by Canadian affiliates, while the share was only 5 percent for affiliates located in the United Kingdom.
By sector, losses came primarily from the goods-producing industries, which reduced payrolls by some 21,000 employees. In particular, Canadian subsidiaries in manufacturing shed 26,000 positions, while mining and oil and gas extraction added 6,000 positions. Services-producing industries added a net 4,000 jobs to their payrolls as gains in professional, scientific and technical services and transportation and warehousing (up 8,000 and 3,000, respectively) outweighed losses in retail trade (down 4,000), management of companies and enterprises services (down 2,000), finance and insurance (down 1,000), and information and cultural industries (down 1,000).
1 Data cover only majority-owned foreign affiliates, or affiliates where the Canadian parent owns more than 50 percent of the firm. This is a more narrow definition than that used for direct investment statistics, which only require 10-percent control.
1 Global FDI inflows data taken from UNCTAD’s Global Investment Trends Monitor No. 5, January 17, 2011.
2 Global FDI outflows data taken from UNCTAD’s Global Investment Trends Monitor No. 6, April 27, 2011.
3 Note: this currency effect only applies to foreign direct investment held abroad since foreign direct investment in Canada is directly recorded in Canadian dollars and the fluctuation of the Canadian dollar has no impact on the recorded value.
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