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Canada's State of Trade: Trade and Investment Update 2012

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VI. Overview of Canada’s Investment Performance

2011 was a year of increased activity in foreign direct investment, with a particular accent on corporate restructuring and acquisitions of resource interests across the world. Developed countries generated more investment activity than developing and emerging economies, but relatively little of that was invested in new productive activities. Cross-border mergers and acquisitions driven by streamlining and opportunities arising due to changes in exchange rates and valuations accounted for much of the global investment flows, although greenfield investment activity emanating from the developing countries remained strong.

Foreign direct investment into Canada rebounded strongly during 2011 for both stocks and flows. Inward flows posted stronger growth, driven by increased European investment. The rise in inward investment stocks was focused in the manufacturing sector.1

Canadian direct investment abroad also grew strongly, with the focus on the finance and insurance sector and the mining and oil and gas extraction sector, both traditional areas of Canadian investment in foreign countries. Growth in flows in 2011 was concentrated in the United States and European Union, while flows to other OECD countries and the rest of the world declined.

Canada’s net direct investment asset position improved in 2011 as investment stock abroad grew faster than inward investment stock, partly due to the revaluation effect as the Canadian dollar depreciated during the year against the currencies of most of Canada’s partner countries.

Global Foreign Direct Investment Flows

Global inflows of foreign direct investment (FDI) rose by 17 percent in 2011, in spite of the uncertainty prevailing in the global economy, expanding from US$1,290 billion in 2010 to US$1,509 billion in 2011.2 This was above the pre-crisis average of US$1,472 billion (observed during the 2005-2007 period), with FDI inflows on the rise to the developed, developing and transition economies.

FDI inflows into developing and transition economies reached a record high in 2011, amounting to $755 billion, nearly 73 percent of which was greenfield investment. FDI inflows into developed countries as a group grew faster than the investment in developing and emerging countries. The 18.5-percent expansion amounted to US$117.6 billion, bringing FDI inflows into developed countries to US$753.2 billion in 2011. Greenfield investment amounted to just over 30 percent of this amount, and net cross-border mergers and acquisitions (M&As) constituted just over half of the total. Notably, the primary source of funding for FDI inflows in developed countries became reinvested earnings, displacing equity flows; intra-company loans were also on the rise.

Table 6-1
Global FDI flows by Region and Selected Countries
(US$ billions and %)
 FDI inflowsFDI outflows
Source: UNCTAD.
1 Preliminary estimates by UNCTAD.
Developed economies635.6753.218.549.9984.51234.525.474.2
European Union314.1414.431.927.5450.5575.927.834.6
United Kingdom51.877.
United States228.2210.7-7.714.0328.9383.816.723.1
Developing economies583.9663.713.744.0382.5356.5-6.821.4
South Africa1.24.5269.20.3-0.1-0.5..0.0
Latin America and the Caribbean160.8216.434.614.3112.279.4-29.34.8
Asia and Oceania368.4392.96.726.0265.2275.03.716.5
Hong Kong68.978.413.85.295.481.6-14.44.9
Emerging Europe and the CIS70.291.730.66.161.673.118.74.4

FDI inflows were quite stable during most of the year with a slight upward trend, but started slowing down in the fourth quarter with the general increase in uncertainty due to the flare-up of the eurozone crisis. A considerable rise in M&A activity, especially in developed and transition economies, underscored the ongoing corporate restructuring, particularly in Europe. These M&As took the form of large deals, with the extractive and pharmaceutical industries being the most affected. Uncertainty among investors and concerns about the future of the eurozone economy limited the number of greenfield investment projects, whose total value fell for the third straight year.

Strong FDI inflows to developed nations that reversed a three-year decline were driven principally by Europe. FDI to this region increased 22.8 percent, reaching US$425.7 billion and erasing most of the decline that took place in 2010. FDI inflows into Germany fell 30 percent, but considerable increases in FDI inflows occurred in Ireland (up US$26.7 billion to US$53.0 billion), the United Kingdom (up US$25.3 billion to US$77.1 billion), Italy (up US$23.9 billion to US$33.1 billion) and Sweden (up US$23.2 billion to US$22.0 billion). Clearly, these increases were not a sign of booming economies but were primarily driven by corporate restructuring, stabilization and cost reduction. For example, Ireland’s growth in incoming FDI flows was entirely due to equity and debt realignment in the financial sector. Other important factors behind the cross-border M&A activity that drove Europe’s FDI inflows last year were the sale of non-core assets and opportunistic deals based on changing currency values and stock prices.

After the 2010 surge, investment inflows into the United States abated and were down 7.7 percent in 2011. FDI inflows into Japan remained at the near-zero level, registering a small divestment of US$1.3 billion, the same as in 2010.

In 2011, FDI in developing economies grew the slowest of the three major regions, at 13.7 percent. In 2010, the main driver in this group was Asia, but this changed in 2011 when it experienced only a 6.7-percent growth in FDI inflows. Asia-bound FDI growth was particularly hampered by the 13.4-percent reduction of FDI inflows into West Asia. Turkey was the exception in that area, posting a 45.1-percent increase in FDI inflows. Excluding West Asia, the growth rate of FDI inflows into Asia was 11.4 percent. Growth in FDI was the fastest for the Association of Southeast Asian Nations (ASEAN), driven by large increases in Indonesia (up 48.2 percent), Malaysia (up 27.6 percent) and Thailand (up 33.1 percent). Inflows into South Asia rose by one third, with India growing 37.9 percent. Despite a slowdown in the last quarter of 2011, investment flows to China increased 8.1 percent on the year, mainly on investments into non-financial services.

FDI flows to Latin America and the Caribbean led the increase among the group of developing and transition economies, with a 34.6-percent growth, resulting in an increase in FDI inflows into this region from US$160.8 billion to US$216.4 billion. This occurred despite a 31.3-percent reduction in the region’s cross-border M&A activity. Natural resources and growing domestic markets continued to be a strong attraction for investors in 2011. Investment into Colombia expanded 113.4 percent to US$14.4 billion, and Brazil’s inflows grew 35.3 percent to US$65.5 billion. Significant investment also occurred in the region’s offshore financial centres due to the global uncertainty. Meanwhile, FDI flows into Mexico declined by 8.8 percent to US$17.9 billion.

Flows to Africa edged down in 2011, losing 0.7 percent to end at US$54.4 billion. The region’s prolonged decline in FDI inflows, which have been trending down since 2009, was fed by the turmoil in North Africa, where FDI into Egypt declined from US$6.4 billion to US$0.5 billion. Other countries of the Maghreb also experienced sharp declines in investment. Investment flows picked up robustly in West and Southern Africa, but declined in Central and East Africa in 2011.Investment into South Africa picked up from US$1.2 billion to US$4.5 billion; however, these increases failed to offset the overall decline.

Transition economies (emerging Europe and the CIS) did very well last year, posting a 30.6-percent increase in FDI inflows, which raised their total inflows from US$70.2 billion in 2010 to US$91.7 billion in 2011. That growth offset most of the investment declines sustained in 2009. The increase was driven by Russia, which accounted for over half of the region’s inward investment flows. FDI inflows into Russia grew 23.4 percent to US$50.8 billion, mainly due to large cross-border transactions related to the energy industry. Growth in local consumer markets and several new privatization actions also attracted investors.

Shifting the analysis from FDI recipients to FDI donors, the most recent preliminary estimates by UNCTAD reveal that global FDI outflows rose by 16.5 percent in 2011, from US$1428.6 billion to US$1664.2 billion. This increase brought the level of FDI outflows to above its pre-recession level, although the level was still 25 percent below the high attained in 2007.3

According to UNCTAD, the expansion of FDI outflows in 2011 was largely due to cross-border acquisitions and increased amounts of cash kept in foreign affiliates rather than direct investment in new projects through greenfield investment or expansion of existing foreign affiliates. The expansion of FDI outflows therefore did not result in a commensurate expansion of global productive capacity. Several multinational corporations (MNCs) based in developed countries have made strategic or opportunistic crossborder M&A investments in other developed countries as currency values, risk levels and other variables shifted in the uncertain economic climate of 2011.

FDI outflows from developed countries increased 25.4 percent in 2011, growing from US$984.5 billion to US$1234.5 billion, with their share of global investment flows increasing to nearly three quarters of the total. All major regions contributed to this growth. Outflows from Europe rose 26.5 percent to reach US$664.4 billion. The United Kingdom drove that growth with a US$72.0- billion increase in its FDI outflows, which more than tripled. Italy’s outflows more than doubled to reach US$67.7 billion. France, Belgium and Austria all increased their FDI outflows by more than US$20 billion each compared to the previous year. Spain’s banks continued to be active in their outward investment strategy, driving the country’s FDI outflows up US$14.8 billion (68.4 percent) to US$36.4 billion. Germany—Europe’s leader in foreign investment last year—scaled back its outward FDI activities by 51.8 percent to US$50.5 billion. The Netherlands and Ireland also experienced reductions in their FDI outflows, the latter divesting US$1.6 billion in 2011, while the former’s outflows dropped 55.2 percent to finish the year at US$22.4 billion. Corporate restructuring was responsible for most of the cross-border M&A activities of European MNCs.

Outward FDI from the United States grew 16.7 percent in 2011 to reach US$383.8 billion, well above the pre-crisis average and not far from the 2007 high. The dominant portion of these flows (85 percent) was reinvested earnings of foreign affiliates of U.S. companies, with equity accounting for the rest of the total. Back in both 2004 and 2007, U.S. FDI was conducted almost equally through equity and reinvested earnings. Holding cash abroad in foreign affiliates allows U.S. companies to both invest internationally and minimize their domestic tax liabilities. Japan’s FDI outflows more than doubled to US$115.6 billion, buoyed by the stronger Japanese yen.

The growth in outward FDI from the developing economies that had been going on for the past several years was interrupted in 2011. Total FDI decreased from US$382.5 billion in 2010 to US$356.5 billion in 2011 (down 6.8 percent). As with the FDI inflows, FDI outflows from Latin America and the Caribbean were the principal influence on the total for the developing economies, dragging down the overall performance with a significant regional decline of 29.3 percent. This decline underscores the recent high volatility in the region’s investment flows, as a 39-percent drop in 2009 was followed by a dramatic upward swing of 82 percent in 2010. That volatility is partly explained by the importance of the region’s offshore financial centres in its investment picture—these generated four fifths of all FDI outflows in 2011. However, the region’s large nations contributed the most to last year’s decline. Brazil’s FDI declined US$20.8 billion, reaching negative US$9.3 billion, as foreign affiliates of Brazilian companies repaid massive loans from their parent companies to take advantage of the high interest rates in Brazil. Mexico’s FDI dropped by almost one third to US$9.6 billion and Chile’s decreased 16.6 percent to US$7.3 billion. Colombia expanded its FDI outflows by 27.5 percent, reaching US$8.3 billion for the year 2011.

Outward investment from Asia grew by a modest 3.7 percent in 2011: total FDI outflows were up US$9.8 billion to reach US$275.0 billion for the year. West Asia led with 41.1-percent FDI growth (amounting to US$5.3 billion) to reach US$18.1 billion. The bulk of the increase came from a number of oil-rich countries in the area, such as Kuwait, Bahrain, Qatar and the UAE, whose financial resources again expanded in tandem with the strengthening oil price. Meanwhile, Turkey’s outflows increased by US$1.0 billion and Saudi Arabia’s declined by US$0.4 billion.

Southeast Asia’s outward investment grew strongly at 36.2 percent. Indonesia’s flows nearly tripled, having increased US$5.0 billion, and Thailand’s more than doubled, growing by US$5.7 billion. Singapore’s FDI outflows grew 19.0 percent, reaching US$25.3 billion. East Asia’s outward FDI declined 5.9 percent as China’s flows remained constant but Hong Kong’s decreased 14.4 percent to US$81.6 billion. Outflows from India grew modestly (0.9 percent) in 2011. Greenfield investment by Asian MNCs remained at a similar level to 2010, with continued activity in developed countries such as Germany, while their cross-border M&A activities declined.

FDI outflows from Africa, which totalled only US$5.0 billion in 2010, contracted severely in 2011 to US$2.1 billion (down 58.2 percent). Turmoil in North Africa reduced outflows from such major regional investors as Egypt and Libya. South Africa’s FDI flows experienced further divestment, going from negative US$0.1 billion in 2010 to negative US$0.5 billion in 2011.

Transition economies expanded their FDI outflows by 18.7 percent in 2011, raising their total from US$61.6 billion to an estimated US$73.1 billion, a record high. The year’s activity centred on investment by Russian firms, predominantly resource-based but also in the banking and technology sectors. Russia’s FDI grew 28.1 percent, from US$52.5 billion to US$67.3 billion, while that of the rest of the region declined by over a third to US$5.8 billion.

According to UNCTAD, FDI prospects for 2012 were guarded as the continued downturn and uncertainty in Europe made investors cautious. Announcements of crossborder M&As fell sharply in early 2012, with greenfield investment sluggish. Nevertheless, prospects remain higher for the medium term in the hope that the eurozone crisis will be resolved.

Canadian Direct Investment Performance

Inward Investment


Following sharp declines in FDI inflows into Canada in 2008 and 2009, followed by weak growth in 2010, a strong rebound took place in 2011. Inward FDI flows increased by over two thirds (up $16.2 billion), growing from $24.1 billion in 2010 to $40.3 billion in 2011 (Table 6-2). While this increase was an improvement, it was still only about a third of the record 2007 level of $123.1 billion. The bulk of the year’s growth came from the increased net sales of existing Canadian interests to non-residents, which grew by over $10 billion (gross sales grew by nearly $15 billion while buy-backs from non-residents also increased by about $5 billion). Long-term inflows to Canada-based subsidiaries of foreign firms declined compared to 2010 and constituted approximately half of the total inflows; longterm FDI outflows also increased. These were offset by the reversal in net short-term flows of FDI, from negative $9.3 billion to positive $2.3 billion, and increased holdings of reinvested earnings in foreign subsidiaries.

Over three quarters of the increase in FDI inflows into Canada in 2011 originated from European Union sources. Flows from the EU into Canada rose from $1.5 billion to $13.9 billion, a gain of $12.4 billion. Two thirds of that increase represents the change in the stance of investors in the United Kingdom, who went from a divestment of $2.0 billion in 2010 to an investment of $6.5 billion in 2011, while the remaining third ($3.9 billion) came from other EU countries. Investment flows from the United States grew 10.0 percent during the year and accounted for just under half of the total. The highlight of U.S. activity was the acquisition of Consolidated Thompson Iron Mines Ltd. by Cliffs Natural Resources Inc. for US$4.4 billion. Investment from Japan retreated from $1.8 billion in 2010 to just $0.2 billion in 2011, but that was offset by the halt in divestment by other OECD countries, whose FDI inflows went from negative $3.1 billion in 2010 to positive $0.4 billion in 2011. Investment from the rest of the world (ROW) remained stable at $6.7 billion.

Table 6-2
FDI flows into Canada by Region
($ millions and %)
Source: Statistics Canada.
Oth OECD-3,1284463,574-114.3

By sector, 54 percent of FDI inflows were directed toward energy and metallic minerals, followed by machinery and transportation equipment (11 percent), finance and insurance (4 percent), service and retailing (4 percent), and wood and paper (1 percent). The remaining 26 percent went to other industries.

Inward FDI Stock

In 2011, foreign investment stocks in Canada rose in tandem with FDI inflows, reaching $607.5 billion. This represented an increase of 3.8 percent (up $22.4 billion) over the 2010 level of $585.1 billion. Nearly half of the increase came from additional holdings by European investors, which were up 5.7 percent ($10.0 billion) to reach $184.2 billion. The United States accounted for most of the remaining growth, with its FDI stock rising $7.6 billion (up 2.4 percent) to reach $326.1 billion, over half of the total.

North America’s FDI stock in Canada rose $8.0 billion, most of which came from the United States. Investment from Bahamas, Barbados and Bermuda did not change significantly during the year, remaining at roughly 0.5 percent of the total FDI in Canada. Mexico’s FDI grew 13.1 percent on the year, reaching $216 million.

The increase in Europe’s FDI in Canada was led by Luxembourg, which increased its stock by $4.4 billion (up 21.0 percent) to reach $25.3 billion. The United Kingdom and the Netherland accounted for the rest of the increase, with their holdings rising by $2.7 billion each. The Netherlands is the largest European investor in Canada, controlling $56.3 billion worth of assets, while the United Kingdom is second, with $38.9 billion. Fourth-place Switzerland holds $20.0-billion worth of FDI in Canada following 4.0-percent growth in 2011. Germany’s FDI holdings increased 15.6 percent to $9.2 billion (up $1.2 billion), while France was the only significant European investor to reduce its FDI stock in Canada (down 11.5 percent, or $2.0 billion).

Table 6-3
Stock of Foreign Direct Investment into Canada by Country and Region
($ millions and %)
Data: Statistics Canada.
All countries585,107607,49722,3903.8
North America323,898331,9028,0042.5
United States318,412326,0557,6432.4
South and Central America17,42118,7851,3647.8
United Kingdom36,21338,9432,7307.5
South Africax1,519....
South Korea5,0756,0781,00319.8

Table 6-4
Stock of Foreign Direct Investment into Canada by Major Sector
($ millions and %)
Data: Statistics Canada.
Total, all industries585,107607,49722,3903.8
Agric., forestry, fishing & hunting1,2531,289362.9
Mining and oil and gas extraction112,021115,9293,9083.5
Wholesale trade37,91137,641-270-0.7
Retail trade18,53619,2226863.7
Transportation and warehousing3,9803,563-417-10.5
Information & cultural industries8,6738,755820.9
Finance and insurance77,78278,4786960.9
Real estate & rental and leasing5,0095,67866913.4
Prof.l, scientific and tech. services12,23814,0961,85815.2
Mgm’t of companies & enterprises110,427109,743-684-0.6
Accommodation & food services4,2214,254330.8
All other industries6,9257,4295047.3
Information and communication technologies19,79319,9421490.8

In South and Central America, Brazil was the main holder of FDI stock in Canada, accounting for over 99 percent of the region’s investment in Canada in 2011. Brazil’s total investment rose 7.9 percent (up $1.4 billion) to reach $18.6 billion.

Investment stock from Asia and Oceania increased 3.9 percent (up $2.6 billion), reaching $69.3 billion in 2011. Much of the increase came from South Korea whose stock grew 19.8 percent (up $1.0 billion), offsetting the decline in investment held by China (down 6.8 percent, or $0.8 billion). A small rise in Japan’s investment (up $0.2 billion) offset a small decline in Australia’s holdings (down $0.2 billion). Lastly, investment from Africa grew 14.9 percent (up $0.4 billion) to reach $3.3 billion in 2011.

Over two thirds ($15.3 billion) of the $22.4-billion increase in FDI stock in Canada in 2011 went into the manufacturing sector— an 8.6-percent increase that more than offset the decline sustained in 2010. FDI stock in manufacturing reached $192.7 billion in 2011, accounting for 31.7 percent of the whole FDI stock in Canada. The other sector of major interest to foreign investors was mining, oil and gas extraction, where FDI stock rose $3.9 billion (up 3.5 percent) to reach $115.9 billion. Investment positions in other goods sectors were stable in 2011.

Professional, scientific and technical services accounted for the largest FDI stock increase among all services sectors, advancing $1.9 billion (up 15.2 percent) to reach $14.1 billion. Growth also occurred in retail trade (up $0.7 billion); finance and insurance (up $0.7 billion); and real estate and rental and leasing (up $0.7 billion). Declines took place in FDI stocks in management of companies and enterprises (down $0.7 billion); transportation and warehousing (down $0.4 billion); and wholesale trade (down $0.3 billion).

Outward Investment


Canadian direct investment outflows rose 13.8 percent in 2011 (up $5.5 billion)—reversing declines of the two previous years—to reach $45.2 billion. Major increases in investment flows to the European Union and the United States were responsible. Outflows to the EU grew $11.0 billion, changing a divestment flow of $6.1 billion in 2010 into an investment flow of $4.9 billion in 2011. Although investment flows to the United Kingdom dried up—going from $3.1 billion to negative $0.2 billion—higher investment flows to other EU countries more than compensated.

Table 6-5
FDI outflows from Canada by Region
($ millions and %)
Source: Statistics Canada.
Oth OECD11,7382,273-9,465-80.6

Increases in investment in the United States amounted to $10.4 billion (up 79.2 percent), with FDI outflows reaching $23.6 billion. Two major deals in the financial sector contributed to the increase: the US$6.3- billion purchase of Chrysler Financial Corp. by Toronto Dominion Bank and the US$4.1- billion purchase of Marshall and Ilsley Corp. by the Bank of Montreal.

Investment flows to the other OECD economies declined significantly in 2011, posting a $9.5-billion decrease overall. Likewise, investment flows to the ROW countries were on the decline, contracting by $6.7 billion. Investment flows to Japan went from a neutral position to $0.3 billion in 2011.

A more detailed view of Canada’s investment outflows shows that acquisitions of direct investment interest abroad declined by $4.5 billion, and sales of Canadian interest abroad to non-residents shaved another $5.9 billion off the total FDI outflows. Furthermore, even long-term outflows to foreign-based subsidiaries of Canadian firms fell by $8.5 billion. Offsetting these trends was a large decrease in long-term inflows of Canadian direct investment and a rise in reinvested earnings kept at foreign-based Canadian subsidiaries, as well as in net short-term flows of Canadian direct investment abroad.

By sector, the largest outflow of Canadian direct investment abroad was directed toward finance and insurance, which constituted 53 percent of the total—a decline from 68 percent in 2010. Some 16 percent of outflows went toward energy and metallic minerals, 10 percent toward services and retailing, 3 percent toward wood and paper and just 1 percent toward machinery and transportation equipment. All other industries combined accounted for the remaining 18 percent of investment in 2011.

Table 6-6
Stock of Canadian Direct Investment Abroad by Country and Region
($ millions and %)
Data: Statistics Canada
All countries639,911684,49644,5857.0
North America363,711395,64831,9378.8
British Virgin Islands3,4943,7182246.4
Cayman Islands23,99225,8031,8117.5
United States253,417276,14522,7289.0
South and Central America36,25337,8491,5964.4
Russian Federation588538-50-8.5
United Kingdom82,80683,3225160.6
South Africa2,2391,438-801-35.8
People's Republic of China4,0734,4633909.6
Hong Kong7,0508,1431,09315.5
South Korea373365-8-2.1
Outward FDI Stock

Stock of Canada’s FDI abroad increased in 2011, tracking the rise in investment outflows, to reach $684.5 billion. This represented an increase of 7.0 percent (up $44.6 billion) over the 2010 level of $639.9 billion. Combined with the change in inward FDI stock, Canada’s net direct investment asset position expanded to $77.0 billion in 2011.

While change in stocks of FDI is obviously influenced by net additions and subtractions derived from flows, the change in currency valuation also plays an important— and sometimes decisive—role. Canadian direct investment abroad is usually denominated in the currency of the foreign country where the investment is located. This means that when the Canadian dollar is appreciating relative to the local currency, the value of Canadian-held investment abroad in Canadian dollars decreases, and vice versa. Foreign direct investment in Canada is directly recorded in Canadian dollars hence the fluctuation of the Canadian dollar has no impact on the recorded value.

In terms of start-to-end of year valuation, the Canadian dollar depreciated 2.2 percent against the US dollar, 1.8 percent against the British pound and 7.2 percent against the Japanese yen. It appreciated 1.0 percent against the euro. This created a positive valuation effect for the Canadian dollar in most cases, increasing the value of most of Canada’s foreign investment holdings. However, several large deals also added to Canada’s stock of foreign investment abroad.

While the shares of total Canadian direct investment in the United States and the United Kingdom had been declining for several years, in 2011, the United States’ share edged up to 40.3 percent, and the United Kingdom’s share edged down to 12.2 percent. The share of Canadian direct investment in the EU declined slightly in both 2010 and 2011 to reach 26.6 percent in 2011.

Canadian direct investment stock in North America increased by $31.9 billion, or 8.8 percent, to reach $395.6 billion in 2011. Most of that increase took place in the United States; flows to that destination increased $22.7 billion to reach $276.1 billion. However, there were other significant increases in Canadian direct investment stock in that region—notably in Barbados (up $3.9 billion), Bermuda (up $2.0 billion) and Cayman Islands (up $1.8 billion). These three destinations combined held a total of $92.3-billion worth of Canadian investment in 2011. Total Canadian direct investment in Mexico declined by $0.7 billion to $4.2 billion.

Canadian direct investment in Asia and Oceania rose 12.2 percent in 2011 (up $7.2 billion) to reach $66.1 billion. The largest increase took place in Australia, where the purchase of Equinox Minerals Ltd. by Barrick Gold Corp.—a deal worth $7.4 billion— contributed to a $3.3-billion rise in Canada’s position (up 15.0 percent), which reached $25.3 billion. Other notable increases in Canadian investment in Asia included Hong Kong (up $1.1 billion, or 15.5 percent), Japan (up $0.9 billion, or 11.3 percent) and Kazakhstan (up $0.7 billion, or 21.3 percent). Investment in Indonesia and China also grew, by $0.5 billion and $0.4 billion, respectively.

Europe accounted for 26.6 percent of Canadian direct investment abroad, with stocks increasing 2.9 percent (up $5.1 billion) to end up at $181.9 billion for the year. Canadian investment in Belgium doubled (up $1.4 billion) and investment in Switzerland increased 29.9 percent (up $1.4 billion). Other notable increases were directed to Ireland (up $0.9 billion, or 3.8 percent), Germany (up $0.8 billion, or 8.9 percent) and the United Kingdom (up $0.5 billion, or 0.6 percent). The latter remained by far the largest destination for Canada’s direct investment in Europe, with a stock of $83.3 billion.

Canada’s investment stock in South and Central America grew $1.6 billion in 2011, or 4.4 percent. Robust growth in investment in Peru (up $0.9 billion, or 13.1 percent) and Colombia (up $0.8 billion, or 86.0 percent) offset the declines in Brazil (down $0.6 billion, or 5.6 percent) and Venezuela (down $0.3 billion, or 28.4 percent).

Investment stock in Africa declined from $4.2 billion in 2010 to $3.1 billion in 2011, a loss of $1.2 billion, or 27.8 percent. Most of the decline occurred in South Africa, where Canada’s investment stock went from $2.2 billion to $1.4 billion—a $0.8-billion loss.

Table 6-7
Stock of Canadian Direct Investment Abroad by Major Sector
($ millions and %)
Data: Statistics Canada
Total, all industries639,911684,49644,5857.0
Agriculture, forestry, fishing and hunting6,0248,1162,09234.7
Mining and oil and gas extraction121,358128,5127,1545.9
Wholesale trade9,43110,5851,15412.2
Retail trade7,1526,751-401-5.6
Transportation and warehousing20,76922,3391,5707.6
Information and cultural industries27,72028,3496292.3
Finance and insurance236,891271,75134,86014.7
Real estate and rental and leasing13,19814,6481,45011.0
Professional, scientific and technical services7,7078,66395612.4
Management of companies and enterprises96,28282,454-13,828-14.4
Accommodation and food services2,6512,388-263-9.9
All other industries5,3255,89857310.8
Information and communication technologies10,50913,3772,86827.3

Investment in goods-producing industries rebounded from the declines in 2010 to gain $17.9 billion in 2011. By major sector, over half of the gain in investment went to the manufacturing sector, where the total rose $8.9 billion to reach $76.9 billion— a 13.0-percent increase. The largest sector for Canadian investment in goods—the mining and oil and gas extraction sector—underwent a major increase, gaining $7.2 billion, or 5.9 percent, to reach $128.5 billion in total. Investment in agriculture, forestry, fishing and hunting grew $2.1 billion, more than offsetting a loss of $1.0 billion in construction. Service-producing industries gained $29.6 billion in 2011, with the biggest gain of $34.9 billion occurring in finance and insurance (up 14.7 percent). Canadian banks have been active in that area through several major deals, as indicated earlier. Finance and insurance stock held by Canadians in foreign countries reached $271.8 billion, nearly 40 percent of all Canadian direct investment abroad. Other areas of growth included information and communication technologies (up $2.9 billion, or 27.3 percent), transportation and warehousing (up $1.6 billion, or 7.6 percent), real estate and rental and leasing (up $1.5 billion, or 11.0 percent) and wholesale trade (up $1.2 billion, or 12.2 percent). A sharp decline in holdings in the management of companies and enterprises sector subtracted $13.8 billion in assets from the investment stock, a decline amounted to 14.4 percent of investment in that sector.

1 Foreign direct investment (FDI) flows represent the yearly movements of capital across national borders, which is invested into domestic structures, equipment and organizations, but not in equity. FDI stock is the total accumulated worth of all such investment held abroad by a country’s nationals. Due to constant changes in valuation and different methods of data collection, summing FDI flows does not provide accurate FDI stock information.

2 These data and all other data, assessments and forecasts of global FDI flows in this chapter come from the United Nations Conference on Trade and Development (UNCTAD). The Global Investment Trends Monitor#8 contains data on global FDI inflows and Global Investment Trends Monitor#9 discusses the global FDI outflows.

3 Global inflows can differ from outflows for 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 countries may not be necessarily recorded as inflows of FDI in host countries. – UNCTAD, Global Investment Trends Monitor #6, April 27 2011.

Canadian Foreign Affiliates

Setting up foreign affiliates (FAs) presents Canadian businesses with another mechanism for entering foreign markets.1 In 2009,2 sales by Canadian FAs exceeded export revenues for the first time on record.3 Although this result was primarily due to FA sales falling by less than exports in the aftermath of the global economic recession, nonetheless, Canadian FA sales have been growing at a faster rate than Canadian exports for some time. When broken down by region, FA sales in emerging markets have been growing the fastest over the past decade, outpacing FA sales in the United States and the EU. The decline in total FA sales between 2008 and 2009 was entirely due to slackening in sales of goods, as services sales continued to grow.

By Region

Following five years of growth, the sales of goods and services by Canadian FAs declined 7.7 percent to $456 billion in 2009, the height of the economic downturn. Lower sales revenues in the United States and in the EU accounted for most of the $38-billion decline, although in percentage terms sales fell most among the other OECD countries.4 Sales revenues declined the least in emerging markets5, following a rapid advance among that group that began in 2003. FA sales trends mimic the global increase in engagement with emerging economies during the past decade, and clearly reflect the relative strength shown by many emerging markets in the fallout of the global recession. As with exports, Canadian companies with FAs are diversifying their international relationships. Current trends will likely continue as the emerging economies develop further.

Canadian Foreign Sales Trends (1999-2009)

Canadian Foreign Sales Trends (1999-2009)
United States203,540237,411223,798217,989198,475218,808223,770235,197240,519244,719228,560
European Union62,03067,89675,25872,90275,99581,57887,59487,18592,32492,35282,181
Other OECD Countries14,41817,64520,81122,36724,09128,21730,31334,84940,64640,06034,830
Emerging Markets36,37644,10044,68741,29939,18952,60559,83086,552103,437117,308110,614

The employment trend in Canadian FAs roughly tracked sales in 2009, in that FA employment decreased in all regions except in the emerging economies. Indeed, while about 1 million people were employed by Canadian FAs worldwide, 248,000 jobs were located in emerging economies—an all-time high. Tracking the corresponding downward trend in sales, employment in Canadian FAs located in other OECD countries fell 11.7 percent. Canadian FAs located in the United States experienced the smallest decrease in employment (down 2.1 percent). In 2009, most employees of Canadian FAs were located in the United States, although the U.S. share of total Canadian FA employment has been decreasing since 2006.

By Sector

The decline in sales by Canada’s FAs can be attributed solely to fewer sales of goods, as FA sales of services increased 5 percent in 2009. The financial sector led the advance, with sales increasing by 13 percent to reach a record of $62 billion in 2009. Goods sales were down by 13 percent, reflecting reduced global demand and lower commodity prices, with the greatest reduction in sales posted in the mining and oil and gas extraction sector. Overall, the distribution of sales across industries changed little from previous years, with manufacturing, mining and oil and gas extraction, and finance (nonbank) and insurance remaining the sectors with the highest FA sales.

Foreign Affiliate Sales, 2009

Foreign Affiliate Sales, 2009
Agriculture, forestry, fishing and hunting [11]1
Mining and oil and gas extraction [21]22
Utilities and construction (1)3
Manufacturing [31-33]40
Wholesale trade [41]2
Retail trade [44-45]3
Transportation and warehousing [48-49]3
Information and cultural industries [51]4
Finance (non-bank) and insurance (2)14
Professional, scientific and technical services [54]2
Management of companies and enterprises [55]3
Other services (3)3

Foreign Affiliate Sales vs Exports

Foreign Affiliate Sales vs Exports
$ Billions19992000200120022003200420052006200720082009
FATS (Total, all countries)3.16363.67053.64553.54553.37753.81204.01504.43784.76924.94434.5618
Total G & S EX4.22674.89094.80794.77524.60904.94385.17805.22335.32925.61234.3763

Although FA employment in servicesrelated sectors advanced, the advance was offset by the even greater decrease in FA employment in goods-producing sectors so that overall employment in Canada’s FAs fell. The employment decline was greatest in the mining and oil and gas extraction sector (down 18,000). Significant increases in employment in information and cultural industries (up 10,000), as well as in wholesale trade and management of companies and enterprises (up 2,000 each) propelled the upward trend in FA employment in the services-related sectors.

FA Sales versus Exports

Growth in FA sales substantially outpaced growth in exports between 1999 and 2009. In 2009, for the first time on record, FA sales exceeded exports of goods and services— FA sales stood at $456 billion and exports at $438 billion. Although both measures were down from the previous year, the fall in exports was significantly greater in the wake of the global economic downturn. The greatest margin in between FA sales and exports was seen in the emerging markets and in the EU where the ratio of FA sales to exports was 2.05 and 1.88, respectively, whereas in the United States and among the other OECD countries the ratios were much lower.

1 In line with international practice, the data only cover majority-owned FAs and exclude depository institutions and foreign branches of Canadian firms. Even if Canadian ownership of an FA is less than 100 percent, the data represent 100 percent of the sales and employment figures.

2 The most recent year for which data are available.

3 Note that some duplication of data may occur whenever FA sales and exports are double counted.

4 Other OECD countries include: Australia, Chile, Iceland, Israel, Japan, Mexico, New Zealand, Norway, South Korea, Switzerland and Turkey.

5 This country group consists of all countries not included in the other groups. As most developed nations are excluded from this group, it will be referred to as emerging markets in this text.

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