Stock of Foreign Direct Investment (FDI) in Canada, 2018

Summary

  • This short report highlights the most recent statistics for the stock of foreign direct investment (FDI) in Canada in 2018, which were released late April by Statistics Canada.
  • Canada continues to be an attractive place for foreign investors. In 2018, FDI stock in Canada rose by 5 percent to $877 billion. Nearly half of this increase originated from the United States.
  • For the second year, Statistics Canada published FDI stock by ultimate investing country (UIC). This measure identifies the country that ultimately controls an investment in Canada. The UIC method attributes an investment to the source country of investments that transit through tax-haven countries like the Netherlands and Luxembourg.
  • Countries with notable increases in investment when measured based on UIC are the U.S., China, Japan, Brazil and Germany. For instance in 2017, US FDI measured using UIC was 51 percent of total FDI in Canada, compared to only 46 percent when investment is simple attributed to the last country through which the FDI transited. In other words, it can be inferred that some five percentage points of U.S. FDI transits through an intermediate country before being invested in Canada.
  • Although the United States continues to be by far the most important source of FDI for Canada with $406 billion of FDI stock in 2018, its relative importance has declined over the past decade.

Analysis

Statistics Canada publishes estimates for both the annual Foreign Direct Investment (FDI) stock in Canada and the Canadian Direct Investment Abroad (CDIA). This note analyzes primarily the 2018 figures for the stock of FDI in Canada and trends over the past decade.

In 2018, the stock of FDI in Canada rose by $42 billion in 2018 to reach $877 billion. This is the fastest growth in FDI stock since 2015 (Annex, Chart 1).  In addition, the growth of FDI stock (5 percent) was faster than that of nominal GDP (3.6 percent). Consequently the ratio of FDI stock to GDP – a measure of Canada’s dependency or orientation toward FDI – rose slightly from 39.0 percent in 2017 to 39.5 percent in 2018.

By comparison, the stock of CDIA rose by 10.4% to reach $1,289 billion in 2018, a $122 billion gain from 2017. The majority of that increase was due to valuation gains from a weaker Canadian dollar. The finance and insurance sector continues to be the most important destination of CDIA, along with the mining, oil and gas, and the management of companies and enterprises sectors. Together, these three sectors represented almost two-thirds of total CDIA stock. Overall, CDIA stock exceeded FDI stock by a record-high $412 billion in 2018, maintaining Canada’s position of a net exporter of direct investment.

Just over three-quarters of the stock of FDI in Canada in 2018 originated from five sources of FDI - the United States (46 percent), the Netherlands (12 percent), Luxembourg (6 percent), the United Kingdom (6 percent) and Switzerland (5 percent) (Annex, Chart 2). The high rankings for the Netherlands and Luxembourg are due primarily for their importance as reputable financial centres from where FDI is channelled elsewhere. Among emerging economies, China was the only one among the top ten, (ranking ninth with 1.9 percent), while Brazil stood just outside the top 10 (ranking eleventh with 1.7 percent).

Although the United States continues to be by far the most important source of FDI for Canada with $406 billion of FDI stock, its relative importance has declined over the past decade. Its share stood seven percentage points lower than in 2008 when it was 53 percent. Most of that decline was offset by the combined share for European countries rising by almost five percentage points over the same period, standing at 38 percent in 2018 (Annex, Chart 3). 

Five sectors received more than 85 percent of the FDI stock: manufacturing (23 percent); mining, oil & gas (20 percent); management of companies and enterprises (20 percent); finance and insurance (15 percent); and wholesale trade (9 percent) (Annex, Chart 4). While the manufacturing sector has the highest share of FDI stock, its share has been dropping over time; it stood at 33 percent in 2008. Investors have been incorporating their foreign affiliates in Canada as operating in management of companies and enterprises more frequently over the same period, leading to an increase in Canada’s share for this sector of four percentage points since 2008.

While statistics on sources of FDI are reported according to Immediate Investing Country, which is the last country through which the FDI transited before entering the domestic economy, Statistics Canada released for the second year the FDI statistics based on Ultimate Investing Country, as recommended by the Organization for Economic and Co-operative Development (OECD). This concept allows countries to look through complex corporate ownership structures to see the country of the investor who ultimately controls the investment. It is useful to better understand and assess investment strategies used by multinational organisations.

The data shows that five of Canada’s top ten FDI sources as measured by Immediate Investing Country experienced an increase in their shares on an Ultimate Investing Country basis: the U.S., the U.K., Japan, Germany and China (Annex, Chart 5). In contrast, as can be expected, substantial declines in stock of FDI to Canada from countries that offer fiscal advantages to investors (low-tax jurisdictions) occur when investment is reallocated on an Ultimate Investing Country basis: Netherlands, Luxembourg, Switzerland, Hong Kong and Bermuda.  Finally, it is worth noting that Brazil and France are among the top ten sources of Canada’s FDI stock on an ultimate investing country, with shares of 3.3 percent and 2.1 percent respectively (Annex, Chart 6).

Annex:

Chart 1: Levels of stock of FDI in Canada, CDIA and net FDI position, 1987-2018

Chart 2: Top 10 geographic sources of FDI stock in Canada

Chart 3: Percentage distribution of Canada’s FDI stock by major regions, 2018

Chart 4: Distribution of Canada’s FDI stock by major sectors, 2018

Chart 5: FDI Stock in Canada for top 10 immediate investors by immediate investing country (IIC) and ultimate investing country (UIC), 2017

Chart 6: Shares of the Top 10 Ultimate Investing Countries in Canada’s FDI stock, 2017 (%)

Chart 1

Chart 1: Levels of stock of FDI in Canada, CDIA and net FDI position, 1987-2018

Chart 2

Shares of the Top 10 Geographic Sources of FDI stock in Canada, 2018 (%)
#Country/TerritoryShare (%)
-All Countries/Territories100.0
1United States46.3
2Netherlands12.2
3Luxembourg6.4
4United Kingdom5.7
5Switzerland5.3
6Japan3.3
7Hong Kong2.5
8Germany1.9
9People’s Republic of China1.9
10Bermuda1.9
-Others12.6

Source: Office of the Chief Economist, Global Affairs Canada, Data: Statistics Canada

Chart 3

Chart 3: Percentage distribution of Canada’s FDI stock by major regions, 2018

Chart 4

Chart 4: Distribution of Canada’s FDI stock by major sectors, 2018

Chart 5

FDI Stock in Canada for top 10 immediate investors by Immediate (IIC) and Ultimate Investing Country (UIC), 2017 (%)
Country/TerritoryShare (%)Difference
(percentage points)
IICUIC
United States46.351.24.9
Netherlands12.22.4-9.8
Luxembourg6.52.7-3.8
United Kingdom5.66.30.7
Switzerland5.33.5-1.8
Japan3.44.71.3
Hong Kong2.41.4-1.0
Germany2.03.21.2
People’s Republic of China1.93.31.4
Bermuda1.90.1-1.8
Others12.521.28.7

Source: Office of the Chief Economist, Global Affairs Canada, Data: Statistics Canada

Chart 6

Shares of the Top 10 Ultimate Investing Countries in Canada’s FDI stock, 2017 (%)
#CountriesShare (%)
1United States51.2
2United Kingdom6.3
3Japan4.7
4Switzerland3.5
5Brazil3.3
6People’s Republic of China3.3
7Germany3.2
8Luxembourg2.7
9Netherlands2.4
10France2.1

Source: Office of the Chief Economist, Global Affairs Canada, Data: Statistics Canada