In the end, decisions on foreign direct investment are made by executives in multinational companies who assess the risks and returns of potential investments in various countries. Some factors influencing the decisions are quantifiable; others depend on experience and judgment. Several international organizations collect data on the relative attractiveness of countries to foreign investors. Canada receives a wide range of scores in these international rankings but never a top mark.
In its World Investment Report for 2003, the United Nations Conference on Trade and Development ranked Canada fifth on its Foreign Direct Investment Potential Index for 1999-2001, behind the United States, Sweden, Singapore and Norway.1 This is a decline from the second place ranking it received for 1988-90, when the United States placed first.
| Canada's ranking as a destination for FDI has slipped in recent years. |
The consulting firm A.T. Kearney does an annual survey of the foreign direct investment intentions of major companies and their views on their candidate countries.2 In the September 2003 report, Canada ranked 14th, down from eighth in 2002. Reasons given for the decline included severe acute respiratory syndrome in Toronto (mentioned as a negative by 20 per cent of respondents), mad cow disease in Alberta, the appreciation of the Canadian dollar and the weakness of the U.S. economy. U.S. investors ranked Canada fifth in this survey, and there is no sign that security and trade disputes, or the souring of Canada-U.S. relations over the Iraq war, have affected American investment decisions regarding Canada. The Kearney ranking is, however, quite volatile and appears to be strongly influenced by short-term headline factors. Since 1998, Canada has ranked as low as 17th (1998) and as high as eighth (2002).
| Global competition, especially from developing countries, is stiff. Investment decisions must meet far more rigorous criteria these days. |
The influential World Economic Forum (WEF) ranks Canada 16th in overall growth competitiveness, down significantly from ninth place in 2002.3 Canada does a little better in business competitiveness, ranking 12th, down from 10th in 2002. The WEF background briefing indicates weaknesses in the sub-indices, especially in contracts and law, in the macroeconomic stability index, and in company operations and strategy.4
In the interviews carried out by the Conference Board, executives were asked to rate Canada against other competing countries as an investment destination. Generally, the ranking was in the top 15, occasionally in the top 10, but never in the top five. The point was made that Canada has slipped in recent years as the attractiveness of developing countries has increased and the Canadian situation has remained static. Several interviewees noted that their industries have global overcapacity and that the investment decision has to meet much more stringent strategic criteria than was the case even 10 years ago. In a country with substantial existing investment, such as Canada, the real decision is sometimes whether to disinvest.
It should be noted that survey results, whether compiled by the Conference Board or other research organizations, represent opinions and perceptions and may be quickly revised based on new information or gut feelings.5 Because they are subjective and not scientific, the findings should be viewed with caution. Instead of focusing on a quantitative result, we need to read an overarching message and emerging theme. The message here is that Canada is not in the top 10 countries as a potential investment location, while competition to attract additional investment in the global marketplace is growing fiercer every day.