As stated, in none of the international comparisons does Canada really stand out. Canada was most commonly described as an "average" place to invest by our survey respondents and interviewees. When asked to name a key factor making Canada a good place to invest, most executives struggled to find an answer. Very few were strongly negative about Canada, but very few were enthusiastic.
As the global economy evolves, Canada will increasingly have to compete for investment dollars with its large southern neighbour, fast-growing markets in China and other rapidly developing countries, and an enlarged European Union. It is difficult to see how "average" will enable Canada to maintain or improve its access to international capital and technology.
| Maybe 3 to 4 per cent of global inward FDI is the best Canada can expect. |
Canada's leaders may not consider the decline in Canada's share of global direct investment to be a major issue in itself. However, it does act as the "canary in the mineshaft" to signal to Canadians that their advantages over the rest of the world have become largely illusory. Our analysis highlighted some shortcomings that need to be addressed if Canada is to become an above-average performer in the global economy.
The critical question now is what can be done? Canada's traditional advantages in attracting foreign direct investment have faded. At one time Canada had protected, high-growth markets that multinational enterprises accessed by investing in the country. But with trade liberalization and slower growth in domestic markets, this advantage has diminished considerably.
Further, NAFTA has not so far proved much help to Canada in attracting foreign investors that want to access North American markets.
Other faster-growing economies such as those in Asia have become destinations of choice for foreign investors that have market access motives. The size of the Chinese and other Asian markets has clearly been a major strategic draw for FDI. Several of those interviewed and surveyed noted that market growth in Asia was certain to be far greater than in North America or Europe over the next few decades. While there is still some caution (especially where the protection of intellectual property is concerned), most executives felt that policy changes (including the entry of China and Taiwan into the World Trade Organization) over the past few decades have made these markets safer and that the potential rewards now outweigh the risks.
This country is not well positioned to fully benefit from the large flows of foreign direct investment in the global knowledge-based economy or from the increase focus of multinational enterprises on global supply chains. It is possible that Canada will not be able to increase its share of global FDI beyond its share of the world economy. Maybe 3 to 4 per cent of global inward FDI is the best that it can do. However, if Canada want to attract a larger share of foreign direct investment or be an above-average performer in the global economy, it will need to define and develop its advantages in the new world of global supply chains and the knowledge economy. And it will need to communicate these advantages to global companies. Furthermore, a critica mass of Canadian multinational companies that invest in other regions of the world will be important if Canada is to fully benefit from the global economy.