Boom, bust and recovery: Recent trends in inward FDI flows to Canada

In the last decade, trends in Canada’s inward foreign direct investment (FDI) flows have mirrored movements in global inward FDI flows, demonstrating a marked tendency to move in tandem with the business cycle.

Inward FDI Flows to Canada (C$ Billion)

Canada’s inward FDI flows from 2005 to 2013

Source: Compiled by the Office of the Chief Economist, DFATD, using data from Statistics Canada

In 2007, the second half of which marked the onset of the financial crisis, FDI flows to Canada reached a historic-high of $125 billion, coinciding with the unprecedented peak in global inward FDI flows, totalling some $2 trillion. With the onset of the global financial crisis, FDI flows to Canada plummeted by nearly $100 billion (79.3%) during the following two years to reach $25.9 billion in 2009. For the most part, the recovery in FDI flows to Canada since 2009 has been slow, except for 2013 when they surged by 48% to almost $70 billion, and yet remained nearly 45% below their peak in 2007. Nonetheless, Canada posted the third-highest FDI flows in 2013.

By all accounts, 2007 was an exceptional year for FDI flows to Canada: historic highs, and inflows of more than $100 billion, nearly doubling the previous year’s level. That year also coincided with the height of the global mergers and acquisitions (M&A’s) boom, which proved to be the major catalyst for FDI flows, especially in developed countries. Cross-border M&A’s accounted for nearly 70% of FDI flows to Canada in 2007 alone—almost twice their share of FDI flows from 2010 to 2013. In fact, 2007 marked some of the largest cross-border takeovers in Canadian history, involving mining giants like Alcan and Inco as the targets.

Although FDI flows in the current recovery (2010-2013) have yet to surpass the record set in 2007, Canada’s performance as an FDI destination during this period has been solid from an international perspective. From 2010 to 2013, on average, Canada accounted for 3.0% global FDI inflows—slightly higher than its share of global GDP (2.5%). Furthermore, cumulative FDI flows to Canada during this period totalled over $175 billion, making Canada the 10th largest recipient of global FDI flows. Concurrently, Canada ranked 5th among the top 10 recipients of FDI flows on a per capita basis, while leading all other G-7 economies on that count with some $5,000 in FDI flows per head.

The Upshot

As with global inward FDI flows, the recovery in FDI flows to Canada in the post-recession years has been relatively slow. Nevertheless, there has been a clear upward trend for the past four consecutive years, and Canada has performed strongly relative to other G-7 economies.

For more information, visit Global Affairs Canada’s Office of the Chief Economist.

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