Canadians may have a global reputation for being friendly, but the country’s “significant barriers” to foreign direct investment (FDI) are still giving investors the cold shoulder, according to a new study from the C.D. Howe Institute.
The conclusions come a decade after the Competition Policy Review Panel issued a report pushing Ottawa to loosen restrictions on FDI to attract more investment into the country.
“Net flows of FDI into Canada are showing a worrisome trend, dropping sharply as a share of world FDI since 2014 and even, in 2017, falling behind net FDI flows into Australia, a smaller resource-based economy, and those into Mexico, another country affected by NAFTA uncertainty,” the study said.
A 2018 world investment report from the UN Conference on Trade and Development shows FDI inflows to Canada fell from US$37 billion to US$24 billion between 2016 and 2017.
Barriers to FDI include redundant screening mechanisms for foreign acquisitions that require an investor to prove a net benefit to Canada, according to the report.
“It’s a bit of a red flag [for investors],” report author Daniel Schwanen told Business in Vancouver
“Being hauled on the carpet is not quite what’s happening but you basically are being asked all kinds of questions about your investment before you’re allowed to make it. And you’re asked typically to make some commitments to the Canadian market.”
His report recommends Ottawa attract more FDI by loosening restrictions and boosting transparency by requiring the government to explicitly declare if an investment must be rejected because it’s not in the national interest.
Other recommendations include requiring the government to explaining its reasons for rejecting an investment on principled grounds and eliminating remaining restrictions on share ownership in a particular industry or company (telecommunications or broadcasting, for example).
Schwanen said that while Canada has liberalized its policies over the past decade, other countries have moved in the same direction as well.
“There’s a bit of a battle for foreign direct investment,” he said.
“What we need to do is ask ourselves, ‘Does a particular foreign investment — or foreign investment in general — mean that foreign-owned companies here in Canada will not respect our laws, our safety or environmental regulations, won’t pay taxes?’”
Unless there is a suspicion that they won’t abide by the above conditions, Schwanen said, foreign companies should be welcomed by default.
“We [should] reverse the onus on the proof. It’s up to the government to show that an investment is unwelcome,” he said.
