Canada back in second place for foreign investment

Canada bumped Germany in index that rates attractiveness for direct foreign investment

Foreign direct investment was up in Canada in the first quarter of 2020, according to Statistics Canada. | Trading Economics graph

Canada is back in second place on a list of the most attractive countries for direct foreign investment, according to the annual Kearney Foreign Direct Investment Confidence Index for 2020.

It places Canada second only to the U.S. in terms of attractiveness for investors.

Canada was bumped by Germany in 2019 to third place. Germany is number three this year, Japan four and France five.

The Kearney FDI confidence index surveys investor intentions, ranking countries according to things like regulatory environments, political stability, taxes, digital infrastructure, participation in free trade agreements and climate change risks.

Canada’s high ranking is attributed mainly to its educated work force and its participation in free trade agreements.

“While global FDI is predicted to plummet across the board, with the fallout from the coronavirus pandemic profoundly impacting the global economy for years to come, developing and emerging markets will see the brunt of these losses,” Kearney says in its report for 2020.

“It is no surprise that Canada has such a high ranking,” said Erik Peterson, co-author of the 2020 ranking and managing director of the Global Business Policy Council.

“It has a developed and stable economy, strong infrastructure and a well-educated workforce—similar characteristics to the United States, while providing a solid alternative choice for investors.”

The report notes the “double-whammy” that Canada’s oil and gas sector has taken in 2020 -- from the pandemic and an oil price war between Russia and Saudi Arabia -- as one of the more negative signals for direct foreign investment in Canada.

That double-whammy “has significantly weakened its growth prospects in 2020,” the report notes.

“Indeed, the economy is expected to plunge by 10.7% this year. And while the energy sector, which accounts for about 10% of the country’s economy, has historically been stable (despite some issues in recent years such as insufficient pipeline capacity), the devastating impact of COVID-19 on oil and gas prices will prove to be a large challenge for the country in 2020.”

The report notes that the completion of the new North American Free Trade Agreement bodes well for future FDI in Canada.

“Once implemented, the United States-Mexico Canada Agreement (USMCA) could spur increased FDI in Canada as investor confidence rises," the report predicts.