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Foreign direct investment

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Canadian direct investment abroad rose by 24% in 2008, largely the result of the substantially weaker Canadian dollar's effect in the fourth quarter of 2008 on the value of foreign currency-denominated direct investment positions. The depreciation of the Canadian dollar against most foreign currencies added $82.8 billion to the overall Canadian direct investment position abroad.

Canadian direct investment abroad

In 2008, the Canadian dollar lost ground (-19%) against the US dollar after reaching parity at the end of 2007. It also depreciated by 15% against the euro and 34% against the Japanese yen, but gained about 11% on the British pound.

The 24% gain in 2008 was the strongest growth in Canadian direct investment abroad since 1981. Most of the gains were accounted for by changes in the value of investments in the United States, as the direct investment position grew to $310.7 billion. Nevertheless, Canadian direct investments at the end of 2008 were spread over countries on all continents, with 39 countries having at least $1 billion in investment.

Note to readers

This is the annual release of detailed foreign direct investment position data. This release contains country detail for direct investment that is drawn from the annual survey. This information is not available at the time of the quarterly International investment position release.

Direct investment is a component of the international investment position that refers to investment of a resident entity in one country obtaining a lasting interest in an enterprise resident in another country. The lasting interest implies the existence of a long-term relationship between the direct investor and the enterprise, and a significant degree of influence by the investor on the management of the enterprise.

In practice, direct investment is deemed to occur when a company owns at least 10% of the voting equity in a foreign enterprise. This report presents the cumulative year-end positions for direct investment. In the Canadian statistics, direct investment is measured as the total value of equity, net long-term claims and net short-term claims held by the enterprise across the border.

Foreign direct investment is often channelled through intermediate holding companies or other legal entities before reaching its ultimate destination. Since these entities are generally in the financial sector, this sector accounts for a larger share on an immediate investor basis than if the ultimate destination were known. This is especially the case for Canadian direct investment abroad.

Currency valuation

The value of Canadian direct investment abroad is denominated in foreign currency and converted to Canadian dollars at the end of each period for which a year-end position is calculated. When the Canadian dollar is depreciating in value, the restatement of the value of direct investment abroad in Canadian dollars increases the recorded value. The opposite is true when the dollar is appreciating. Foreign direct investment in Canada is directly recorded in Canadian dollars and the fluctuation of the Canadian dollar has no impact on the recorded value.

Foreign direct investment in Canada grew by 3% in 2008. This was well below the average annual growth of 9% over the last decade, and reflected considerably slower investment activity in the year, especially from the United States. Foreign direct investment in Canada was more concentrated, with 22 countries having more than $1 billion in direct investment in Canada at the end of 2008.

Canadian direct investment abroad

Direct investment assets in the United States increased by $80.1 billion to $310.7 billion in 2008. The weaker Canadian currency relative to the US dollar added $52.5 billion to the Canadian direct investment position in that region. The share of investment in the United States increased for a second year, accounting for 49% of total direct investment abroad at the end of 2008. This was up significantly from 45% a year earlier.

Foreign direct investment position with the United States

However, the strengthened Canadian dollar against the British pound had an opposite effect on direct investment assets in United Kingdom. The value of Canadian direct investment in the United Kingdom fell $5.2 billion to $54.0 billion, although that country remained the second most popular destination for Canadian direct investment abroad.

Canadian direct investment increased in all other major European countries at the end of 2008. Canada's most significant European destinations of investment remained Ireland, with investments totalling $20.5 billion; France with $18.7 billion; Hungary, $10.8 billion; Germany, $10.5 billion; Switzerland, $9.1 billion, and the Netherlands, $8.4 billion.

Canadian direct investment in Caribbean countries remained high at the end of 2008. The total direct investment in Barbados, Bermuda and Cayman Islands increased to $86.5 billion. In the past few years, Canadian investors have directed growing amounts to these countries.

Canadian direct investors were also well represented in South America. At the end of the year, Canadian direct investment stood at $9.2 billion in Brazil and $6.4 billion in Chile.

Foreign direct investment position with all countries excluding the United States

Foreign direct investment in Canada

Foreign direct investments in Canada from the United States increased slightly at the end of 2008 to $293.6 billion. American investors still hold most of the direct investment in Canada at about 58%. However, this proportion has steadily declined over the past years and fell below 60% for the first time in 2008. It was at 60% at the end of 2007 and 67% 10 years earlier.

Three-quarters of the direct investments in Canada are from three countries — the United States, the United Kingdom and the Netherlands. The United Kingdom was the second largest direct investor country with 11% of the total, or $54.4 billion. The Netherlands stood at 7% or $33.9 billion.

Four other European countries were on the list of top nations with foreign direct investment in Canada in 2008. They were France with $18.5 billion; Switzerland, $15.3 billion; Germany, $9.4 billion; and Luxembourg, $5.7 billion.

Net direct investment position

The increase in the level of Canadian direct investment abroad led to a gain of $108.3 billion at the end of 2008 in Canada's net direct investment position (the difference between Canadian direct investment abroad and foreign direct investment in Canada). This was up sharply from $24.1 billion in 2007, and resulted in the largest recorded surplus on net direct investment position of $132.4 billion. This change was dominated by the swing in the net investment position in the United States.

For the first time, Canada's net direct investment position with the United States was a net asset position of $17.1 billion at the end of 2008, compared with a net liability of $62.1 billion a year earlier.

The nation's net direct investment position with the United Kingdom, Canada's second most important direct investment partner country also flipped, but in the other direction. It swung from a net asset position of $6.8 billion in 2007 to a net liability of $0.4 billion in 2008. This was the first Canadian deficit with the United Kingdom since 1993.

Available on CANSIM: table 376-0051.

Definitions, data sources and methods: survey number 1537.

For more information, or to order data, contact Client Services (613-951-1855; infobalance@statcan.gc.ca). To enquire about the methods, concepts or data quality of this release please contact Éric Simard (613-951-7244; eric.simard@statcan.gc.ca), Balance of Payments Division.

Table 1

Foreign direct investment positions at year end
  2005 2006 2007 2008
  $ billions
Canadian direct investment abroad        
United States 202.4 229.7 230.6 310.7
United Kingdom 46.4 57.6 59.2 54.0
Barbados 34.6 40.5 32.0 45.0
Bermuda 11.1 20.0 18.3 22.3
Ireland 19.8 20.0 19.1 20.5
Cayman Islands 8.6 16.7 16.7 19.2
France 14.6 16.0 15.2 18.7
Hungary 5.4 6.2 9.2 10.8
Germany 7.4 9.1 8.7 10.5
Brazil 6.8 9.0 8.9 9.2
Switzerland 5.3 7.6 7.1 9.1
Netherlands 9.9 7.7 6.2 8.4
Australia 8.0 6.8 7.0 7.1
Chile 5.3 4.6 5.9 6.4
All other countries 66.5 73.3 71.5 85.5
Total 452.2 524.7 515.4 637.3
Foreign direct investment in Canada        
United States 251.5 271.1 292.7 293.6
United Kingdom 29.5 37.8 52.4 54.4
Netherlands 21.1 24.8 30.6 33.9
France 28.3 16.9 17.1 18.5
Switzerland 13.1 14.7 13.6 15.3
Japan 10.5 13.4 13.6 13.0
Brazil 3.1 11.8 11.2 11.9
Germany 8.8 8.4 9.2 9.4
Luxembourg 3.6 6.6 5.4 5.7
All other countries 28.5 33.2 45.4 49.1
Total 397.8 438.6 491.3 504.9