Foreign direct investment, 2019
The stock of Canadian direct investment abroad rose 2.5% to $1,391.3 billion at the end of 2019. Significant cross-border investments were moderated by a downward revaluation due to the appreciation of the Canadian dollar against most major foreign currencies.
At the same time, the stock of foreign direct investment in Canada increased 7.7% to $973.9 billion, mostly reflecting the largest cross-border investments in six years.
As a result, Canada's net direct investment asset position with the rest of the world narrowed by $34.8 billion to $417.4 billion. Canada's net direct investment position has significantly expanded in the last five years; it stood at $100.5 billion at the end of 2014. From 2015 to 2019, foreign direct investment generated a net outflow of funds of $184.5 billion from the Canadian economy, strongly contributing to the growth in the net asset position. The stock of Canadian direct investment abroad has consistently exceeded the stock of foreign direct investment in Canada since 1997.
Foreign direct investment represents cross-border investment made by an investor with the objective of establishing a lasting interest in an enterprise that is resident in another country. The motivation of the direct investor is a strategic long-term relationship to ensure a significant degree of influence in the management of its affiliate. Foreign direct investment is considered a key element in international economic integration.
These data will serve as a benchmark to measure the impacts of the pandemic on foreign direct investment in the coming year. These impacts can already be followed on an aggregated basis in Canada's balance of international payments and Canada's international investment position.
Canadian direct investment abroad increases predominantly in Europe
The increase in Canadian direct investment abroad in 2019 was mainly due to higher investment positions in Europe. Significant outflows of funds, moderated by the downward revaluation effect of a higher Canadian dollar against the euro and the British pound, contributed to the growth. The stock of Canadian direct investment in Europe reached $351.7 billion, up $26.4 billion. The highest increases were in Switzerland (+$6.3 billion) and in the United Kingdom (+$5.8 billion).
The stock of Canadian direct investment in the United States edged up by $5.2 billion to $631.6 billion. The United States remains the main destination for Canadian direct investment abroad, accounting for 45.4% of all holdings at the end of 2019. The United States was the recipient of 12.3% of all inward direct investments in the world at the end of 2018, reflecting the greater relative importance of the US market for Canadian firms.
Direct investment in South America as well as in Asia and Oceania both posted a decline at the end of 2019. Notably, the main contributor to the decrease in South America was Chile, with a decline of $2.4 billion. The decrease in Asia and Oceania was led by withdrawals of investments in Australia.
On an industry basis, Canadian direct investment abroad in management of companies and enterprises and in mining and oil and gas extraction posted the largest increases. The finance and insurance industry remained the primary destination for Canadian direct investment abroad, with a share of 35.3% of the overall position at the end of 2019.
Foreign direct investment in Canada up
The stock of foreign direct investment in Canada increased 7.7% to reach $973.9 billion in 2019. The leading investor countries were the United States, Netherlands, and the United Kingdom at the end of the year. The increase in 2019 was partly attributable to the highest level of cross-border mergers and acquisitions in four years.
Foreign direct investment from the United States rose $37.6 billion to $455.1 billion and represented 46.7% of overall direct investment in Canada. Holdings from Europe were up $21.9 billion to $367.4 billion. The growth mainly reflected higher investment position from Switzerland, Netherlands and Luxembourg. Direct investment from Asia and Oceania totalled $99.9 billion, up $3.3 billion from 2018. Australia and China mainly contributed to the increase.
On an industry basis, affiliates in mining and oil and gas extraction as well as in manufacturing industries accounted for the largest increases.
Note to readers
This is the annual release of detailed foreign direct investment data at book value. This release contains country and industry details for foreign direct investment that are drawn from the annual survey. This detailed information is not available at the time of quarterly international investment position releases. However, aggregates of direct investment positions, both at book and market values, are available as part of the quarterly international investment position release. The current aggregates at book value, along with revised aggregates at market value, will be integrated into the international investment position at the time of the third quarter 2020 release in December, in line with the Canadian System of Macroeconomic Accounts revision policy.
Direct investment is a component of the international investment position that refers to the investment of an entity in one country (the direct investor) obtaining a lasting interest in an entity in another country (the direct investment enterprise). The lasting interest implies the existence of a long-term relationship between the direct investor and the direct investment enterprise and a significant degree of influence by the direct investor on the management of the direct investment enterprise.
In practice, direct investment is deemed to occur when a direct investor owns at least 10% of the voting equity in a direct investment enterprise. This report presents the cumulative year-end positions for direct investment, measured as the total value of equity and the net value of debt instruments between direct investors and their direct investment enterprises.
Foreign direct investment by country and by industry
Following international standards, the main measure of direct investment is based on the country of residence of the direct investor (immediate parent company) for foreign direct investment in Canada and on the country of residence of the direct investment enterprise (the immediate subsidiary) for Canadian direct investment abroad. This implies that direct investment is largely attributed to the first investor/investee country, rather than the ultimate investor/investee country. Direct investment data on an immediate investor basis is available in tables 36-10-0008-01 and 36-10-0009-01.
Foreign direct investment in Canada by ultimate investor
A supplementary series on inward foreign direct investment in Canada by ultimate investor is now available in table 36-10-0433-01. This series differs from the standard presentation of foreign direct investment, which is based on the country of residence of the immediate direct investor, by showing the country of the investor that ultimately controls the investment in Canada. Because inward foreign direct investment may be channeled through holding companies or other legal entities in intermediate countries before reaching Canada, the measurement of foreign direct investment on an ultimate investor basis can result in substantial changes in the distribution of inward positions by country when compared to foreign direct investment measured on an immediate investor basis.
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 predominantly recorded in Canadian dollars.
In general, data for smaller countries and industries (defined as countries with foreign direct investment below $500 million or industries at the three-digit level of the North American Industry Classification System) are subject to higher sampling variability.
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