FDI or Foreign Direct Investment is an important source of capital for any country. Statistics have revealed that defying the global patterns, Canada’s FDI has increased by quite impressive numbers. So, is this yearly rise in Foreign Direct Investments, a good sign for the country’s economy?
Besides a drop in capital outflows from China into Canada, and significant geopolitical shifts, FDI has still seen an upward trend. Foreign direct investment (FDI) stock increased by 5% in 2018. This hike was much faster than that of nominal GDP (3.6% only). Can you guess why?
Whether you are a Canadian or not, you might be interested in learning What a Foreign Direct Investment is? What are the important factors that influence the growth or decline in FDI? How Canada is perceived by global investors?
Let’s grab the answers to these interesting queries one by one…
What is FDI? Meaning
First and foremost, you need to understand the meaning of FDI.
Wikipedia defines Foreign Direct Investment (FDI) as
“An investment in the form of a controlling ownership in a business in one country by an entity based in another country.”
Now, let’s explain this in simpler terms. When an individual, a firm, or a company, invest in the business interests in another country, it is called FDI. That’s different from simply putting in money. It’s much more than that! Investors bring in money, knowledge, skills and innovative technology as well. They are involved in the day-to-day operations of the newly set-up company.
Foreign Direct Investment (FDI) Canada: Key Factors to Consider
Here are few important factors to note down while discussing FDI in Canada.
1. Less Reliance on the US:
The United States has been a dominant force driving investment into Canada. However, its relative importance has declined over the past decade. For the past year or so, non-US FDI has increased massively, thereby reducing its reliance on US investments. Is it a piece of good news? What do you say?
2. Tax Incentives:
Simple corporate tax measures are being implemented to attract new investment dollars into the country. If the investor gets a tax rebate or a wonderful incentive to invest his funds, he is bound to consider the tax-saving proposition. A popular and beneficial scheme to attract FDI into any country!
3. Rising Manufacturing & Technology Sectors:
These two areas have captured immense global attention recently. The manufacturing sector has the highest share of FDI stock. Increased traction in these advancing industries, coupled with technically skilled manpower, makes Canada an appealing place for investors.
4. Top-tier Talent:
Every year, Canadian Universities produce top talent that could be instrumental in any company’s growth. More and more tech workers are being trained and recruited in their area of interest. Further, Canada embraces well-qualified immigrants from around the world, thereby strengthening its educated and experienced workforce. Since talent acquisition and retention are the key ingredients of a successful Multi-National Company. Isn’t this quite an attractive point for investors?
FDI in Canada: Main Recipient Sectors
- Mining, Oil & Gas
- Management of Companies & Enterprises
- Finance & Insurance
- Wholesale Trade
FDI Stock in Canada: Major Investor Countries/Territories
- United States
- United Kingdom
- Hong Kong
- People’s Republic of China
Foreign Investments: Pros & Cons
No doubt, Foreign Direct Investment is crucial for developing economies in Asia wherein companies need multinational funding to grow. A healthy mode of financing and employment generation therein!
But, as far as developed economies like the US and Canada are concerned, these also require FDI, which ultimately helps in restructuring and re-energizing core and other businesses.
Now, FDI has its pros and cons. Although, it’s regarded as doing more good than harm in the long run. On one hand, Foreign investment is a long term commitment and can boost revenues in the home country. It is likely to have a positive spillover effect on the local economy.
On the other hand, it has a few drawbacks as well. What if foreign investors start controlling the powerful sectors like Telecom and Transport? What will happen if the foreign-owned company sends profits to its own country? It can cause serious issues down the road. Don’t you think so?
The Bottom Line
Investing in different countries is a win-win situation for individual FDI investors too. Not only, they build a diversified portfolio and minimize their risks, but they can also earn huge returns.
Digital technology, Artificial Intelligence, Ocean Sciences, etc. are the prime zones to entice foreign investors into Canada. Should we grab more eyeballs through these principal emerging areas?
To conclude, if Canada keeps on creating innovative solutions for the global economy, it will ensure sustainable foreign investments pouring into the country. But, wait!! It’s neither a good practice to allow too much FDI penetration and foreign ownership into the strategically important industries. What do you feel?
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Is Foreign Direct Investment a healthy practice or not? I would love to hear your views on the same.