The 2008 financial crisis and ensuing recession accelerated a shift in global economic gravity from the developed to the developing world. As Canada, the US and Europe grapple with debt problems and stagnant growth, major emerging markets, such as Brazil, China and India, are prospering conspicuously. How does this changing climate affect Canada’s future as a favoured investment destination?
Figures from the United Nations Conference on Trade and Development (UNCTAD) indicate that emerging markets’ share grew to more than half of all global foreign direct investment (FDI) in 2010 — a trend likely to continue. The Economist Intelligence Unit conducted a global survey of 195 Canadian and non-Canadian senior executives to understand their perspectives on investment, and found that a sizable share (38%) of respondents do intend to shift FDI from developed to developing markets within five years.
However, Canada also faces competition from its southern neighbour, despite slow growth and political stalemate in the US. Entrepreneurship is one area in which Canada is not perceived to be performing particularly strongly, despite the country’s push to be recognized as a leader in this field. This was further confirmed by interviews with Canadian high-growth companies that find more opportunity in markets outside their home country.
This report explores the implications of changing investment patterns for Canada, identifies the key drivers of investment, and assesses the importance of a country’s reputation for entrepreneurship in attracting investment.
The report’s key findings include the following:
- Executives recognize the importance of emerging markets, but not all are rushing to invest in them. One-quarter of the survey participants, Canadians and non-Canadians alike, expect to shift some future foreign investments from developed countries to emerging markets this coming year, and nearly 40% will do so in the next five years. Still, despite a volatile macroeconomic climate, more than one-third of respondents say there will be no shift in investment between emerging and developed markets for their companies.
- To the benefit of developed markets, a favourable business operating environment remains an important determinant of investment. For most survey participants, a critical criterion for evaluating FDI targets was a favourable business operating environment, which can still give developed countries an advantage over developing countries in attracting investors.
- While appreciating its political and economic stability, few regard Canada as offering a strong entrepreneurial culture. Non-Canadian respondents ranked Canada a respectable fourth as an investment destination, chiefly because of its perceived political and economic stability. This undoubtedly reflects the US-tilt of the demographics among survey respondents. However, only one-third regarded Canada as having superior market-growth prospects, and very few respondents, including Canadians, felt it had an especially strong entrepreneurial culture.
- Country “branding” can pay off by spurring inward investment. Ninety percent of survey participants endorsed branding efforts by governments to boost inward foreign investment. However, they also acknowledge that these efforts cannot compensate for unattractive business conditions.
