More Than $1 Trillion in Investment Left Canada Between 2015 and 2024, Largest in Nation’s History: Report

Canada has seen the largest capital outflow in the nation’s history over the past decade with more than $1 trillion in investment leaving, according to a new report by RBC.

The report released April 14 by Jordan Brennan and Farhad Panahov of RBC Thought Leadership details how for every dollar of inward foreign direct investment between 2015 and 2024, two dollars in investment left the country, leading to “the largest capital exodus in Canadian history.”

The extended period of investment leaving Canada has created what Panahov and Brennan describe as an “unprecedented capital recession,” which they say has been defined by “weak business investment, stalling productivity, and stagnating living standards.”

Cause

Brennan and Panahov identify structural and policy obstacles as the main reason that investment has left Canada.

“The barriers are execution, predictability, and risk tolerance,” they write, adding that regulatory delays, changing policies, and uncertainty about approvals have caused an increasing number of investors to stop investing in Canada.

While risk is a given in most investments, Brennan and Panahov say “investors are adept at navigation risk but flee when hemmed in by vague rules and shifting frameworks” to go to jurisdictions that are seen as more stable and predictable.

Rebound

However, despite a decade of capital outflow, the report says Canada may be beginning to rebound.

As evidence of a rebound, the report points to foreign direct investment growing to almost $100 billion last year, marking its highest level since 2015. Panahov and Brennan also note that last year was the first time in a decade that investment inflow exceeded outflow.

The authors say this turnaround is partly due to Canada once again becoming a more attractive destination for investment due to political stability, a significant resource base, and alignment with Western allied nations.

“Global capital flows are shifting significantly,” they write, referring to global disruptions such as the recent war in Iran as events that are prompting some investors to “rebalance their portfolios.”

“Canada is back on the capital radar,” the report adds.

Opportunity

The report estimates that Canada could attract up to $1.8 trillion in investment in the next decade and become a growth leader in the G7 if it takes advantage of opportunities in oil and gas, metals and minerals, electricity, agriculture and food processing, defence, and space.

Brennan and Panahov write that these six sectors are “export-oriented, [research and development]-intensive, and strategically significant industries” that can boost Canada’s growth in the decade to come.

They identify oil and gas on its own as having the potential to generate $705 billion in investment over the next 10 years, while electricity could generate $670 billion.

“New oil pipelines and LNG terminals could elevate Canada to energy superpower status, diversifying trade, providing energy security to allies, and fostering carbon capture and sequestration technologies,” the authors write. They add that Canada could pursue “a transformative expansion of power across nuclear, hydro, and renewables, coupled with grid modernization” in the electricity sector.

Challenges Remain

Despite optimism about a possible rebound, Panahov and Brennan write that significant challenges remain for Canada, including regulatory barriers and unpredictable project approvals.

Their report observes that Canada currently “ranks last among G7 nations in investment in both machinery and equipment (M&E) and intellectual property (IP).”

It says that in Canada only about 30 percent of capital formation goes into M&E and IP, half the U.S. share, a situation that continues to have a downward effect on Canada’s economic competitiveness and living standard.

Capital formation refers to the accumulation of capital in new assets such as factories, machinery, infrastructure, and technology—investments that are essential for enhancing economic growth, productivity, and innovation.

Enough Capital

Brennan and Panahov identify a considerable amount of capital currently not being used in Canada that they say could be “more than enough” to cause an economic growth spurt in the future.

“The non-financial corporate sector is sitting on more than $1 trillion in cash on its balance sheet,” the report notes, going on to say that getting that capital invested would be likely to attract more foreign direct investment as well as institutional and public investments.

“Simply put: There is more than enough capital to power the country’s growth ambitions,” the report reads.

The report advises developing a new capital formation framework to unlock both foreign and domestic capital, through mechanisms such as procurement reform, changes in corporate income tax and foreign direct investment policies, investment in long-duration and de-risked assets, and savvier use of government spending.

However, the authors warn that “global competition for capital is intense” and say that Canada will have to move decisively and make use of its advantages such as the rule of law, natural resources, political stability, and an educated and skilled workforce in order to continue growing real investment.

“The question is not whether Canada can grow—but how,” the report concludes.