Experts say Canada needs to rethink anti-foreign investment regulations

Canada's FDI performance has suffered in the past year, as Statistics Canada released a report showing that in 2017, FDI fell 26% down to $33.8 billion, its lowest since 2010. Worse still, much of that was reinvestment from existing ventures.

BIN writes that Canada's reputation in international markets has been tarnished by a perceived lack of competitiveness. A Canadian law firm that focuses on international trade and investment says its experience reflects this reality.

In some places, Canada ranks as low as Iran and Kazakhstan

Shawn Denstedt, vice-chairman for Western Canada with Osler, Hoskin, & Harcourt LLP says that “some of our potential investors from Europe rank Canada as low as Iran and Kazakhstan in terms of [FDI approval] processes, and that’s not a good thing for Canada... What we hear in particular is that the regulatory burden in Canada is material, and that discourages investment.”

Daniel Schwanen, an economist at C. D. Howe Institute and vice-president of research, warned that a number of regulations penalise foreign investors. For instance, Canada's restriction on share ownership and the current "net benefit," which mandates that investors prove their venture's benefit to Canada, are thought to hinder the inflow of foreign investment.

Denstedt also says that the Trans Mountain pipeline debate in Canada has made international investors wary of political interference in signficant capital projects, creating a reputation of uncertainty.

He also believes that Canada's approval process is relatively long in the international market. For instance, major projects that would take two to four years to gain approval in Canada's process would take six to nine months in a country like Australia.

"All capital wants is certainty"

“Every time there’s a delay in getting projects approved, that costs them money,” Denstedt said. “Investors’ interest in Canada is still strong, but we are in competition with places like Australia and the United States, and I think it’s fair to say their regulatory burdens are less, and their processes have more certainty to them.”

“What capital wants is certainty.… It’s important to remember that energy and resource development in Canada is a regulated industry. It’s not prohibitive, and we can still develop natural resource projects; so we should focus on the regulation of that industry, rather than the prohibition.”

Lower corporate tax rates in the US since President Donald Trump took office has led to US companies repatriating, and some Canadian companies preferring that market to their own.

Herbert Grubel, an Economics professor at Simon Fraser University says that the challenges Canada has faces with the Trans Mountain pipeline, combined with the directives limiting future oil projects in Canada are also making Canada an unattractive option for foreign investors.

“It’s clearly indicated that we’ve had trouble getting product to market, so as a result, investment – especially in oil exploration – has certainly gone down,” he said.

“The big watershed was when Trump came in and deregulated the American economy and lowered personal and corporate income taxes. It has led to American-owned companies repatriating and Canadian firms investing in the United States rather than Canada.”