Here’s an eye opener: In 2012, for the first time ever, developing countries absorbed more foreign direct investment than did developed ones. The old-school economies are apparently yesterday’s news when it comes to investment – except, apparently, for Canada.
The data come from a new United Nations World Investment Report for 2013. In it, the UN crunches through the globe looking at the major trends in foreign direct investment (FDI, usually defined as cross-border investment by an entity of one country into an entity in another country). The crux of it is that it is investment in a country by an entity that thinks it is worth their while to be there – hence a vote of economic confidence.
Whether FDI is a good thing depends on your view. Some time in Canada’s ancient history (in the 1970s, actually) it was considered a bad thing, and there was a review agency to keep out all the bad capital from other countries. More recently, there has been a collective appreciation for anyone who is bringing money in, although of course all new projects are still subject to review.
By and large, however, you have to see it as a sign of international economic confidence if foreign investors want to put money into your country – or vice-versa. The vice-versa part was apparently the fact of the developed countries in 2012. According to the UN data, foreign direct investment in the developed economies dipped by 32 per cent – to $561-billion (U.S.), a level not seen in a decade. The European Union accounted for two-thirds of the decline, but investment into North America also declined.
Compared with the developed countries, investment into the developing world was pretty resilient in 2012. It did dip a bit – by 4 per cent overall – but that still leaves the level of FDI into the developing world at its second-highest level ever. More telling, the developing countries were the destination of 52 per cent of global FDI inflows – a pretty important benchmark and the first time that they have ever attracted more than half of all FDI. As has been the case for a while, flows to Asia and Latin America stayed at historically high levels, although growth slipped a bit.
Canada is apparently still a favoured place for foreign investment. In total, $45.4-billion came into the country in 2012, up 9.6 per cent from 2011. True, Canadian money went out looking for returns elsewhere (there was an outward flow of $53.9-billion in 2012) but the implication is still clear: Other countries think there is money to be made in Canada. In contrast, FDI into the United States was down 37 per cent, as was investment into the EU (off 78 per cent) and even China (down 24 per cent). In a ranking of top “host economies” for FDI, Canada came in 10th in the world, up from 12th in 2011.
So what’s the big story? Apparently it’s an old one: Money goes wherever the returns look best. So far, at least, that list of the best prospects apparently still includes Canada.
Linda Nazareth is the principal of Relentless Economics Inc. and a senior fellow at the Macdonald Laurier Institute.