If Canadians need a confidence builder, they need look no further than to foreign direct investment in the country last year. The shareholdings of Canadian assets by foreigners in 2007 (+14.4%) recorded the largest increase in eight years, according to a report just released by Statistics Canada. Clearly foreigners like us, they really do.

Canada has become quite popular as a location to park foreign currency and expect decent returns. Furthermore, the expenditures were made despite the approximate 18% increase (year-end to year-end) in value of the Canadian dollar versus the U.S. dollar. As might be expected, much of the increase in the latest year went into resource-based companies.

There is some irony in the investment flow numbers. The Canadian dollar has risen to its current heights because of the country’s depth in resources. However, the higher-valued currency also renders it more expensive for foreigners to buy Canadian assets. Where were these investors when the Canadian dollar was such a bargain ($0.62 USD) five years ago?

Foreign direct investment in Canada now stands at nearly half a trillion dollars ($500.9 CAD billion). CAD is the international currency designation for the Canadian dollar, similar to the way USD stands for the American dollar and GBP for Great Britain’s pound. Almost 60% of direct investment in Canada is held by firms based in the United States. Second place goes to the United Kingdom, at 10.9% followed by the Netherlands (6.3%), France (3.5%), Switzerland (2.8%), Japan (2.7%) and Brazil (2.6%).

It is a confidence builder that foreigners are investing more in Canada. However, it is equally good news that Canadians’ net direct investment with respect to all countries is still positive. That is to say, direct investment by Canadian firms outside our borders remains higher than foreigners’ direct investment in Canada. The net figure has been positive since 1997.

Canadians’ holdings around the world exceeded the rest of the world’s holdings in Canada by $13.7 CDN billion at the end of 2007. However, this was down considerably from the $92.2 CDN billion surplus at the end of 2006. The net figure declined sharply in the latest year as a result of the increase in value of the loonie.

Our most important investment positions, back and forth, are with the United States. U.S. holdings in Canada exceeded Canadian holdings in the U.S. by $62.5 CDN billion at the end of 2007. The year before, the net position had been $36.8 CDN billion. The change in the net position was largely due to the loonie-greenback exchange rate adjustment.

As stated earlier, the U.S. accounts for nearly 60% of foreigners’ total holdings in Canada. In the other direction, U.S.-based assets make up 44% of the total foreign holdings of Canadian firms. The positions taken by Canadians in countries other than the U.S. have become considerably more diversified, geographically speaking, over the last several years. The United Kingdom (10.6%) is in second place, but some surprising bright spots quickly appear after that.

It seems we are becoming sun seekers. This demonstrates good sense, in my estimation. The Barbados, Bahamas, Bermuda and the Cayman Islands now total 16.5% of Canadian investment abroad. This compares with only 5.4% in 1997.

Alex Carrick

Find Canadian construction-related economic articles in Canadian Construction Market News and in the Economic Outlook section of Daily Commercial News.

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