US-Driven Boom Fuels Foreign Investment Surge in Canada

Canada is experiencing a surge in foreign direct investment (FDI), with nearly $100-billion pouring in last year, the highest level since 2007. Prime Minister Mark Carney boasted about this influx at an Economic Club of New York event, highlighting Canada's attractive location for foreign capital.

A closer look reveals that the majority of this FDI is coming from American investors acquiring Canadian companies, which has raised concerns during the ongoing trade war with the U.S. This trend contrasts with Canada's efforts to reduce its economic dependence on its southern neighbor.

Bank of Montreal chief economist Doug Porter noted that while mergers and acquisitions (M&A) are a significant component of FDI, they can be less positive for the economy in the long term. He also highlighted that portfolio investment, which involves foreigners buying Canadian stocks and bonds, has been strong but volatile.

Experts believe that boosting capital stock per worker could benefit from increased portfolio investment, leading to greater productivity. However, Canada's current rate of $125,000 is one of the lowest among advanced economies, according to a joint analysis by Royal Bank of Canada and McKinsey.