Canadian business investment still sluggish: Fraser Institute

Drop in business investment from 2014 to 2017 is the most severe in at least 30 years

A study released on Wednesday by the Fraser Institute says business investment has declined in two-thirds of the non-government sectors that comprise the Canadian economy in recent years.

The Private Sector Capital Expenditures in Canada: An Industry-Level Analysis report said the drop in business investment from 2014 to 2017 is the most severe in at least 30 years, a period that includes several recessions.

Steven Globerman
Steven Globerman
Many sectors, not only oil and gas, are affected

“Too often, Canada’s declining business investment is dismissed as a byproduct of recent struggles in the oil and gas sector, but in fact there’s been a significant drop in investment across many sectors of the economy,” said Steven Globerman, Fraser Institute senior fellow, professor emeritus at Western Washington University and co-author of the report.

The report found that 10 of the 15 non-government sectors of the Canadian economy – including agriculture, mining, oil and gas extraction, utilities, manufacturing and retail – experienced declines in business investment from 2014 to 2017, the most recent year of available data.

“Policy-makers routinely underestimate how unattractive Canada has become to investors and businesses,” said Globerman. “To begin to reverse this worrying trend, governments across Canada should consider cutting red tape and pursuing a more competitive tax structure to increase competitiveness.”

The Fraser Institute said the 10 sectors experiencing declining investment not only represent a majority of Canada’s private sector industries, but they also accounted for almost two-thirds of private sector investment over the 2014-2017 period.

“The collapse in capital investment in the oil and gas sector post-2014 is well known, and this collapse has been linked to a decline in overall capital investment in Canada in recent years. Less well documented is the breadth of the decline in capital investment across a range of industries. This essay identifies the behaviour of capital expenditures over various sub-periods since 1990 for 15 industries. It shows that non-residential private sector investment experienced an overall decrease post-2014 that is unique in the post-1990 period. Also unique is the breadth of this decline across industries in the post-2014 period,” said the report.

“More industries experienced decreases in non-residential capital investment post-2014 than in earlier sub-periods, even though there were no major recessions in the past few years comparable to recessions in the early 1990s and in 2008–2009. Machinery and equipment and intellectual property products are particularly important asset categories inasmuch as they are critical to improvements in productivity. As is the case for overall capital expenditures, the post-2014 period is characterized by broad weakness across our sample of industries in capital expenditures for these two specific asset categories. 

“This latter development augurs poorly for future growth in industrial productivity in Canada in the absence of policy changes that improve the investment environment in Canada’s private sector. While the oil and gas industry has suffered most from a deteriorating competitive environment, competitiveness problems, particularly in the face of tax and regulatory regime changes in the U.S. under the Trump administration, are adversely affecting investment across a broader range of Canadian industries.”

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