By Niels Veldhuis
and Ashley Stedman
The Fraser Institute
Canada has massive investment potential. We have an abundance of natural resources, one of the most highly-educated populations in the world, and reside next to the world’s most successful economy.
We’re also among the freest countries in the world, with freedom of religion, assembly, movement and trade.
We’re the kind of country that investment should be flocking to in droves.
Instead, investment is fleeing our country. And the cancellation of Teck Resources’ $20-billion Frontier oil sands mine is unfortunately just the latest example of investment flig,ht.
On Sunday, just days before the federal government of Prime Minister Justin Trudeau was expected to approve or reject the project, Teck CEO Don Lindsay sent a letter to federal Environment and Climate Change Minister Jonathan Wilkinson saying the company was officially withdrawing its application.
For investors, this is more evidence of how politicized the regulatory process for major projects in Canada has become.
The blame lies at the feet of the federal government, which recently created the Impact Assessment Agency of Canada (IAAC) to review major energy projects. This has injected significant subjective criteria into project analyses, including ‘social’ impact, gender implications and potential climate effects. And it has further politicized the process by placing final decisions on approval or rejection in the hands of the federal cabinet.
The government has also created mass uncertainty with unsustainable federal budget deficits, tax increases on high-skilled workers and entrepreneurs, and more burdensome regulations.
As a result, the government has made Canada less competitive and less attractive for entrepreneurs and investors. Canada has plummeted in competitiveness report cards such as the World Bank’s Ease of Doing Business report, where we dropped from fourth place in 2007 to 23rd in 2020, or the latest World Economic Forum’s Global Competitiveness Report, which ranks Canada 14th compared to second-place United States.
Also worrying is the hard investment data.
According to Statistics Canada, inflation-adjusted business investment in Canada has declined by 5.3 per cent over the past five years. If you remove residential structures and business investment in machinery and equipment from the equation, investment in intellectual property and non-residential structures has decreased by 13.2 per cent.
This isn’t just an oil and gas story. There’s been a significant drop in investment across 10 of the 15 major sectors of the Canadian economy, including agriculture, mining, utilities, professional and technical services, manufacturing and retail.
Clearly, investors – foreign and Canadian – are fleeing our country for more favourable investment climates. In total, $150 billion has left Canada from 2014 to 2018. And while final numbers for 2019 aren’t yet available, data from January to September indicates another $23 billion left in the first nine months of last year.
This has left our investment per worker rate in Canada ($13,078 in 2018) well below the U.S. number ($22,270). It also puts us below the average in the 16 developed Organization for Economic Co-operation and Development (OECD) countries where data is available ($17,026).
Given that investment provides the resources for new equipment, innovation and ultimately sustainable and prosperous employment for Canadians, this is bad news for Canada’s economic prospects.
Canada is viewed by Canadian and foreign investors as an inhospitable place to invest. When a country or jurisdiction fails to offer a competitive investment environment – or when the rules and policies are uncertain and unstable – business owners, entrepreneurs and investors look elsewhere.
That’s the tragedy of Canada and the latest decision by Teck Resources. We’re a country with all the natural advantages one could dream of, yet we’re destroying our potential.
Niels Veldhuis and Ashley Stedman are economists at the Fraser Institute. The op-ed was co-authored by Milagros Palacios, a Fraser Institute economist.