Canadian Business Investment ‘Significantly’ Lower Compared to US, Study Finds

A view of Syncrude’s mine site north of Fort McMurray, Alta., in a file photo. Cole Burston/AFP/Getty Images

The gap between Canadian and U.S. business investment per worker “widened significantly” after 2014, with Canada seeing a $43.7 billion decline in total annual business investment between 2014 and 2021, according to a new report by the Fraser Institute.

“Economists have warned of Canada’s weak business investment, particularly compared to the United States. This should concern Canadians as strong busi­ness investment is key to higher incomes, greater economic prosperity, and improved living standards,” states the report, released on June 29, in its main conclusions.

“Canadian prosperity depends in large part on the strength of business investment. Policy-makers must recognize the current challenge, understand its causes, and prioritize policies that support business investment moving forward.”

Real, or non-residential, U.S. business investment per worker—referring to spending on structures like factories and pipelines, machinery and equipment like computers, and intellectual property like software, but does not include homebuilding—exceeded that of Canada every year from 2002 to 2021. Canadian investment grew by $2,889 during that period, while U.S. investment grew by $11,064.

This means that back in 2014, Canada invested about 79 cents per worker for every dollar invested in the United States, but by 2021, investment had fallen to 55 cents for every U.S. dollar.

The three Canadian provinces of Alberta, Saskatchewan, and Newfoundland and Labrador had “significantly higher” real business investment per worker than the United States had in 2014.

But from 2014 to 2021, U.S. growth in real business investment per worker was higher than growth in any Canadian province except Ontario, growth actually declined in  five provinces: Alberta, Newfoundland and Labrador, Saskatchewan, Manitoba, and Nova Scotia.

According to the Fraser Institute, Canada saw a higher increase in the number of business-sector workers compared to the United States between 2002 and 2021, meaning Canada’s weaker business investment in part reflected a faster growth in the number of workers.

The report also suggested that the 2014 oil-price collapse, an increase in regulatory constraints and perceived policy uncertainty in Canada relating to the energy sector, and the Canadian government’s recent tax and regulatory policies have contributed to the country’s decline in business investment.

‘Worrying Implications’

The steady decline in Canadian real business investment per worker and the widening gap between Canada and the United States “has worrying implications for Canada’s economic growth, and in particular, for the incomes and earnings of Canadian workers compared to the incomes of workers in the United States,” the report says.

A previous Fraser Institute report, from July 2021, also found that Canada had recent weak investment performance when compared to other developed countries, especially in the areas of machinery, equipment, and intellectual property products.

This “augues poorly for future productivity growth in Canada’s private sector and underscores the urgency of tax and regulatory reforms to strengthen incentives for investment and entrepreneurship in Canada’s business sector,” the 2021 report said.