FDI has been, since I trained as
an economist, the best form of investment that a country could hope to obtain. Money invested for the long term that will
result in job growth and revenues increases – even it turns out when the FDI is
in the form of buying already existing companies it appears.
There is no doubt that Canada has
a problem because the greatest bulk of foreign investments into Canada is
either TSX60 companies or sovereign t-bills or bonds – highly liquid
investments that can exit at the first sign of trouble (or better opportunity
elsewhere). Over the past 30 months (in
fact shortly after the financial crisis) investors have looked at Canada favourably,
its banks seem solid, and well capitalized, the housing market seems to be
doing ok (in fact better than ok, it’s on fire!) which has resulted in more
than $100 billion a year in investments (about 8% of GDP). We know that the Bank of Canada is concerned with all this "hot money", and how to minimize the risk it represents to the country (the economy and the currency).
Right now for Canada media the
manna is Chinese since they are” sitting on billions of dollars” that is
looking for a home to invest. Hearsay is
that in Africa in particular Chinese have been aggressive investors – although compared
to America, which annually invests in excess of $300 billion abroad, the
Chinese efforts have been small ($70 billion in 2010 – ranked #4 in the world). The Canadian reality is that for Chinese
looking for steady markets Canada has certain advantage, but is maybe not a
very important consideration. The
reality of China’s massive investments into Africa (Senegal in particular)
would seem to indicate that political (and economic) turmoil is not a critical
consideration.
It remains, and hence the beginning
of the commentary, that China has looked at many assets in Western Canada – in the
oil and gas field in particular (Daylight Energy is the latest TSE:DAY). However, as a method of “locking-in” resources
for China the Canadian market is a poor substitute for poor and easily “influenced”
countries in Africa – there is currently only two (full) pipeline (Vancouver & Prince Rupert) going from the
oil rich Alberta to the BC coast.
In fact, of Canada $560 billion
in direct foreign investment, China accounts for only 2.7% -- a tiny
participation that can easily grow from its current low base. However, Canada doesn’t offer “resource security”
since it would be almost impossible for China to export its production (as in a
colony situation) back to China. The
analogy, as far as Canada is concerned is false – as such Canada will remain
dependent on its historic “primary” source of FDI – United States of America.
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