The Fraser Institute’s latest report, An International Comparison of Capital Expenditures, highlights a worrying trend: even prior to the disruption of the COVID-19 pandemic, from between 2015 and 2019 Canada’s growth rate of business investment was lower than virtually any other period since 1970.
They find that the growth rate of overall business investment has been on a steady decline in Canada. It slowed substantially from 2005 to 2019, falling from 45 percent growth in the period of 2000 to 2005, to 25 per cent from 2005 to 2010, to 18.9 percent from 2010 to 2015, and finally to just under 11 percent from 2015 to 2019.
Canada was in good position relative to our peers as recently as 2000 to 2010, authors Steven Globerman and Joel Emes point out, with overall capital investment in Canada at a substantially higher growth rate than in other developed OECD countries. Severe underperformance has followed since.
This is evident in two key categories of business investment especially. Machinery and equipment and intellectual property products are two asset categories in which total investment was typically lower in Canada than in the US and several other developed countries.
Taken together, this is troubling given that business investment is a major driver of economic growth and higher living standards for workers.
“Given how important business investment is to increase productivity and raise living standards, the slow growth rate Canada is experiencing is alarming, particularly now as Canada emerges from the COVID recession,” they write.
“Improving the conditions that encourage more business investment should be a priority for policymakers across the country.”
