Why Aren’t Businesses Investing in Canada?
- February 11, 2018
Despite the efforts of current and past governments in Canada, business investment is Canada pales in comparison to other countries according to an October 2017 Fraser Institute report. In fact, it has fallen behind
As of the second quarter of 2017, business investment in this country stood at $194.2 billion, 18 per cent lower than the quarterly peak in 2014.
So the big question is how did we get into this situation and what can we do to remedy the situation?
The Fraser report says a persistent weakness in business investment in this country has been “aggravated by several recent government policies, including increased tax rates on capital and mounting budget deficits and debt, both of which add to the uncertainty that entrepreneurs and investors feel about the future.”
One big problem is the cost of doing business in Canada. If we take Ontario as an example, the report notes that a persistent slack in manufacturing investment, high labour, electricity and regulation costs imposed by the provincial government has had a significant impact on the province’s poor investment performance.
Falling corporate profits in recent years is also playing a role in Canada’s investment performance. Indeed, the “shrinking profitability of investments in Canada, especially in the oil and gas sector, appears to be discouraging foreign investment in Canada,” notes the Fraser Report.
The Fraser Report’s results are a stark contrast to a January 2017 report from the Business Development Bank of Canada (BDC) “Investment Intentions of Canadian Entrepreneurs: An Outlook for 2017”, which outline a rosier outlook among the 4,000-plus business owners contacted for the study.
In this survey, a third of businesses said they planned to invest more in 2017 with the technology sector leading the way with 54 per cent of businesses in this sector that said they planned to invest more in 2017. And more than seven out of ten respondents said they would invest to achieve their growth objectives or to increase their business’s efficiency or productivity.
While the BDC report paints a rosier outlook, respondents also identified obstacles to investment with the top two being lack of cash flow and lack of qualified people.
There is no easy solution, but the most obvious approach to encouraging investment is to create a better business environment. And that means reducing government deficits, reducing the costs of running a manufacturing business and providing more tax breaks for companies so they can invest in productivity enhancing technologies such as new machinery. SMT