We must make Canada worth investing in

As originally published in The Globe and Mail

I applaud the federal government’s recently announced industrial strategy aimed at driving investment and creating new jobs in Canada. It provides another indication that this government’s primary policy goal is to foster economic growth in Canada.

This strategy, and indeed the entire Build Canada model, will require a massive amount of new capital spending from business and external investors. However, the announcement largely ignored the elephant in the room – the woeful level of business investment in our economy that has choked off growth over the past 20 years.

After two decades of poor and declining investment, our economy has become unproductive to the point that we can no longer describe Canada’s productivity shortfall as a gap – it is becoming an abyss.

Between 2006 and 2021, as a share of GDP, Canadian investment per worker fell 20 per cent compared to that of U.S. companies. In 2014, Canadian companies invested 79 cents per worker for every dollar invested in the United States. By 2021, investment had dropped to 55 cents for every U.S. dollar.

You can also see this declining trend in the growing imbalance in foreign direct investment. In 2006, the amount of business investment leaving Canada was 19 per cent greater than the amount coming in. By 2016, the gap had grown to 36 per cent and last year it widened further to 65 per cent, nearly doubling in less than a decade.

It will be a heavy lift, but these trends need to be reversed immediately if we are going to reset our economy and pull Canada out of its economic abyss.

While it might be tempting to lay the blame for this underinvestment on investors, their job is to drive returns. If returns are weaker in Canada or the costs of operating are higher, capital will flow to more profitable markets.

It’s therefore essential that Canada creates an environment that is friendly for business and investors alike. This includes better support for Canadian companies at the scale-up stage.

To attract increased foreign capital and spur Canadian businesses to invest more in Canada, government needs to create certainty that the country’s often unwieldy and layered regulatory requirements will not leave these investments stranded.

Creating a singular approval process with a time limit is a good start. But as we know, capital needs assurances that there won’t be up- or downstream regulations that will block or significantly delay projects. Investors have been down that path before and it is not a road they will travel again.

As these projects will take more than the span of one term to get built, investors will also be looking for a level of comfort that successive governments won’t shut them down.

While cleaner approval processes are critical, they won’t drive investment on their own. To attract the volume of investment required to reset our economy, government will need to fix Canada’s increasingly uncompetitive tax environment.

This will take much more than a tinkering of tax codes. It will require a significant policy shift that treats our tax system not just as a method to extract revenue, but as a way to generate wealth.

Given the need to attract capital on many fronts and the sizable risks facing investors, government should assess all options, including whether existing tax provisions like flow-through shares and investment tax credits, including refundable ITCs, could be used or modified to entice capital investment.

But government will is not enough, which is why Canadian business also needs to step up – and in a big way. For far too long, Canadian businesses have been too complacent, trading away growth for the promise of certainty. This approach has pushed our economy to the middle – maybe even the back – of the pack. Continued small thinking will ensure we stay behind.

We are operating in a period of rapid, large-scale disruption. Standing idle and hoping things return to the way they were is simply not an option.

Canadian business leaders need to see these bold government initiatives as an invitation to step up and be equally bold. To play a key role in shaping the future of our economy.

The threats we face today are not a slow burn – they are a series of flash fires that risk engulfing the country. Canada has long had the resources and skills to take charge of our economy and be leaders on the world stage.

Now is the time to act.