Canada is one of the counties whose economy relies significantly on domestic and foreign investment. In the last few years, Canada has managed to improve its business environment to attract all forms of investment. This led to a declaration by the World Band that among the G20, Canada has the best environment that supports investment. Also, the country ranks second in terms of foreign direct investment. The trends indicate that Canada has a bright future in business and trade terms. However, the current global pandemic caused by the ongoing widespread infection of Covid19 threatens the economy of many countries, including Canada.
A large percentage of domestic investment in Canada involves plants, equipment, and factories. The country’s investment in equipment and plant has increased significantly over the last five decades. This means that Canadian domestic businesspeople continue to inject more capital into their businesses. Also, local Canadian investors invested more in intellectual property over the last five decades. The emergence of high-end tech clusters promoted investment in this sector (Kirby, 2019). Despite the general improvement in domestic investment in the intellectual property, plant, and equipment industries in the last decades, the last five years marked a downward trend. For example, the plant and equipment investment dropped by 20%. Kirby (2019) Canada is facing the worst level of performance in at least five decades. Similarly, investment in intellectual property also dropped. The recent trends leave the country’s economy to rely more on monetary inflow.
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Canada has several domestic owned factories that manufacture goods for local and foreign markets. The country has a pleasant business climate provided by political stability and continued inflow of people. As a result, local investors feel the urge to open up more companies. However, wage inflation in the region directly affects the factories by reducing the profit margin in both Canada and the United States of America. Unlike the United States who invested more in capital-intensive industries after the Great Recession, Canada focused on labor-intensive industries. This means that the labor market inflation would affect the Canadian industries more than the American factories. In the United States, manufacturing activities relies heavily on capital (Kirby, 2019). Therefore, the profit margins remain relatively stable despite the fall in capital costs and an increase in labor costs. On the other hand, Canada experiences notable changes in profit margins.
Foreign direct investment in Canada is on an upward trend due to the stable business conditions and attractive Canadian markets. In December 2019, the country registered and FDI growth of 1.8%. The growth rate was 2.2% in the previous quarter. Foreign investor prefers the Canadian market because of a favorable environment created by several international trade factors. The country has a low tax environment, which translated to a statutory income tax rate of 26.6% last year (Kirby, 2019). Other attractive factors include a highly competitive and educated workforce, geographical location, performing economy, financial stability, and inflow of people.
Impact of Covid19 on Canadian Economy
Covid19 is a new strain of coronaviruses that spread fast and currently affects more than 120 countries worldwide. The pandemic affects the Canadian economy directly and indirectly. First, one of the measures taken to reduce the spread of covid19 is to stop the unnecessary movement of people. As a result, many businesses that do not provide essential services have to close down. This means that manufacturing is not continuing leading to a reduction in revenue. Secondly, the pandemic has caused low consumption levels in both local and international markets (Baldwin & Tomiura, 2020). Canadian companies cannot supply their products to the consumers because of the halted transport system, purchasing power, and decrease in demands. Canada’s economy relies significantly on local and international trade, and the pandemic continues to affect it negatively.
References
Baldwin, R., & Tomiura, E. (2020). 5 Thinking ahead about the trade impact of COVID-19. Economics in the Time of COVID-19 , 59.
Kirby, J. (2019, December 4). The most important Canadian economic charts to watch in 2020. Macleans . Retrieved from https://www.macleans.ca/economy/the-most-important-canadian-economic-charts-to-watch-in-2020/
