Mark Carney’s biggest economic challenge: Canada’s catastrophic investment deficit

Open this photo in gallery:Prime Minister Mark Carney speaks during an announcement on the Canada Strong Fund in Ottawa on April 27.Justin Tang/The Canadian PressShareSave for laterPlease log in to bookmark this story.Log InCreate Free AccountPrime Minister Mark Carney never stops talking about boosting investment in Canada. He waxes lyrical about how much capital once flowed into the country. He reminisces about all that it built. He blue-skies about a future where we repeat the performance.From the start of 2015 to the end of 2024, the level of business investment per Canadian worker declined. It’s an ominous development. The last time that happened was The Great Depression. Over the decade, Canada’s gross domestic product per capita rose by just 0.5 per cent a year – also the worst performance since the Great Depression. Canada to host September summit in Toronto to help draw billions in foreign investment, Carney saysThese disappointing outcomes are intimately connected. Business investment is a key driver of economic growth. More and newer tools in the hands of Canadian workers, from machines to information technology, generally leads to more output per hour worked, and higher living standards. Just as more investment tends to lift GDP, less investment tends to sap it.A recent report from RBC looked at the past century of Canadian business investment and economic growth, broken down by decade.The Great Depression led to an investment collapse, and economic growth went sharply negative. But the Second World War set off a virtuous cycle that lasted more than 30 years. There was an unprecedented jump in investment, which helped to power a long period of high GDP growth. Between 1955 and 1974, economic output per Canadian nearly doubled.The decade after 2015 was the opposite story. The RBC report calls it “a ten-year capital recession.”Opinion: To make the Canada Strong Fund work, look to Quebec’s example, not Norway’sHere’s what that looked like:“Over the past decade, Canada’s net outflow of investment exceeded $1 trillion, the most significant capital exodus in modern Canadian history. For every dollar invested in Canada from abroad, two dollars exited. “Canada accounted for nearly 10 per cent of global outward foreign direct investment over the past decade, having exported more capital than any country on Earth, save the U.S. and China. Canada now ranks last among G7 nations in investment in both machinery and equipment and intellectual property.”Part of the problem was that investment in Canadian oil and gas fell off a cliff after 2014, because of a drop in global prices. But outside of Canada, the post-2014 price slump was a temporary speed bump for investors, not a brick wall.For example, the U.S. exported almost no liquid natural gas a decade ago. Today, after massive private investments in new pipelines and liquid natural gas facilities, the U.S. is the world’s largest LNG exporter, with more big projects under construction and more big increases to export capacity on the way. Canada is far behind.Oil and gas isn’t the only sector where it should be possible to attract far more private investment, but RBC identifies it as the biggest. The report estimates that even with no significant attempt to grow oil or LNG production, there will be $430-billion invested in Canadian oil and gas over the next decade. However, if Canada is ambitious – enabling a one-third increase in oil production, two new pipelines, three new LNG terminals…

This excerpt is published under fair use for community discussion. Read the full article at The Globe and Mail.