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PESTLE Country Analysis Report: Canada ML00002-006/Published 11/2014 © MarketLine. This report is a licensed product and is not to be photocopied Page 1
Country Profile Series
Canada In-depth PESTLE insights
REFERENCE CODE: ML00002-006
PUBLICATION DATE: November 2014 WWW.MARKETLINE.COM MARKETLINE. THIS PROFILE IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED
PESTLE Country Analysis Report: Canada ML00002-006/Published 11/2014 © MarketLine. This report is a licensed product and is not to be photocopied Page 2
OVERVIEW Catalyst
This profile analyzes the political, economic, social, technological, legal and environmental (PESTLE) structure in
Canada. Each of the PESTLE factors is explored on four parameters: current strengths, current challenges, future
prospects and future risks.
Summary
Key findings
Canada has a strong democratic setup, but tensions between federal and provincial government undermines effective governance
In Canada, democratic principles have been predominant since the late 19th century, when the provinces were self-
governed. After World War II, either the Conservatives or the Liberals have ruled the country. Canada ranked in the
95.26 percentile on voice and accountability parameter and in the 94.79 percentile on rule of law parameter in 2013
World Bank Worldwide Governance Indicators, indicating the stability of the democratic system.
Canada has a loose federal structure, and the provincial governments are given independent legislative powers in local
matters. However, this sometimes leads to conflicts of interest between central government and the provinces. The loose
federal structure can create situations where there are clashes of interests between the federal and provincial
governments.
Canada's sound banking sector has kept the economy on a firm footing, but high household debt is a risk
The World Economic Forum (WEF) has ranked Canada's banking sector as the most sound in the world for seven years
in a row from 2008-14 and has lauded the sector for its adequate capitalization and efficient regulation. In March 2013,
the federal financial regulator, the Office of the Superintendent of Financial Institutions (OSFI), ordered the top six
Canadian banks, considered systemically important, to maintain a common equity tier 1 capital (a financial indicator
measuring core equity capital as a proportion of total risk-weighted assets) of 8% against 7% for other financial
institutions from January 2016 onwards. The fact that all the six banks meet these requirements adequately as of July
2014 is a reflection of the sector's strength. Moreover, the OSFI also adopted the Basel III leverage standard of 3%, which is a more accurate measure of banking sector strength as it also takes into account off-balance sheet exposures.
However, high household debt levels in Canada represent a major vulnerability for the economy. According to Statistics
Canada, the country's household debt, which began an uptrend in the mid-1980s, was at 163.6% of GDP in July 2014.
Much of this appreciation had been driven by Canadian population's propensity to buy homes, which again stems from
record-low mortgage rates in the country. The Canadian housing market has appreciated sharply since the beginning of
the last decade, growing by 87% since 2000. Moreover, it experienced an increase in household prices even after the
2008 financial crisis, unlike the US, where housing prices collapsed. Subsequently, price-income and price-rent ratios in
Canada are among the highest among developed nations. Despite increasing housing costs, the level of investment in
households has continued to increase and has outpaced its pre-crisis peak on the back of low interest rates and loose
credit conditions, and household debt to GDP has surged to new highs.
Canada does well in human development, but aging population could strain public finances in future
Canada has performed well on various social parameters. According to the UNDP's Human Development Report 2014,
PESTLE Country Analysis Report: Canada ML00002-006/Published 11/2014 © MarketLine. This report is a licensed product and is not to be photocopied Page 3
the country was ranked 9th out of 187 countries with a HDI value of 0.902. According to CIA - The World Factbook, as of
2014, life expectancy for the male population was 79.1 years, whereas for females it was 84.4 years. All in all, Canada
has performed quite well in terms of HDI.
Like most developed economies, Canada is facing the problem of aging population. This is evident from the whopping
increase in the number of seniors and a drastic fall in the young population over the last few years. The median age of
the country is 41.5 years in 2013, which indicates that half of the population is above this age. The population belonging
to the baby boomer generation is growing older, with many of its members nearing (or already having reached)
retirement. According to the OECD, the dependency rate of the Canadian population will also increase. The long-term
forecasts by the OECD estimate that seniors will account for 47.7% of the working age population (20-64) in 2050
against just 22.5% in 2010.
Despite the rollout of some of the most generous tax incentives, business R&D expenditure in Canada remains low
Canadian R&D tax incentives for business innovation are among the most generous in the world. The B index measures
the before-tax income needed by a firm to break even on $1 of R&D outlays. The 1 minus the B index shows the
government's focus on R&D, especially for small and medium enterprises. In fact, the incentives given by Canada are
much above even the US. Giving impetus to R&D is important for the Canadian economy to raise its productivity and
living standards and the government rightly provides high subsidies to R&D activity. This could be helpful in the long run,
as companies will find it more attractive to invest in innovation.
However, Canada lags behind other nations in terms of R&D spending. Canada's total expenditure on R&D as a
percentage of GDP—also known as R&D intensity—stood at around 1.8% in 2011, lower than the 2.1% in 2004. The
major reason for this decline in R&D intensity has been a weak trend of business spending on R&D since 2000.
Canada's flexible business environment attracts foreign investors, but restrictions in foreign ownership in some sectors may prove a deterrent
Canada has a comprehensive legal and regulatory framework that provides transparency to the business environment.
The regulatory processes are favorable for foreign investors, with national laws providing freedom to start, operate and
close a business. Starting a business in Canada is far easier than in other nations, as it takes an average of five days
and one procedure, compared to the OECD average of 9.2 days and approximately five procedures according to the
World Bank's Doing Business 2015 report. The procedures needed to set up an enterprise are less cumbersome and
more transparent. Canada's system for registering a business has been entirely online since 2006, and there is no need
for minimum capital to set up a business. These factors make Canada a favorable destination for foreign investment.
Despite Canada being an advanced nation, the government's restrictions on foreign ownership in sectors such as
telecom, radio and broadcasting, and aviation still exist. Moreover, it is one of the few developed countries that have an
investment review process. While Canada maintains a 46.7% FDI limit for domestic telecom services providers, foreign
ownership of Canadian air carriers is limited to 25% of voting equity. Nevertheless, Canada amended its
Telecommunications Act in mid-2012 allowing foreign ownership of telecom carriers with less than 10% market share by
revenue to increase competition in the sector. Telecom carriers are permitted to continue operations even if their market
share grows beyond 10% provided the increase is not an outcome of an acquisition or a merger with another domestic
carrier. Nonetheless, the results of the 2014 spectrum auction, where three major domestic telecom players (Bell, Telus
and Rogers) acquired the majority of licenses, show that further liberalization in the sector is desired. Other industries in
which foreign investment is restricted include oil and gas, farming, book publishing and selling, fisheries, liquor sales,
mining, collection agencies, engineering, optometry, pharmacies and securities dealers. There will be a rise in
investment activities if these sectors are fully liberalized
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Canada has comprehensive environmental policies, but its poor environmental record remains a concern
The Canadian government has established mechanisms to meet the environmental challenges that come with economic
development. The focus of environmental policies has broadened from local and regional issues to challenges of a global
nature. Climate change, global biodiversity, ozone layer depletion, and the transportation of chemicals and hazardous
waste are some of the areas that have appeared at the top of the country's environmental agenda. The country has
made some progress in meeting its domestic environmental objectives and international commitments. Some advances
have also been made in cutting air pollution, and policies have been created to reduce greenhouse gas emissions.
However, the country performs poorly in many environmental indicators including sewage treatment, species at risk,
greenhouse gas emissions, pesticide use and nuclear waste. According to Environmental Performance Index 2014
published by the Yale University, the country ranks 104th out of 178 countries in conservation of forest. Additionally, per
capita emissions per unit of GDP are one of the highest among the OECD countries, which suggests inefficiencies in the
consumption of energy. At the same time, Canada is heavily reliant on non-renewable energy resources, which is an
important factor for the economic growth of the country. Its inability to use alternative sources of energy will add to the
already high levels of emissions in the country.
PESTLE highlights
Political landscape
x Canada's proactive attitude towards foreign relations has resulted in the development of significant trade and investment links. The country is in FTA negotiations with several countries.
x In April 2013, Justin Trudeau, the son of former Prime Minister Pierre Trudeau was elected as the leader of the
Liberal party. Opinion polls indicate that support for the Liberals has strengthened considerably after Justin
Trudeau's election.
Economic landscape
x Canada is one of the few countries in the world, which is richly endowed with a variety of natural resources such
as petroleum, natural gas and coal. The country's oil reserves at 173 billion are the world's third largest oil
reserves after Venezuela and Saudi Arabia and it is the world's fifth largest oil producer. Canada is also the
world's fifth largest producer of natural gas and fourth largest exporter after Russia, Qatar and Norway.
x The Canadian economy is heavily dependent on the US for international trade. According to CIA - The World Factbook, the US accounted for 74.5% of Canada's exports and 50.6% of its imports in 2012.
Social landscape
x Canada has a stable income security program that delivers pension and benefits through the Old Age Security
program and the Canada Pension Plan (CPP). CPP is a contributory, earnings-related social insurance program
that ensures a measure of protection for the contributor and his or her family against loss of income due to retirement, disability, or death. Old Age Security provides additional funding to eligible low-income seniors.
x Although Canada's economic output has been increasing, growth has not been evenly spread across all
provinces and territories. Certain provinces such as Quebec, Ontario, British Columbia and Alberta have
emerged stronger—economically and politically—than others. These four provinces together contribute more than 85% of the country's GDP.
PESTLE Country Analysis Report: Canada ML00002-006/Published 11/2014 © MarketLine. This report is a licensed product and is not to be photocopied Page 5
Technological landscape
x Canada is home to a well-developed manufacturing industry, which serves as the base for the further
development of high end products. The industry is supported by a low overall tax rate, R&D incentives, a qualified labor force, and integration with the North American market.
x Business software piracy also remains a significant concern according to Business Software Alliance (BSA), a
representative body of world's largest software groups. BSA, in its Global Piracy Study, has estimated piracy
losses occurring from unlicensed usage of business software at $1.09 billion in 2013. According to the study, the levels of piracy in the country were around 25% in 2013.
Legal landscape
x Canada has one of the most flexible labor markets in the world, operating under liberal employment regulations that enhance employment opportunities and productivity growth.
x Despite having a lower rate of taxes, the multiplicity of business regulations across provinces acts as a deterrent to investors.
Environmental landscape
x The Canadian government plans to introduce tough new regulations to limit greenhouse gas emissions from the
automotive sector. In September 2010, the government introduced the Passenger Automobile and Light Truck Greenhouse Gas Emission Regulations as part of its efforts to reduce greenhouse gas emissions.
x Global oil companies' efforts to exploit the vast "tar sands" sands in Alberta are fraught with environmental risk.
With proven reserves of more than 170 billion barrels, the province's oil resources are comparable to Saudi Arabia. However, the increased activity has led to an increase in emissions and toxic chemicals in waterways.
Key fundamentals
Table 1: Canada - key fundamentals
2012 2013 2014f 2015f 2016f 2017f 2018f
GDP, constant 2005 prices ($ trillion) 1.3 1.3 1.3 1.4 1.4 1.4 1.5
GDP growth rate (%) 1.7 2.0 2.2 2.5 2.4 2.3 2.1
GDP, constant 2005 prices, per capita ($) 37208.0 37520.6 38135.2 38781.2 39419.2 40030.8 40566.6
Inflation (%) 1.5 0.9 2.0 2.0 2.0 2.1 2.1
Exports, total as a percentage of GDP 29.3 29.4 28.6 28.1 27.5 26.9 26.3
Imports, total as a percentage of GDP 31.9 31.7 30.7 30.0 29.3 28.6 28.0
Mid-year population (million) 34.8 35.2 35.4 35.6 35.9 36.2 36.4
Unemployment rate (%) 7.3 7.1 6.9 6.9 6.8 6.7 6.6
Mobile penetration (per 100 people) 80.1 78.4 79.7 80.8 81.7 82.4 83.0
Source: Country Statistics, MarketLine M A R K E T L I N E
PESTLE Country Analysis Report: Canada ML00002-006/Published 11/2014 © MarketLine. This report is a licensed product and is not to be photocopied Page 6
TABLE OF CONTENTS Overview 2
Catalyst 2
Summary 2
Key Facts and Geographic Location 10
Key facts 10
Geographic location 12
PESTLE Analysis 13
Summary 13
Political analysis 15
Economic analysis 18
Social analysis 23
Technological analysis 26
Legal analysis 29
Environmental analysis 33
Political Landscape 35
Summary 35
Evolution 35
Structure and policies 37
Performance 41
Outlook 42
Economic Landscape 43
Summary 43
Evolution 43
Structure and policies 44
Performance 46
Outlook 53
PESTLE Country Analysis Report: Canada ML00002-006/Published 11/2014 © MarketLine. This report is a licensed product and is not to be photocopied Page 7
Social Landscape 55
Summary 55
Evolution 55
Structure and policies 55
Performance 58
Outlook 60
Technological Landscape 61
Summary 61
Evolution 61
Structure and policies 61
Performance 62
Outlook 63
Legal Landscape 64
Summary 64
Evolution 64
Structure and policies 64
Performance 66
Outlook 66
Environmental Landscape 68
Summary 68
Evolution 68
Structure and policies 68
Performance 70
Outlook 70
Appendix 72
Ask the analyst 72
Disclaimer 72
PESTLE Country Analysis Report: Canada ML00002-006/Published 11/2014 © MarketLine. This report is a licensed product and is not to be photocopied Page 8
TABLE OF FIGURES Figure 1: Map of Canada 12
Figure 2: Common Equity Tier 1 Ratio of six biggest Canadian Banks, July 2014 19
Figure 3: Canada's dependence on the US for trade and investments 20
Figure 4: Position of households in Canada since 1990 21
Figure 5: Population aging in OECD countries 25
Figure 6: Tax subsidy rates on R&D expenditures, 2013 28
Figure 7: Marginal Effective Tax Rate on New Business Investment, 2014 30
Figure 8: FDI Restrictiveness in select sectors in Canada, 2013 31
Figure 9: Canada - political events timeline 36
Figure 10: Canada - key political figures 37
Figure 11: Canadian political structure (central government) 38
Figure 12: Canada - composition of parliament 40
Figure 13: Evolution of GDP growth in Canada, 1993-2013 44
Figure 14: GDP and growth rate in Canada, 2008-18 46
Figure 15: Sectoral composition of GDP in Canada, 2013 47
Figure 16: Agricultural output of Canada, 2008-13 48
Figure 17: Industrial output of Canada, 2008-13 49
Figure 18: Service output of Canada, 2008-13 50
Figure 19: External trade of Canada, 2008-13 51
Figure 20: Consumer price index and index-based inflation in Canada, 2008-18 52
Figure 21: Unemployment in Canada, 2008-18 53
Figure 22: Canada - composition by religion, 2011 57
Figure 23: Expenditure on healthcare in Canada, 2002-12 59
Figure 24: Expenditure on education in Canada, 2002-12 60
Figure 25: Internet users in Canada, 2003-13 63
Figure 26: Canada: judicial structure 65
Figure 27: Carbon dioxide emissions in Canada, 2003-12 70
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TABLE OF TABLES Table 1: Canada - key fundamentals 5
Table 2: Canada - key facts 10
Table 3: Analysis of Canada's political landscape 15
Table 4: Analysis of Canada's economy 18
Table 5: Analysis of Canadian social system 23
Table 6: Analysis of Canada's technological landscape 26
Table 7: Patents granted by USPTO per million population, 2008-13 27
Table 8: Analysis of Canada's legal landscape 29
Table 9: Analysis of Canada's environmental landscape 33
Table 10: Mid-year population by age (as a percentage of population), 2014 56
Key Facts and Geographic Location
PESTLE Country Analysis Report: Canada ML00002-006/Published 11/2014 © MarketLine. This report is a licensed product and is not to be photocopied Page 10
KEY FACTS AND GEOGRAPHIC LOCATION Key facts
Table 2: Canada - key facts
Country and capital
Full name Canada
Capital city Ottawa
Government
Government type a parliamentary democracy, a federation, and a constitutional monarchy
Head of state Queen Elizabeth II, represented by Governor General David Johnston
Head of government Prime Minister Stephen Harper
Population (2014 est.) 35.4 million
Currency Canadian dollar
GDP per capita, adjusted by PPP (2013) $43,100
Internet domain .ca
Demographic details
Life expectancy (2014 est.) 81.7 years (total population)
79.1 years (men)
84.4 years (women)
Ethnic composition (2011 est.)
Canadian (32.2%), English (19.8%), French (15.5%), Scottish (14.4%), Irish (13.8%), German (9.8%), Italian (4.5%), Chinese (4.5%), North American Indian (4.2%), other (50.9%)
Major religions (2011 est.) Roman Catholic (40.6%), Protestant (20.3%), other Christian (6.3%), Muslim (3.2%), none (23.9%), other (5.7%)
Country area 9,984,670 sq. km
Language (2006 census) English [official] (58.7%), French [official] (22%), Punjabi (1.4%), Italian (1.3%), Spanish (1.3%), German (1.3%), Cantonese (1.2%), Tagalog (1.2%), Arabic (1.1%), other (10.5%)
Exports motor vehicles and parts, industrial machinery, aircraft, telecommunications equipment; chemicals, plastics, fertilizers; wood pulp, timber, crude petroleum, natural gas, electricity, aluminum
Imports machinery and equipment, motor vehicles and parts, crude oil, chemicals, electricity, durable consumer goods
Source: CIA - The World Factbook and Country Statistics. M A R K E T L I N E
Key Facts and Geographic Location
PESTLE Country Analysis Report: Canada ML00002-006/Published 11/2014 © MarketLine. This report is a licensed product and is not to be photocopied Page 11
MarketLine
Key Facts and Geographic Location
PESTLE Country Analysis Report: Canada ML00002-006/Published 11/2014 © MarketLine. This report is a licensed product and is not to be photocopied Page 12
Geographic location
Canada is located in North America with the North Atlantic Ocean to the east, the North Pacific Ocean to the west, and
the Arctic Ocean to the north. It borders the US.
Figure 1: Map of Canada
Source: CIA - The World Factbook M A R K E T L I N E
PESTLE Analysis
PESTLE Country Analysis Report: Canada ML00002-006/Published 11/2014 © MarketLine. This report is a licensed product and is not to be photocopied Page 13
PESTLE ANALYSIS Summary
The Canadian political arena is dominated by the Conservative, New Democratic and Liberal parties. The Conservative
government came to power in 2006 as a minority government after 12 years of Liberal rule, before gaining a majority in
the 2011 elections, removing all threat of political instability. However, fissures within the seemingly monolithic party do
not bode well for the uninterrupted passage of contentious legislation in parliament. A loose federal structure, which
gives significant authority to the provinces—especially in matters of health, education, social security and securities
regulation—could also halt reforms. Moreover, divisive politics in the predominantly French-speaking province of
Quebec risks alienating immigrants and could raise allegations of religious intolerance.
Canada has a strong banking system and an environment that is highly suitable for businesses; however, the country's
high dependence on the US economy due to strong trade and financial linkages has rendered policymaking inefficient
sometimes. The federal government managed to bring its fiscal deficit under control by reverting to a path of fiscal
consolidation once the economy was out of recession. A wide current account deficit remains a major external concern.
The major domestic risk facing the Canadian economy is from bulging household debt, which has raised concerns
about the existence of a housing bubble.
Canada has a strong social welfare system and scores high on human development. However, uneven growth in the
provinces is a cause for concern and the aging population affects the country's competitiveness and economic
productivity due to higher social costs. To address the latter, the government is contemplating changes to the Canadian
Pension Plan (CPP). Canada's liberal immigration policy could also create tensions for the government.
Canada's achievements in technological development do not reflect its full potential. The country's total expenditure on
R&D as a percentage of GDP stands at around 1.8%, as of 2011, much lower than the US or even the EU average
despite the rollout of some of the most generous R&D tax incentives for business innovation. The country also
performs poorly against other developed economies in terms of patents received from the US Patent and Trademark
Office (USPTO). The lack of involvement of business enterprises and the education system in R&D are important
factors for this lack of innovation. Furthermore, the weak enforcement of the anti-piracy laws has raised questions in
the international arena about Canada's intellectual property regime. Nevertheless, Canada has potential to perform well
in emerging technologies such as wireless telecommunication services and networking.
The country has one of the most flexible labor markets in the world: it operates under flexible employment regulations
that enhance employment opportunities and productivity growth. Canada's corporate tax rates are low compared to
other developed nations, which provide an incentive for foreign investors to establish businesses in the country.
Although Canada provides a number of competitive advantages for external players, the regulation of foreign
investment discourages liquid capital transfers in few services sectors Moreover, it is one of the few developed
countries having an investment review process. Nevertheless, the government is slowly but steadily opening up its
services sector, a process that has started with the reform of the Telecommunications Act in 2012.
The Canadian government has established mechanisms to meet the environmental challenges that come with
economic development. It has made some progress in meeting its domestic environmental objectives and international
commitments. However, managing pollution, natural resources, and biodiversity remain a challenge. While advances
have been made in cutting air pollution, and policies have been created to reduce greenhouse gas emissions, the
PESTLE Analysis
PESTLE Country Analysis Report: Canada ML00002-006/Published 11/2014 © MarketLine. This report is a licensed product and is not to be photocopied Page 14
country's performance in preserving biodiversity, increasing energy efficiency, and managing hazardous waste has
been far from satisfactory.
PESTLE Analysis
PESTLE Country Analysis Report: Canada ML00002-006/Published 11/2014 © MarketLine. This report is a licensed product and is not to be photocopied Page 15
Political analysis
Overview
The Conservative, New Democratic and Liberal parties dominate the Canadian political arena. The Conservative
government came to power in 2006 as a minority government after 12 years of Liberal rule, before gaining a majority in
the 2011 elections, removing all concerns of political instability. A loose federal structure, which gives significant
authority to the provinces—especially in matters of health, education, social security and securities regulation—could
impede reforms.
Table 3: Analysis of Canada's political landscape
Current strengths Current challenges
▪ Democratic setup
▪ Flourishing foreign relations and trade
▪ Federal-provincial tensions
▪ Resource development vs. Environmental protection
Future prospects Future risks
▪ Redrawing of electoral boundaries for 2015 elections
▪ Emergence of new political classes
▪ Extremist threats
Source: MarketLine M A R K E T L I N E
Current strengths
Strong democratic setup
In Canada, democratic principles have been predominant since the late 19th century, when the provinces were self-
governed. Throughout the early 20th century, the nation was ruled by a coalition of the Conservative and Liberal
parties. After World War II, however, either the Conservatives or the Liberals have ruled the country. Canada ranked in
the 95.26 percentile on voice and accountability parameter and in the 94.79 percentile on rule of law parameter in 2013
World Bank Worldwide Governance Indicators, indicating the stability of the democratic system.
Flourishing foreign relations and trade
Canada's proactive attitude towards foreign relations has resulted in the development of significant trade and
investment links. The country's economy is dependent on trade, especially with the US, and the value of exports and
imports makes up a significant proportion of its GDP. In February 2011, the US and Canada strengthened their links by
creating the US-Canada Regulatory Cooperation Council, which supports businesses by reducing red tape in many
sectors. The Canadian government has also strengthened its relationship with the European Union (EU) by agreeing
upon a comprehensive economic and trade deal (CETA) in 2013. The deal, which awaits ratification from both sides,
will not only eliminate 98% of tariff lines between them, but will also address larger issues concerning red tape,
international investment, public procurement by sub-national governments and labor regulations.
The Americas are a foreign policy priority for the country, and Canada is developing agreements within the region to
PESTLE Analysis
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pursue bilateral and regional free trade, avoid double taxation, protect foreign investment, strengthen financial and
banking institutions, and assist development. The country already has free trade agreements with Israel, Chile, Costa
Rica, Colombia, Peru, Jordan, Panama and Honduras. South Korea also signed a free trade deal with Canada in
September 2014, which is Canada's first free trade agreement in the Asia-Pacific region. The government is
undertaking more free trade agreement (FTA) negotiations with Ukraine, Morocco, Japan, India, Singapore, the
Dominican Republic, El Salvador, Guatemala, Nicaragua, and Andean and Caribbean countries.
Current challenges
Federal-provincial tensions
Canada has a loose federal structure, and the provincial governments are given independent legislative powers in local
matters. However, this sometimes leads to conflicts of interest between central government and the provinces. The
loose federal structure can create situations where there are clashes of interests between the federal and provincial
governments.
A prime example of such a conflict is Prime Minister Stephen Harper's inability to reform/abolish the Senate (the upper
house of the parliament stricken with corruption scandals) despite the Conservative Party holding a majority in the
House of Commons (the lower house). His ability to reform/abolish the Senate is hindered by the constitution, which
requires that Senate reform needs consent of at least seven provinces and half of Canada's population, while abolition
requires the consent of all 10 provinces. The Canadian Senate is modeled after Britain's House of Lords and consists
of 105 members appointed by the governor general on the advice of the prime minister. In 2013, the Conservative
government introduced a bill in the parliament that would set a nine-year tenure limit on newly elected senators and
permit the provinces to hold direct elections for Senate nominees; however, the province of Quebec and some Liberal
senators challenged the bill's constitutionality. The big blow to the government came in April 2014, when the Supreme
Court deemed the reform unconstitutional. Any further prospect of success on the issue would need constitutional
amendments, which can be lengthy and inconclusive.
Resource development vs. Environmental protection
One of the biggest challenges facing Canadian governments has been maintenance of balance between resource
development and environmental protection. The proposed Northern Gateway pipeline from Alberta to the Pacific, which
will pass through British Columbia, represents an excellent instance of this policy uncertainty. The federal government
approved the proposal in June 2014, which is conditional on the fulfillment of 209 federal and provincial regulations by
Enbridge Inc. (company responsible for development of twin pipelines). The project continues to face opposition from
the New Democratic Party, the Liberal Party and aboriginal groups in British Columbia due to environmental concerns
and its future remains uncertain. Overall, the business-friendly Conservative government has failed to build consensus
between environmentalists and resource developers in the country.
Future prospects
Redrawing of electoral boundaries for 2015 elections
In October 2013, the Canadian government completed the arduous task of redrawing electoral boundaries for the
upcoming elections in October 2015. In Canada, independent boundary commissions revise the number of electoral
districts and their boundaries every ten years following a census to reflect population shifts and growth. The new
boundaries were drawn as per the 2011 census. The upcoming elections in 2015 will have 338 seats in the House of
PESTLE Analysis
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Commons, 30 more than the current capacity of the parliament. The distribution of new seats includes the allocation of
15 more seats to Ontario, six new seats to Alberta and British Columbia each, and three more to Quebec.
Emergence of new political classes
Canada is continuing to evolve into a multicultural society, witnessing an amalgamation of different social and linguistic
classes into its mainstream. For example, the country has a very pro-immigrant policy that has attracted up to a quarter
of a million immigrants into the country annually since 1990. There are currently around 260 "ethnic enclaves" (defined
as communities where more than 30% of residents are of an ethnicity other than English or French) across the country.
Over the years, immigrants have played an important part in Canadian elections. In the 2011 federal elections, a
significant proportion of the voters were immigrants, and nearly 11% of the candidates that were elected were non-
native. With immigrants holding high office at the federal and national levels, it is expected that the emergence of
related political groups will influence policy in favor of minorities.
Future risks
Extremist threats
Extremist attacks have rocked the country in the past, which is a big risk to the political stability of the country. In
October 2014, a lone gunman named Michael Zenaf-Bibeau shot a soldier and entered the parliament, where the
security officers killed him in an exchange of gunfire. As of November 2014, it remains unclear whether the gunman had terrorist links with a jihadi organization. The incident followed another terror attack in Montreal (just a week before
the parliament attack), where an ISIS-inspired terrorist attacked two soldiers, killing one and injuring the other before
police killed him. These instances imply that Canada is not immune from extremist attacks and the government needs
to strengthen both the police force and the national security forces to deal with these threats. Apart from extremist
threats, the country also faces security risks from some 130 Canadians believed to be fighting for foreign terrorist
organizations such as ISIS and another 80, who have returned to the country after fighting in the Middle East.
PESTLE Analysis
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Economic analysis
Overview
Canada has a strong banking system and an environment highly suitable for businesses; however, the country's high
dependence on the US economy due to strong trade and financial links has rendered policymaking difficult. The federal
government has managed to bring its fiscal deficit under control by reverting to a path of fiscal consolidation once the
economy was out of recession. The major domestic risk facing the Canadian economy is from rising household debt,
which has raised concerns about a housing bubble.
Table 4: Analysis of Canada's economy
Current strengths Current challenges
▪ Strong banking system
▪ Rich in natural resources
▪ High degree of dependence on the US economy
Future prospects Future risks
▪ Duty free manufacturing tariff scheme
▪ Federal budget balance by FY2015
▪ High household debt
Source: MarketLine M A R K E T L I N E
Current strengths
Strong banking system
The World Economic Forum (WEF) has ranked Canada's banking sector as the most sound in the world for seven
years in a row from 2008-14 and has lauded the sector for its adequate capitalization and efficient regulation. In March
2013, the federal financial regulator, the Office of the Superintendent of Financial Institutions (OSFI), ordered the top
six Canadian banks, considered systemically important, to maintain a common equity tier 1 capital (a financial indicator
measuring core equity capital as a proportion of total risk-weighted assets) of 8% against 7% for other financial
institutions from January 2016 onwards. The fact that all the six banks meet these requirements adequately as of July
2014 is a reflection of the sector's strength. Moreover, the OSFI also adopted the Basel III leverage standard of 3%,
which is a more accurate measure of banking sector strength, as it also takes into account off-balance sheet
exposures.
Canada's sound banking system is also an important feature of its economy. In 2013, it added 3.1% to the nation's
GDP and provided financing to 1.6 million small- and medium-sized businesses, which are crucial to the country's
economy. The sector is also a significant job generator and provides employment to around 300,000 people in Canada
and more than 109,000 outside of the country.
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Figure 2: Common Equity Tier 1 Ratio of six biggest Canadian Banks, July 2014
6.0%
7.0%
8.0%
9.0%
10.0%
Royal Bank ofCanada
Toronto-DominionBank
Bank of NovaScotia
Bank of Montreal Canadian ImperialBank of
Commerce
National Bank ofCanada
Q2 2014 Q2 2013
Source: Bank Filings M A R K E T L I N E
Rich in natural resources
Canada is one of the few countries in the world, which is richly endowed with a variety of natural resources such as
petroleum, natural gas and coal. The country's oil reserves at 173 billion are the world's third largest oil reserves after
Venezuela and Saudi Arabia and it is the world's fifth largest oil producer. Canada is also the world's fifth largest
producer of natural gas and fourth largest exporter after Russia, Qatar and Norway. Estimates from U.S. Energy
Information Administration (EIA) suggest that Canada has proven natural gas reserves worth 67 trillion cubic feet (Tcf)
in 2012. In addition, the country is believed to have an estimated 573 Tcf of technically recoverable shale gas
resources. Canada also has substantial coal reserves, which is placed at 9.6 billion short tons by Natural Resources
Canada (NRCan).
Current challenges
High degree of dependence on the US economy
Although Canada's export dependence on the US has declined from almost 90% in 2000, it still accounts for three-
quarters of the Canadian exports. In 2013, Canada exported goods worth $358.7 billion to the US, out of which,
commodities exports accounted for a third. With the US poised to reduce its dependence on external suppliers thanks
to its abundant shale gas reserves, Canada needs to develop new export partners. Along with the trade channel,
Canada is also highly connected to the US through the financial channel. The US foreign direct investment (FDI) stock
in Canada was $352.1 billion in 2013, more than half of its total FDI stock of $686.3 billion. Moreover, financial
conditions in the US also affect the Canadian economy.
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Figure 3: Canada's dependence on the US for trade and investments
0
100
200
300
400
500
600
700
800
2010 2011 2012 2013
$ bi
llion
FDI stock by country, 2010-13
United States Netherlands United Kingdom Others
United States, 75%
Japan, 2%
United Kingdom,
3%
EU (excluding UK), 4%
Other, 16%
Exports by country, 2013
Source: Bank Filings M A R K E T L I N E
According to the IMF, changes in lending standards and corporate bond spreads in the US bear a strong correlation to
similar changes in Canada. In a 2010 research paper (The Impact of the Global Crisis on Canada), Duttagupta and
Barrera found that a shock to US lending standards has a greater impact on Canada's economic prospects than a
similar increase in Canadian lending standards. According to another research paper by Klyuev in 2008, a percentage
point increase in the 3-month Treasury-bill rate could cut Canada's economic growth by one percentage point after 3
quarters. The high degree of inter-linkages between Canadian and the US economy are a cause for concern.
Future prospects
Federal budget balance
Since 2011, the Canadian government's fiscal policy has revolved around controlling the deterioration in public
accounts that occurred in 2008-10 due to the increase in government expenditure to support the falling consumption
demand. The prudent management of public finances since 2011 led to decline in federal budget deficits in consequent
years, with shortfalls falling to as low as C$5.2 billion ($4.4 billion) in FY2013 (April 2013-March 2014) from C$55.6
billion ($47.8 billion) in FY2010. The FY2013 federal budget deficit also outperformed the government's expectation of
C$16.6 billion ($14.2 billion), forecasted in the 2014 budget plan. As a percentage of GDP, the FY2013 shortfall was
just 0.7% of GDP, down from 2.5% of GDP in FY2010.
The country's finance ministry expects the deficit to be lower at C$2.9 billion ($2.4 billion) in FY2014 before achieving a
surplus in 2015-16. The government's spending cuts do not involve any cuts in social expenditure or increases in taxes,
which is a positive sign for the Canadian economy, as decreases in expenditure are considered a better way of
eliminating deficits than increases in revenues.
Duty free manufacturing tariff scheme
The country has implemented a new initiative under which tariffs on all manufacturing inputs will be reduced to zero by
2015. The campaign is part of the government's efforts to reduce the tax burden on businesses. The tariff reductions,
much of which occurred in 2010, effectively convert Canada into one large free-trade zone. All products classified in
chapters 25-90 of the Harmonized System, including chemicals, fibers, tools, machinery, and equipment, are all eligible
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for duty free entry into the country. This enables companies to import advanced machinery and equipment from their
parent firms without worrying about import duties. This is expected to provide a fillip to the manufacturing industry in
Canada.
Future risks
High household debt
High household debt levels in Canada represent a major vulnerability for the economy. According to Statistics Canada,
the country's household debt, which began an uptrend in the mid-1980s, was at 163.6% of GDP in July 2014. Much of
this appreciation had been driven by Canadian population's propensity to buy homes, which again stems from record-
low mortgage rates in the country.
The Canadian housing market has appreciated sharply since the beginning of the last decade, growing by 87% since
2000. Moreover, Canada experienced an increase in household prices even after the 2008 financial crisis, unlike the
US, where housing prices collapsed. Furthermore, price-income and price-rent ratios are among the highest among
developed nations. Despite increasing housing costs, the level of investment in households has continued to increase
and has outpaced its pre-crisis peak on the back of low interest rates and loose credit conditions, and household debt-
GDP ratio has surged to new highs.
Figure 4: Position of households in Canada since 1990
0.0
30.0
60.0
90.0
120.0
150.0
180.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
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1990 1993 1996 1999 2002 2005 2008 2011 2014
Perc
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Perc
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Household Debt in Canada
Debt service ratio Household Debt to disposable income ratio (RHS)
0
50
100
150
200
250
300
1990 1993 1996 1999 2002 2005 2008 2011 2014
100
= Lo
ng-te
rm a
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House prices
Nominal house prices Real house prices
0
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120
160
200
1990 1993 1996 1999 2002 2005 2008 2011 2014
100
= Lo
ng te
rm a
vera
ge
House price-to-income and -rent
House price-to-income ratio House price-to-rent ratio
Source: OECD and Statistics Canada M A R K E T L I N E
High indebtedness exposes Canadian households to the risk of rising interest rates or fall in house prices, and has the
potential to affect the balance sheets of households as well as banks. In Canada, mortgages typically have fixed rates
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for only a period of five years, post which, a floating rate applies. According to the OECD, an interest rate hike of 2.0
percentage points could push around 10% of indebted households into commonly believed unaffordable debt-service
ratios (more than 40%). The debt-service ratio for the bottom quintile rises to a staggering 70% reflecting that they are
more prone to risk of default.
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Social analysis
Overview
Canada has a strong social welfare system and scores high on human development. However, the imbalanced growth
of the provinces is a challenge and the aging population affects the country's competitiveness and economic
productivity due to higher social costs. The government is has proposed a host of reform measures to strengthen the
labor market.
Table 5: Analysis of Canadian social system
Current strengths Current challenges
▪ Efficient social welfare system
▪ High HDI
▪ Regional disparities
Future prospects Future risks
▪ Reform to reduce skill shortages and strengthen the labor market ▪ Aging population
▪ Increasing immigrant population
Source: MarketLine M A R K E T L I N E
Current strengths
Efficient social welfare system
Canada has an extensive list of social welfare measures at the federal and provincial levels. The Department of Human
Resources and Social Development is the federal government department responsible for providing social welfare
policies. The government supports the unemployed and underemployed through employment insurance, working
parents through childcare plans and seniors through pension programs and old-age security.
The Employment Insurance program provides temporary income support to those who are between jobs or are out of
work for certain critical personal reasons. The country uses labor market development agreements, which are bilateral
agreements made between the Canadian government and all provinces and territories for this purpose. For childcare,
the government has an initiative known as the Universal Child Care Benefit system, which provides parents with direct
financial assistance to support the childcare choices that help them to balance work and family. Canada has a stable
income security program that delivers pension and benefits through the Old Age Security program and the Canada
Pension Plan (CPP). CPP is a contributory, earnings-related social insurance program that ensures a measure of
protection for the contributor and his or her family against loss of income due to retirement, disability, or death. Old Age
Security provides additional funding to eligible low-income seniors.
High HDI
Canada has performed well on various social parameters. According to the UNDP's Human Development Report 2014,
the country was ranked 9th out of 187 countries with a Human Development Index value of 0.902. According to CIA -
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The World Factbook, as of 2014, life expectancy for the male population was 79.1 years, whereas for females it was
84.4 years. All in all, Canada has performed quite well in terms of HDI.
Current challenges
Regional disparities
Although Canada's economic output has been increasing, growth has not been spread across all provinces and
territories. Certain provinces such as Quebec, Ontario, British Columbia and Alberta have emerged stronger—
economically and politically—than others. These four provinces together contribute more than 85% of the country's
GDP.
Furthermore, the per capita incomes of Alberta, Saskatchewan and Newfoundland and Labrador have registered
higher growth compared to the rest of the country. This is because they are rich in resources and benefitted from high
commodity prices during the last decade. This regional disparity in growth also explains the high unemployment in
some provinces. Programs such as employment insurance may be discouraging the migration of some unemployed
people from underperforming areas to "hot" labor markets.
Future prospects
Reform to reduce skill shortages and strengthen the labor market
The government's new Canada job grant program announced in 2014 is a positive step in the right direction to reduce
labor shortages. It will enable employers to participate in decisions about who needs training and the type of training
that needs to be given. This is expected to help in better aligning skills with job opportunities. One third of the cost will
be shared by the employers and the rest by the government. In budget 2014, the government announced it will spend
C$75m ($64.5m) over the next three years to help unemployed older workers by renewing and expanding the Targeted
Initiative for Older Workers program. Further, it will spend C$11.8m ($10.1m) over two years and C$3.3m ($2.8m) per
year ongoing to start an enhanced Job Matching Service to help connect Canadians with available jobs. In addition the
government proposed to reform the reform the Temporary Foreign Worker Program to make sure that Canadians are
given preference for available jobs.
Future risks
Aging population
Like most developed economies, Canada is facing the problem of an aging population. This is evident from the
whopping increase in the number of seniors and a drastic fall in the young population over the last few years. The
median age of the country is 41.5 years in 2013, which indicates that half of the population is above this age. The
population belonging to the baby boomer generation is growing older, with many of its members nearing (or already
having reached) retirement. According to the OECD, the dependency rate of the Canadian population will also
increase. The long-term forecasts by the OECD estimate that seniors will account for 47.7% of the working age
population (20-64) in 2050 against just 22.5% in 2010.
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Figure 5: Population aging in OECD countries
0102030405060708090
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ge
Population over 65 as a percentage of population in the age cohort 20−64
2010 2050
Source: Statistics Canada and MarketLine Analysis M A R K E T L I N E
The aging population represents a challenge to the country in the medium term as it could strain the healthcare and
pension systems.
Increasing immigrant population
Canada's immigration policy is among the most lenient in the world, making it a favored destination of entrants from
third world countries. The authorities have been accused of favoring immigrants to capture their votes. Furthermore,
there are still some groups that find it difficult to integrate with the mainstream. The favorable government policy toward
immigrants may become a socially contentious issue. Reservations have been expressed in some quarters with
respect to the government's silence on immigration in view of declining employment conditions and the high
unemployment rate.
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Technological analysis
Overview
Canada's achievements in technological development do not reflect its full potential. The country's total expenditure on
R&D as a percentage of GDP stands at around 1.8%, as of 2011. It is a recognized fact that the country faces an
innovation gap, as its R&D spending as a percentage of GDP has not improved despite the rollout of some of the most
generous R&D tax incentives for business innovation. The country also performs poorly against other developed
economies in terms of patents received from the US Patent and Trademark Office (USPTO). The lack of involvement of
business enterprises and the education system are important factors for this lack of innovation. Furthermore, the weak
enforcement of anti-piracy laws has raised questions about Canada's intellectual property regime.
Nevertheless, Canada has potential to perform well in emerging technologies such as wireless telecommunication
services and networking. Traditionally, its machinery and equipment industry has served the manufacturing sector, and
the country has an advantage in terms of meeting requirements for technologically advanced goods in the aerospace
industry.
Table 6: Analysis of Canada's technological landscape
Current strengths Current challenges
▪ Developed manufacturing industry
▪ Declining spending on R&D
▪ Low number of patents
Future prospects Future risks
▪ Generous R&D incentives ▪ Weak intellectual property rights regime
Source: MarketLine M A R K E T L I N E
Current strengths
Developed manufacturing industry
Canada is home to a well-developed manufacturing industry, which serves as the base for the further development of
high end products. The industry is supported by a low overall tax rate, R&D incentives, a qualified labor force, and
integration with the North American market. The machinery and equipment industry provides required components for
the newly developed aerospace industry. More than 70% of the goods manufactured in Canada are exported to the
US, and the same trend holds true for value-added goods, for which the returns are a lot higher. The country has low
production costs compared to similarly advanced countries. Along with manufacturing, it has also emerged as an ideal
location for ICT manufacturing.
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Current challenges
Declining spending on R&D
Canada lags behind other nations in terms of R&D spending. Canada's total expenditure on R&D as a percentage of
GDP—also known as R&D intensity—stood at around 1.8% in 2011, lower than the 2.1% in 2004. The major reason for
this decline in R&D intensity has been a weak trend of business spending on R&D since 2000. Traditionally, the
Canadian IT sector was the major funder of business R&D in the country; however, the bankruptcy of the country's
biggest R&D performer, Nortel and problems in another major R&D funder, BlackBerry have affected business R&D
expenditure in the sector. One more reason for low R&D by business is the Canada-US Auto Pact, under which
Canada manufactures and assembles models developed in the US and performs almost no automotive R&D
domestically. Moreover, the resource-rich sectors relating to extraction of oil and gas perform very little R&D. The
recent economic weakness and lack of funding avenues in early stage venture capital has also added to weakness in
business innovation. Nevertheless, for the country to gain a technology advantage in future, it needs to shore up its
business innovation profile.
Low number of patents
The low number of patents received by Canadian firms reduces the nation's technological advantage. A lack of
innovation in the private sector is one of the main reasons for this trend. Compared to the US, Japan, and Korea, the
country's patent count on per million capita basis is very low.
Table 7: Patents granted by USPTO per million population, 2008-13
Year Canada United States Republic of Korea Germany Japan
2008 102.1 254.9 154.2 108.7 263.0
2009 108.7 268.5 178.2 110.0 277.3
2010 142.7 348.5 236.2 151.2 349.9
2011 146.0 348.6 246.3 146.0 361.0
2012 166.2 385.5 264.6 169.7 397.4
2013 186.2 422.2 289.7 190.2 408.0
Source: USPTO data and MarketLine Analysis M A R K E T L I N E
Future prospects
Generous R&D incentives
Canadian R&D tax incentives for business innovation are among the most generous in the world. The B index
measures the before-tax income needed by a firm to break even on $1 of R&D outlays. So the 1 minus the B index
shows the government's focus on R&D incentives, especially for small and medium enterprises. In fact, the incentives
given by Canada are much above its peers such as the US. Giving impetus to R&D is the key for the Canadian
economy to raise its productivity and living standards and the government rightly provides subsidies to R&D activity.
This could be helpful in the long run, as companies will find it more attractive to invest in innovation.
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Figure 6: Tax subsidy rates on R&D expenditures, 2013
-0.10
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
PRT FRA ESP CHL NLD CAN HUN IRL FIN GBR BRA KOR NOR ZAF CZE AUS SVN BEL JPN CHN AUT USA POL DNK LUX MEX SVK SWE CHE DEU NZL
1-B
inde
x
Large, profitable firm SME, profitable firm Large, loss-making firm SME, loss-making firm
Source: OECD M A R K E T L I N E
Future risks
Weak intellectual property rights regime
Although the country has put an intellectual property rights (IPR) regime in place through the Patent Act, the Trade-
marks Act, the Copyright Act, the Industrial Design Act, the Integrated Circuit Topography Act and the Plant Breeders
Act, enforcement is found to be wanting by many of its trading partners, particularly the US and the EU. The
International Intellectual Property Alliance (IIPA) has retained Canada on its Piracy Watch List every year since 2006.
Business software piracy also remains a significant concern according to Business Software Alliance (BSA), a
representative body of world's largest software groups. BSA, in its Global Piracy Study, has estimated piracy losses
occurring from unlicensed usage of business software at $1.09 billion in 2013. According to the study, the levels of
piracy in the country were around 25% in 2013. Although Canada has reformed its copyright law in 2012, the
effectiveness of its enforcement remains to be seen. A poor IPR regime will deter investment and hinder trade.
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Legal analysis
Overview
The country has one of the most flexible labor markets in the world: it operates under flexible employment regulations
that enhance employment opportunities and productivity growth. Canada's corporate tax rates are low compared to
other developed nations, which provide an incentive for foreign investors to establish businesses in the country.
Although Canada provides a number of competitive advantages for external players, the regulation of foreign
investment discourages liquid capital transfers in few services sectors such as telecom, radio and broadcasting, and
aviation. Moreover, it is one of the few developed countries that have an investment review process. Nevertheless, the
government is slowly but steadily opening up its services sector, a process that has started with the reform of the
Telecommunications Act in 2012.
Table 8: Analysis of Canada's legal landscape
Current strengths Current challenges
▪ Comprehensive legal framework for business entities
▪ Favorable taxes and incentives for investors
▪ FDI restrictions in key sectors
▪ Loopholes in taxation system
Future prospects Future risks
▪ Low tax wedge ▪ Absence of a single capital markets regulator
Source: MarketLine M A R K E T L I N E
Current strengths
Comprehensive legal framework for business entities
Canada has a comprehensive legal and regulatory framework that provides transparency to the business environment.
The regulatory processes are favorable for foreign investors, with national laws providing freedom to start, operate and
close a business. Starting a business in Canada is far easier than in other nations, as it takes an average of five days
and one procedure, compared to the OECD average of 9.2 days and approximately five procedures according to the
World Bank's Doing Business 2015 report. The procedures needed to set up an enterprise are less cumbersome and
more transparent. Canada's system for registering a business has been entirely online since 2006, and there is no
need for minimum capital to set up a business. These factors make Canada a favorable destination for foreign
investment.
Favorable taxes and incentives for investors
Canada has the lowest payroll taxes among the G7 countries, with a corporate tax rate of 15%, as of 2014. In addition,
the country's marginal effective tax rate for new businesses is the lowest among G7 countries, which is an incentive for
start-ups. Canada also has one of the most favorable tax regimes for scientific research and experimental development
expenditure in the world. Generally, in addition to tax deductions for such expenditure, tax credits are available based
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on expenditure carried out in the country. Additional incentives from provincial governments supplement federal
concessions.
Figure 7: Marginal Effective Tax Rate on New Business Investment, 2014
0
5
10
15
20
25
30
35
40
45
Japan UnitedStates
UnitedKingdom
France Germany Italy OECDAverage
Canada
Perc
ent
Source: Canadian Ministry of Finance M A R K E T L I N E
The government's low tax rate has resulted in a strong recovery in business investment post the global financial crisis.
Current challenges
FDI restrictions in key sectors
Despite Canada being an advanced nation, the government's restrictions on foreign ownership in sectors such as
telecom, radio and broadcasting, and aviation still exist. Moreover, it is one of the few developed countries that have an
investment review process. While Canada maintains a 46.7% FDI limit for domestic telecom services providers, foreign
ownership of Canadian air carriers is limited to 25% of voting equity. Nevertheless, Canada amended its
Telecommunications Act in mid-2012 allowing foreign ownership of telecom carriers with less than 10% market share
by revenue to increase competition in the sector. Telecom carriers are permitted to continue operations even if their
market share grows beyond 10% provided the increase is not an outcome of an acquisition or a merger with another
domestic carrier. Nonetheless, the results of the 2014 spectrum auction, where three major domestic telecom players
(Bell, Telus and Rogers) acquired the majority of licenses, show that further liberalization in the sector is desired.
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Figure 8: FDI Restrictiveness in select sectors in Canada, 2013
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
Air Radio & TV broadcasting
Fixed telecoms Mobile telecoms
0 (fu
lly o
pen)
to 1
(ful
ly c
lose
d)
Canada United States OECD Average
Source: OECD M A R K E T L I N E
Other industries in which foreign investment is restricted include oil and gas, farming, book publishing and selling,
fisheries, liquor sales, mining, collection agencies, engineering, optometry, pharmacies and securities dealers. There
will be a rise in investment activities if these sectors are fully liberalized.
Loopholes in taxation system
Canadian tax regulations are antiquated. CEOs and senior executives are offered stock option deductions that allow
them to pay tax at half the rate of ordinary working income. A large number of loopholes also enable wealthy citizens to
evade taxes—the foremost method being leaving the country as a tax resident. Under this provision, an individual can
pay a one-time departure tax of 25% of their personal assets then place the assets into an offshore trust, which is run
at arm's length by offshore trustees. Capital gains can be transferred to third parties in other countries to evade taxes.
This money can be ploughed back into Canada in the name of a tax-free trust. These loopholes are leading to huge
revenue losses for the government, which must take measures to plug them.
Future prospects
Low tax wedge
According to the OECD, in 2013, Canada had one of the lowest (married, one-earner couple, two children) total tax
wedge (Income tax, employer and employee social security contributions and pay roll tax as a percentage of labor
costs) among the OECD countries. Canada's family tax wedge as of 2013 stood at 18.7% (at 100% of average wage),
compared to the OECD average of 26.4% in 2013.
When it comes to the individual tax wedge (single, no child), Canada once again had one of the lowest total tax wedge
among the OECD average. Canada's individual tax wedge as of 2013 stood at 31.1% (at 100% of average wage),
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compared to the OECD average of 35.9% in 2013. Low taxes on labor encourage prospective skilled migrants, who
wish to migrate to Canada. This is good for businesses as it helps in attracting talent to the Canadian labor pool
Future risks
Absence of a single capital markets regulator
Currently there is no single capital markets regulator in Canada, and responsibility for regulating the securities trade is
with the provinces. Due to this, there are inefficiencies in regulation, as the provincial authorities need to do extra
paperwork and coordinate among themselves to maintain market efficiency. The Conservatives have been vying to set
up a national securities regulator since 2006; however, provincial governments in some provinces have not agreed on
the appropriate model so far. Although the provinces of Columbia, Ontario, Saskatchewan and New Brunswick signed
a memorandum of agreement in 2014 formalizing the terms and conditions of a cooperative capital markets regulatory
system, the prospects of a national securities regulator will remain elusive as long Alberta, Quebec and Manitoba
resist. Substantial gains could be achieved by establishing a national security regulator throughout Canada. Factors
that are expected to drive the idea of a single regulator are efficiency in allocating resources, the benefits of economies
of scale, the advantages of information sharing, and clear accountability.
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Environmental analysis
Overview
The Canadian government has established mechanisms to meet the environmental challenges that come with
economic development. The focus of Canadian environmental policies has broadened from local and regional issues to
challenges of a global nature. Climate change, global biodiversity, ozone layer depletion and the transport of chemicals
and hazardous waste are some of the areas that appear at the top of Canada's environmental agenda. It has made
some progress in meeting its domestic environmental objectives and international commitments. Some advances have
also been made in cutting air pollution and policies have been created to reduce greenhouse gas emissions. However,
the country's performance in preserving biodiversity, managing pollution, increasing energy efficiency, and managing
hazardous waste has been far from satisfactory.
Climate change is a major issue on Canada's environmental agenda. Other priority areas include the protection of
nature and human health, air and water quality, waste water collection, and waste disposal. Although Canada has
made sustainable development a priority area, this has not yet resulted in practical policies and actions. Most of the
implementing agencies lack the legal authority to carry out enforcement.
Table 9: Analysis of Canada's environmental landscape
Current strengths Current challenges
▪ Strong environmental policy framework and initiatives ▪ Weak environmental record
Future prospects Future risks
▪ Regulations to reduce greenhouse gas emissions from the transport sector
▪ Canadian oil sands raising environmental concerns
Source: MarketLine M A R K E T L I N E
Current strengths
Strong environmental policy framework and initiatives
Canada has a strong environmental policy, legislative framework, and well-established institutions at the federal and
state levels. The Environment Act of Canada is an umbrella act, having different statutes for water, air, waste
management, and preserving biodiversity. There are separate agencies under federal and provincial governments that
are entrusted with the implementation of these policy measures. The Canadian government has made substantial
improvements in legislation and the implementation of its national environmental policies. The government has also
committed itself to international agreements.
Current challenges
Weak environmental record
The country had poor environmental record among the OECD countries. It performs poorly in many environmental
indicators including sewage treatment, species at risk, greenhouse gas emissions, pesticide use and nuclear waste.
PESTLE Analysis
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According to Environmental Performance Index 2014 published by the Yale University, the country ranks 104th out of
178 countries in conservation of forest. Additionally, per capita emissions per unit of GDP are one of the highest among
the OECD countries, which suggests of inefficiencies in the utilization of energy. At the same time, Canada is heavily
reliant on non-renewable energy resources, which is an important factor for the economic growth of the country. Its
inability to use alternative sources of energy will add to the already high levels of emissions in the country. The
government faced extensive criticism from environmentalists for passing Bill C-38, which proposed major changes to
the environmental legislation. The bill reduced the stringency of the federal environmental assessment process and
included repeal of the Kyoto protocol, an international accord binding the member countries to reduce greenhouse gas
emissions by a certain proportion from 1990 levels.
Future prospects
Regulations to reduce greenhouse gas emissions from the transport sector
The Canadian government plans to introduce tough new regulations to limit greenhouse gas emissions from the
automotive sector. In September 2010, the government introduced the Passenger Automobile and Light Truck
Greenhouse Gas Emission Regulations as part of its efforts to reduce greenhouse gas emissions. The plan aims to
reduce on-road emissions by putting these regulations in place for vehicles that are manufactured from 2011 onwards.
These regulations are expected to reduce the country's total greenhouse gas emissions by 20% by 2020 compared to
2006 levels. Since transportation accounts for approximately one quarter of Canada's total greenhouse gas emissions,
these regulations will improve Canada's environmental quality.
Future risks
Canadian oil sands raising environmental concerns
Global oil companies' efforts to exploit the vast "tar sands" sands in Alberta are fraught with environmental risk. With
proven reserves of more than 170 billion barrels, the province's oil resources are comparable to Saudi Arabia.
However, the increased activity has led to an increase in emissions and toxic chemicals in waterways. Some
environmental watchdogs advocate the withdrawal or suspension of new projects to address these concerns, while
others are campaigning for the industry to adopt a green approach. The oil sand operations have a significant
environmental footprint and the responsibility lies on the stakeholders to minimize the impact. However, the
government has taken a lenient view of their emissions records, and has instead embarked on an expansion of oil
production.
Political Landscape
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POLITICAL LANDSCAPE Summary
In 1867, the nation came into existence under one dominion calling itself "Canada" after the provinces surrendered the
right to self-governance. Both French and British forces colonized the country, which is the original cause of the east-
west divide. Because of its colonial past, Canada recognizes Queen Elizabeth II as the formal head of state; the
governor general represents her. However, the prime minister is the head of government.
For the 12 years preceding 2006, the Liberal Party ruled Canada. However, a series of financial scandals involving the
party led to the victory of the other leading party, the Conservative Party, in the 2006 elections. Stephen Harper, leader
of the Conservative Party, became prime minister and headed a minority government. In the September 2008
elections, the Conservatives, led by Harper, won a majority of the seats but fell short of an absolute majority. The
Conservative government's decision to prorogue the parliament from January 25, 2010 to March 3, 2010 to recalibrate
economic policy proved to be unpopular. However, the Conservatives won a resounding victory in the 2011 elections
and formed a majority government, which has brought stability to the country.
Evolution
Pre-1930s
Europeans had occasional contact with Canada, which was initially inhabited by aboriginals, at least as far back as the
10th century. France established its first permanent settlement as Quebec City in 1608. French and British forces
colonized Canadian territories for more than three centuries. Because of the ample trade opportunities in fisheries and
fur, there were constant conflicts between the French and the English. France ceded control of Newfoundland, Hudson
Bay, and Nova Scotia (Acadia) in 1713. The treaty of Paris (1763) gave Britain authority over Canadian territories.
The French and British populations of the Canadian provinces became self-governing in the 1840s. In 1841, the United
Province of Canada was formed by uniting Canada East (Lower) and Canada West (Upper). By virtue of the British
North America Act, one dominion under the name of "Canada" was created on July 1, 1867, consisting of four
provinces: Ontario, Quebec, Nova Scotia, and New Brunswick. Five more provinces joined the state during 1807-1905.
The political scene was dominated by the Conservative Party for most of the late 19th century (1866-96). Sir John
Macdonald was the prime minister for this period, except during 1873-78. In 1896, the Liberal Party, under Sir Wilfrid
Laurier, took over and ruled until 1911. Canada entered World War I in 1914 with Britain's declaration of war on
Germany. In 1919, Canada joined the League of Nations independently from Britain.
1931-92
In 1931, the Statute of Westminster affirmed Canada's independence. During World War II, Canada declared war on
Germany. The economy boomed on the back of meeting requirements following World War II, as the country supplied
materials to Britain, China, and the Soviet Union. The economies of the US and Canada were closely integrated in the
post-war period. The Liberal Party dominated Canadian politics during 1931-57, before being succeeded by the
Conservatives in 1958. The Liberals, under the leadership of Lester B. Pearson, returned to power in 1963. On his
retirement, Pierre Elliott Trudeau succeeded him as prime minister in 1968. The period also saw the emergence of
secessionist movements, particularly in the French province of Quebec. In order to temporarily pacify the separatist
movement, Trudeau enacted the Official Languages Bill, which gave recognition to the French language as the official
Political Landscape
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language of Quebec. The Canada Act of 1982 cut the last legal ties between Canada and Britain and gave complete
independence to the nation.
The Canadian political landscape saw a change in 1984 when the Progressive Conservative Party, led by Brian
Mulroney, won an overwhelming victory with the highest political majority in the country's history. His government won
a second term in the 1988 elections. The free trade pact with the US, which was opposed by the Liberal Party, was the
dominant issue in these elections. The two countries eventually agreed to pursue a free trade agreement in 1989. The
US and Canada, along with Mexico finalized the terms of the North American free trade agreement (NAFTA) in 1992.
Figure 9: Canada - political events timeline
Source: MarketLine M A R K E T L I N E
1993-2014
In 1993, Mulroney resigned as the leader of the Progressive Conservatives and was succeeded by Kim Campbell, who
became Canada's first female prime minister. She continued as the PM until the October 1993 elections, in which, the
Progressive Conservatives suffered a humiliating defeat, winning only two seats compared to 169 seats in the previous
elections. Jean Chretien, a liberal became the PM after the elections. Chretien won two more terms as Canada's PM
after the 1997 and 2000 elections. He retired from office in 2003 and was replaced by Paul Martin. Under Martin, the
Liberals were reduced to a minority government in the 2004 federal elections. As the Liberals did not have a majority,
Political Landscape
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the opposition parties were able to pass a motion of no-confidence against the government, which led to its dissolution
in 2006. Early elections were called and the Conservatives were able to form a minority government as the Liberals los
voter support over a financial scandal. Stephen Harper, the leader of the Conservative Party, took over as prime
minister and was forced to form a minority government as his party fell 31 seats short of 155 seats. The Conservatives
followed a policy of seeking alliances with smaller parties on an issue-by-issue basis rather than forming a permanent
coalition.
Due to conflict over the 2008 budget, the opposition parties formed a coalition to bring down the government, which led
to Prime Minister Stephen Harper asking the governor general to prorogue the parliament in December. Parliament
was prorogued until January 26 and the subsequent backlash against the coalition meant that the Conservatives had
escaped a no-confidence vote. The Conservative-led government asked the governor general to prorogue the
parliament for the second time in 12 months in December 2009. This was seen as a move to avoid a debate on the
government's alleged involvement in the torture of Afghan detainees. Nevertheless, the Conservative Prime Minister
Stephen Harper managed to prorogue the parliament, which postponed the start of parliament from January 25, 2010
to March 3, 2010.
The opposition managed to move a no confidence motion against the government in March 2011 that ultimately led to
the downfall of the minority government. In the ensuing May 2011 elections, however, the Conservatives won a
resounding victory and formed a majority government.
Structure and policies
Key political figures
The key political figures in Canada are:
x Prime Minister Stephen Harper
x Governor general David Johnston.
Figure 10: Canada - key political figures
Stephen Harper is Canada’s 22nd prime minister (PM). He also heads the Conservative Partyof Canada. He was f irst elected to the House of Commons in 1993 from the Reform Party. In1997, he became vice president (and later president) of National Citizens’ Coalition, aCanadian advocacy organization. In 2002, he became leader of the opposition after beingappointed the leader of the Canadian Alliance. In 2003, he co-founded the Conservative Partyof Canada, which won the elections in 2006, 2008 and 2011. He was elected as the PM on allthe three occasions.
David Johnston is the 28th governor general of Canada. He began his career as an assistantprofessor in Queen’s University in 1966, shif ting to the University of Toronto in 1968. Hebecame dean of the law faculty of the University of Western Ontario in 1974. In 1979, hebecame principal and vice-chancellor of McGill University, where he returned as professor in1994. In 1999, he was elected president of the University of Waterloo. He has also chaired theBoard of Overseers at Harvard University. He has served on several provincial and federal taskforces and committees, as well as company boards.
Source: MarketLine M A R K E T L I N E
Political Landscape
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Structure of government
Canada is a federal parliamentary democracy and a constitutional monarchy. The Queen is the constitutional head of
the country, as Canada is a commonwealth nation. The governor general represents the Queen. However, real
executive power is vested in a council of ministers, with the prime minister as its head. Parliament comprises the
Senate and the House of Commons, which is the legislative body. Governance powers are shared between the federal
and provincial governments as defined by the Canadian constitution. The provincial government in Canada is headed
by a democratically elected premier.
Structure of the parliament
The bicameral parliament of Canada consists of the Queen, the Senate, and the House of Commons. The 105
senators are appointed by the governor general on the recommendation of the prime minster. The 308 members of the
House of Commons are elected from the districts or ridings through a plurality voting system, where the candidate with
the most votes is declared the winner. The size of the House of Commons, where seats are proportionately distributed
among the provinces, is revised after every census, conducted once every five years.
Figure 11: Canadian political structure (central government)
Governor General
Senate (Upper House)
House of Commons (Lower House)
Governor General
Senate (Upper House)
House of Commons (Lower House)
• Prime minister is the leader of the house
• 308 members
• Members elected by a plurality of popular votes in separate constituencies
• 5-year term
• 105 members
• Appointed by governor general
• Expected to give regional representation
• 5-year term
Canadian Parliament (Center)
Source: MarketLine M A R K E T L I N E
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Key political parties
Conservative Party
The Conservative Party of Canada currently has a majority government, with Stephen Harper serving as prime
minister. The party was formed in 2003 by the merger of the Canadian Alliance and the Progressive Conservative Party
of Canada. The parties came together because neither was able to expand its national influence. Their strategy was to
prevent the Liberal Party's victory in the elections by not allowing the splitting of the right-wing vote that resulted in
Liberal Party victories in 1993, 1997 and 2000. Historically, conservatism has indicated the combination of a hard-right
attitude with support for state-funded social programs. However, there is a second form of conservatism, mainly in
Western Canada, which believes in the privatization and reform of the political system, including the decentralization of
federal authority. The Conservative Party's policies indicate the coming together of these two disparate views. The
party has adopted the middle way, and generally supports a market economy approach in the economic sphere, since
most of the members of the new party are from the western provinces. The party favors lower taxes and takes a tough
stance on issues of law and order. It also supports high military spending. In its current form, the party is seen as pro-
American, and is attempting to establish its economic and social institutions along the same lines as those of the US.
New Democratic Party
The New Democratic Party counts former communists, immigrants and industrial workers among its members. The
Canadian Labour Congress and the Co-operative Commonwealth Federation formed a joint committee, the National
Committee for the New Party, in 1958 to bring together the political left and organized labor in the country. The union
eventually evolved into the New Democratic Party in 1961. The New Democratic Party supported the minority
government of the Liberals from 1972 to 1974. In 1974, the party passed a motion of no confidence along with the
Progressive Conservatives to force an election, which backfired, with the New Democratic Party losing half of its seats.
After lackluster performances between 1975 and 1987, the party saw 43 of its MPs elected to the house in 1988.
However, the party was routed in the 1993 elections, winning only nine seats.
After its fortunes fluctuated further in 1997 and 2000, the party elected Jack Layton as its new leader in 2002. Under
his leadership the party fared well in the 2004 and 2006 elections, winning 19 and 29 seats respectively, before winning
37 seats in the 2008 elections. However, its crowning moment came in the 2011 federal election, when the party won a
record 103 seats to become the official opposition. The party advocates gender equality, corporate tax increases,
poverty reduction, environmental and human rights protection, expansion of public transport and healthcare, social
assistance, wage hikes, and lower taxes for small businesses.
Liberal Party
The Liberal Party of Canada, whose members are known as "Grits," follows center-left ideologies with liberal social
policies and moderate economic strategies. The Liberal Party is the only party remaining from the Confederation, and
is Canada's oldest functioning party at the federal level. It came into existence in 1867. It was in power for most of
1921-48 and followed a progressive social policy. The party remained in power throughout the 1960s and 1970s, but
was defeated in the 1984 elections. It regained power during 2000-06. In 2004, the Liberals faced the challenge of a
united Conservative Party for the first time and although, they retained enough support to continue in government, but
were reduced to a minority. A motion of no confidence against the then Prime Minister Paul Martin triggered snap
elections in 2006, where the Liberal party suffered a huge defeat as it won just 103 seats compared to 133 in 2004.
The party was relegated to third place in the 2011 elections and lost its position as the official opposition.
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Composition of the parliament
The most recent federal elections were held in May 2011. The Conservatives won 166 of 308 seats and became the
first government to have a majority in seven years. It is followed by the New Democratic Party with 103 seats, the
Liberal Party of Canada with 34 seats, Bloc Quebecois with four seats, and greens one seat.
Figure 12: Canada - composition of parliament
Conservative Party, 166 seats
New Democratic
Party, 103 seats
Liberal Party, 34 seats
Bloc Quebecois, 4 seats
Greens, 1 seats
Source: CIA - The World Factbook M A R K E T L I N E
Key policies
Economic
Restoration of the fiscal balance and improving skills of Canadians for job creation has been the prime focus of the
economic policies of the Canadian governments at all levels. The federal government is consolidating its finances with
the objective of returning to surplus in 2015-16 and it expects the provincial government to follow suit. Based on the
budget plans of both federal and provincial/government, the general government deficit is expected to decline to 0.9%
of GDP in FY2017 from 3.0% in FY2013. Consequently, the government projects the federal debt to fall to 15.0% of
GDP by FY2021 from 33.0% of GDP in FY2013, giving the government enough room for maneuver during economic
dips. In the skill development area, the government has started implementing its job-training program, Canada Jobs
Grant (which was announced in its previous budget), since April 2014. The new program aims to create a culture of
apprenticeship in the country to support the unemployed youth. The government continues to help apprentices by
making occupational, trade and professional examination fees eligible for the Tuition Tax Credit.
Social
Under its Economic Action Plan 2014, the government has focused on enhancing childcare and making housing more
affordable for Canadians. The government has announced introduction of a Universal Child Care Benefit, which will
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provide parents up to $100 per month per child until they turn six. It also plans to promote child adoption by enhancing
the Adoption Expense Tax Credit to ease the costs of adopting a child. In order to reduce homelessness, the
government will continue investing in the Homelessness Partnering Strategy using a "Housing First" approach.
International relations
The Americas are a foreign policy priority for the country, and Canada is developing agreements within the region to
pursue bilateral and regional free trade, avoid double taxation, protect foreign investment, strengthen financial and
banking institutions, and assist development. The country already has free trade agreements with Chile, Colombia,
Costa Rica and Panama. The government is engaged in more free trade agreement (FTA) negotiations with Ukraine,
Morocco, South Korea, India, Singapore, the Dominican Republic, El Salvador, Guatemala, Nicaragua, and Andean
and Caribbean countries.
Performance
Governance indicators
The World Bank report on governance used voice and accountability, political stability and absence of violence,
government effectiveness, regulatory quality, rule of law, and control of corruption as indicators for 215 countries and
territories over 1996-2013. Daniel Kaufmann of the Brookings Institution, Massimo Mastruzzi of the World Bank
Institute, and Aart Kraay of the World Bank Development Economics Research Group conducted the study. For any
country, a percentile rank of zero corresponds to the lowest possible score and a percentile rank of 100 corresponds to
the highest possible score.
Canada had a percentile rank of 95.26 on voice and accountability in 2013. This measures the extent to which a
country's citizens are able to participate in selecting their government, as well as freedom of expression, association,
and the media. Democracy has been deep-rooted in Canadian politics since the beginning of self-governance in the
19th century. The democratic setup has strengthened with passing years, seeing the entry of new parties like the
Greens. In comparison, its neighbor the US scored a percentile rank of 83.89, while the UK ranked in the 92.42
percentile.
Canada had a comparatively high percentile rank of 83.89 on political stability and absence of violence in 2013. This
measures perceptions of the likelihood that the government will be destabilized or overthrown by unconstitutional or
violent means, including domestic violence and terrorism. Comparatively, the US and the UK were poor performers
with percentile ranks of 65.88 and 63.03, respectively.
Most developed nations perform well in terms of government effectiveness, which measures the quality of public
services, the quality of civil services and the degree of their independence from political pressure, the quality of policy
formulation and implementation, and the credibility of the government's commitment to such policies. Canada had a
percentile rank of 97.13 in 2013, higher than both the US and the UK, which ranked in the 90.91 and 89.95 percentiles,
respectively. The broad policy direction in Canada has remained stable under both Conservative and Liberal rule. Most
policies have an element of continuity rather than change.
Canada had a percentile rank of 95.22 on regulatory quality in 2013. This measures the ability of the government to
formulate and implement sound policies and regulations that permit and promote private sector development. Canada's
percentile rank was higher than the US's (86.60), but lower than the UK's (96.17). A well-developed and transparent
regulatory structure explains the nation's high ranking.
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Canada had a percentile rank of 94.79 on rule of law in 2013. This measures the extent to which agents have
confidence in and abide by the rules of society, and in particular the quality of contract enforcement, the police, and the
courts, as well as the likelihood of crime and violence. The UK and the US had percentile ranks of 92.89 and 90.52,
respectively.
Canada had a high percentile rank of 95.22 on control of corruption in 2013. This measures the extent to which the elite
and private interests exercise public power for private gain, including both petty and grand forms of corruption, as well
as the capture of the state. Barring a few financial scandals, corruption is minimal in Canada. It fared well compared to
other G8 nations, with both the US and the UK receiving lower percentile rankings of 85.17 and 93.30 respectively, in
the same year.
Outlook
Stephen Harper's Conservative Party came to power in a landslide victory in the 2011 elections that left the Liberals
and the separatists in minority positions. The Conservatives were elected on promises of cutting taxes, fighting crime,
boosting military spending and improving relations with the US. The majority government is expected to follow policies
that will both serve the conservative agenda and help the prime minister's non-conservative support base. However,
the expenses scandal that emerged in 2013 involving three Conservative Senators has tarnished the party's image.
This has been aggravated by the increasing support for the Liberals in the opinion polls after the appointment of Justin
Trudeau, son of former Prime Minister Pierre Trudeau, as the party's leader in 2013. The liberals have been leading the
opinion polls ever since Justin Trudeau has taken over. Hence, the liberals are expected to be the foremost challenger
to the conservatives in the next elections, since the NDP is struggling as of now. Nevertheless, by the time of the next
elections in October 2015, the conservatives would have been in power for almost ten years.
Economic Landscape
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ECONOMIC LANDSCAPE Summary
Canada is among the leading nations of the world, with real GDP of $1.3 trillion in 2014, according to MarketLine
estimates. Although the economy contracted by 2.7% in 2009, it rebounded with growth of 3.4% in 2010 buoyed by the
government's stimulus package and the central bank's easy monetary policy that revived employment and investments.
The economy grew at a healthy rate of 2.5% in 2011, but growth slowed in the following year to 1.7%, as fiscal
consolidation and high household debt pulled down household consumption, and external headwinds arising from the
country's strong links with the US economy depressed exports and business spending. In 2013, the economy grew by
2.0%.
Evolution
Pre-1980
The Canadian economy has closely followed the US economy's booms and depressions. World War II led to fast
economic growth in Canada, especially Western Canada, which is rich in natural resources. It also sowed the seeds of
regional disparity that remain to this day. After the war, GDP growth gathered momentum, unemployment was low and
consumer goods production increased. During this period, both the federal and provincial governments initiated a
number of social welfare measures. The discovery of new oil fields in the late 1940s added to the economic boom.
Financial growth continued unabated into the late 1970s.
1980-2014
After the economic growth that lasted for almost 25 years in the post-war era, the economy of Canada slipped into a
recession during 1980-85. While international economic conditions were the major reasons for the recession, monetary
policies pertaining to high nominal and real interest rates aggravated the situation. The economy expanded during
1985-90, but the growth rate declined markedly during the early 1990s. This economic slowdown was a result of high
interest rates and a slowdown in the US and world economies. There were constraints on fiscal policy because of the
burden of international payments on the federal debt. Although the economic slowdown during this period was less
dramatic compared to the recession of the 1980s (GDP fell by 3.2% over 12 months in 1990-91 compared to 6.7%
during 1981-82), it took longer to recover. An increase in exports and a moderate rise in retail spending drove the
process of economic recovery as the GDP grew by 0.9% in 1992. The economy maintained steady growth during
1993-94, registering average annual growth of nearly 3.6%.
However, rising public debt, tight monetary conditions and sluggishness of exports to the US affected the economy in
1995-96. Consequently, the economy grew by 2.7% in 1995 and just 1.7% in 1996. In the next two years, the better
fiscal position of the government and the easy monetary policy of the central bank drove economic growth, which was
underpinned by strong domestic demand by the private sector. The economic growth averaged 4.2% during this period.
Economic activity slowed in 2001 due to the bursting of the IT bubble; however, the slowdown was not as pronounced
as in the US. The economy grew by 1.7% in 2001, which was followed by a rebound of 2.8% in the following year.
However, weak external demand due to sharp appreciation of the Canadian dollar again affected the economy in 2003,
which pulled down the growth rate to 1.9%. Economic momentum recovered in subsequent years, with growth
averaging 2.4% during 2004-08. Although the economy contracted by 2.7% in 2009 in the aftermath of the global
Economic Landscape
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financial crisis, it rebounded with growth of 3.4% in 2010 buoyed by the government's stimulus package and the central
bank's easy monetary policy that revived employment and investments. The economy grew at a strong rate of 2.5% in
2011, but growth slowed in the following year to 1.7%, as fiscal consolidation and high household debt pulled down
household consumption, and external headwinds arising from the country's strong links with the US economy
depressed exports and business spending. In 2013, the economy grew by 2.0%. MarketLine estimates the economy to
grow by 2.2% in 2014 as the US economy recovers.
Figure 13: Evolution of GDP growth in Canada, 1993-2013
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
1993 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Gro
wth
rate
(%)
Year
Source: Country Statistics, MarketLine M A R K E T L I N E
Structure and policies
Overview
Canada has a well-developed financial system that comprises banks, insurance companies, trust dealers and security
dealers. Over the years, most of the financial institutions, particularly banks and insurance companies, have
consolidated their product offerings. The financial services sector comes under the shared jurisdiction of both the
federal and provincial governments. Both levels of government regulate the insurance, trust and loan sectors.
Economic Landscape
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Financial authorities and regulators
The primary regulator of federally chartered financial institutions and federally administered pension plans is the Office
of the Superintendent of Financial Institutions. This supervises and regulates all banks and federally incorporated or
registered trust and loan companies, insurance companies, co-operative credit associations, fraternal benefit societies
and pension plans. It functions as a regulator to safeguard policy holders, depositors and pension plan members from
undue loss.
The Canadian securities market is currently governed provincially, resulting in the system being administered by 13
different provincial and territorial securities regulators. A national securities regulator does not exist at present.
In the absence of a national securities regulator, the Investment Industry Regulatory Organization of Canada (IIROC) is
working as the national self-regulatory organization to oversee all investment dealers and trading activity in Canada.
The IIROC was established in 2008 by merging the Investment Dealers Association of Canada with Market Regulation
Services. The IIROC undertakes its regulatory responsibilities by setting and enforcing rules covering the business and
financial conduct of dealer firms and their employees and trading activity in Canadian equity markets. The country's
major exchanges reached an agreement in 1999 to restructure along the lines of market specialization. While the
Toronto Stock Exchange became the sole exchange for trading senior equities, the Montreal Exchange assumed
responsibility for derivatives, and the Canadian Venture Exchange (created through a merger of the Vancouver,
Alberta, and Winnipeg stock exchanges) handled junior equities.
Stock exchange
The TMX Group owns and operates Canada's two major national stock exchanges: the Toronto Stock Exchange, which
serves the senior equity market, and TSX Venture Exchange, which serves the public venture equity market. The TMX
Group also owns the Natural Gas Exchange, which is the North American exchange for the trading and clearing of
natural gas and electricity contracts. The market capitalization of companies listed on TMX Group in November 2014
stood at $2.13 trillion.
Insurance
According to MarketLine, the Canadian insurance market had total gross written premiums (GWPs) of $117.1bn in
2012, representing a compound annual growth rate (CAGR) of 1.3% between 2008-12. In comparison, the US and
Mexican markets grew with CAGRs of 0.6% and 11.2% respectively, over the same period, to reach respective values
of $1,270.9 billion and $24.0 billion in 2012. The non-life insurance segment was the most lucrative for the Canadian
insurance market in 2012, with total GWPs of $65.3 billion, equivalent to 55.8% of the market's overall value. In
comparison, sales of life insurance generated GWPs of $51.8 billion in 2012, equating to 44.2% of the market's aggregate revenues.
The performance of the market is forecast to accelerate, with an anticipated CAGR of 2.9% for the five-year period
2012-17, which is expected to drive the market to a value of $135.0bn by the end of 2017. Comparatively, the US and
Mexican markets will grow with CAGRs of 4.1% and 8.3% respectively, over the same period, to reach respective values of $1,552.1 billion and $35.7 billion in 2017.
Economic Landscape
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Performance
GDP and growth rate
Canada's economy was one of the best performing among the developed nations during 2002-07, with GDP growing at
an average rate of around 2.6%. The global financial crisis in late 2008 pulled down the growth rate to 1.2% in 2008,
which was followed by an economic contraction of 2.7% in 2009. The economy grew at a strong rate of 2.5% in 2011,
but growth slowed in the following year to 1.7%, as fiscal consolidation and high household debt pulled down
household consumption, and external headwinds arising from the country's strong links with the US economy
depressed exports and business spending. In 2013, the economy grew by 2.0%. MarketLine estimates the economy to
grow by 2.2% in 2014 as the US economy recovers.
Figure 14: GDP and growth rate in Canada, 2008-18
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Grow
th rate (%)
$ tri
llion
Year
GDP Real GDP growth rate
Source: Country Statistics, MarketLine M A R K E T L I N E
Economic Landscape
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GDP composition by sector
Canada's sectoral composition is similar to most other developed economies, being primarily dominated by the
services industry. The services sector is the best performer and the main driver of the economy. In 2013, services and
industry contributed 70.2% and 28.2% of GDP respectively, with agriculture contributing a minuscule 1.6%.
Figure 15: Sectoral composition of GDP in Canada, 2013
Agriculture, 1.6%
Industry, 28.2%
Services, 70.2%
Source: Country Statistics, MarketLine M A R K E T L I N E
Economic Landscape
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Agriculture
The sector is heavily subsidized and is largely dependent on exports. Over 52 million acres of agricultural land is used
primarily for grazing livestock, out of which 30 million acres is in natural vegetation. In 2013, agriculture growth was
2.4%, compared to 2.3% in 2012, according to MarketLine. Agricultural growth averaged 3.3% during 2007-13.
Figure 16: Agricultural output of Canada, 2008-13
-25.0
-20.0
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
25.0
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
2008 2009 2010 2011 2012 2013
Grow
th rate (%)
C$ b
illio
n
Year
Agriculture output Growth rate
Source: Country Statistics, MarketLine
Note: sectoral figures are given in local currency due to fluctuations in exchange rates.
M A R K E T L I N E
Economic Landscape
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Industry
In 2013, industrial growth was 3.9% compared to 3.8% in 2012, according to MarketLine. Industrial growth averaged
2.5% during 2007-13. The majority of the manufacturing facilities in the country are branches of the US firms.
Nevertheless, the country mainly produces aircraft, industrial machinery, telecommunications equipment, motor
vehicles and automotive components.
Figure 17: Industrial output of Canada, 2008-13
-20.0
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
0.0
100.0
200.0
300.0
400.0
500.0
600.0
2008 2009 2010 2011 2012 2013
Grow
th rate (%)
C$ b
illio
n
Year
Industry output Growth rate
Source: Country Statistics, MarketLine
Note: sectoral figures are given in local currency due to fluctuations in exchange rates.
M A R K E T L I N E
Economic Landscape
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Services
In 2013, services growth was 3.2% compared to 3.5% in 2012, according to MarketLine. Services growth averaged
4.2% during 2007-13. A significant element of this sector is business services, which includes financial services and
real estate. The country also has an active entertainment industry, creating content for both local and international
consumption. Tourism is of ever-increasing importance, with the majority of international visitors coming from the US,
although the appreciating Canadian dollar has restricted the growth of this sector.
Figure 18: Service output of Canada, 2008-13
0.0
1.0
2.0
3.0
4.0
5.0
6.0
0.0
200.0
400.0
600.0
800.0
1000.0
1200.0
1400.0
2008 2009 2010 2011 2012 2013
Grow
th rate (%)
C$ b
illio
n
Year
Services output Growth rate
Source: Country Statistics, MarketLine
Note: sectoral figures are given in local currency due to fluctuation in exchange rates.
M A R K E T L I N E
Economic Landscape
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Fiscal situation
The federal government is consolidating its finances with the objective of returning to surplus in 2015-16 and it expects
the provincial government to follow suit. Based on the budget plans of both federal and provincial/government, the
general government deficit is expected to decline to 0.9% of GDP in FY2017 from 3.0% in FY2013. Consequently, the
government projects the federal debt to fall to 15.0% of GDP by FY2021 from 33.0% of GDP in FY2013, giving the government enough room for maneuver during economic dips.
Exports and imports
In 2013, Canada total trade was $1.1 trillion, which was nearly the same value of trade in 2012. The Canadian
economy is heavily dependent on trade with the US. According to CIA - The World Factbook, the US accounted for
74.5% of Canada's exports and 50.6% of its imports in 2012. China was Canada's second largest trading partner
accounting for 4.3% of its exports and 11.0% of its imports. Other major trading partners were Mexico and the UK.
Figure 19: External trade of Canada, 2008-13
523
380
459530 533 537507
411499
569 580 579
1,030
791
958
1,099 1,114 1,116
0
200
400
600
800
1000
1200
2008 2009 2010 2011 2012 2013
$ bi
llion
Year
Exports Imports Total Trade
Source: Country Statistics, MarketLine M A R K E T L I N E
Current account
In 2012, the country recorded a current account deficit of 3.4% of GDP, which came down to 3.2% in 2013 on the back
Economic Landscape
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of a strong Canadian dollar and sluggish global demand. In 2014, deficit is expected to narrow further to 2.7% of GDP
according to IMF.
International investment position
Foreign direct investment
According to the United Nations Conference on Trade and Development, FDI inflows into the country increased from
$43 billion in 2012 to $62.3 billion in 2013. Total FDI stock stood at $644.9 billion as of 2013.
Credit rating
Canada's local currencies and foreign exchange reserves are considered stable, with an AAA long-term and A-1+
short-term rating given by Standard & Poor's.
Key monetary indicators
Inflation
According to MarketLine, inflation was 0.9% in 2013. However, of late in 2014, the economy has experienced upward
inflationary pressure. Nevertheless, lower commodity prices, especially of oil, will continue to put downward pressure
on inflation.
Figure 20: Consumer price index and index-based inflation in Canada, 2008-18
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
100.0
105.0
110.0
115.0
120.0
125.0
130.0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Percentage (%)
Cons
umer
Pric
e In
dex
Year
Consumer price index Inflation
Source: Country Statistics, MarketLine M A R K E T L I N E
Economic Landscape
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Interest rate
The bank's overnight rate has remained at 1.0% since September 2010.
Unemployment
Unemployment is still high in the country. In 2013, the unemployment rate in the country was 7.1%, which was still
higher than pre-crisis rate of 6.1% in 2008. However, in 2014, it is expected to come down to 6.9% as the economy
recovers.
Figure 21: Unemployment in Canada, 2008-18
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
0.0
200.0
400.0
600.0
800.0
1000.0
1200.0
1400.0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Percentage (%)
Num
ber o
f une
mpl
oyed
(tho
usan
d)
YearTotal unemployment Rate of unemployment (%)
Source: MarketLine M A R K E T L I N E
Outlook
With the global economy showing signs of recovery, exports are also expected to be in better shape in 2014.
Consequently, GDP growth in Canada is also expected to be better at 2.2% in 2014, higher than 2% growth in 2013.
Fiscal consolidation by the government is expected to continue as planned, which means that the bulk of the demand is
expected to be generated from the private sector. According to the OECD, business investment during 2014 and 2015
Economic Landscape
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should be buoyed by declining spare capacity and cheap credit. However, a hard landing of the indebted household
sector presents downside risks to the economy as the subsequent deleveraging could curb household demand and
hinder a smooth recovery.
Social Landscape
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SOCIAL LANDSCAPE Summary
Canada's social landscape has most of the usual characteristics of a developed nation. The country's liberal
immigration policy makes it one of the preferred destinations for migrants. Given the demographic situation, Canada is
among the few countries in the developed world that has a large proportion of working age people. A steady increase in
healthcare expenditure has been instrumental in improving the health of the Canadian population.
Evolution
Owing to its colonial past, Canada is home to a diverse population. In the post-war years, the country encouraged
immigration to meet its labor force needs. A growing population with an increasing market size ensured the economic
development of the country. During the 1960s, in the middle of the baby boom, the fertility rate was around 3.5. The
decline in fertility after the baby boom and the increase in deaths due to the aging population played a role in slowing
the pace of population growth. Fertility has remained at about 1.5-1.6 children per woman for the last 10 years and the
government has been encouraging immigration to increase the population.
The Canadian government has implemented a number of social security policies covering issues such as healthcare,
pensions, and education. However, economic growth has not led to an equitable society. Income disparity has been
widening over the years, with the higher income groups benefiting the most. The social safety net saw its beginning in
1940, with the federal government taking the lead when there was large-scale unemployment after the Great
Depression. During the 1950s, besides industrial workers, seasonal workers in the agricultural, forestry, and fishery
sectors were added to the list of unemployment insurance recipients. During the 1970s, it became easier to get
unemployment insurance benefits—the coverage was widened and benefits increased. In 1996, unemployment
insurance was renamed Employment Insurance under a new program that requires people to work longer to qualify,
distributes fewer benefits, and links the level of those benefits to regional unemployment rates.
Structure and policies
Demographic composition
Composition by age and gender
According to MarketLine estimates, those aged 65 and over made up over 17% of the total population in 2014, while,
around 67% of the population belongs to the 15-64 age group. Those in the 0-14 age group account for the rest. The
sex ratio at birth in 2014 is estimated to be around 1.06 males per female.
Social Landscape
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Table 10: Mid-year population by age (as a percentage of population), 2014
Age Female Male
0-4 4.9 5.3
5-9 5.0 5.3
10-14 5.1 5.4
15-19 5.7 6.1
20-24 6.5 7.0
25-29 6.4 6.9
30-34 6.5 6.9
35-39 6.3 6.6
40-44 6.3 6.6
45-49 6.9 7.0
50-54 7.7 7.9
55-59 7.2 7.3
60-64 6.3 6.2
65-69 5.4 5.3
70-74 4.2 3.8
75-79 3.3 2.7
80+ 6.1 3.7
Source: Country Statistics, MarketLine M A R K E T L I N E
Urban/rural composition and migration
In 2011, nearly 80.7% of the Canadian population was urban. Most immigrants originate from China, India, Pakistan,
Iran, the US, Romania, the UK, South Korea and Colombia.
Ethnic composition
According to the CIA - The World Factbook, Canadian comprises 32.2%, while English (19.8%), French (15.5%),
Scottish (14.4%), Irish (13.8%), German (9.8%), Italian (4.5%), Chinese (4.5%), North American Indian (4.2%), other (50.9%) make up the rest.
Religious composition
Roman Catholicism is the dominant religion, with 40.6% of the population practicing this religion according to CIA - The
World Factbook. Furthermore, Protestants constitute 20.3%, other Christians 6.3%, Muslims 3.2%, and others and
none constitute the rest.
Social Landscape
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Figure 22: Canada - composition by religion, 2011
Catholic, 40.6%
Protestant, 20.3%
other Christian , 6.3%
Muslim, 3.2%
other, 5.7%
none, 23.9%
Source: CIA - The World Factbook M A R K E T L I N E
Education
In Canada, public education is free for all citizens and permanent residents until the end of secondary school. However,
there is no integrated system of education under a single federal department for the whole country. The provincial
departments of education are responsible for the delivery and assessment of education at the elementary and
secondary levels within their boundaries. The institutions in the post-secondary system have varying degrees of
autonomy from direct provincial government control. Local governance of education is usually entrusted to school
boards, school districts, school divisions or district education councils. The schools cater to the needs of the English-
and French-speaking population.
System of education
In most provinces and territories, local education authorities provide kindergartens. These centers offer one year of pre-
first-grade, non-compulsory education for five-year-olds. Compulsory schooling varies from one jurisdiction to another,
but most require attendance at school from age six to 16. In most provinces, elementary schools cover six to eight
years of schooling, and are followed by middle school or junior high, then secondary school. Besides the government-
run schools, there are also private institutions. Although these schools are privately funded, they are required to meet
the general standards prescribed by the relevant Ministry of Education. These schools charge a tuition fee and offer a
variety of subjects. In many cases, they receive partial funding from the province or territory.
Social Landscape
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Secondary school covers the final four to six years of compulsory education. In the first few years, students take mostly
compulsory courses, with some optional subjects. The proportion of options increases in later years, which enables
students to prepare for the job market or to meet the differing entrance requirements of post-secondary institutions.
Healthcare
Healthcare services
The healthcare system in Canada is primarily dominated by the public sector, with more than 70% of healthcare
contributions coming from the federal and provincial governments. Most of the government expenditure comes through
Medicare, the universal health insurance system in Canada. There are also smaller programs in the provinces that are
carried out in accordance with the regulations provided under the Canada Health Act. Healthcare services include
insured primary healthcare, hospital care, and in some provinces and territories, supplementary health benefits like
prescription drug coverage are not included under the act.
Social welfare
Canada has an extensive list of social welfare measures at the federal and provincial levels. The Department of Human
Resources and Social Development is a federal government department responsible for providing social welfare
policies.
Employment
x Employment policies and programs are aimed at promoting labor force participation. The department provides
support and labor market transitions to unemployed and underemployed people, and those facing barriers to employment. The majority of employment programs are decentralized.
x The Employment Insurance program provides temporary income support to those who are between jobs or are out of work for certain critical personal reasons.
x The country uses bilateral labor market development agreements made between the Canadian government and all provinces and territories.
Performance
Healthcare
Healthcare expenditure has been steadily increasing over the years. Average healthcare expenditure as a percentage
of GDP was around 10.1% during 2001-12. In 2012, total healthcare spending was 10.9% of GDP.
According to a 2013 report by the Fraser Institute, the national median wait time for elective treatment after a referral by
a specialist was 18.2 weeks in 2013, about three days longer than in 2012 and almost double that in 1993. Reducing
wait times, as a result, has become a priority concern for Canadian policymakers since 2004. Nevertheless, according
to the OECD, Canada performs well in terms of providing primary care by preventing costly hospital admissions due to
chronic conditions.
Social Landscape
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Figure 23: Expenditure on healthcare in Canada, 2002-12
0.0
2.0
4.0
6.0
8.0
10.0
12.0
0.0
40.0
80.0
120.0
160.0
200.0
240.0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Percentage (%)
$ bi
llion
YearExpenditure on healthcare, total Total healthcare expenditure as a % of GDP
Source: Country Statistics, MarketLine M A R K E T L I N E
Income distribution
Standard of living
On the income Gini coefficient, which ranges from zero (perfect equality) to 1 (perfect inequality), Canada scored 0.33
in 2010, which is significantly lower than the US (0.38) and Mexico (0.47) in household income inequality. The transfer
of money to the poor, unemployed and other disadvantaged classes has been recognized as one of the major factors
for reducing inequality. The prevailing social and economic conditions make Canada one of the best countries to live in.
Education
Canada has a literacy rate of 99%, with high literacy among males and females. Public funding for education comes
either from the provincial government or through a mix of provincial transfers and local taxes collected either by the
local government or by boards with taxing powers. In 2012, the public education expenditure on education was 5.5% of
GDP.
Social Landscape
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Figure 24: Expenditure on education in Canada, 2002-12
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Percentage (%)
$ bi
llion
YearExpenditure on education, total Total education expenditure as % of GDP
Source: Country Statistics, MarketLine M A R K E T L I N E
Outlook
Canada has performed well on various social parameters, with high human development and an efficient social security
system. Given the demographic situation, Canada is among the few countries in the developed world that have a large
proportion of working age people (those between 15 and 64). However, like other developed countries, Canada is also
witnessing the phenomenon of an aging population. Although fertility rates have improved marginally since the
beginning of the last decade, they remain considerably lower than the replacement rate of 2.1. In such a scenario,
immigration, which has accounted for two-thirds of population growth in recent times, will be the major source of
population growth. However, the government's liberal immigration policy could also create tensions in the country.
An aging population will also strain healthcare and pension expenditure; this has already begun as the baby boomers
started retiring in 2011. To address these needs, the federal and provincial governments are working in collaboration to
revamp the pension plan. In addition, the government has taken measures to reduce skills mismatch in the job market,
which should make the labor market more efficient in the medium to longer term.
Technological Landscape
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TECHNOLOGICAL LANDSCAPE Summary
Canada's progress in technological development has not been satisfactory. The country's annual expenditure on
research and development (R&D) as a percentage of GDP stood at an average was around 2% during 2002-11 and
has been declining since then, according to Statistics Canada. It is a recognized fact that Canada faces an innovation
gap, as the country does not fare well in terms of R&D spending as a percentage of GDP. The number of external
patent applications and the number of researchers in the nation are low relative to the size of its qualified labor force.
Canada also performs poorly compared to other developed countries such as the US and Japan in terms of patents
received.
Canada's geographical proximity and trade and investment relations with the US make it an attractive destination for
investment. Traditionally, its machinery and equipment industry has served the manufacturing sector. However, with
the changing economic order and the emergence of the knowledge industry, its significance has declined.
Nevertheless, Canada has an advantage in terms of meeting requirements for technologically advanced goods in the
aerospace industry. The education system has not been overhauled to meet new industrial needs, and private firms are
unwilling to spend money on developing new technology.
Evolution
During the post-war years, Canada's manufacturing industry blossomed. At first, large amounts of resources were
devoted to atomic research. Later, the government started promoting innovative practices to meet the needs of other
manufacturing industries. A number of national research councils existed during the 1950s and 1960s. The government
also monitored research activities at universities. The Science Council of Canada was founded in 1966 to provide
advisory services to the government. The research activities of the government gathered momentum during the late
1990s after it achieved a balanced budget in 1997-98. With increasing global competition, private enterprises in
Canada have been encouraging innovation. Besides technological developments in industries, research activities in life
sciences have also been receiving government funds.
Structure and policies
Canada has a centralized innovation system directed by its federal government. In 2007, Canada produced a new
science and technology (S&T) and innovation policy, which set out a comprehensive, multi-year S&T agenda. The
Innovation Management Association of Canada works to expand the commercialization of technologies. Provincial
programs are being initiated to promote regional innovation clusters.
The S&T strategy and its policy commitments will be guided by four core principles of promoting world-class science
and technology excellence, focusing on priorities by targeting basic and applied research in areas of strength and
opportunity, encouraging partnerships by supporting S&T collaborations involving the business, academic, and public
sectors at home and abroad, and enhancing accountability by implementing strong governance and reporting practices
to deliver and demonstrate results.
Intellectual property
The intellectual property policy group consists of two directorates: the Intellectual Property Policy Directorate and the
Technological Landscape
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Patent Policy Directorate. The low number of patents received by Canadian firms reduces the nation's technological
advantage. Lack of innovation in the private sector is one of the main reasons for the low number of patents received
by Canadian firms. Compared to the US, Japan, and Germany, the country's total patent count is very low.
R&D
The Canadian government has identified the following as its priority research areas:
x environmental S&T
x natural resources and energy
x health and related life sciences and technology
x ICT
Canada lags behind other nations in terms of R&D spending. Canada's total expenditure on R&D as a percentage of
GDP—also known as R&D intensity—stood at around 1.8% in 2011, lower than the 2.1% in 2004. The major reason for
this decline in R&D intensity has been a weak trend of business spending on R&D since 2000. Traditionally, the
Canadian IT sector was the major funder of business R&D in the country; however, the bankruptcy of the country's
biggest R&D performer, Nortel and problems in another major R&D funder, BlackBerry have affected business R&D
expenditure in the sector. One more reason for low R&D by business is the Canada-US Auto Pact, under which
Canada manufactures and assembles models developed in the US and performs almost no automotive R&D
domestically. Moreover, the resource-rich sectors relating to extraction of oil and gas perform very little R&D. The
recent economic weakness and lack of funding avenues in early stage venture capital has also added to weakness in
business innovation. Nevertheless, for the country to gain a technology advantage in future, it needs to shore up its
business innovation profile.
Technology agreements and pacts
The Department of Foreign Affairs and International Trade's S&T program plays a significant role in enhancing the
country's S&T capacity, competitiveness, and prosperity by generating effective international collaborations for
Canadian research institutions, universities and firms. The department has entered into bilateral agreements with
China, the European Union, France, Germany, India, Israel, Japan, and South Korea. These agreements aim at
fostering international R&D collaboration and its commercialization. It also hopes to identify world-leading research and
incorporate it into the development of innovation processes. Under its International Science and Technology
Partnerships Canada program, the country supports partnerships with Brazil, California, China, India, and Israel.
Performance
Internet access market
According to MarketLine estimates, mobile penetration stood at 79.7 per 100 people in 2014 with subscribers totaling
28.2 million in 2014. Internet users as a percentage of total population were around 85.5% with users totaling 30.0 million in 2013.
Technological Landscape
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Figure 25: Internet users in Canada, 2003-13
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Percentage (%)
Inte
rnet
use
rs (m
illio
ns)
Year
Number of users Percentage of population
Source: Country Statistics, MarketLine M A R K E T L I N E
Outlook
Despite being a developed economy, Canada has not excelled in terms of innovation. The primary reason for this is the
low involvement of provincial governments and less than optimal public-private partnerships for technological
development. However, the government is planning to support innovation and R&D by providing financial assistance to
small- and medium-sized businesses and young entrepreneurs, as well as establishing new Canada Excellence
Research Chairs. The government has also increased the budgets of Canada Accelerator and Incubator Program to
support entrepreneurs and realize the potential of their ideas.
Legal Landscape
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LEGAL LANDSCAPE Summary
The Canadian legal system has an independent judiciary that is free from other branches of government. The federal
structure of Canada has also been extended to its judicial system. Legislative authority and responsibility are divided
between various levels of government. The Constitution of Canada is the supreme law of the country. It sets out the
basic principles of democratic government and defines the powers of the three branches of government: executive,
legislative, and judiciary. It also divides lawmaking powers and responsibilities between the federal and provincial
levels of government. Another aspect of the legal system is the fact that criminal and civil law is based on the British
system of common law, although civil law in Quebec is based on the French system.
Canada has a complex labor law system, which has been a point of contention among different political parties.
Employers in Canada have to keep abreast of the latest developments in employee relations and employment
standards. This has been noted as an area witnessing amendments at a fast pace. The tax regime is to a large extent
governed by the federal Income Tax Act and its regulations. Sales tax, corporate tax, and other laws of the provinces
and territories are required to be followed by organizations doing business in Canada.
Evolution
The present legal system in Canada has evolved from various European systems that were prevalent during the 17th
and 18th centuries. The British North America Act of 1867 serves as the constitutional document for Canada. The
Constitution Act, 1982 made Canada's constitution independent from Great Britain, and affirms the Constitution of
Canada to be the supreme law of Canada.
The present legal system uses two different regimes: common law and civil law. In Quebec, civil law forms the basis of
judgments, whereas common law applies in the other provinces and territories. Common laws are uncodified, while civil
laws are based on a comprehensive statement of rules and general principles.
Structure and policies
Judicial system
Structure of the system
The final court of appeal in the country is the Supreme Court, and it has jurisdiction over constitutional, administrative,
criminal, and civil law. The federal government appoints the chief justice and other judges of the Supreme Court. The
court has eight judges apart from the chief justice and has a special role as advisor to the federal government. At times,
the government may ask the Supreme Court to interpret the constitution. The provincial courts of appeal and Federal
Court of Appeal are the next levels. The Federal Court of Appeal is a superior court with civil jurisdiction, but it can deal
with matters specified in federal statutes (laws). The provincial courts mostly deal with criminal cases and family
matters.
At the provincial level, there are provincial/territorial superior courts and federal courts. Provincial courts/provincial
tribunals and federal administrative tribunals are in the lowest level of the hierarchy.
Legal Landscape
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Figure 26: Canada: judicial structure
Supreme Court of Canada
Court martial appeal court
Military courts
Provincial courts of appeal
Provincial/territorial
superior courts
Provincial courts
Provincial administrative
tribunals
Federal court of appeal
Federal courts
Federal administrative
tribunals
Source: MarketLine M A R K E T L I N E
Legislative relations between the union and the states
Canada has a federal system in place, and so does its judicial system. The central government is responsible for
issues such as defense, foreign affairs, criminal law, immigration, banking and the national currency, international
trade, and intellectual property. The provinces deal with regional issues such as direct taxation, education, social
programs, and rights related to private property and commerce.
The minister of justice is also the attorney general of the country. Most criminal code offences fall under the jurisdiction
of the relevant province. The Department of Justice, which is headed by the attorney general, carries out prosecutions
under all other federal laws.
Taxation
Income tax
Both the federal and provincial governments impose income tax on individuals. The federal government's tax rates are
high compared to those of provincial governments. Income taxes throughout Canada are highly progressive, with high
income individuals paying a significantly higher percentage than low income residents. Federal tax rates have a limit of
29%, while provincial tax rates range from 5.05% to 25.75%.
Corporation tax
The federal government's corporate tax rate is 15%. The provincial/territorial corporate tax rates also apply. There is a
significant difference between rates in provinces.
Legal Landscape
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Other taxes to be incurred by employers
In some provinces of Canada, employer health tax is imposed on employers. In some provinces, it is referred to as the
Health Services Fund. Employees pay premiums for the Employment Insurance system and the Canada Pension Plan,
and employers pay premiums for workers' compensation. These premiums are not considered to be taxes, as they
allow employees to receive payments from the programs, whereas taxes are used to fund government activities.
Labor laws
The government has attempted to balance employee-employer rights by making changes in legislation. Both federal
and provincial governments are responsible for labor laws. The federal government is responsible for the regulation of
all interprovincial industries such as airlines, telecommunications, and railways. Most other industries, covering the
majority of employers in Canada, fall under provincial jurisdiction.
Employment standards legislation gives mandatory minimum conditions of employment, governing areas such as hours
of work, overtime pay, minimum wages, holidays, vacations, equal pay for male and female employees, employee
benefit plans, leave, severance, and termination pay. There are exemptions for specified categories depending on the
jurisdiction. For example, supervisory or managerial employees are often exempted from provisions surrounding hours
of work and overtime pay. Labor laws in Canada are transparent, and do not allow discrimination between people
based on social class or gender.
Occupational health and safety laws are considered important in Canada, and employees have the right to refuse to
work in an unsafe place. Fines are imposed for failure to adhere to health and safety requirements. Termination
requirements differ across provinces.
An employee's entitlements are calculated based on his or her length of service. They range from one to eight weeks'
written notice of termination or pay in lieu of notice.
Performance
Effectiveness of the legal system
The country has performed well in international business rankings that evaluate the business environment and
economic freedom. The regulatory processes are favorable for foreign investors, with national laws providing freedom
to start, operate and close a business. Starting a business in Canada is far easier than in other nations, as it takes an
average of five days and one procedure, compared to the OECD average of 9.2 days and approximately five
procedures according to the World Bank's Doing Business 2015 report. The procedures needed to set up an enterprise
are less cumbersome and more transparent.
Canada's labor market is one of the most flexible in the world. It operates under flexible employment regulations that
enhance employment and productivity growth. The non-salary cost of employing a worker is moderate, and dismissing
a redundant employee is relatively costless. The labor laws do not necessitate retraining or replacement before firing a
worker. Canada has comparatively high income tax and a number of loopholes are exploited by residents to evade this.
The Canada Revenue Agency is the administrative agency for taxation.
Outlook
Canada has a comprehensive legal framework that ensures ease in doing business. The country offers a favorable
Legal Landscape
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business regime with ample business freedom, and is one of the most flexible labor markets in the world. Canada
provides a number of competitive advantages for foreign investment; however, it is restricted in some sectors such as
air transport, telecommunications and financial services. The liberalization of restricted sectors will create a large
number of business opportunities for investors. Business enterprises operating in Canada have to adhere to a number
of regulations at both the federal and the provincial level, which acts as a deterrent for investors. More often than not,
these regulations as well as the rate of taxes vary widely across provinces. The legal climate for business could
become more attractive if the federal and provincial governments agree to a uniform business legislation and taxation
regime.
Environmental Landscape
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ENVIRONMENTAL LANDSCAPE Summary
The Canadian government has taken many steps to establish mechanisms to meet the environmental challenges that
come with economic development. The focus of environmental policies has broadened from local and regional issues
to challenges of a global nature. Climate change, global biodiversity, ozone layer depletion and the transportation of
chemicals and hazardous waste are some of the areas that have appeared at the top of the country's environmental
agenda. The country has made some progress in meeting its domestic environmental objectives and international
commitments. Some advances have also been made in cutting air pollution, and policies have been created to reduce
emissions of greenhouse gases. However, the country's performance in preserving biodiversity, managing pollution,
increasing energy efficiency, and managing hazardous waste has been far from satisfactory. The country was not able
to achieve the emission reduction targets set under the first round of the Kyoto Protocol, which ran up to 2012; as a
result, Canada withdrew from the protocol in December 2011. Additionally, the government has taken a lenient view of
its emissions record and has instead embarked on the expansion of its oil production. This could be deleterious to the
environment.
Evolution
The Canadian government began to recognize the environment as a significant issue in the 1970s, when it participated
in a number of national and international debates. In 1971, the Department Environment Act combined different federal
environment entities into Environment Canada. Conservation received most of the attention of environmental
policymakers during the 1970s. The scope of environmental acts gradually widened throughout the 1980s, and many
ecological policies on land use, forestry, wildlife, heritage, chemicals, and water were brought into effect. It was during
this period that Canada began to explore the various options for sustainable development. During the 1990s, Canada
became a proactive member in a number of international negotiations. The country has ratified some important
environmental treaties and most of its domestic policies have centered on its international commitments.
Structure and policies
Environmental regulations
Some acts, such as the Canadian Environmental Protection Act, are intended solely to protect the environment from
pollution. Others, such as the Canada Wildlife Act and the Canada Water Act, focus on conservation. The Clean Air Act
takes a comprehensive approach to the problem of worsening air quality and greenhouse gas emissions. The
government has initiated a plan called Eco Action that will require major industrial sectors to tackle climate change and
help to clean the air. This is one of the main features of the government's comprehensive environmental agenda.
Canada EcoTrust for Clean Air and Climate Change has been designed to provide financial support to provincial and
territorial projects aimed at reducing greenhouse gas emissions and air pollutants. A series of new programs, such as
EcoFreight, have been launched that aim to reduce pollution caused by freight transportation. EcoFreight is made up of
six initiatives, two of which specifically focus on the trucking industry. The other initiatives involve air, rail, road, and
marine transportation. A freight technology demonstration fund has also been established, which provides cost-shared
funding and develops partnerships on shore-based power. In July 2011, the country also introduced a 2% renewable
Environmental Landscape
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fuels requirement for diesel fuel.
Water pollution is another area receiving attention from regulators. The federal government has jurisdiction over
fisheries, navigation, and federal lands. In a significant development in 2006, Environment Canada's Ice Service
assumed operational responsibility of the Integrated Satellite Tracking of Pollution (ISTOP) program to fight marine
pollution. ISTOP is a satellite surveillance program for the detection of possible discharges of oil due to marine
transportation and offshore oil production.
The Federal Sustainable Development Act, which became a law in 2008, requires the federal environment minister to
develop a Federal Sustainable Development Strategy (FSDS) every three years. The government prepared the first
FSDS for years 2010-13. In 2013, the government tabled a new Federal Sustainable Development Strategy to improve
environmental sustainability, which addresses four themes: addressing climate change and air quality, maintaining
water quality and availability, protecting nature and shrinking the environmental footprint—beginning with government.
The government has also reiterated Canada's commitment to protecting the environment and citizens against the
harmful effects of persistent organic pollutants. Furthermore, the government has implemented Renewable Fuels
Regulation, which requires an average of 5% renewable content in gasoline. In addition to the Renewable Fuels
Regulations, the government has also planned regulations to reduce greenhouse gas emissions from passenger and
heavy duty vehicles. The government plans to reduce total greenhouse gas emissions by 17% under the Copenhagen
Accord in 2009, which is a non-binding agreement unlike Kyoto Protocol.
Kyoto Protocol on climate change
The UN Framework Convention on Climate Change sets an overall framework for intergovernmental efforts to tackle
the challenge posed by climate change. It recognizes that the climate system is a shared resource, the stability of
which can be affected by industrial and other emissions of carbon dioxide and other greenhouse gases. The
convention has universal membership, with 192 countries having ratified it. However, Canada's image was badly
dented among environmentalists after the December 2009 climate change summit in Copenhagen. The Kyoto Protocol
was ratified by the previous Liberal government, but both Liberal and Conservative governments have done little to
meet greenhouse gas reduction goals. At the Bonn meeting in 2011, the Canadian government confirmed that it would
not support the extension of the Kyoto Protocol after 2012, joining Russia and Japan in rejecting any extension of the
global pact to control greenhouse gas emissions. In December 2011, Canada withdrew from the protocol. The
government has taken a lenient view of its emissions record and has embarked upon expansion of its oil production.
This could have a deleterious impact on the environment.
Environmental Landscape
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Performance
Environmental impact Among the developed countries, Canada's environmental performance has not been very good. The country had the
worst environmental record among the OECD countries after the US. It performs poorly in many environmental
indicators including sewage treatment, species at risk, greenhouse gas emissions, pesticide use and nuclear waste.
According to Environmental Performance Index 2014 published by the Yale University, the country ranks 104th out of
178 countries in conservation of forest. Additionally, per capita emissions per unit of GDP are one of the highest among
the OECD countries, which suggests of inefficiencies in the consumption of energy. Nevertheless, CO2 emissions fell
from 567.56 million metric tons in 2002 to 549.0 million metric tons in 2012.
Figure 27: Carbon dioxide emissions in Canada, 2003-12
0.0
5.0
10.0
15.0
20.0
25.0
500.0
520.0
540.0
560.0
580.0
600.0
620.0
640.0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
metric tons
Met
ric to
ns (m
illio
ns)
Year
Volume Emissions per capita
Source: Country Statistics, MarketLine M A R K E T L I N E
Outlook
The International Energy Agency (IEA) expects renewable energy capacity to expand by 22 GW, from 86 GW in 2012
to 108 GW by 2018, with the regions such as Alberta, Ontario and Quebec as the leaders. Wind energy is expected to
Environmental Landscape
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account for over 50% of the overall capacity addition in the renewables over the medium term. Nevertheless, lack of
binding renewable energy targets and few financial incentives act as impediments to growth of renewable energy.
Further, grid integration challenges in some provinces also remain a barrier for renewable energy production and
distribution. Policymakers should look to address the above mentioned challenges as this would foster renewable
energy growth and reduce Canada's carbon footprint.
Appendix
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APPENDIX Ask the analyst
MarketLine's Country Analysis Practice consists of a team of economists, analysts, and researchers, all with expertise
in their given fields. For any questions or comments about this report you can contact the author directly at
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Appendix
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