1
Mario Ste-MarieA/Assistant Deputy Minister
Investment, Science & TechnologyInternational Trade Canada
October 18, 2005
Panel Discussion on Transatlantic Investment
Experiences:The Impact of EU Enlargement and
Canada as a Gateway to North America
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Key issues for discussion
Explore recent Canadian Direct Investment trends in the Enlarged EU in the context of global developments
Highlight major advantages of Canada as North America’s gateway for businesses from the EU
3
Patterns of International and Canadian Direct
Investment in the European Union
4
EU is increasingly important as a destination of global FDI
Global Inward FDI Stock by Geographic Area (%)
Others
Asia & Oceania
Latin America
EuropeanUnion
NorthAmerica
Source: IPS compilations based on data from UNCTAD
In recent years, the EU has made substantial gains in attracting FDI, largely at the expense of North America.
42% 42%38%
45%
26% 29%
25%20%
14%16%
22% 19%
8%7% 9% 8%
10% 6% 6% 7%
0%
20%
40%
60%
80%
100%
1980 1990 2000 2004
EU (15) EU (15) EU (25) EU (25)
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Large developed EU economies attract most of inward FDI
Share of EU Inward FDI Stock by Member State (%), 2004
* EU 10 New Member StatesSource: IPS compilations based on data from UNCTAD
Mostly large and developed EU economies account for the bulk of inward FDI stock in the EU.
The 10 New Member States (NMS) in the Enlarged EU together held under 6% of the EU’s total FDI stock in 2004.
Poland, Hungary and the Czech Republic are the dominant destinations of international FDI in the NMS (77%)
1.4%
1.6%
1.6%
2.4%
4.1%
5.5%
5.7%
5.7%
8.6%
8.7%
10.7%
11.0%
13.3%
19.2%
0.7% Greece
Finland
Austria
Portugal
Denmark
Sweden
Italy
Ireland
EU NMS*
Spain
Germany
Netherlands
Belg. & Lux
France
United Kingdom
Distribution (%) ofInward FDI Stock in EU 10
New Member States (NMS), 2004
Poland26.7%
Hungary26.3%
Czech Republic24.6% Slovakia (6.3%)
Estonia (4.1%)
Cyprus (3.5%)
Lithuania (2.8%)Slovenia (2.2%)
Latvia (2.0%)
Malta (1.5%)
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Low FDI per capita in NMS suggests strong potential to attract FDI
Source: IPS compilations based on data from UNCTAD
EU1583.6%
10NMS16.4%
EU population distribution
(2003)
1,439 1,4401,897 2,162 2,334
4,0094,345
4,920
6,3167,091
8,781
1,351
FDI per capita by country ($)
(2003)
Per capital FDI in NMS is substantially below the levels achieved in the EU-15 countries, on average.
Potential for NMS to attract FDI from within Europe in the near future is very promising, especially for cost competitiveness reasons
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Canada is the third largest non-EU investor in the region
Source: IPS compilations based on data from EUROSTAT
Distribution of Inward FDI Stock in the EU from Extra-EU Investing Countries
2002 (%)
0.4%
1.3%
1.3%
1.3%
2.5%
5.2%
6.2%
13.0%
54.2%
0.4%Russian Federation
South Africa
Australia
Hong Kong (CN)
Singapore
Norway
Japan
Canada
Switzerland
United States
The bulk (about 70%) of investment in the EU originates from within the member countries.
In 2004, Canada was the 3rd largest foreign direct investor in the EU among non-EU investors, following the United States and Switzerland
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21% 21%27%
61%50% 44%
0%
20%
40%
60%
80%
100%
1990 2000 2004
EU is also an increasingly important destination of Canadian Direct Investment Abroad (CDIA), largely in traditional markets
0.2%
0.5%
0.6%
0.9%
1.2%
1.4%
1.9%
3.9%
7.4%
8.5%
8.8%
9.2%
17.4%
37.3%
0.2%Denmark
Greece
Portugal
Austria
Luxembourg
Italy
Spain
Sweden
Belgium
Germany
Hungary
France
Netherlands
Ireland
United Kindom
Distribution of CDIA Stockby geographic Area (%)
EU
US
Others
Source: IPS compilations based on data from Statistic Canada
Distribution of CDIA Stock in the EU-25by country, Top 15
2004 (%) EU has been attracting an increasingly larger share of CDIA since 2000, largely at the expense of the traditionally important U.S. market (21% to 27%)
U.K. and Ireland have attracted over one-half of Canada’s direct investment in the EU.
Hungary is the only significant destination of CDIA among the three major NMS (Poland, Hungary and Czech Republic).
29%29%18%
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CDIA is the dominant mode for accessing the EU market
34
71
AffiliateSales
Exports
366
192
AffiliateSales
Exports
Sales of Foreign Affiliates of Canadian MNEs versus Canadian Exports:
EU versus the U.S., 2003 ($Billion)
European Union
United States
Source: IPS compilations based on data from Statistics Canada
Investment is preferred to trade as a commercial strategy for delivering Canadian goods and services to the EU.
In contrast, trade dominates investment as a means of serving the U.S. market.
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Key Points
Marked shift in global FDI to EU since 2000, largely going to developed EU-15
The NMS, most notably Poland, Hungary and Czech Republic, have made impressive gains in attracting FDI
Trend is likely to accelerate as more developed European economies look to invest in NMS to improve cost competitiveness
Canada is the third largest investor in EU among non-EU countries with CDIA diversifying from the U.S. to the EU and other regions since 1990
Although most CDIA in EU is still headed to “Old Europe”, Hungary has attracted a significant share of CDIA – more understanding of this phenomenon is needed
Investment in EU is the preferred mode by Canadian businesses serving the EU market
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Canada:
A Gateway to North America for the European Union
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Canada enjoys strong trade and Investment linkages with the United States
2-way trade in goods and services = CAN$680 billion in 2004.
Averages over CAN$1.3 million dollars a minute in trade.
Canada and the U.S. investment stock between the two countries totaling CAN$432 billion in 2004.
The U.S. trades more with Canada than with all of the countries of the E.U. combined!
Canada - U.S. Trade in Goods & Services($CAN Billions)
U.S. to Canada
Canada to U.S.
0
200
400
600
800
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Canada - U.S. Direct Investment Stock($CAN Billions)
U.S. to Canada
Canada to U.S.
0
100
200
300
400
500
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
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U.S. is the major export destination of Canada-based EU firms
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83
83
87
88
89
91
93
95
0 20 40 60 80 100
Australia
Netherlands
New Zealand
France
United Kingdom
Sweden
United States
Japan
Germany
Percentage of Canadian Exports to the U.S. by Country of Control of Exporting Firms, 2002 (%)
Source: IPS compilations based on data from Statistics Canada
EU-controlled firms in Canada account for almost a quarter of Canadian merchandise exports to the U.S. by foreign companies.
The overwhelming proportion of exports (95%) by German-controlled firms and more than 80% of exports by other major EU-controlled firms in Canada are destined for the U.S. market.
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Why Do EU Firms Invest in Canada?
Canada offers a First Rate Business Environment: Easy Access to Markets
• Geography and NAFTA provide easy access to the world’s most prosperous market
Excellent Economic Fundamentals
• Overall government budget in surplus
• Low inflation and low interest rates
A Cost-Competitive Business Environment
• Low overall business costs
• Competitive tax system (particularly for R&D)
An Energetic and Welcoming Infrastructure
• Ease in establishing a new business
• The world’s best-educated workforce
• Strong technological environment
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Smarter BordersSmarter Borders
January 1994 – North America Free Trade Agreement establishes world’s largest free trade area giving Canada direct access to over 400 million people with a combined GDP of over US$11.4 trillion.
A secure flow of goods and people at the border is a key priority for both Canada and the United States.
December 2001- Canada and the USA signed a declaration to build a Smart Border for the 21st Century to accommodate the growth in trade and commerce
March 2005 – Security and Prosperity Partnership for North America calls for common border security and improved regulatory cooperation and collaborative energy and transportation infrastructure.
Canada - US Border: Secure and Efficient
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Canada’s Sectors Offer EU Companies Canada’s Sectors Offer EU Companies Considerable Potential for Growth:Considerable Potential for Growth:
Information and Technology 32 000 ICT firms; work force of 545 000, 38% university degrees
Medical Devices 22, 000 employees $2 B in exports in 2003 Strengths – cardiovascular/radiation therapy equipment/medical imaging
Automotive a North American integrated auto industry; 8th largest in the world; employs half a million workers
Energy - Natural Resources Oil and gas Wind energy
Canadian Growth SectorsCanadian Growth Sectors
A
B
C
D
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Conclusion
Canadian and EU companies share the same preferred commercial strategy to access each others markets:
To serve the EU, Canadian companies are investing in the EU
To serve North America, EU companies invest in Canada as the gateway to North America
TIEA has the potential to improve prospects for investors in both directions (regulatory cooperation and investment)
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Mario Ste-MarieA/Assistant Deputy Minister
Investment, Science & TechnologyInternational Trade Canada
111 Sussex DriveOttawa, Ontario
K1A 0G2www.investincanada.com