Canadian Manufacturing

Business investment picks up in Canada: C.D. Howe Institute

Projections for 2012 show Canadian businesses set to invest more per worker than OECD average

Toronto—Business investment in Canada is picking up relative to its international peers, but underlying problems remain, according to a report released by the C.D. Howe Institute.

In From Living Well to Working Well: Raising Canada’s Performance in Non-residential Investment, authors Benjamin Dachis and William B.P. Robson identify widely divergent performances by provinces and a surge in the flow of funds to the residential sector away from the non-residential sector as problems to be addressed by policy reforms.

“Policies that enhance competition and remove biases against non-residential investment could boost capital spending by businesses and improve Canadian workers’ prospects for higher incomes,” said Dachis, senior policy analyst with C.D. Howe.

The authors compare business investment in plant and equipment per worker in Canada with that of its Organisation for Economic Co-operation and Development (OECD) peers and the United States.

Projections for 2012 show that Canadian businesses are set to invest more per worker than the OECD average—105 cents per dollar across the group.

Dachis and Robson calculate that, in 2012, Canadian business investment per worker will rise to 91 cents per dollar invested in the United States, up from an average of 85 cents during the previous decade.

But they note Canada’s relative improvement owes much to out-performance by resource-rich provinces, while Central Canada and the Maritime provinces are struggling.

Another troubling trend, according to the report, is residential construction’s share of total business capital spending has risen to almost two-fifths (37 per cent) since 2009, with the share of non-residential investment in factories and equipment declining over this period.

“While residential construction has been a welcome support to Canadian demand and output since the crisis, policies that favour it may exact a longer-term cost by crowding out non-residential capital investment,” Robson said in a statement.

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