Recent FDI Trends and DFAIT’s FDI Results

Presented by:David Hartman, Director Investor Services Division (DFAIT)C-11 Meeting, October 4

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OBJECTIVES

Examine recent global FDI trends

Review FDI trends in Canada

Report on highlights of DFAIT’s results for FY2010-11

Present conclusions and discuss outlook

Despite a recent sharp drop in global investment flows,FDI remains the main engine of globalization

5.7%

8.4%

8.7%

12.9%

GDP

Export -goods

Export -services

FDI inflows

Average annual growth of global commerce activities, (%)

1990-2010

3

Source: BIA compilations based on data from UNCTAD

FDI Sources: Developed economies remain the main sources but emerging economies are becoming more important

Cumulative FDI Outflowsby region (%)

Asia and Oceania

Latin America

Europe

North America

Others

2006-20101996-2000

Cumulative FDI Outflows by countryTop 15 countries, 2006-2010

Top Sources

4Source: BIA compilations based on data from UNCTAD

5

FDI Destinations: The shift of FDI inflows toward emerging economies continue with the BRICs as key destinations

Cumulative FDI Inflowsby region (%)

Asia and Oceania

Latin America

Europe

North America

Others

2006-20101996-2000

Cumulative FDI Inflows by countryTop 15 countries, 2006-2010

Top Destinations

Source: BIA compilations based on data from UNCTAD

6

Over the last decades, there has been a significant shift toward FDI in services

Services(54.3%)

Manufacturing(41.2%)

Primary(4.5%)

Services(67.7%)

Manufacturing(22.1%)

Primary(10.3%)

Share of global inward FDI flowsby major economic sectors (%)

1990-1992

2007-2009

Source: BIA compilations based on data from UNCTAD

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While FDI in Canada has grown in absolute terms, we have lost ground in relative terms over the last decades

Net FDI inflows in Canada

Bill

ion

$C

an

Canada’s share of global FDI inflows

5 years moving average

Actual flows

Source: BIA compilations based on data from UNCTAD and Statistics Canada

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Strong inflows in Canada over the recent period stems from large investments in the natural resources sector

Distribution of cumulative FDI inflows in Canada by sectors

Energy and metallicminerals

All other sectors

- 37%

+ 37%

1381

793

598

458

418

348

302

266

261

256

207

206

200

172

165

162

159

152

135

133

120

United States

United Kingdom

China

Belgium

France

Hong Kong

Canada

Russia

Germany

Spain

Netherlands

Brazil

Australia

Virgin Islands

Singapore

India

Mexico

Saudi Arabia

Italy

Sweden

Canada

Canada - 7th, (total FDI)

Canada – 21st,

(Excluding FDI in Energy and

metallic minerals)

Top recipients of global FDI Inflows: Cumulative FDI inflows

2004-2010, US$ billion

Source: BIA compilations based on data from UNCTAD and Statistics Canada

While the U.S. and Europe still account for the majority of FDI stock in Canada, other countries are making important gains

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Share of Top 10 source countries of Canada’s Inward FDI stock in

2010

Total FDI Stock 2010: $561.6 billion

United States (54.5%)

Netherlands (9.2%)

Switzerland (3.6%)

UK (7.5%)

France (3.4%)

Japan (2.8%)

China (2.5%)

Brazil (2.4%)

Luxembourg (2.0%)

Germany (1.8%)

Others (10.2%)

Distribution of FDI stock, 2000 and 2010, by major regions, (%)

Others

Europe

United States

61% 55%

34%31%

6%15%

2000 2010

Source: BIA compilations based on data from Statistics Canada

1010

Trends in Foreign Investment

Projects

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Total number of foreign investment projects globally

Source: BIA compilations based on data from FDI Intelligence, Financial Times.Note: Estimated values on August 15, 2011, for all projects.

Total value of foreign investment projects globally (US$ Billion)*

Greenfield/expansion investment projects up globally but still below peak of 2008

• After a sharp decline in 2009, the number of investment projects worldwide increased by 2% in 2010.

• Conversely, investment projects globally fell 16% in value terms in 2010.

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Total number of foreign investment projects in Canada

Total value of foreign investment projects in Canada (US$ billion)

• Foreign investment projects in Canada rose by 20% in numerical terms and fell by 11% in value terms in 2010.

Number of foreign investment projects in Canada has increased over previous year

Source: BIA compilations based on data from FDI Intelligence, Financial Times.Note: Estimated values on August 15, 2011, for all projects.

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Source: BIA compilations based on data from FDI Intelligence, Financial TimesNote: Estimated values on August 15, 2011, for all projects.

Recently, Canada has gained ground in attracting foreign investment projects…

Canada’s share of foreign investment projects globally (number and value)

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DFAIT’s FDI Results

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Greenfield projects accounted for the majority of DFAIT-facilitated foreign investments

Source: DFAIT’s internal reporting system

= Companies identified by post as being potential investors, based in part on assessments in SIIS

= Targets who have confirmed their desire and capacity to invest abroad

Prospects

Targets

Leads

= Leads who have shortlisted Canada and whose investment decision is imminent

Investor Attraction Funel

FY2010-11

Outcome

= Greenfield Investments (104) + Expansions (41) + Acquisitions (22)

509

167

1260

1032

16

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154

150

99 105

145

8364

489

22

FY2006-07 FY2007-08 FY2008-09 FY2009-10 FY2010-11

Greenfield/Expansions M&As

237

214

147

114

167

In FY2010-11:

DFAIT helped attract: 145 greenfield/expansions (focus of FDI

attraction program) 22 mergers and acquisitions

Impact on the Canadian economy (excluding acquisitions):

$7.1 billion investment (total for 52% of companies reporting to DFAIT or in public sources)

4,252 jobs (61% of companies reporting)

The DFAIT performance in FY2010-11 was up 38% and was relatively robust given only…

2% increase in number of greenfield/expansion projects globally in 2010

4.9% increase in worldwide FDI inflows in 2010 9.4% increase in overall inward FDI flows to

Canada in 2010

Greenfield/expansion investment projects facilitated by DFAIT have increased over last year

Number of foreign investment projects in Canada facilitated by DFAIT, by fiscal year

Source: DFAIT’s internal reporting system

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In the past five years:

Total number of investments facilitated by region:525 Europe (60%)196 Asia (22%)158 Americas (18%)

Foreign investment has risen in all regions in FY2010-11

Europe was the biggest source of investments facilitated for each of the last five years

Source: DFAIT’s internal reporting system*Brazil accounted for 1 investment in FY2010-11 Note: Non-priority markets accounted for 5 investments in FY2010-11: Mexico (2) , Ireland (2) and Portugal (1). Represents acquisitions

3120 14

2737

06-07 07-08 08-09 09-10 10-11

Americas

107

71

104

119124

1815

26

6770

42

28

17

28

43

*

Number of foreign investment projects in Canada facilitated by DFAIT, by region

All regions increased their number of DFAIT-facilitated foreign investment projects in FY2010-11

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39 Manufacturing: Machinery equipment (11)

Aerospace & Defence (16)

30

Automotive (12)

ICT Software (13)

Digital media (6)

Wireless communications (4)

Other (7)

24 Business, Financial & Professional Services

16 Clean Technology Renewable-energy technologies (15)

Environmental technologies (0)

Other (1)

7 Life Sciences Biopharmaceutical (4)

Medical devices (3)

7 Agrifood

6 Plastics & Chemicals

16 Non-priority sectors

145 TOTAL

In FY2010-11:

DFAIT helped attract 145 greenfield investments and expansions:

Foreign investment projects in Canada (excluding acquisitions)

facilitated by DFAIT, by sector

Source: DFAIT’s internal reporting system

All investments by sector increased over last year, except for Agrifood & Clean Technology

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Two largest provinces received the vast majority of investments in FY2010-11 (78%).

Ontario’s investments increased significantly by 148% over the previous year.

Number of foreign investments in Canada (excluding acquisitions) facilitated by DFAIT, by

destination

Source: DFAIT’s internal reporting systemNote: No Greenfield/Expansion investments were facilitated in Prince Edward Island, Nunavut, Yukon or the Northwest Territories.

DFAIT facilitated foreign investments were highest in Ontario and Quebec

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DFAIT’s results: key conclusions

It was a successful year for DFAIT facilitated investments, following the global economic downturn

Final results for FY2010-11 indicate 145 DFAIT facilitated greenfield and expansions investment projects - an increase of 38% from the previous fiscal year.

The investment projects had a value of $7.1 billion (52% of companies reporting), compared to $1.1 billion in the previous fiscal year – an increase of $6.0 billion.

One of those projects included a German company, K+S AG, which invested $2.5 billion in Saskatoon, SK.

These projects created an estimated 4,252 jobs (61% of companies reporting), compared to 3,082 jobs the previous year – an increase of 1,170 jobs.

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FDI Outlook

According to the UNCTAD World Investment Report 2011:

– Global FDI inflows rose a modest 4.9% to US $1.2 trillion in 2010, following a 32.1% decrease in 2009. However, FDI flows in 2010 were still 37% below their peak 2007 level of nearly US$ 2 trillion.

– Looking forward - under an optimistic scenario - global FDI inflows are projected to rise to $1.5 trillion in 2011, $1.7 trillion in 2012 and $1.9 trillion in 2013.

– Under the - increasingly probable - pessimistic scenario, global FDI inflows are projected to stagnate at around $1.2 trillion.

As indicated by FDI intelligence, FDI projects globally in 2010 increased by 2% and fell by 16% in terms of the number and value of investments, respectively. For the first half of 2011, greenfield/expansion projects were the same as the first half of last year, suggesting stagnating growth.

The economic outlook for Canada appears good, and bodes well for FDI:– The Economist Intelligence Unit continues to rank Canada as the best place to do business

in the G7 over the next five years (2011-2015)

– According to the IMF, Canada, along with Germany, are projected to have the fastest growth in the G7 in 2011 and 2012.