Attracting FDI Toward Canada's Digital Economy

Foreign Direct Investment (FDI) is recognized by governments and the business community as an important contributor to prosperity and economic wellbeing. FDI contributes to sustainable economic growth through technology transfer, increased competition in local markets, and by facilitating regional and global supply chain integration of small and medium sized enterprises (SMEs). During the early days of pandemic, global FDI flows shrank, but they quickly and significantly rebounded. In 2021, global FDI was up 77% compared to 2020 and even surpassed pre-COVID-19 levels. Regionally, North America saw one of the highest annual growth rates in FDI inflows. FDI inflows to North America, Asia, and EU increased by 120%, 18%, and 8% respectively. This significant growth of FDI inflows is largely attributed to the recovery of the Information and Communication Technology (ICT) sector. Foreign direct investment in Canada saw similarly impressive growth in 2021, with an annual gross inflow of over $75 billion—a level last surpassed in 2007—and second only to the U.S. among OECD (Organization for Economic Co-operation and Development) member countries.

Compared to previous economic crises, COVID-19 caused much more severe damage to the overall Canadian economy. Year-over-year, Canada’s GDP dropped 5.2% in 2020 compared to the 3.2% decline of the 2008 financial crisis. At the same time, COVID-related lockdown measures led to disruptions in global supply chains, and both the goods-producing and service-producing sectors registered record declines in 2020—a contraction of 6.1%, and 4.9%, respectively. Although GDP staged a comeback and posted 4.6% growth a year later in 2021, the digital economy remained resilient and even thrived throughout the pandemic. The ICT sector, the backbone of the digital economy, expanded by 1.6% in 2020 and 4.7% in 2021. Sectors that have adopted digital technologies and networks more aggressively (digitally intensive sectors) experienced much smaller (if any) negative impacts from the pandemic and recovered faster compared to non-digitally intensive sectors.

The pandemic-accelerated digitalization across all industries has also created significant market growth potential, increasing Canada’s ability to attract FDI toward its digital economy. Yet, unlocking such market growth requires more robust and accessible digital infrastructure, which by itself is an important pull factor for FDI attraction.
 

COVID-19 caused shockwaves across the global economy, and Canada was not spared the landslide of economic downturn and job loss that impacted countries around the world. However, as the nation emerges from the pandemic and countries around the world enter recovery and rebound, investment will play a central role. Canada's appeal attracts millions of visitors each year. Its stable political system, high quality of life, and plethora of natural beauty are all factors that make Canada a top travel destination and a highly desirable new home for people from around the world. Coupled with a growing digital economy, Canada is presented with an unprecedented opportunity to attract FDI, enabling it to truly build back better.