Article – I’ve stepped away from my usual tech beat this week to tackle something that’s been keeping economists up at night: Canada’s business investment problem. And folks, it’s not looking pretty.
Last month, I sat across from Karen, a manufacturing plant manager in Mississauga who had just shelved plans for a $3.5 million equipment upgrade. “The numbers just don’t work right now,” she explained, gesturing toward spreadsheets showing climbing borrowing costs. Her story isn’t unique.
Business investment in Canada has been sluggish for years, but recent economic data shows we’ve moved from concerning to crisis territory. According to the Public Policy Forum, business investment has dropped by a staggering 20% since 2014 when measured as a share of GDP. Even more troubling, Canada ranks dead last among 34 advanced economies tracked by the OECD for business investment growth over the past decade.
“We’re essentially witnessing a slow-motion economic heart attack,” explains Sean Speer, Fellow at the Public Policy Forum and co-author of a detailed report on the investment crisis. “When businesses stop investing in expansion, productivity gains disappear, and future economic growth gets choked off.”
The investment drought extends across multiple sectors. Manufacturing, resources, and even our much-touted tech industry are showing symptoms. While the United States saw record-breaking business investment in 2022, Canadian companies have been sitting on accumulated cash reserves — what economists have dubbed “dead money.”
Bank of Canada data reveals that Canadian corporations are holding approximately $680 billion in cash, roughly 30% of Canada’s annual GDP. That’s capital not being invested in the future productivity of our economy.
So what’s behind this investment strike? There’s no single villain, but rather a perfect storm of factors.
First, Canada’s regulatory burden has become increasingly complex and unpredictable. Project approvals in sectors from energy to transportation can take years longer than in competing jurisdictions. A mining executive who spoke on condition of anonymity put it bluntly: “Why invest here when I can get a similar project approved in half the time elsewhere?”
Second, persistent skills shortages have companies questioning expansion plans. Statistics Canada surveys consistently show that inability to find qualified workers ranks among the top concerns for business leaders considering growth investments.
Third, higher interest rates have dramatically changed investment calculus. While the Bank of Canada’s aggressive rate hikes were necessary to combat inflation, they’ve made the hurdle rate for new investments significantly steeper. Projects that made financial sense at 2% interest often fall apart at 5-6%.
The productivity implications are particularly concerning. Canada’s productivity gap with the United States has widened to nearly 25% — meaning the average Canadian worker produces about three-quarters the economic output of their American counterpart. Without significant investment in automation, technology, and skills, that gap will only widen.
“Investment is the bridge between today’s economy and tomorrow’s prosperity,” notes Carolyn Wilkins, former Senior Deputy Governor at the Bank of Canada. “When businesses aren’t building that bridge, we have a structural problem, not just a cyclical one.”
Some industries have bucked the trend. Clean energy has seen growing investment, with nearly $13 billion committed to new projects in 2023. But this positive story remains the exception rather than the rule.
The federal government has attempted to address the issue through initiatives like the Canada Growth Fund and expansion of scientific research tax credits. However, business leaders I’ve spoken with suggest these measures aren’t addressing the fundamental challenges around regulatory complexity and economic competitiveness.
“Tax incentives are helpful, but they don’t solve the underlying question of whether Canada is a globally competitive place to deploy capital,” explains Michael Denham, former CEO of the Business Development Bank of Canada.
Provincial responses have varied. Alberta has aggressively cut corporate taxes and red tape in an attempt to stimulate investment, while Ontario has focused on sectoral strategies in areas like electric vehicle manufacturing. The results remain mixed, with regional investment patterns showing significant disparities.
From my conversations with dozens of business leaders across the country, what’s clear is that confidence has become a critical factor. Businesses don’t invest when they lack confidence in future demand, regulatory predictability, or economic stability.
For average Canadians, this investment drought has real consequences. When businesses don’t invest in productivity-enhancing equipment and technology, wage growth stagnates. When companies choose to expand elsewhere, job creation suffers. And when existing facilities age without replacement, our economic competitiveness steadily erodes.
The path forward isn’t simple, but economic experts suggest several priority areas. Regulatory modernization tops most lists, with calls for transparent timelines and simplified approval processes. Immigration reform focused on skills alignment could help address persistent labor shortages. And tax policy that rewards productive investment rather than passive holding of capital could shift corporate behavior.
Perhaps most importantly, Canada needs a cohesive economic vision that extends beyond electoral cycles. Business investment decisions often look 10-15 years into the future, far beyond the horizon of most political planning.
As I was finishing this piece, I checked back with Karen from the Mississauga manufacturing plant. She’s still waiting to pull the trigger on that equipment upgrade. “We want to grow here,” she told me. “But right now, the math and the uncertainty just don’t support it.”
Until Canada solves its investment puzzle, stories like hers will continue to multiply – and our economic future will remain in question.
