Foreign control of the Canadian economy 2006

Statistics Canada has released the latest data on foreign control of the Canadian economy. It makes for very interesting reading. This was once a burning issue during the era of Walter Gordon, Lester Pearson, Pierre Trudeau, David Lewis and the leaders of the nationalist faction of the NDP,and the waffle during the 1960s, 70s and early 1980s. The past decade of free trade and globalization have overwhelmed the opposition to foreign control as we have moved closer and closer toward full continental integration. Both the key manufacturing and strategic petroleum sectors are sectors with a high concentration of foreign ownership and control. Canada remains the most heavily foreign controlled economy in the G8 and the issue is still relevant as we find it difficult to excercise macro-policy and employment policy in particular effectively. Hence the following report which brings us up to date or at least up to 2004 on this key issue is worth reading. Friday, June 2, 2006 Foreign control in the Canadian economy 2004 Previous release The share of foreign control in the Canadian corporate economy remained stable in 2004, despite strong growth in both assets and revenues of foreign-controlled corporations. Foreign-controlled corporations accounted for 21.9% of assets held in Canada, and 30.0% of operating revenues. Despite the odd fluctuation, these shares have remained fairly stable ever since the post-recessionary period of the mid-1990s. Assets of foreign-controlled corporations rose a healthy 8.3% to $1.1 trillion in 2004, while those of Canadian-controlled corporations jumped 8.9% to $3.9 trillion. This follows more moderate growth rates of 5.7% for Canadian-controlled corporations, and 1.5% for foreign-controlled corporations in 2003. Foreign-controlled revenues increased 6.7% in 2004 to just shy of the $800-billion mark, nearly double the level of a decade earlier. The global boom in mergers and acquisitions activity during the 1990s contributed to this rapid increase. Note to readers The Corporations Returns Act is administered by the Chief Statistician of Canada under the authority of the Minister of Industry. The purpose of the Act is to collect financial and ownership information on corporations conducting business in Canada and to use this information to evaluate the extent and effect of non-resident control of the Canadian corporate economy. The Act requires that an annual report be submitted to Parliament summarizing the extent to which foreign control is prevalent in Canada. The document being released today is that report for reference year 2004. Asset-based measures of foreign control provide a longer-term perspective, reflecting economic decisions and market conditions that evolve more slowly over time. Revenue-based measures tend to reflect current business conditions and therefore, tend to be more volatile than asset-based measures. Both are of interest and both have been included in this report. Of the nearly 1.3 million corporations doing business in Canada in 2004, all but about 8,000 were Canadian-controlled. In other words, less than 1% were foreign-controlled, a proportion that has changed little over time. However, foreign-controlled corporations tend to be much larger. In 2004, their operating revenues averaged $96 million, compared with less than $2 million for their Canadian-controlled counterparts. Record profits for foreign-controlled firms Foreign-controlled profits soared to a record $68 billion in 2004, up a staggering 21.7% from the previous year. Domestic-controlled profits also rose, although at a more moderate rate of 11.8%. Much of these gains, in both cases, came on the strength of the manufacturing sector, where profits rose 36.2%. This was the second straight year that corporate profits were on the rise. Furthermore, in 2004, they hit an all-time high of $217 billion, eclipsing the old mark of $192 billion set in 2000. Between 2002 and 2004, foreign-controlled corporations led the way with a 38.6% surge in profits, compared with a 22.4% gain for Canadian-controlled corporations. Manufacturing on the rebound; oil and gas assets up Manufacturing rebounded in 2004 from a weak performance the year before when the economy was hit by events such as forest fires and a power outage. Operating revenues for manufacturers rose by $43.1 billion in 2004. Half that growth came from foreign-controlled corporations. Manufacturing enjoyed a surge in profits, with foreign-controlled profits rising by $5.7 billion and those of Canadian-controlled corporations up by $6.2 billion. This is an industry which has 50.3% of its assets under foreign control. Oil and gas was second only to manufacturing in terms of share of assets under foreign control. Foreign-controlled corporations accounted for 44.9% in 2004, and Canadian-controlled corporations 55.1%. Escalating oil prices and large investments in non-conventional oil sources have combined to boost Canada's energy sector, placing it among the world leaders. In 2004, oil and gas assets rose by $34 billion, the equivalent of 13.5%, with the bulk of the increase occurring in the Canadian-controlled portfolio. United States still by far the biggest foreign player Among foreign-controlled corporations operating in Canada, the United States continued to be the dominant force by a wide margin. American-controlled firms held 61.0% of foreign-based assets and generated 62.6% of foreign-based revenues. Well back of the United States were the United Kingdom, which accounted for 12.0% of foreign-based assets and 7.0% of foreign-based revenues, and Germany, with 6.5% of foreign-based assets and 6.9% of foreign-based revenues. Despite this dominance, the United States has seen a decline in its share of revenues, particularly in the financial sector, in recent years. In 2004, US-controlled corporations accounted for 45.0% of foreign-controlled revenues generated in the financial sector, a steep drop from 56.3% in 2002. On the plus side, corporations under British control and Dutch control recorded a gain in their shares. Available on CANSIM: table 179-0004. Definitions, data sources and methods: survey number 2503. The report Corporations Returns Act, 2004 (61-220-XIE, free) is now available online from the Our products and services page of our website. For more information, or to enquire about the concepts, methods or data quality of this release, contact David Sabourin (613-951-3735) or Stewart Taylor (613-951-9212), Industrial Organization and Finance Division.