Foreign Direct Investment Monitor

Foreign Direct Investment Monitor June 2002 Todd Evans, Senior Economist, EDC Economics 5HDOL]HÃDÃ:RUOGÃRIÃ2SSRUWXQLW\ Please visit our website at www.edc.ca/economics Ce document existe également en version française

Contents 1. Introduction page 2 2. Global Trends: Foreign Direct Investment Inflows page 3 3. Global Trends: Foreign Direct Investment Outflows page 7 4. Recent Developments in Canadian FDI page 8 5. Foreign Direct Investment in NAFTA page 11 APPENDICES 1: Relationship Between Foreign Direct Investment and Trade page 12 2. Statistical Overview page 13 Todd Evans, EDC Economics - June 2002 1

Ã,QWURGXFWLRQ A downturn in the international business environment and increased investor uncertainty resulted in a significant drop in global foreign direct investment (FDI) flows during 2001. The final months of the year brought even greater uncertainty and risk as the tragic events of September 11 put up a headwind to international trade and global capital flows. Cross-border FDI is not expected to rebound in 2002 rather, FDI flows are projected to stabilize over the next 12 to 18 months before resuming their long-term upward trend. While the consequences of September 11 will have a negative impact on FDI over the short term, the long-term impact is expected to be minimal. Already, tensions have eased and investors have shed some of their risk aversion. Surveys indicate multinational corporations have become more cautious but companies continue to carry out their long-term investment plans. Global GDP growth averaged around 2 per cent in 2001, well below the long-term average of 3.5 per cent. The slowdown in global economic activity during 2001 was matched by a significant drop in crossborder capital flows. Global FDI inflows fell by 40% in 2001 to an estimated $US 760 billion the first drop since 1991 when much of the world was in recession or experiencing an economic slowdown. A reduction in merger and acquisitions (M&A) was the primary factor behind last year s drop in FDI. The past 18 months have been characterized by a collapse in technology investment, falling equity markets and a widespread economic slowdown covering industrialized countries and emerging markets alike all of which contributed to a decline in M&A activity. Although a global economic recovery should be well underway by the end of 2002, a number of financial and economic stresses are expected to linger. Many emerging markets are coping with considerable economic and political difficulties. Corporations in most industries also suffer from significant excess global capacity, which negatively impacts pricing power and profitability. Such deflationary pressures are very difficult for companies to deal with, as profits become increasingly dependent on cost reductions. The next year is therefore likely to see a continuation of corporate restructuring defensive investment spending designed to reduce labour costs and the economic recovery may be largely jobless as a consequence, like in 1991-93. The most vigorous restructuring efforts will occur where deflationary pressures are the strongest in Japan but no country will be exempt from the need to restructure. Excess industrial capacity provides a strong basis for rationalization and corporate restructuring but reduces the need for investment in new plant and equipment, a factor that may actually temper crossborder investment flows this year, particularly those related to new greenfield projects. Over the longer term, stable economic growth in the industrialized countries and more stability in the emerging markets provide an environment conducive to increased FDI. In addition, on-going liberalization continues to reduce the barriers to cross-border investment. Todd Evans, EDC Economics - June 2002 2

Ã*OREDOÃ7UHQGVÃ)',Ã,QIORZV Slower economic growth, declining corporate profits and less M&A activity all contributed to the drop in cross-border FDI flows over the past year. Worldwide FDI inflows amounted to an estimated $US 760 billion in 2001, a 40% drop from the record $US 1.3 trillion reached during 2000. The drop in FDI in 2001 reverses much of the increase experienced during 1999 and 2000. The recovering global economy suggests worldwide FDI flows should gradually stabilize over the course of 2002 and 2003. Nevertheless, current levels of M&A suggest a further sizable contraction in cross-border investment could be seen this year, perhaps as much as 15 to 20%. A decline in the value of M&A activity is behind much of last year s decline in cross-border investment. Worldwide M&A activity peaked in early 2000 and has been declining ever since (Chart 2). The value of cross-border M&A rose from less than $US 75 billion in 1987 to $US 1.14 trillion in 2000. In 2001 however, cross-border M&A activity was estimated at around $600 billion. Following the large contraction in 2001, the value of M&A is expected to weaken a little further over the next couple of years. Weakness in global equity markets, particularly for technology companies, is curbing M&A activity since the decline in share prices has restricted the ability of companies to finance new acquisitions (much of the corporate mergers and acquisitions seen over the past 3 years or so were equity financed). Potential mergers and takeovers have also come under greater shareholder scrutiny due to problems associated with several high-profile mergers. Developed countries continue to dominate global FDI flows due largely to M&A activity between European and American companies. Total FDI flows between the European Union and the United States increased significantly in the late 1990s. However, 2000 saw some easing in billions $US annual % change in FDI 160 140 120 100 80 60 60 40 20 0-20 -40-60 Chart 1: Growth in Global FDI Inflows and GDP Next year s GDP upturn should support FDI flows FDI Growth (ls) Global GDP 1-year ahead (rs) 1990 1992 1994 1996 1998 2000 2002 Source: EDC Economics, UNCTAD, IMF. Chart 2: Global Cross-border M&A Activity Equity markets a strong determinant of M&A activity 40 20 Cross-border M&A (ls) S&P 500 (rs) 0 Dec-97 Jul-98 Feb-99 Sep-99 Apr-00 Nov-00 Jun-01 Jan-02 Source: Bloomberg. M&A activity represented as 3-month moving average. the pace of FDI between the US and Europe a downward trend that accelerated through 2001 and early 2002. The US intake of FDI from all countries declined by 47% in 2001 while investment flows from Europe to the United States were down by 36% during the same year. Cross-border M&A activity focused on the US has slowed, suggesting that US FDI flows, both inward and outward, may pull back even further over the next 12 to 18 months. For the developed countries as a group, FDI inflows declined by an estimated 50% in 2001. 5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 annual GDP growth (%) 1600 1500 1400 1300 1200 1100 1000 900 800 700 Todd Evans, EDC Economics - June 2002 3

Table 1: Cross-border Mergers and Acquisition Activity (billions $US) 1993 1994 1995 1996 1997 1998 1999 2000 World Total 83.1 127.1 186.6 227.0 304.8 531.6 766.0 1,143.8 Annual % change 4.8 52.9 46.8 21.7 34.3 74.4 44.1 49.3 Developed Countries 72.5 116.6 164.6 188.7 234.7 445.1 681.1 1,057.2 Annual % change -2.6 60.8 41.2 14.6 24.4 89.6 53.0 55.2 share of total (%) 87.2 91.7 88.2 83.1 77.0 83.7 88.9 92.4 Developing Countries 10.6 10.5 22.0 38.3 70.1 86.5 84.9 86.6 Annual % change 117. -0.9 109.5 74.1 83.0 23.4-1.8 2.0 share of total (%) 12.8 8.3 11.8 16.9 23.0 16.3 11.1 7.6 Source: United Nations Conference on Trade and Development, World Investment Report, 2001. FDI inflows to developing countries declined by 5% in 2001, a much smaller decrease compared with industrialized countries. A smaller share of M&A in their overall FDI mix allowed the emerging markets to escape the downturn in M&A-related investment flows. M&A accounts for roughly one-third of the FDI flowing into emerging markets, much less than the 90% or more prevalent among developed countries. *HRJUDSKLFÃ2YHUYLHZÃRIÃ)',Ã,QIORZV INDUSTRIALIZED COUNTRIES Total FDI inflows into the United States Table 2: Global FDI Inflows (billions $US) during 2001 amounted to $US 149.9 billion, down by 46.7% from the previous year. The largest declines were World Total annual % change Developed Countries annual % change 1994 257 15.8 145 9.0 1995 331 28.8 203 40.0 1996 385 16.3 220 8.4 1997 478 24.2 271 23.2 1998 683 42.9 483 78.2 1999 1,075 57.4 830 71.8 2000 1,271 18.2 1,005 21.1 2001(e) 760-40.2 508-49.5 seen in flows from share of total (%) 56.6 61.5 57.1 56.8 69.8 77.2 79.1 66.8 Western Europe, Developing Countries 112 127 165 206 209 245 265 252 Japan and Singapore. Most US industries annual % change 25.8 13.4 29.9 24.8 1.5 17.2 8.2-4.9 recorded lower FDI share of total (%) 43.4 38.5 42.9 43.2 30.2 22.9 20.9 33.2 inflows during 2001 Canada 8 9 10 12 23 25 67 27 with the largest declines in the petroleum, high-tech annual % change share of total (%) 73.4 3.1 12.8 2.7 4.1 2.6 19.6 2.5 95.9 3.4 11.4 2.3 165.0 5.0-57.0 3.7 equipment and Source: United Nations Conference on Trade and Development and Statistics Canada. Data for 2001 are preliminary. financial service industries. FDI Inflows to the Eurozone (from non-eurozone countries) were down by 70% in 2001 to $US 110.3 billion. Foreign investment in the Eurozone amounted to a record $US 369.5 billion in 2000 a year when inflows doubled. Eurozone inflows in 2000 were boosted by the $US 200 billion purchase of Germany s Mannesmann by the UK s Vodafone Airtouch. The United Kingdom s FDI intake declined by 50.3% in 2001 to $US 25.9 billion. Like other developed nations, a drop in M&A activity accounts for much of the UK decline. FDI into Japan fell by 24.7% to $US 6.2 billion in 2001, a decline that largely reflects the current difficult Todd Evans, EDC Economics - June 2002 4

economic environment. Despite the drop, FDI inflows during 2001 were still double the average annual inflow of the past 12 years. Japan s intake of foreign direct investment has been trending up in recent years but the country s stock of inward FDI is still quite low, at roughly 1.5% of GDP (compared with 14% in the US, 34% for the EU and 36% for Canada). High wages, expensive real estate and a complex regulatory regime have generally discouraged foreigners from investing in Japan. But the Japanese government is taking steps to liberalize trade and investment. In addition, Japanese corporations, in an effort to cut costs and shed excess capacity, are increasingly open to investment from abroad. Such industry restructuring and on-going liberalization should therefore support higher FDI inflows into Japan in the future. ASIA-PACIFIC Chart 3: Global FDI Inflows and Cross-border M&A M&A activity continues to drive FDI flows For the Asia-Pacific as a whole, FDI 1200 inflows were down in 2001 with Cross-border M&As much of the decline occurring in 1000 Hong Kong. This country attracted 800 $US 22.8 billion in new FDI during 2001 compared with a total inflow of 600 $US 61.9 billion in the previous year. In contrast, China was one of the 400 few major economies that showed 200 an increase in FDI during 2001 with flows rising by 34% to just under 0 $US 55 billion. Accession to WTO 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 appears to be drawing in new FDI. China's exports grew 14.1% y/y in January-February, while foreign direct investment (FDI) rose by 28.4% over the same year-ago period. These figures suggest that investor confidence in China's attractiveness as a low-cost production platform remains strong a situation holding the potential for significant increases in FDI to China. Other countries in the region will be hard-pressed to successfully compete with China for new investment. billions $US 1400 FDI Inflows Source: United Nations Conference on Trade and Development. South Korea s FDI inflows were down by 24% in 2001 but at $US 12 billion, flows last year were still well above their long-term historical average. Foreign companies have since shown renewed interest in South Korea with new FDI up by 40% y/y in the first three months of 2002. The country s much-anticipated economic recovery and improved credit rating are certainly factors behind the recent upturn in capital inflows. Following the Asian financial crisis in 1997, South Korean officials began to ease restrictions on FDI. Specifically, the Foreign Investment Promotion Act introduced in November 1998 has helped foster a more transparent investment climate. The downturn in the global high-tech and electronics industry had a negative impact on FDI flows during 2001, particularly in the electronics manufacturing hub of Southeast Asia. Singapore, Indonesia, Malaysia and the Philippines all experienced a drop in FDI inflows during 2001. For instance, the value of approved FDI projects in Indonesia was down by 50% y/y in the first 9 months of 2001. Nevertheless, these countries are expected to show improvement in their FDI intake over the course of the next 12 to 18 months. Like China, Thailand also avoided the drop in FDI seen for most countries during 2001. Flows of FDI into Thailand increased by 30.8% in 2001 to $US 3.8 billion. FDI into Thailand peaked at $US 5.1 billion in 1998. India posted higher levels of inward FDI in 2001 as well. In recent years, the Indian government has gradually been opening up its economy to foreign investment but the regulatory regime is still fairly restrictive compared with other large developing economies. Infrastructure, IT, telecoms and insurance are expected to attract most of India s future FDI. Todd Evans, EDC Economics - June 2002 5

LATIN AMERICA FDI into Argentina dropped by 61.5% y/y in the first three quarters of 2001 and indications are that crossborder investment will remain depressed in 2002 and possibly in 2003 as well. The economic crisis in this country is certainly having a big impact on its attractiveness to foreign investors. Many companies have postponed or cancelled their investment plans for Argentina. A number of foreign corporations have even transferred some of their operations out of the country. Over the longer term however, the inward flow of FDI into Argentina has a good chance to recover. Many of the structural factors that led to the rapid rise in Argentine FDI during the 1990s remain in place, namely structural reform, a liberal FDI regime and regional (i.e., Mercosur) trade liberalization. Development of Argentina s abundant oil, natural gas and mineral resources suggests investment into these industries will eventually pick up. Brazil reported $US 21.8 billion in FDI inflows during 2001, a drop of 35% from 2000. A decline in privatization-related inflows is behind much of last year s pullback in FDI. Privatization inflows amounted to $US 1.1 billion in 2001 compared with $US 7.1 billion in 2000. Brazil s intake of FDI fell a further 17.8% y/y in the first quarter of 2002, to $US 4.5 billion (but still in line with the average of the past few years). Fewer privatizations as well as a general decline in overall FDI account for the first-quarter contraction in Brazilian FDI inflows. Most of Brazil s privatization program has been completed, with the power sector offering the only significant remaining opportunity for further privatization. Nevertheless, Brazil s large domestic market and export potential point to continuing healthy levels of FDI inflows, although probably at lower levels than experienced during the late 1990 s. The generally positive outlook is tarnished by the large external deficit and resultant exposure to international financial crises, a situation that could discourage foreign companies from locating in Brazil. In contrast to Argentina and Brazil, Mexico saw its intake of foreign direct investment rise substantially during 2001. FDI in Mexico increased by an estimated 88% to around $US 25 billion in 2001. Half of this amount came from Citigroup s purchase of the Banacci financial group. Further integration into the North American economy will ensure that Mexico remains an attractive location for foreign investment. EASTERN EUROPE FDI inflows to Central and Eastern Europe remained stable at around $US 27 billion in 2001. A reduction in flows to Poland (due to fewer privatizations) was offset by increased FDI flows to Russia, Hungary and the Czech Republic. FDI to East Europe as a whole is expected to pull back in 2002 but a stronger European economy in 2003 should support higher levels of inward FDI in 2003. Longer term, EU accession for East European nations will continue to enhance the region s attractiveness to foreign investors. Foreign direct investment into Poland last year fell 30% to $US 7.5 billion from a record high of $US 10.6 billion in 2000. As asset and privatization sales remain stalled and the economy is still sluggish, FDI is likely to fall to around $US 6.5 billion this year (still high by historical standards), but may pick up in 2003 as the EU economies recover from the current economic downturn. FDI into Russia amounted to $US 2.9 billion in 2001, Table 3: Ratio of Cross-border M&A to FDI Inflows 1998-2000 Region Average (percent) NAFTA 101.4 Western Europe 84.4 Japan 148.8 Latin America 59.0 East Europe 43.3 Africa 32.1 Middle East 40.9 Asia/Oceania 34.4 Canada 105.8 Developed countries 94.2 Developing countries 35.4 World Average 80.4 Source: United Nations Conference on Trade and Development, World Investment Report 2001. up by 7.4% from last year. Given the size of the Russian economy, FDI inflows are very small, largely due to the fact that foreign companies are still quite risk averse when it comes to investing in Russia. However, Russia s improving political and economic environment suggests FDI inflows will gradually pick Todd Evans, EDC Economics - June 2002 6

up over the next few years. In any given year, cross-border M&A may exceed FDI inflows for several reasons (see table 3): 1. M&A funds are not always paid out in a single year so that a portion of M&A deals from one year may be recorded in subsequent years; 2. FDI flows are recorded on a net basis (total investment minus any divestment made by foreign entities already in the host country) while M&A data are expressed as the total transaction amount; and 3. M&A may sometimes be financed through means not classified as FDI. Ã*OREDOÃ7UHQGVÃ)',Ã2XWIORZV On a worldwide basis, FDI outflows are essentially the reverse of inward FDI the two will differ somewhat due to differences in reporting and measurement across individual countries. Therefore, the past year saw global FDI outflows fall in tandem with inflows. But on a country and regional basis, the divergence between inward and outward flows is more pronounced. Outward FDI from the developed countries was down significantly in 2001 due entirely to lower outflows from Western Europe. In contrast, US FDI abroad continued to rise through 2001. Not surprising, industrialized nations supply the bulk of global FDI outflows. Due to their less mature capital markets, the ratio of inward to outward FDI is much higher for emerging markets. Only a few emerging markets (primarily in East Asia) generate a significant amount of outward FDI, and it can be argued whether these countries should continue to be classified as developing. These include Hong Kong, Singapore, South Korea, Taiwan. *HRJUDSKLFÃ2YHUYLHZÃRIÃ)',Ã2XWIORZV United States outward FDI amounted to $US 141.2 billion in 2001, in line with the outflows seen during 1999 and 2000. For 2001, lower US outflows to Europe were offset by increased investment in Latin America (primarily Mexico). Indeed, a relatively large portion of US outward FDI in 2001 was accounted for by Citigroup s $US 12.6 billion purchase Table 4: Global FDI Outflows (billions $US) 1994 1995 1996 1997 1998 1999 2000 2001(e) World Total 283 355 392 466 712 1,006 1,150 720 annual % change 14.6 25.4 10.4 18.9 52.8 41.3 14.3-37.4 Developed Countries 241 306 333 397 672 946 1,046 n.a. annual % change 16.4 27.0 8.8 19.2 69.3 40.8 10.6 -- share of total (%) 85.2 86.2 84.9 85.2 94.4 94.0 91.0 -- Developing Countries 42 49 59 69 40 60 104 n.a. annual % change 5.0 16.7 20.4 16.9-42.0 50.0 73.3 -- share of total (%) 14.8 13.8 15.1 14.8 5.6 6.0 9.0 -- Canada 9 11 13 23 35 18 48 35 annual % change 55.3 25.7 14.3 76.1 50.0-46.8 158.0-22.1 share of total (%) 3.2 3.2 3.4 4.9 5.0 2.0 4.1 4.9 Source: United Nations Conference on Trade and Development, World Investment Report 2001 and Statistics Canada. Geographic detail can be found in Table A2 in the Statistical Appendix. of Mexico s Banacci financial group. US direct investment in the Asia-Pacific remained relatively stable in 2001 compared with the previous year. On an industry basis, US outflows to the petroleum, machinery and wholesale sectors were largely offset by lower investment in foreign high-tech and financial companies. A decline in profits and still weak equity markets suggest a meaningful upturn in foreign direct investment by US companies may not materialize until 2003. To be sure, US outbound FDI amounted to $US 20.4 billion in the fourth quarter of 2001, the lowest since 1998 s third quarter. FDI outflows from the Eurozone (to non-eurozone destinations) were down by 45% in 2001 to $US 195 billion. However, outward FDI in 2000 was boosted by several large M&A deals, making the drop in 2001 Todd Evans, EDC Economics - June 2002 7

look more dramatic than it actually was. Eurozone outflows are expected to stabilize by the end of 2002 but are still expected to show a further drop for the year. Outward FDI from the United Kingdom was also down significantly in 2001, contracting by 85% from the previous year. Outbound FDI from the UK during 2000 was inflated by several large M&A transactions. In contrast to the contraction in outward FDI seen for most other industrialized countries, total FDI outflows from Japan increased by 22% in 2001, reaching $US 38.5 billion. Recent years have seen a growing number of Japanese corporations rationalizing their global production chain, and this has often involved the transfer of manufacturing operations to locations outside Japan. Overseas investment is likely to remain high as Japanese companies continue to restructure. Historically, Japan s outflow of FDI has greatly outweighed the country s intake of FDI. Ã5HFHQWÃ'HYHORSPHQWVÃLQÃ&DQDGLDQÃ)', Canada s intake of foreign direct investment fell by 57% in 2001 to $Cdn 42.5 billion. However, FDI inflows during 2000 were boosted by two large transactions totaling around $Cdn 50 billion Vivendi s purchase of Seagram and Alcatal s takeover of Newbridge. Excluding these one-time large transactions that took place in 2000, FDI inflows into Canada during 2001 remained well above the long-term historical average (Chart 4). Canadian FDI outflows amounted to $Cdn 55 billion in 2001. Although this represents a decline of 22% from 2000, it is still the second highest year on record. Canadian outward FDI increased by 158% in 2000. 100 90 80 70 60 50 40 30 20 10 0 1990 1991 Chart 4: Canadian FDI Inflow s and Outflow s (billions Canadian dollars) FDI Inflow s FDI Outflow s 1992 1993 1994 1995 Source: Statistics Canada. Canada s Balance of International Payments Catalogue No. 67-001-XPB 1996 1997 1998 1999 2000 2001 )',ÃLQWRÃ&DQDGD Last year saw the United States regain its historical position as the top investor in Canada. For 2001, US companies invested nearly $Cdn 40 billion in Canada, accounting for more than 93% of total FDI inflows for the year. In 2000, France briefly held the number one spot for supplying FDI into Canada. Two large transactions were behind the increase in FDI from France Vivendi s purchase of Seagram and Alcatel s takeover of Newbridge. Canada s oil and gas sector was the center of attention for foreign investors in 2001. FDI in Canada s energy and mineral industries amounted to $Cdn 24.7 billion in 2001, more than double the previous year. Many foreign companies, especially those in the US, often find it more cost-effective to purchase oil and gas assets abroad rather than explore and develop new sites. Following the global decline in technology investment, FDI in the Canadian technology sector also pulled back in 2001. Todd Evans, EDC Economics - June 2002 8

&DQDGLDQÃ)',Ã2XWIORZV The United States remained the top destination for Canadian foreign direct investment in 2001, pulling in 68% of Canada s FDI abroad. FDI flows from Canada to the US amounted to $Cdn 38.9 billion in 2001, a decline of just 4% from 2000 s record level. Canadian direct investment in the United Kingdom came in at $Cdn 2.4 billion in 2001, which is in line with amounts over the past couple of years. However, Canada s FDI to the Eurozone was down by 65% in 2001, with most of the drop taking place in the final quarter of the year. Japan also attracted less Canadian FDI in 2001, but only compared with the large amount recorded in 2000. Canadian investment in Japan is still well above levels seen through most of the 1990s. On a sectoral basis, the largest recipient of Canadian outward FDI in 2001 was the finance and insurance industry, garnering 38% of total outflows. Next was energy and minerals at 18%, services/retail at 9%, followed by forestry with an 8% share. &DQDGLDQVÃHDUQLQJ PRUHÃLQFRPHÃIURPÃWKHLU IRUHLJQÃDVVHWV As illustrated in Chart 5, Canadian investment income earned from past FDI outflows has increased substantially over the past few years just one of the benefits derived from Canadian companies investing abroad. Quarterly income (profits, dividends) earned by Canadian firms on their investment abroad is now on the order of $Cdn 4 billion. Investment income accruing to foreign companies on their operations in Canada is higher, averaging around $Cdn 5 billion per quarter. &DQDGD VÃ3RVLWLRQÃLQÃ*OREDO )RUHLJQÃ'LUHFWÃ,QYHVWPHQW Canada attracted 3.6% of worldwide FDI inflows during 2001. During the past 12 years, Canada was the destination for 3% of the world s foreign direct investment flows appreciably higher than the 2% of global GDP accounted for by Canada. In terms of FDI outflows, Canadian billions $Cdn 6 5 4 3 2 1 0 1989 1990 Chart 5: Income earned from past FDI outflows (quarterly investment income earned on Canadian FDI abroad) 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Source: Statistics Canada. Canada s Balance of International Payments. Catalogue no. 67-001-XPB. Data presented as a 4- quarter moving average. Table 5: Canadian inward FDI as a share of global FDI inflows Canadian FDI as a % of Global inward FDI Mergers/ Acquisitions Other FDI Inflows (1) Total FDI Inflows 1990 1.5 9.1 3.6 1991 2.2 1.4 1.8 1992 1.4 3.9 2.7 1993 0.2 3.2 2.1 1994 --- 7.0 3.3 1995 2.0 3.9 2.8 1996 0.7 5.3 2.5 1997 0.9 5.4 2.4 1998 2.2 7.2 3.3 1999 1.8 5.1 2.6 2000 3.8 15.0 5.0 2001 na na 3.6 Average: 1990-2001 1.5 6.1 3.0 (1) Other comprised of non-m&a related inflows, primarily greenfield investment and reinvested earnings. Source: EDC Economics, Statistics Canada, UNCTAD. 2002 Todd Evans, EDC Economics - June 2002 9

companies supplied 5.1% of the global total in 2001. Over the past 12 years, Canada s share of worldwide FDI outflows averaged 3.3% per year (versus the 3% share for inflows). However, the past few years has seen a general widening of the gap between Canada s share of global FDI outflows and inflows, with outward investment gradually gaining ground against inward FDI. Since 1997, Canada supplied 4.2% of international FDI outflows compared with a 3.4% share for FDI inflows. Indeed, as shown in Chart 6, the ratio of Canada s outward to inward FDI stock has been steadily rising over the past 20 years. It should be emphasized that FDI flowing in and out of Canada both provide significant benefits to the Canadian economy (e.g., increased trade flows, higher dividend stream back to Canadians). Furthermore, empirical research shows that outward FDI generates substantial benefits for both the investing and host countries. The economic impact of greenfield FDI for the investing country (e.g., Canada) arises primarily from the resulting increase in trade. Based on empirical work by the OECD (and supported by findings at other research organizations such as the World Bank and IMF), EDC Economics estimates the FDIexport multiplier for a developing 1.4 1.2 1.0 0.8 0.6 0.4 0.2 Chart 6: Ratio of Canadian Outward FDI Stock to Inward FDI Stock 0.0 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 Source: Statistics Canada, EDC Economics. country is 2. That is, for every $1 in greenfield investment made by Canada in a developing country, a further $2 in exports of Canadian goods and services is generated. This export flow associated with the initial FDI will accrue over several years. For Canadian companies investing in an industrialized country, the export-fdi multiplier is lower estimated to be 0.60. For every $1 invested into a developed country (e.g., United States, West Europe), follow-on exports will amount to 60 cents. The multiplier is lower for FDI into industrial countries because these markets are more mature, with many different suppliers competing to supply their goods and services to new investment projects. As a result, the opportunities for the investing country are not as great compared with the situation of FDI to a developing country. For non-greenfield types of investment such as acquisitions of existing foreign companies or assets the investing country generally receives benefits in the form of increased dividend flows, greater company efficiencies and improved access to cost-effective supplies. Todd Evans, EDC Economics - June 2002 10

Ã)RUHLJQÃ'LUHFW,QYHVWPHQWÃLQÃ1$)7$ Canada s share of NAFTA s inward FDI stock has been declining over the past two decades while the US share has been rising (Table 6). In fact, the increase seen for the United States comes at the expense of a lower share for Canada. The portion of NAFTA foreign investment stock accounted for by Mexico has remained relatively stable at around 5 to 6%. Table 6: Country Share (%) of NAFTA FDI Stock Canada United States Mexico NAFTA FDI Stock ($US bn) 1980 37.3 57.2 5.6 145.3 1985 24.1 68.9 7.0 268.1 1990 21.3 74.5 4.2 530.2 1995 17.6 76.5 5.9 699.9 1999 14.1 79.5 6.4 1,214.7 2000 12.8 81.3 6.0 1,524.2 Source: UNCTAD. World Investment Report, 2001. However, most of the rise in the US share of NAFTA s inward FDI stock comes from that country s high level of equity inflows over the past 20 years. For the 20 years from 1982 to 2001, 85% of FDI flows to the United States were in the form of equity that is, mergers and acquisitions involving existing assets. In contrast, just 40% of Canada s FDI inflows over the past 20 years came through equity. This implies that much of the rise in the US share of North American FDI stock has essentially been a transfer of ownership from US to foreign-based interests. Relative to its overall FDI position, Canada has seen more greenfield investment 350 300 250 200 150 100 50 0 Chart 7: North American FDI Inflows (billions US dollars) USA Canada Mexico. Source: Statistics Canada, US Bureau of Economic Analysis, Bloomberg Todd Evans, EDC Economics - June 2002 11

$33(1',;ÃÃ5(/$7,216+,3Ã%(7:((1Ã)',Ã$1'Ã75$'( A 1999 study by the OECD indicates that FDI heavily influences trade. 1 An analysis of 14 countries estimated that each dollar of outward FDI generates around 2 dollars worth of additional exports for the originating country. In host countries, inward FDI tends to increase imports in the short term but leads to higher exports only over the longer term. But overall, the net impact generally balances out over the longer term. Initially, exports from the FDI donor country rise and imports into the host country also rise. For example, FDI to build or expand new production facilities means capital equipment will be exported from the donor to the host. Over time, the initial boost in exports from the donor will tend to subside once the new production facility is finished (i.e., fewer items such as capital equipment are shipped to the host country.) At the same time, imports into the host nation will decline but exports will rise as the new production comes on line. Although the overall impact of the FDI on exports and imports tends to balance out, trade between the two countries will be at a higher level as commercial links between the two countries are strengthened. The original donor country will still supply services and perhaps intermediate components to the new plant in the host country while receiving some of the output of the new plant in return. As mentioned above, the OECD study indicates that a dollar of outbound FDI generates two dollars in home country exports, on average. Furthermore, it is found that this multiplier is higher in some countries than in others. FDI into major economies like the U.S. and the Eurozone, for instance, is more likely to be for the purpose of serving those large markets directly. In addition, there is likely to be a greater local capability in terms of support, either infrastructural or consulting. As a result, the FDI-export multiplier is found to be less than one for such countries. The data suggest that Canadian FDI into the U.S. leads to some follow-on export sales to the U.S., but only in an amount equal to about 60% of the initial investment. In contrast, FDI into developing countries tends to have a much higher export multiplier associated with it, perhaps as much as three to four times the original investment (spread over several years). The reason is that such facilities are more likely to be intended to carry world product mandates and use that new location to serve the entire world. They also may have less local infrastructure and therefore require more outbound trade flows from the home country, including consulting services. 1 Lionel Fontagne. Foreign Direct Investment and International Trade: Complements or Substitutes, Working paper 1999/3, October 1999. OECD Directorate for Science, Technology and Industry. Todd Evans, EDC Economics - June 2002 12

$33(1',;ÃÃ67$7,67,&$/Ã29(59,(: Global Information 1. Figure A1: Global FDI Inflows and Outflows 2. Figure A2: Regional Share of FDI Inflows, 1999 3. Figure A3: Regional Share of FDI Outflows, 1999 4. Table A1: Global FDI Inflows by Geographic Destination 5. Table A2: Global FDI Outflows by Geographic Source 6. Table A3: Inward and Outward FDI Flows as a Share of Capital Investment Canadian Information 7. Figure A4: Canadian Foreign Direct Investment Flows 8. Figure A5: Canadian Merchandise Trade and Foreign Direct Investment Stock in Canada 9. Figure A6: Canadian Merchandise Trade and Canadian Foreign Direct Investment Stock Abroad 10. Table A4: Foreign Direct Investment in Canada by Geographic Source 11. Table A5: Canadian Foreign Direct Investment Abroad by Geographic Destination 12. Table A6: Foreign Direct Investment in Canada by Industry 13. Table A7: Canadian Foreign Direct Investment Abroad by Industry 14. Table A8: Canadian Foreign Direct Investment Position Abroad by Country Detail (year-end stock) 15. Table A9: Foreign Direct Investment Position in Canada by Source Country Detail (year-end stock) 16. Table A10: Canadian Foreign Direct Investment Position Abroad by Industry (year-end stock) 17. Table A11: Foreign Direct Investment Position in Canada by Industry (year-end stock) 18. Figure A7: Canadian FDI Position Abroad (percent share by region, year-end stock) 19. Figure A8: FDI Position in Canada (percent share by region, year-end stock) 20. Figure A9: Growth in Canadian and Global FDI Inflows 21. Figure A10: Growth in Canadian and Global FDI Outflows 22. Figure A11: Country Share of FDI into NAFTA Todd Evans, EDC Economics - June 2002 13

1400 Figure A1: Global FDI Inflows and Outflows (billions US dollars) 1200 1000 FDI Inflows FDI Outflows 800 600 400 200 0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001(e) Asia (ex. China) 10% East Europe 2% Africa/Mid-East 1% China 3% Figure A2: Regional Share of FDI Inflows, 2000 Latin America 6% NAFTA 28% FDI Inflows, 2000 (bn $US) West Europe: 633.2 NAFTA: 357.6 Asia. (ex China) 120.6 Latin America: 73.0 China: 40.8 East Europe: 27.5 Africa/Mid-East: 17.8 Total: 1,270.8 West Europe 50% Todd Evans, EDC Economics - June 2002 14

Figure A3: Regional Share of FDI Outflows, 2000 Africa/Mid-East 0% Asia (ex. China) 11% East Europe 0% China 0% Latin America 1% NAFTA 16% FDI Outflows, 2000 (bn $US) West Europe: 820.3 NAFTA: 184.9 Asia (ex China): 121.1 Latin America: 11.8 Africa/Mid-East: 5.3 East Europe: 4.1 China: 2.3 Total: 1,149.9 West Europe 72% Source: UNCTAD. Todd Evans, EDC Economics - June 2002 15

Table A1: Global FDI Inflows by Geographic Destination (billions US dollars) Region 1985-90 1993 1994 1995 1996 1997 1998 1999 2000 average Global Total 141.9 219.4 256.0 331.1 384.9 477.9 692.5 1,075.0 1,270.8 -- % change -- 24.8 16.7 29.3 16.2 24.2 44.9 55.2 18.2 NAFTA 56.5 55.0 64.3 77.6 104.0 128.8 208.6 332.0 357.6 -- % change -- 95.7 16.9 20.7 34.0 23.8 62.0 59.2 7.7 -- % of global 39.8 25.1 25.1 23.4 27.0 27.0 30.1 30.9 28.1 West Europe 55.6 78.7 83.0 117.2 114.9 137.5 273.4 485.3 633.2 -- % change -- -8.3 5.5 41.2-2.0 19.7 98.8 77.5 30.5 -- % of global 39.2 35.9 32.4 35.4 29.9 28.8 39.5 45.1 49.8 Asia (ex China, Japan) 16.7 30.3 40.4 55.6 59.8 67.9 52.7 66.5 112.7 -- % change -- 23.2 33.3 37.6 7.6 13.5-22.4 26.2 69.5 -- % of global 11.8 13.8 15.8 16.8 15.5 14.2 7.6 6.2 8.9 Japan 0.4 0.1 0.9 0.1 0.2 3.2 3.3 12.7 8.2 -- % change -- -96.4 800.0-88.9 100.0 1500.0 3.1 284.8-35.4 -- % of global 0.3 0.0 0.4 0.0 0.1 0.7 0.5 1.2 0.6 China 2.7 27.5 33.8 35.8 40.2 44.2 43.8 40.3 40.8 -- % change -- 145.5 22.9 5.9 12.3 10.0-0.9-8.0 1.2 -- % of global 1.9 12.5 13.2 10.8 10.4 9.2 6.3 3.7 3.2 Latin America 5.5 13.3 19.1 22.8 41.4 57.3 71.6 98.4 73.0 -- % change -- 0.8 43.6 19.4 81.6 38.4 25.0 37.4-25.8 -- % of global 3.9 6.1 7.5 6.9 10.8 12.0 10.3 9.2 5.7 East Europe 0.5 7.0 6.4 14.7 13.8 20.9 22.6 25.9 27.5 -- % change -- 48.9-8.6 129.7-6.1 51.4 8.1 14.6 6.2 -- % of global 0.4 3.2 2.5 4.4 3.6 4.4 3.3 2.4 2.2 Africa/Mid-East 4.0 7.6 8.2 7.3 10.7 18.1 16.6 13.8 17.9 -- % change -- 38.2 7.9-11.0 46.6 69.2-8.3-16.9 29.7 -- % of global 2.8 3.5 3.2 2.2 2.8 3.8 2.4 1.3 1.4 Memorandum Canada 5.2 4.7 8.2 9.3 9.6 11.5 22.6 25.2 63.3 -- % change -- -2.1 74.5 13.4 3.2 19.8 96.5 11.5 151.2 -- % of global 3.7 2.1 3.2 2.8 2.5 2.4 3.3 2.3 5.0 Developed Countries 116.7 133.9 145.1 203.5 219.7 271.4 483.7 829.8 1,005.2 -- % change -- 11.3 8.4 40.2 8.0 23.5 78.2 71.6 21.1 -- % of global 82.2 61.0 56.7 61.5 57.1 56.8 69.8 77.2 79.1 Developing Countries* 25.2 85.6 110.9 127.6 165.2 206.5 209.4 245.2 265.6 -- % change -- 54.2 29.6 15.1 29.5 25.0 1.4 17.1 8.3 -- % of global 17.8 39.0 43.3 38.5 42.9 43.2 30.2 22.8 20.9 Source: United Nations. World Investment Report, 1997, 1998, 1999, 2000 and 2001. * Includes Central and Eastern Europe. Todd Evans, EDC Economics - June 2002 16

Table A2: Global FDI Outflows by Geographic Source (billions US dollars) Region 1985-90 1993 1994 1995 1996 1997 1998 1999 2000 average Global Total 155.6 247.4 282.9 355.3 391.6 466.0 711.9 1,005.8 1,149.9 -- % change -- 23.2 14.3 25.6 10.2 19.0 52.8 41.3 14.3 NAFTA 26.6 80.4 83.6 103.3 97.6 119.9 167.0 162.2 184.9 -- % change -- 86.1 4.0 23.6-5.5 22.8 39.3-2.9 14.0 -- % of global 17.1 32.5 29.6 29.1 24.9 25.7 23.5 16.1 16.1 West Europe 86.6 108.3 133.7 173.6 204.3 242.4 475.2 761.1 820.3 -- % change -- -6.3 23.5 29.8 17.7 18.6 96.0 60.2 7.8 -- % of global 55.7 43.8 47.3 48.9 52.2 52.0 66.8 75.7 71.3 Asia (ex China, Japan) 10.7 30.1 38.9 43.1 53.1 53.5 32.1 30.9 88.2 -- % change -- 82.4 29.2 10.8 23.2 0.8-40.0-3.7 185.4 -- % of global 6.9 12.2 13.8 12.1 13.6 11.5 4.5 3.1 7.7 Japan 27.8 13.8 18.1 22.5 23.4 26.1 24.2 22.7 32.9 -- % change -- -20.7 31.2 24.3 4.0 11.5-7.3-6.2 44.9 -- % of global 17.9 5.6 6.4 6.3 6.0 5.6 3.4 2.3 2.9 China 0.7 4.4 2.0 2.0 2.1 2.6 2.6 1.8 2.3 -- % change -- 10.0-54.5 0.0 5.0 23.8 0.0-30.8 27.8 -- % of global 0.4 1.8 0.7 0.6 0.5 0.6 0.4 0.2 0.2 Latin America 1.2 7.7 5.0 7.6 5.5 13.3 6.7 20.5 11.8 -- % change -- 1,000.0-35.1 52.0-27.6 141.8-49.6 206.0-42.4 -- % of global 0.8 3.1 1.8 2.1 1.4 2.9 0.9 2.0 1.0 East Europe 0.2 0.3 0.3 0.5 1.1 3.6 2.3 2.2 4.1 -- % change -- 200.0 0.0 66.7 120.0 227.3-36.1-4.3 86.4 -- % of global 0.1 0.1 0.1 0.1 0.3 0.8 0.3 0.2 0.4 Africa/Mid-East 2.0 2.3 1.3 2.7 4.4 4.6 2.0 4.3 5.3 -- % change -- -28.1-43.5 107.7 63.0 4.5-56.5 115.0 23.3 -- % of global 1.3 0.9 0.5 0.8 1.1 1.0 0.3 0.4 0.5 Memorandum Canada 4.8 5.7 9.3 11.5 13.1 23.1 34.6 18.4 44.0 -- % change -- 62.9 63.2 23.7 13.9 76.3 49.8-46.8 139.1 -- % of global 3.1 2.3 3.3 3.2 3.3 5.0 4.9 1.8 3.8 Developed Countries 145.0 207.4 240.5 305.8 332.9 396.9 672.0 945.7 1,046.3 -- % change -- 15.2 16.0 27.2 8.9 19.2 69.3 40.7 10.6 -- % of global 93.2 83.8 85.0 86.1 85.0 85.2 94.4 94.0 91.0 Developing Countries 10.6 40.0 42.4 49.4 58.6 69.2 39.9 60.1 103.6 -- % change -- 92.3 6.0 16.5 18.6 18.1-42.3 50.6 72.4 -- % of global 6.8 16.2 15.0 13.9 15.0 14.8 5.6 6.0 9.0 Source: United Nations. World Investment Report, 1997, 1998, 1999, 2000 and 2001. * Includes Central and Eastern Europe. Todd Evans, EDC Economics - June 2002 17

Table A3: Inward and Outward FDI Flows as a Share of Capital Investment (percent) Region 1985-90 1992 1993 1994 1995 1996 1997 1998 1999 average World Average Inward FDI 5.4 3.3 4.3 4.6 5.3 5.9 7.5 10.9 16.3 Outward FDI 6.0 3.7 5.0 5.2 4.7 6.2 7.4 11.6 15.4 Canada Inward FDI 6.6 4.5 4.8 8.1 9.4 9.2 9.7 19.2 20.0 Outward FDI 5.7 3.3 5.7 9.2 11.7 12.5 19.3 29.5 14.7 United States Inward FDI 5.3 2.4 5.1 4.4 5.3 7.0 7.9 11.3 17.9 Outward FDI 6.9 5.0 8.8 7.1 8.3 7.0 7.3 8.5 8.6 West Europe Inward FDI 8.9 5.3 5.7 5.6 6.6 6.4 8.3 15.6 27.3 Outward FDI 12.5 7.1 7.9 8.9 9.7 11.4 14.6 27.0 42.8 Japan Inward FDI 0.2 0.2 -- -- -- -- -- -- 1.1 Outward FDI 3.5 1.5 1.1 1.3 1.5 1.7 2.2 2.4 1.9 Mexico Inward FDI 16.9 6.4 9.0 13.5 20.6 16.7 17.7 13.2 11.7 Outward FDI 1.4 1.0 -- 1.3 -- -- 1.4 1.5 1.2 South America Inward FDI 7.4 5.8 4.4 6.7 7.4 11.3 15.1 18.1 35.4 Outward FDI 1.5 0.4 1.6 1.4 1.4 1.4 2.8 3.1 4.1 East Europe Inward FDI 1.0 1.1 7.7 4.4 9.3 7.0 10.7 13.7 18.4 Outward FDI -- -- 0.4 0.2 -- 0.6 1.9 1.4 1.7 China Inward FDI 14.5 7.4 12.2 17.3 14.7 14.3 14.6 12.9 11.3 Outward FDI 1.8 2.7 2.0 1.0 0.8 0.8 0.8 0.8 -- South Korea Inward FDI 1.9 0.6 0.5 0.7 1.0 1.2 1.7 5.7 9.3 Outward FDI 3.5 1.1 1.1 1.6 2.0 2.4 2.7 5.0 2.2 Memorandum Developed Countries Inward FDI 5.5 2.6 3.6 3.5 4.4 4.8 6.1 10.6 17.0 Outward FDI 8.0 3.8 5.6 5.9 6.7 7.2 8.9 14.7 19.4 Developing Countries Inward FDI 8.0 4.2 6.4 8.3 7.7 9.1 10.9 11.7 13.8 Outward FDI 3.5 1.7 3.2 3.4 3.3 3.7 3.9 2.8 3.3 Source: United Nations. World Investment Report, 1997, 1998, 1999, 2000 and 2001. Todd Evans, EDC Economics - June 2002 18

25000 Figure A4: Canadian Foreign Direct Investment (FDI) Flows (4-quarter moving average) 20000 Inward FDI Outward FDI Millions $Cdn 15000 10000 5000 0 1983 1985 1986 1987 1988 1990 1991 1992 1993 1995 1996 1997 1998 2000 2001 40% 30% Figure A5: Canadian Merchandise Trade and Foreign Direct Investment Stock in Canada (annual percentage change) Exports Imports Inward FDI Stock 20% 18% 16% Exports and Imports 20% 10% 0% 14% 12% 10% 8% 6% Inward FDI Stock -10% 4% 2% -20% 1973 1977 1981 1985 1989 1993 1997 2001 0% Todd Evans, EDC Economics - June 2002 19

40% Figure A6: Canadian Merchandise Trade and Canadian Foreign Direct Investment Stock Abroad (annual percentage change) 35% 30% Exports Imports Outward FDI Stock 30% Exports and Imports 20% 10% 0% 25% 20% 15% 10% Outward FDI Stock -10% 5% -20% 1973 1977 1981 1985 1989 1993 1997 2001 0% Table A4: Foreign Direct Investment in Canada by Geographic Source (Annual and quarterly flows millions of Canadian dollars) United States United Kingdom Other EU Japan Other OECD All Others Total 1997 11,727 985 1,774 563 154 754 15,958 1998 24,598 803 5,847 463 1,031 747 33,489 1999 37,507-1,679 4,468-4,241 1,166 144 37,366 2000 17,266 8,288 63,778 901-239 4,066 98,940 2001 39,975 7,700-7,567 826 567 1,267 42,527 1999 Q1 4,942-836 662 8 156 82 5,014 Q2 4,065 1,136 4,425-92 103-36 9,601 Q3 14,252 1,472 1,185-4,228 169 154 13,003 Q4 14,249-3,451-1,804 72 738-56 9,748 2000 Q1 6,203 740 812 255 220 965 9,195 Q2 16,598 15 11,609 246 71 1,406 29,946 Q3 5,302 2,869 1,770 245-896 1,078 10,368 Q4-10,838 4,664 49,588 155 366 617 44,550 2001 Q1 7,140 143-540 465 262 436 8,289 Q2 8,006 6,406-188 58 556 204 15,201 Q3 7,657 243-1,608 215-108 476 7,265 Q4 17,172 908-5,232 87-142 152 11,772 Source: Statistics Canada. Canada s Balance of International Payments. Cat. No. 67-001-XPB. Todd Evans, EDC Economics - June 2002 20

Table A5: Canadian Foreign Direct Investment Abroad by Geographic Destination (Annual and quarterly flows millions of Canadian dollars) United States United Kingdom Other EU Japan Other OECD All Others Total 1997 12,503 4,318 2,480 709 2,454 9,473 31,937 1998 26,667 1,520 8,830-176 2,856 11,607 51,304 1999 18,474 2,237-446 897 1,090 5,106 27,359 2000 40,486 2,627 7,038 3,474 5,308 6,482 70,545 2001 38,901 2,449 2,479 1,319 4,943 7,178 54,924 1999 Q1 3,770-205 111 441 342 1,207 5,665 Q2 6,248 448-36 41-59 1,247 7,889 Q3 3,826 210 627 166 369 1,531 6,730 Q4 4,630 1,785-1,148 249 438 1,121 7,075 2000 Q1 13,267 28 2,624 167-753 1,161 16,493 Q2 13,076 30 2,894 2,395 354 2,796 21,544 Q3 3,563 487 187 234 524 523 5,518 Q4 10,580 2,082 1,333 679 5,184 2,002 21,860 2001 Q1 6,392 1,474 1,490 898 3,656-287 13,413 Q2 14,946 359 2,296 187 402 3,272 21,182 Q3 9,194 450 656 94 634 1,902 12,675 Q4 8,369 165-1,962 140 251 2,291 7,654 Source: Statistics Canada. Canada s Balance of International Payments. Cat. No. 67-001-XPB. Table A6: Foreign Direct Investment in Canada by Industry (Annual and quarterly flows millions of Canadian dollars) Wood and paper Energy and minerals Machinery and trans. equipment Finance and insurance Services and retail Other industries 1997 282 3,566 2,304 4,054 1,606 4,146 15,958 1998 3,204 8,809 1,696 6,103 2,832 10,843 33,489 1999 2,692 3,991 2,466 7,549 2,799 17,869 37,366 2000 1,556 12,141 14,300 4,252 3,195 58,616 98,940 2001 1,302 24,710 4,889 1,052 1,143 9,671 42,527 1999 Q1 12 843 1,395 539 398 1,828 5,014 Q2-358 1,331-360 878 1,149 6,961 9,601 Q3 66 1,379 67 1,085 641 9,765 13,003 Q4 2,973 438 1,363 5,048 611-685 9,748 2000 Q1 206 3,159 1,917 554 1,056 2,304 9,195 Q2 1,736 727 10,810 1,363 975 14,334 29,946 Q3-835 3,686 358 2,508 594 4,058 10,368 Q4 450 4,569 1,214-173 570 37,921 44,550 2001 Q1 125 1,730 3,185 1,154 323 1,389 8,289 Q2 302 5,618 1,390 282 369 7,081 15,201 Q3 751 6,946-2,023-533 163 1,570 7,265 Q4 125 10,416 2,337 148 288-369 11,772 Source: Statistics Canada. Canada s Balance of International Payments. Cat. No. 67-001-XPB. Total Todd Evans, EDC Economics - June 2002 21

Table A7: Canadian Foreign Direct Investment Abroad by Industry (Annual and quarterly flows millions of Canadian dollars) Wood and paper Energy and minerals Machinery and trans. equipment Finance and insurance Services and retail Other industries Total 1997 1,130 8,728 2,046 8,320 3,859 7,853 31,937 1998 511 4,943 2,969 13,452 8,114 21,315 51,304 1999 441 5,402 1,998 12,376 1,753 5,389 27,359 2000 761 11,993 10,237 3,002 3,807 35,616 70,545 2001 4,406 10,112 4,620 21,789 5,365 10,976 54,924 1999 Q1 353-110 419 3,303 611 1,090 5,665 Q2-112 2,451 208 3,195 544 1,603 7,889 Q3 37 1,701 1,102 1,970 504 1,416 6,730 Q4 164 1,360 270 3,908 94 1,280 7,075 2000 Q1 536-1,344 1,892 893 999 13,517 16,493 Q2 136 2,112 7,716 806 924 9,850 21,544 Q3 211 1,444 1,005 171 857 1,831 5,518 Q4-121 9,781-376 1,131 1,028 10,417 21,860 2001 Q1 177-410 2,974 4,269 1,526 5,088 13,412 Q2 367 3,192 3,085 9,743 841 4,235 21,182 Q3 3,639 3,185-1,996 3,021 932 4,149 12,675 Q4 224 4,145 558 4,757 2,066-2,496 7,654 Source: Statistics Canada. Canada s Balance of International Payments. Cat. No. 67-001-XPB. Todd Evans, EDC Economics - June 2002 22

Table A8: Canadian Foreign Direct Investment Position Abroad by Country (year-end stock, cumulative value millions of Canadian dollars) Country/Region 1986 1991 1997 1998 1999 2000 2001 United States 44,461 63,379 110,707 133,267 143,612 164,526 198,404 -- share of total (%) 68.9 58.1 50.6 50.7 50.7 48.3 50.9 Barbados 96 3,033 12,377 16,815 19,223 21,390 23,340 -- share of total (%) 0.2 2.8 5.7 6.4 6.8 6.3 6.0 Mexico 207 199 2,163 2,864 3,325 3,686 4,020 -- share of total (%) 0.3 0.2 1.0 1.1 1.2 1.1 1.0 Argentina 83 142 2,004 2,972 3,201 5,078 5,563 -- share of total (%) 0.1 0.1 0.9 1.1 1.1 1.5 1.4 Brazil 1,200 1,545 3,155 3,975 4,649 6,411 5,564 -- share of total (%) 1.9 1.4 1.4 1.5 1.6 1.9 1.4 Chile 26 447 3,876 4,878 5,107 5,732 5,632 -- share of total (%) 0.0 0.4 1.8 1.9 1.8 1.7 1.4 Other South/Cent. Am. 4,229 5,699 15,655 17,245 22,419 24,598 27,339 -- share of total (%) 6.5 5.2 7.2 6.6 7.9 7.2 7.0 France 396 1,719 3,760 3,854 3,606 4,438 3,392 -- share of total (%) 0.6 1.6 1.7 1.5 1.3 1.3 0.9 Germany 552 957 3,531 4,137 3,086 4,266 4,726 -- share of total (%) 0.9 0.9 1.6 1.6 1.1 1.3 1.2 Ireland 802 1,500 7,915 9,051 8,944 7,560 7,367 -- share of total (%) 1.2 1.4 3.6 3.4 3.2 2.2 1.9 Netherlands 597 1,643 1,966 6,557 7,311 8,971 10,918 -- share of total (%) 0.9 1.5 0.9 2.5 2.6 2.6 2.8 United Kingdom 5,206 15,262 22,722 24,956 24,883 35,427 38,305 -- share of total (%) 8.0 14.0 10.4 9.5 8.8 10.4 9.8 Other Europe 1,598 4,033 8,091 8,675 9,295 20,737 23,226 -- share of total (%) 2.5 3.7 3.7 3.3 3.3 6.1 6.0 Australia 1,226 2,154 2,960 3,739 3,236 3,244 3,443 -- share of total (%) 1.9 2.0 1.4 1.4 1.1 1.0 0.9 China --- 25 419 446 744 818 960 -- share of total (%) --- 0.0 0.2 0.2 0.3 0.2 0.2 Hong Kong 286 632 2,672 3,425 3,616 4,363 4,804 -- share of total (%) 0.4 0.6 1.2 1.3 1.3 1.3 1.2 Indonesia 1,124 900 2,013 2,027 2,127 2,416 2,523 -- share of total (%) 1.7 0.8 0.9 0.8 0.8 0.7 0.6 Japan 461 2,182 2,985 3,268 3,948 5,596 6,435 -- share of total (%) 0.7 2.0 1.4 1.2 1.4 1.6 1.7 Singapore 1,242 1,982 2,765 3,014 2,950 3,207 4,516 -- share of total (%) 1.9 1.8 1.3 1.1 1.0 0.9 1.2 South Korea --- 51 172 542 1,234 807 924 -- share of total (%) --- 0.1 0.2 0.4 0.2 0.2 Other Asia/Pacific 426 1,132 4,514 4,725 4,141 3,940 4,183 -- share of total (%) 2.1 1.8 1.5 1.2 1.1 Middle East 123 209 883 1,092 1,183 760 1,023 -- share of total (%) 0.2 0.2 0.4 0.4 0.4 0.2 0.3 Africa 453 258 1,301 1,385 1,388 2,393 2,819 -- share of total (%) 0.7 0.2 0.6 0.5 0.5 0.7 0.7 Total, all countries 64,794 109,068 218,607 262,909 283,228 340,366 389,426 Source: Statistics Canada, Balance of Payments Division, unpublished data. Todd Evans, EDC Economics - June 2002 23