Canada’s Indo-Pacific Strategy: Taking Stock of Canada-Asia Foreign Direct Investment One Year Later

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As we mark one year since the release of Canada’s Indo-Pacific Strategy (IPS) in November 2022, it is an opportune time to review the current two-way investment between Canada and the region. Foreign direct investment (FDI) is an important component of one of the IPS’s central strategic objectives, namely, to expand trade, investment, and supply chain resilience. As part of the IPS, Canada is committed to diversifying its regional economic partnerships to new markets to protect Canada’s national interests and respond to instances of growing protectionism and economic coercion.

The release of the IPS marks the first step in advancing two-way investment relationships between Canada and the region, sending a positive signal that encourages businesses to establish new investment partnerships in the region in priority sectors. Although it is still early days in the strategy’s implementation, an analysis of the available data helps us assess whether current investment flows are putting Canada on track to meet these objectives as we wait for the full implementation of the IPS (the second step in advancing two-way economic partnerships) to unfold. This Dispatch supports that assessment by considering two questions: a) Have new and related investment ties between Canada and Indo-Pacific economies been formed since the release of the IPS? and b) Has FDI increased in the sectors prioritized in the strategy, including critical minerals and clean energy?

In considering these questions, we chart the potential impact of new initiatives and resources under the IPS on Canada-Asia investment and take stock of two-way investment flows since December 2022. Our previous research suggests that Canadian government support positively influences corporate investment decisions, especially by boosting Canada’s image as a trustworthy partner in the region.

Our preliminary analysis indicates that Canada’s two-way investment with Indo-Pacific economies has marginally increased. Our preliminary findings, based on data from our Investment Monitor from December 2022 to September 2023, indicate that Canada has been successful in diversifying its investment partners. For example, it attracted investment from several Southeast Asian economies, led by Singapore and Indonesia. The data on sectoral diversification, however, indicate that the businesses have yet to make significant investments in the industries identified under the IPS, with finance alone dominating two-way investment flows during this period. Nonetheless, we find that the sectors highlighted in the IPS have received several significant investments, and we expect that more new investments will be made in these sectors in the near future.

The federal government has announced significant project funding to strengthen economic linkages with the region. These new initiatives and resources represent more than C$244M and are spread across nine areas related to trade, with some provisions directly relevant to investment promotion (Table 1). Funded initiatives like the new Trade Gateway in Southeast Asia and numerous trade missions to the region, and enhancements to CanExport can all be leveraged to support Canadian businesses. As Table 1 illustrates, closer trade and economic ties may also drive investment between Canada and Indo-Pacific economies.

Source : Asia Pasific