The 2014 A.T. Kearney Foreign Direct Investment (FDI) Confidence Index report was published recently. Contrary to the impression in some circles, it does not appear that Canada’s track record of stringent investment reviews is having a negative impact on how foreign investors perceive the country. In 2014, Canadian FDI was up more than 12 per cent over the previous year.

Indeed, since the CNOOC-Nexen approval in December 2012 and the introduction of new restrictive guidelines for State Owned Enterprise (SOE) investors, Canada’s ranking has actually improved from 20th in 2012 to 4th in 2013 to 3rd in 2014, behind the U.S. and China. During that period of time the government formerly turned down one acquisition in the telecommunications space (Allstream, a division of MTS) and warned that it would turn down a Chinese acquisition of BlackBerry.

The A.T. Kearney FDI Confidence index is a proprietary annual survey administered to senior executives in the world’s leading corporations. Respondents include C-Suite executives and regional and business heads of companies whose global reach is in excess of US$1 billion. More than 300 executives from 26 countries participated in this year’s study and in excess of one-third of the respondents came from developing nations. Each country’s score is based entirely upon the responses of executives who reside outside of the country tested. The survey was conducted between January and February 2014.

Other global findings include:

  • FDI flows have not recovered to the peak of $2 trillion, reached in 2007. In 2014, FDI globally was $1.4 trillion
  • There appears to be a flight to “quality” investment locations—as the U.S. has recovered as the most favoured investment location, while the BRICs (other than China) have cooled somewhat
  • The survey noted that one-quarter of all changes in national policies were now more restrictive—further fuelling concerns that FDI is becoming more “gated”
  • These restrictive policies have set back cross-border M&A transactions due to anti-trust rulings, national security concerns or outright national political opposition
  • There are new ambitious trade agendas that are exciting investors and could act to counter the negative implications of new investment review restrictions

The data supports that Canada’s very positive index score may have a lot to do with successfully signing a number of trade agreements during the past two years. Canada has signed agreements with the EU and South Korea and is close to signing one with Japan. This move is part and parcel of the Trans-Pacific Partnerships (TPP) talks that were slated to conclude later this year. In all of these trade agreements, Most Favored Nation status was extended to the trading partner for investment purposes.

Foreign investors covered by these trade pacts will now be able to invest up to $2 billion without investment review (although M&A continues to be subject to the Competition Act). The only exception to investment liberalization in these trade pacts will remain SOEs, which will continue to face relatively low threshold levels.

Mr. Harper seems to be achieving his goal of selling Canada as being “open for business,” all the while he ratchets up reviews on SOEs and national security. While statistics speak for themselves, the Harper government continues to navigate the political waters well, advancing a positive foreign investment environment, without appearing to be selling off Canadian interests.