The Investment Canada Act (ICA) refers to a Canadian law that regulates direct investment in the country by foreigners. The Act covers foreign ownership of new and existing businesses within the country. Under the law, any non-Canadians who wish to make a direct investment in the country must submit a notice or application for review. The law was passed in 1985 and has been updated several times since then. The Act was intended to signal Canada’s openness to new foreign direct investment (FDI).
Understanding the Investment Canada Act (ICA)
The Investment Canada Act was established in 1985 and replaced the Foreign Investment Review Act. The new law was signed by the federal Progressive Conservative government led by then-Prime Minister Brian Mulroney.1https://cf4ca6b047d93df49d496a301ce01d2c.safeframe.googlesyndication.com/safeframe/1-0-38/html/container.html
The ICA allows the government to review significant investments made by foreign parties within the country. It also recognizes that these investments benefit the country and its national security.2 This ensures that foreign investment not only advances Canada’s economic growth but also encourages the expansion of the national job market.
As mentioned above, foreign parties interested must file a notice or application before they intend to make direct investments in Canada. Notices are filed every time someone wishes to start a new venture or whenever someone acquires a business in Canada. An application for review must be submitted whenever the value of an acquired business either meets or exceeds the thresholds set out by the Act.3
The Act put thresholds in place to keep Canadian interests front and center of the investment industry. As such, the Act specifies the following limits for FDI for review for 2021:
Investments through private sector trade agreements: $1.565 billion in enterprise value
World Trade Organization (WTO) investments by state-owned enterprises: $415 million in asset value
Investments in cultural businesses and non-WTO investments: $5 million in asset value (direct investments) and $50 million (indirect transactions)34
Investment values are calculated by either asset value or enterprise value. The former represents the value of assets according to a company’s financial statements while the latter accounts for a corporation’s cash, debt, and market value.5 Investments may be rejected if they do not meet threshold requirements or do not benefit the Canadian public.
Innovation, Science, and Economic Development Canada is the federal agency responsible for administering the Investment Canada Act.6
Special Considerations
The government of Canada reported 962 notifications and applications filed by non-Canadians that were approved in the 2018-2019 fiscal year. The total asset value for these investments totaled $41.24 billion while enterprise value investments reached $84.73 billion. Under the ICA, 45% of investments were measured by asset value while the remaining 55% fell into the enterprise value category.5 This dropped from the 2019-20 fiscal year, which recorded 21 notifications submitted to the Department of Canadian Heritage.7
Criticism of the Investment Canada Act (ICA)
Like any legislation that is meant to encourage foreign investment, the ICA is not without its fair share of criticism. Although many countries actively seek investment from external parties to support economic development, these investments may result in destabilizing economic or political environments. For example, certain vital strategic elements such as national security can be undermined by greater access to foreign investment vehicles.
Another common drawback to increased FDI is the idea of hot money. Hot money includes the destabilizing effects of a flood of money into and out of a country. As money rushes in, many projects become wasteful and frivolous. That’s because their primary purpose isn’t long-term or economic in nature. When money rushes out, it leaves fragile economies prone to greater instability or crises.
Furthermore, even though the Act isn’t used to formally block takeover bids and investment in Canadian entities, its vague mandate does enable diplomats, public representatives, and civil servants to informally dissuade investors at times. This creates a sense of government risk among foreign investment analysts, but the scale of impact is difficult to measure and ascertain.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
