Prior to the pandemic, globalization was already in a period of transition and retreat with protectionist policies, trade wars, and tariffs all on the rise.
The onset of the pandemic exposed how interrelated and globally interconnected the flow of goods and services has become through disruptions to supply-chains and mobility, but also resulted in further protectionism with investment policies put in place to protect key resources by many countries. This included Canada that made changes to its Investment Canada Act and the European commission, which tightened guidelines around FDI to protect critical assets around health, medical research, and biotech.1
The long-term impact of the pandemic is yet to be known, but many lessons can be learned including how the trends leading up to and during the pandemic will result not with globalization disappearing, but rather with the approach to globalization changing.
The disruption to supply chains during the pandemic highlighted the need to shorten the distance between where products are manufactured to the end consumer to avoid shortages in a future crisis. As a result, companies looking to expand their global footprint will be thinking beyond distribution and sales offices, and look to fully immerse themselves into the markets of their consumers to tighten that supply chain.
In addition, competition of countries to attract global investment, particularly in certain industries, will increase as they look to protect themselves against future shortages. The recent announcement of Moderna’s signing of a memorandum of understanding with the Government of Canada to set up a manufacturing facility to produce the mRNA vaccine in Canada is an example. This was a welcome expansion by the Canadian government and the first foreign market expansion for Moderna.
Lockdowns and the impact on mobility is changing the thinking around how people view work and work environments.
Employees are negotiating working from home into their contracts which leads to companies re-thinking the traditional work environment. It also ramped up the use of technology for many organizations making the idea of global digitalization more of a reality for companies than it did 2 years ago.
The pandemic exposed how interrelated global supply chains are and the changes as a result will give rise to companies make decisions in the future about how they structure and organize those supply chains. Globalization isn’t leaving anytime soon; it is simply evolving to meet the changing reality.
So where does Canada fit into the new reality of globalization? Canada’s openness to foreign investment and immigration, ease of doing business and stable economy make it the ideal investment hub to reach consumers in North America and globally.
Free-Trade Agreements:
Canada’s openness to trade has given rise to 15 active freetrade agreements with 51 countries with many more in various stages of negotiation and make it a gateway for global trade.
Free-trade agreements currently in force include the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the Canada-European Union: Comprehensive Economic and Trade Agreement (CETA), the Canada-United States-Mexico Agreement (CUSMA), and the recently ratified Canada-UK Trade Continuity Agreement which came into force on April 1, 2021. Free-trade agreements allow businesses in Canada beneficial access to these global markets and consumers by removing tariffs and other barriers to trade when meeting the rules of origin as defined in these agreements. Through these combined agreements, businesses in Canada have access to a combined GDP of over US$54trillion and over 1.5 billion consumers.2
Incentive Programs:
Canada’s attractiveness to investment includes the fact that it supports innovation through its incentive programs. Canada provides numerous government incentive and grant funding programs at both the provincial and federal levels. These are mainly targeted at job creation, innovation, and research and development (R&D). The Scientific Research and Environmental Development (SR&ED) tax incentive is Canada’s largest research and development program awarding over $3 Billion annually in tax incentives. It is the largest single source of grant funding for R&D provided by the Canadian program. Other programs include the Strategic Innovation Fund and the Industrial Research Assistance Program (IRAP).
Ease of doing business and stable economy:
According to the Economist Intelligence Unit, Canada ranked third out of 82 countries and first overall amount G7 countries in its evaluation of business environment in April 2020 and has consistently ranked in the top 3 countries during the last 5 years.3 Canada’s stable economy, business environment and banking system allowed it to quickly put in place significant support to individuals and businesses through its Covid-19 Economic Response Plan which allowed it to steer the course during the pandemic and as a result, 83% of the jobs lost between February and April 2020 due to Covid-19 had been recovered by the end of April 2021 with nearly 67% of these in full time positions.4
Competitive Tax rates:
Canada has maintained a competitive tax rate compared to other leading FDI destinations in North America. The combined federal and provincial corporate tax rate in Ontario for a manufacturing entity is 25% (26.5% for non-manufacturers). It has also implemented accelerated investment incentives so that companies can recover their capital investment faster
Canada has positioned itself as an environment open to trade and investment. With its free trade agreements, incentive programs, immigration policies, and competitive and stable business environment, it can continue to compete in the evolving global economy.
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