What is Canada’s competitive advantage?
Canada’s core competitive advantage is its ability to attract quality immigrants. The country features high population growth as well as the highest absolute number of immigrants in the “economic category” (skilled, educated), as shown in Figure 1, based on the latest available OECD data. Moreover, given that most of its growth comes from immigration, Canada can apply more scrutiny in picking top talent. Within the OECD, Canada has the highest proportion of foreign-born residents with a post-secondary education.
Pull this all together and you have one of the fastest-growing countries in the G-7 (Figure 2).
Figure 1
Strong immigration:
highest inflow of
workforce-ready immigrants in the OECD
Annual “economic category”
admissions to permanent residence (2019)
Source: NBF Economics and Strategy (OECD data).
https://data.oecd.org/migration/permanent-immigrant-inflows.htm#indicator-chart.
Figure 2
Canada’s economic performance ranks second among G-7 countries
Source: NBF Economics and Strategy (data via Datastream).
Where is its growth coming from?
Canada’s growth derives from its advantages in attracting talent: stable government policies, a strong social safety net, regulations that provide a resilient and accessible banking system, and economic policies that are supportive of growth. Canada’s strong social safety net—universal health care; Old Age Security; Canadian Pension Plan; Employment Insurance—makes it the third-best place in the world to live and work, as well as the second “Best Country Overall” according to a 2023 US News & World Report study*. This ranking is based on attributes that include quality of life, human rights, gender equality, education, economic influence, health care, and public safety.
*Source: US News & World Report 2023 https://www.usnews.com/news/best-countries/rankings
Is Canada’s growth sustainable?
Canada’s balance sheet is strong enough to mitigate risk, when necessary, and invest in innovation, when possible. In fact, Canada has the lowest net government debt of the G7 and has held this top position since 2005. This allows the government to fund a social safety net, invest in innovation, and support the economy counter-cyclically, all of which makes Canada an attractive place to start a business (Figure 3). Moreover, the government’s openness to immigration has allowed many foreign firms to locate high-income jobs to Canada and a progressive tax code allowing for losses to be carried forward to future ventures encourages investment in innovation.
Figure 3
Favourable net indebtedness
General Government
Gross & Net Debt-to-GDP Ratio: 2023
Sources: NBF and IMF.
Note: Net debt = Gross debt minus
financial assets
As a result of Canada’s sustainable population growth, stable government and regulatory environment, as well as its strong balance sheet, the country has produced global leaders in innovation that are driving the economy in megatrend areas such as electric vehicles, e-commerce, supply chain management, engineering, and professional services among others. The list of companies is long, but here are some examples: Magna International was founded by Austrian immigrant Frank Stronach in 1956 and is now the third-largest global auto parts supplier and one of the top suppliers of electric vehicle powertrain components. Shopify was founded by German immigrant Tobi Lutke and is now the leading software company powering e-commerce. Kinaxis was co-founded by Canadian native Duncan Klett and is now the leading provider of software to manage complex supply chains for global customers such as Honeywell, Ford, Schneider Electric, P&G, Qualcomm, and Novartis. Quebec-based WSP has thrived on organic growth and complementary acquisitions which, over the last 20 years, have transformed the company from a regional engineering firm to the fourth-largest design firm globally.
Even though Canada produces global champions, the Canadian equity market is known primarily for its commodity exposure where the Energy and Materials sectors represent nearly 30% of the S&P/TSX index. In fact, while these two sectors account for 30% of the index, they account for only ~12% of GDP. More importantly, this perception fails to recognize its strong economy and the rich pool of stocks available to investors. The Canadian equity investment universe is attractive on a global scale and ripe for active managers. It is underappreciated by investors, as shown in Figure 4, allowing active managers the opportunity to find high-quality companies at discounts to global valuations.
Figure 4
S&P/TSX: trading at a steep discount to the S&P 500
12-month forward PEs for
the S&P 500 and the S&P/TSX
Source: NBF Economics and Strategy (data via Refinitiv).
Canada has a sustainable competitive advantage that is driving top tier growth, a strong balance sheet to counter-cyclically support the economy and invest for growth as well as the talent to produce innovation. Entrepreneurs have noticed, and long-term investors should too. The future looks bright for Canada, and the fund below constitutes one of the investment solutions that allow investors to take advantage of it.
NBI Canadian Equity Fund (NBC3702)