Canadian assets under foreign control up

Foreign acquisitions of Canadian-controlled firms, particularly in manufacturing and oil and gas, drove a 10.6% increase in Canadian assets under foreign control in 2007.

Canadian assets under Canadian control rose 9.9%, led by the depository credit intermediation industry.

As a result of these movements, foreign-controlled firms accounted for 21.3% of corporate assets in 2007, up slightly from 21.1% the year before.

In the manufacturing sector, assets under foreign control increased 16.4% in 2007, while those under Canadian control declined 8.2%. In the oil and gas industry, assets under foreign control rose 24.1%, more than double the 10.1% increase in assets under domestic control.

Asset-based measures of foreign control provide a longer-term perspective. However, foreign control is also measured by operating revenues and profits earned by enterprises operating in Canada that are controlled by non-resident or foreign interests.

In 2007, Canadian-controlled firms increased their operating profits by 6.5%, compared with a 1.0% increase for those under foreign control. In terms of revenues, firms under Canadian control recorded a 5.9% increase, almost double the 3.2% growth for foreign-controlled firms.

Consequently, foreign-controlled firms accounted for 26.2% of operating profits, down from 27.2% in 2006. With respect to revenues, foreign-controlled firms represented 29.4% of the total in 2007, down from 30.0% in the previous year.

Manufacturing: Foreign-controlled firms now represent over one-half of assets, revenues and profits
In 2007, foreign-controlled companies operating in Canada held more than half (52.8%) of assets in manufacturing, the first time since 1999. This share was up from 46.8% in 2006. The increase was due largely to foreign acquisitions of Canadian-controlled firms, especially in the primary metals and the wood and paper industries.

Firms under foreign control also accounted for 53.8% of manufacturing revenues and 51.4% of manufacturing profits. Both shares were higher than those in 2006.

All manufacturers recorded a decline in profits in 2007, whether they were foreign-controlled or Canadian-controlled. This decline was due in part to an appreciating Canadian dollar, the softening US housing market, and strengthened global competition.

Oil and gas: Foreign-controlled shares get boost from acquisitions
For a second consecutive year, Canadian-controlled firms accounted for over one-half of assets, revenues and profits in the oil and gas industry in 2007. However, they lost some share to foreign-controlled firms.

The share of assets for domestic-controlled firms in oil and gas fell from 64.3% to 61.5%. While these firms generated 51.2% of operating revenues and 55.4% of profits, both shares were down from their levels in 2006.

Three components are used to measure foreign control: assets, operating revenues and operating profits.

Asset-based measures of foreign control provide a longer term perspective. Assets are a stock item, reflecting economic decisions and market conditions that evolve more slowly over time.

Revenue-based measures, on the other hand, represent a flow item and are closely tied to the business cycle. Revenues tend to reflect current business conditions, causing them to be more volatile than asset-based measures.

Profits are a measure of the financial health and well-being of an economy and can be used to assess its performance and sustainability.

Like firms in manufacturing, those in the oil and gas industry experienced declining profits in 2007, regardless of whether they were controlled domestically or by foreign countries.

The rising value of the Canadian dollar and lower natural gas prices contributed to lower earnings for both Canadian-controlled and foreign-controlled oil and gas extractors.

Banks: Foreign control is regulated

In the finance and insurance sector, the depository credit intermediation industry, which includes banks, posted the smallest shares under foreign control, at 8.3% of assets, 7.8% of revenues and 6.7% of profits. These shares have remained relatively stable since 1999, reflecting regulations governing foreign control.

United States and United Kingdom firms increase shares on strength of acquisitions

The United States continued to be the dominant player among foreign-controlled enterprises operating in Canada.

In 2007, US-controlled firms accounted for 54.7% of assets under foreign control as well as 59.3% of operating revenues, and 54.4% of profits. These proportions were all up slightly from the year before.

The increase in these shares was driven by acquisitions of firms that were formerly under the control of companies based in the European Union and Canada. This was especially the case in three manufacturing industries: motor vehicles and parts; wood and paper; and primary metals.

The shares of foreign-controlled assets and revenues under the control of firms in the United Kingdom expanded, while those under German control contracted.

The increase in shares controlled by firms in the United Kingdom reflected acquisitions of manufacturing firms formerly under Canadian control.

Germany was the only major foreign country of control whose shares declined significantly. They fell 2.0 percentage points for assets, 2.6 points for revenues and 2.1 points for profits.

This decline in German-controlled shares resulted from takeovers by US-controlled firms in manufacturing.

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