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Country Profile Series

Canada
In-depth PESTLE insights

PESTLE Country Analysis Report: Canada ML00002-006/Published 02/2018


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PUBLICATION DATE: February 2018
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OVERVIEW
Catalyst

This profile analyzes the political, economic, social, technological, legal and environmental (PESTLE) structure in
Canada. Each of the PESTLE factors is explored on four parameters: current strengths, current challenges, future
prospects and future risks.

Summary

Key findings

Canada has a strong democratic setup, but the presence of an anti-terrorism law is controversial

In Canada, democratic principles have been predominant since the late 19th century, when the provinces were self-
governed. Throughout the early 20th century, the nation was ruled by a coalition of the Conservative and Liberal parties.
After World War II, however, either the Conservatives or the Liberals ruled the country. According to the in 2016 World
Bank Worldwide Governance Indicators, Canada ranked on the 96.06 percentile in terms of the voice and accountability
parameter and on the 96.63 percentile in terms of the rule of law parameter. This indicates the relative stability of the
country’s democratic system.

The Anti-terrorism Act of 2015, or Bill C-51, came into effect in June 2015 and gained a lot of criticism from civil society
groups and the general public. The bill was passed by the former Conservative government to strengthen the country’s
security and offer protection to Canadians from Islamic State (IS) and its followers. The bill has been criticized on the
grounds that it increases censorship and suppresses free expression.

Canada’s robust infrastructure has kept the economy on a firm footing, but high household debt poses a
serious risk

The government’s commitment towards maintaining its infrastructure is exemplary and infrastructure expenditure has
been the pillar of parliament’s public policy. Over in the next decade, spending is set to be doubled from its current
levels. The government earmarked $33.0 billion for the development of infrastructure in its 2017 budget. Of the total,
$20.1 billion will be allocated to public transit infrastructure, $9.2 billion to green infrastructure, and $2.4 billion to the
infrastructure needs of rural and northern communities, while the remaining $1.3 billion will be assigned to the
development of community, cultural and recreational infrastructure.

High levels of household debt represent a major economic vulnerability and have been on the rise since the mid-1980s.
According to the Organisation for Economic Co-operation and Development (OECD), Canada’s household debt-to-
disposable-income ratio stood at 166.6% during the first quarter of 2017, higher than the UK and the US which posted
respective ratios of 145.2% and 104.9%. The appreciation was driven by the Canadian population’s propensity to buy
their own homes, which stems from record-low mortgage rates.

Canada performed well on the Human Development Index (HDI), however, the aging population could strain
public finances in the future

Canada performs well on various social parameters. According to the United Nations Development Programme’s
(UNDP’s) Human Development Report 2016, the country was ranked 10th out of 188 countries with a HDI value of
0.920. According to the CIA World Factbook, as of 2017, life expectancy for the male population stood at 79.3 years,
whereas for females it was 84.7 years.

PESTLE Country Analysis Report: Canada ML00002-006/Published 02/2018


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Like most developed economies, Canada is facing the problem of an aging population. According to the CIA World
Factbook, the median age of the country stood at 42.2 years in 2017, which indicates that half of the population was
above this age. The population belonging to the baby boomer generation is growing older, with many of its members
nearing (or already having reached) retirement. According to the OECD, the dependency rate of the Canadian population
is set to increase. Long-term forecasts by the OECD estimate that seniors will account for 45.19% of the working age
population (20–64 years) in 2050, against just 26.49% in 2016. The aging population represents a challenge to the
country in the medium term as it could strain the healthcare and pension systems.

Despite the rollout of generous tax incentives, business R&D expenditure remains low

Canadia’s R&D tax incentives for business innovation are among the most generous in the world. The B-index measures
the before-tax income required by a firm to break even on $1 of R&D outlays. One minus the B-index indicates the
government’s focus on R&D, especially for small and medium enterprises (SMEs). The incentives given by Canada are
much higher than those provided by the US. Giving impetus to R&D is important for the Canadian economy as it raises
productivity and living standards; the government rightly provides high subsidies to R&D activity. This is likely to be
helpful in the long term as companies will find Canada a more attractive place to invest in innovation.

Canada lags behind other nations in terms of R&D expenditure. Canada’s total expenditure on R&D as a percentage of
GDP – also known as R&D intensity – stood at 1.62% in 2014, lower than 1.99% in 2005. The main reason was a trend
of weak business spending on R&D since 2000.

Canada’s flexible business environment attracts foreign investors, but the absence of a single market
regulator remains an issue

Canada has a comprehensive legal and regulatory framework that provides the business environment with transparency.
Regulatory processes are favorable among foreign investors, with national laws providing the freedom to start, operate
and close a business. According to the World Bank's Doing Business 2018 report, starting a business in Canada is far
easier than in other nations; on average, it takes 1.5 days and two procedures, as compared to the OECD average of 8.5
days and 4.9 procedures. Canada’s system for registering a business has been entirely online since 2006 and there are
no minimum capital requirements. These factors make Canada a favorable destination for foreign investment.

There is no single capital markets regulator in Canada; the responsibility for regulating the securities trade lies with the
provinces. However, inefficiencies exist as the provincial authorities must file extra paperwork and coordinate among
themselves to maintain market coherence. The Conservatives have been vying to establish a national securities
regulator since 2006; however, some provincial governments are yet to agree an appropriate model. Although the
provinces of Columbia, Ontario, Saskatchewan and New Brunswick signed a memorandum of agreement in 2014
formalizing the terms and conditions of a cooperative capital markets regulatory system, the prospects of a national
securities regulator will remain elusive as long as Alberta, Quebec and Manitoba resist. Substantial gains could be
achieved by establishing a national securities regulator. Factors that will drive the idea of a single regulator are efficiency
in allocating resources, the benefits of economies of scale, the advantages of information sharing and clear
accountability.

Canada has comprehensive environmental policies, but its poor environmental record remains a concern

The Canadian Government has established mechanisms to meet the environmental challenges that come with economic
development. The focus of environmental policies has broadened from local and regional issues to challenges of a global
nature. Climate change, global biodiversity, ozone layer depletion and the transportation of chemicals and hazardous
waste are some of the issues topping the country’s environmental agenda. The country has made some progress in

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meeting its domestic environmental objectives and international commitments. Some advances have been made in
cutting air pollution and policies have been created to reduce greenhouse gas (GHG) emissions.

Canada performs poorly on many environmental indicators; these include sewage treatment, species at risk, GHG
emissions, pesticide use and nuclear waste. According to the Environmental Performance Index 2016 published by Yale
University, the nation ranks 82nd out of 121 countries on the tree cover loss parameter with a score of 39.1 out of 100.
The country’s per capita emissions per unit of GDP are some of the highest in the OECD, which suggests inefficiencies
in the consumption of energy. At the same time, Canada is heavily reliant on non-renewable energy resources, an
important factor in economic growth. Its inability to use alternative sources of energy will add to the already high level of
emissions.

PESTLE highlights

Political landscape

 In November 2015, Justin Trudeau, son of former Prime Minister Pierre Trudeau, was elected. The Liberals
ended the decade-long Conservatives rule by winning the 2015 federal elections with a majority.

 The new administration is reaching out to better its relations with long-standing allies, especially Cuba and other
Latino countries.

Economic landscape

 Canada’s real GDP growth rate increased from 1.29% in Q1 2016 to 3.74% in Q2 2017, with real GDP growth
averaging 1.98% as compared to 0.95% during Q1 to Q4 2015.

 The Canadian economy is heavily dependent on the US for international trade. According to the CIA World
Factbook, the US accounted for 76.4% of Canada’s exports and 52.2% of its imports in 2016.

Social landscape

 Canada has a stable income security program that delivers pension and benefits through the Old Age Security
scheme and the Canada Pension Plan (CPP). CPP is a contributory, earnings-related social insurance program
that ensures a measure of protection for the contributor and his or her family against loss of income due to
retirement, disability or death. Old Age Security provides additional funding to eligible low-income seniors.

 Although Canada’s economic output has been increasing, growth has not been evenly spread across all
provinces and territories. Quebec, Ontario, British Columbia and Alberta have emerged stronger – economically
and politically – than others. These four provinces together account for 85% of the country’s GDP.

Technological landscape

 Canada is home to a well-developed manufacturing industry, which serves as a base for the development of
high-end products. The industry is supported by a low overall tax rate, R&D incentives, a qualified labor force
and integration with the North American market.

 Business software piracy also remains a significant concern according to BSA – The Software Alliance, a
representative body of the world’s largest software groups. In its Global Piracy Study, BSA estimated that
losses occurring from the unlicensed use of business software arrived at $893 million in 2015. According to the
study, the levels of piracy in the country were around 24% in 2015.

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Legal landscape

 Canada has one of the most flexible labor markets in the world, operating under liberal employment regulations
that enhance employment opportunities and productivity growth.

 Despite having a lower rate of taxes, the multiplicity of business regulations across provinces acts as a
deterrent to investors.

Environmental landscape

 The government plans to work in collaboration with provincial governments to reduce carbon pollution, and has
established a national climate change deal which includes carbon pricing.

 Global oil companies’ efforts to exploit the vast “tar sands” in Alberta are fraught with environmental risk. With
proven reserves of more than 170 billion barrels, the province’s oil resources are comparable to that of Saudi
Arabia. Activity has led to an increase in emissions and toxic chemicals in waterways.

Key fundamentals

Table 1: Canada – Key Fundamentals, 2015–2021

2015 2016 2017f 2018f 2019f 2020f 2021f

GDP, constant 2010 prices ($ trillion) 1.79 1.81 1.87 1.91 1.94 1.98 2.01

GDP growth rate (%) 0.81 1.38 3.17 2.10 1.64 1.67 1.77

GDP, constant 2010 prices, per capita ($) 49,924.64 50,002.49 50,983.22 51,462.14 51,730.58 52,036.34 52,411.18

Inflation (%) 1.13 1.41 1.60 1.79 2.06 1.94 1.98

Exports, total as a percentage of GDP 31.47 30.73 30.03 30.27 29.91 29.94 29.72

Imports, total as a percentage of GDP 34.42 33.55 32.31 32.22 31.50 31.21 30.69

Mid-year population (million) 35.85 36.29 36.72 37.14 37.55 37.96 38.35

Unemployment rate (%) 6.9 7 6.4 6.3 6.2 6.1 6.1

Mobile penetration (per 100 people) 82.98 84.06 85.00 85.85 86.62 87.33 87.98

Source: Country Statistics, MarketLine MARKETLINE

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TABLE OF CONTENTS
Overview .................................................................................................................................................................... 2

Catalyst ........................................................................................................................................................................... 2

Summary ......................................................................................................................................................................... 2
Key findings ................................................................................................................................................................. 2
PESTLE highlights ......................................................................................................................................................... 4
Key fundamentals ........................................................................................................................................................ 5

Key Facts and Geographic Location ............................................................................................................................13

Key facts ........................................................................................................................................................................ 13

Geographic location ...................................................................................................................................................... 14

PESTLE Analysis .........................................................................................................................................................15

Summary ....................................................................................................................................................................... 15

Political analysis ............................................................................................................................................................ 16


Overview .................................................................................................................................................................... 16
Current strengths ...................................................................................................................................................... 16
Current challenges ..................................................................................................................................................... 17
Future prospects........................................................................................................................................................ 17
Future risks ................................................................................................................................................................ 18

Economic analysis ......................................................................................................................................................... 19


Overview .................................................................................................................................................................... 19
Current strengths ...................................................................................................................................................... 19
Current challenges ..................................................................................................................................................... 23
Future prospects........................................................................................................................................................ 24
Future risks ................................................................................................................................................................ 25

Social analysis ............................................................................................................................................................... 28


Overview .................................................................................................................................................................... 28
Current strengths ...................................................................................................................................................... 28
Current challenges ..................................................................................................................................................... 31
Future prospects........................................................................................................................................................ 32
Future risks ................................................................................................................................................................ 32

Technological analysis ................................................................................................................................................... 34


Overview .................................................................................................................................................................... 34
Current strengths ...................................................................................................................................................... 34
Current challenges ..................................................................................................................................................... 34
Future prospects........................................................................................................................................................ 35
Future risks ................................................................................................................................................................ 36
PESTLE Country Analysis Report: Canada ML00002-006/Published 02/2018
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Legal analysis ................................................................................................................................................................ 37
Overview .................................................................................................................................................................... 37
Current strengths ...................................................................................................................................................... 37
Current challenges ..................................................................................................................................................... 38
Future prospects........................................................................................................................................................ 39
Future risks ................................................................................................................................................................ 40

Environmental analysis ................................................................................................................................................. 41


Overview .................................................................................................................................................................... 41
Current strengths ...................................................................................................................................................... 41
Current challenges ..................................................................................................................................................... 42
Future prospects........................................................................................................................................................ 44
Future risks ................................................................................................................................................................ 44

Political Landscape ....................................................................................................................................................45

Summary ....................................................................................................................................................................... 45

Evolution ....................................................................................................................................................................... 45
Pre-1930s ................................................................................................................................................................... 45
1931–1992 ................................................................................................................................................................. 45
1993–2017 ................................................................................................................................................................. 46

Structure and policies .................................................................................................................................................... 47


Structure of government ........................................................................................................................................... 48
Structure of parliament ............................................................................................................................................. 48
Key political parties ................................................................................................................................................... 49
Composition of the parliament ................................................................................................................................. 50
Key policies ................................................................................................................................................................ 50

Performance .................................................................................................................................................................. 51
Governance indicators ............................................................................................................................................... 51

Outlook .......................................................................................................................................................................... 52

Economic Landscape ..................................................................................................................................................53

Summary ....................................................................................................................................................................... 53

Evolution ....................................................................................................................................................................... 53
Pre-1980 .................................................................................................................................................................... 53
1980–2016 ................................................................................................................................................................. 53

Structure and policies .................................................................................................................................................... 54


Overview .................................................................................................................................................................... 54
Financial authorities and regulators .......................................................................................................................... 54
Stock exchange .......................................................................................................................................................... 55
Insurance ................................................................................................................................................................... 55

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Performance .................................................................................................................................................................. 56
GDP and growth rate ................................................................................................................................................. 56
GDP composition by sector ....................................................................................................................................... 57
Fiscal situation ........................................................................................................................................................... 61
Exports and imports .................................................................................................................................................. 61
Current account ......................................................................................................................................................... 61
International investment position ............................................................................................................................. 62
Key monetary indicators ............................................................................................................................................ 62
Unemployment .......................................................................................................................................................... 63

Outlook .......................................................................................................................................................................... 63

Social Landscape ........................................................................................................................................................64

Summary ....................................................................................................................................................................... 64

Evolution ....................................................................................................................................................................... 64

Structure and policies .................................................................................................................................................... 64


Demographic composition ........................................................................................................................................ 64
Urban/rural composition and migration ................................................................................................................... 65
Ethnic composition .................................................................................................................................................... 65
Religious composition................................................................................................................................................ 65
Education ................................................................................................................................................................... 66
Healthcare ................................................................................................................................................................. 66
Social welfare ............................................................................................................................................................ 67

Performance .................................................................................................................................................................. 67
Healthcare ................................................................................................................................................................. 67
Income distribution ................................................................................................................................................... 68
Education ................................................................................................................................................................... 68

Outlook .......................................................................................................................................................................... 69

Technological Landscape ...........................................................................................................................................70

Summary ....................................................................................................................................................................... 70

Evolution ....................................................................................................................................................................... 70

Structure and policies .................................................................................................................................................... 70


Intellectual property .................................................................................................................................................. 70
R&D............................................................................................................................................................................ 71
Technology agreements and pacts ............................................................................................................................ 71

Performance .................................................................................................................................................................. 71

Outlook .......................................................................................................................................................................... 72

Legal Landscape .........................................................................................................................................................73

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Summary ....................................................................................................................................................................... 73

Evolution ....................................................................................................................................................................... 73

Structure and policies .................................................................................................................................................... 73


Judicial system ........................................................................................................................................................... 73
Legislative relations between the union and the states ............................................................................................ 74
Taxation ..................................................................................................................................................................... 74
Labor laws .................................................................................................................................................................. 75

Performance .................................................................................................................................................................. 75
Effectiveness of the legal system............................................................................................................................... 75

Outlook .......................................................................................................................................................................... 75

Environmental Landscape ..........................................................................................................................................76

Summary ....................................................................................................................................................................... 76

Evolution ....................................................................................................................................................................... 76

Structure and policies .................................................................................................................................................... 76


Environmental regulations ........................................................................................................................................ 76
Kyoto Protocol on climate change ............................................................................................................................. 77

Performance .................................................................................................................................................................. 78
Environmental impact ............................................................................................................................................... 78

Outlook .......................................................................................................................................................................... 78

Appendix ...................................................................................................................................................................79

ISO codes of selected countries ..................................................................................................................................... 79

Ask the analyst .............................................................................................................................................................. 80

Disclaimer ...................................................................................................................................................................... 80

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LIST OF FIGURES
Figure 1: Map of Canada, 2018 ....................................................................................................................................... 14

Figure 2: Canada – Economic Growth and Unemployment Rate (%), Q1 2012 – Q4 2019 ........................................ 20

Figure 3: Canada – Slowdown in House Prices (%), January 2014 to September 2017 ............................................ 20

Figure 4: Canada – Quality of Infrastructure (ranking), 2017–2018 ............................................................................ 21

Figure 5: Canada – Infrastructure Investment ($ billion) – Budget 2017 .................................................................... 22

Figure 6: Canada – Public Finances (%), 2007–2017.................................................................................................... 23

Figure 7: Canada – Government Revenue and Expenditure (%), 2007–2017 ............................................................. 23

Figure 8: Canada – FDI Inflow ($ Billion), 2014–2016 ................................................................................................... 24

Figure 9: Canada – Debt Sustainability (%), 1991–2087............................................................................................... 25

Figure 10: Canada – Household Debt to Disposable Income (%), 2016 ..................................................................... 26

Figure 11: Canada – Household Debt to Disposable Income (%), Q1 2007 to Q1 2017 ............................................ 26

Figure 12: Canada – Gini Coefficient Index, 2014 ........................................................................................................ 29

Figure 13: Canada – Better Life Index, 2016 ................................................................................................................. 30

Figure 14: Canada – Protection for Regular Employment, 2013 ................................................................................. 31

Figure 15: Canada – Protection for Temporary Employment, 2013 ............................................................................ 31

Figure 16: Canada – Old Age Dependency Ratio (%), 2016 and 2050......................................................................... 32

Figure 17: Canada – Tax Subsidy Rates on R&D Expenditure, 2017 .......................................................................... 36

Figure 18: Canada – Product Market Regulation, 2013 ................................................................................................ 38

Figure 19: Canada – FDI Restrictiveness Index, 2016 .................................................................................................. 39

Figure 20: Canada – Environmentally Related Taxes (%), 2014 .................................................................................. 42

Figure 21: Canada – GHG Emissions Per Unit of GDP, 1990 and 2016 ...................................................................... 43

Figure 22: Canada – GHG Emissions Per Capita, 1990 and 2016 ............................................................................... 43

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Figure 23: Canada – Political Events Timeline ............................................................................................................. 46

Figure 24: Canada – Key Political Figures, 2018 .......................................................................................................... 47

Figure 25: Canada – Political Structure (Central Government) ................................................................................... 48

Figure 26: Canada – Composition of Parliament (Number of Seats), 2015 ................................................................ 50

Figure 27: Canada – Evolution of GDP Growth (%), 2006–2016 .................................................................................. 54

Figure 28: Canada – GDP and Growth Rate ($ / %), 2012–2022f ................................................................................. 56

Figure 29: Canada – GDP Composition by Sector (%), 2016 ....................................................................................... 57

Figure 30: Canada – Agricultural Output, 2012–2017f ................................................................................................. 58

Figure 31: Canada – Industrial Output, 2012–2017f ..................................................................................................... 59

Figure 32: Canada – Service Output, 2012–2017f......................................................................................................... 60

Figure 33: Canada – External Trade ($), 2012–2017f .................................................................................................... 61

Figure 34: Canada – Consumer Price Index and Index-based Inflation (%), 2012–2022f .......................................... 62

Figure 35: Canada – Unemployment (%), 2012–2022f .................................................................................................. 63

Figure 36: Canada – Composition by Religion, 2011 ................................................................................................... 66

Figure 37: Canada – Healthcare Expenditure ($ / %), 2009–2015 ................................................................................ 68

Figure 38: Canada – Educational Expenditure ($ / %), 2009–2015 .............................................................................. 69

Figure 39: Canada – Internet Users (Millions), 2013–2017f ......................................................................................... 72

Figure 40: Canada –Judicial Structure, 2018 ................................................................................................................ 74

Figure 41: Canada – Carbon Dioxide Emissions (Tons / %), 2008–2015 .................................................................... 78

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LIST OF TABLES
Table 1: Canada – Key Fundamentals, 2015–2021 5

Table 2: Canada – Key Facts, 2018 13

Table 3: Canada – Political Landscape Analysis, 2018 16

Table 4: Canada – Economic Analysis, 2018 19

Table 5: Canada – Social System Analysis, 2018 28

Table 6: Canada –Technological Landscape Analysis, 2018 34

Table 7: Canada – Patents Granted by USPTO (Thousands), 2012–2015 35

Table 8: Canada – Legal Analysis, 2018 37

Table 9: Canada – Environmental Analysis, 2018 41

Table 10: Canada – Population by Age (as a Percentage of the Total Population), 2017 65

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Key Facts and Geographic Location

KEY FACTS AND GEOGRAPHIC LOCATION


Key facts

Table 2: Canada – Key Facts, 2018

Country and capital


Full name Canada
Capital city Ottawa

Government
Government type A parliamentary democracy, a federation and a constitutional
monarchy
Head of state Queen Elizabeth II, represented by Governor General Julie
PAYETTE (since October 2, 2017)
Head of government Prime Minister Pierre James Trudeau

Population (2017 est.) 35.62 million

Currency Canadian dollar

GDP per capita, adjusted by PPP (2017 est.) $48,100

Internet domain .ca

Demographic details
Life expectancy (2017 est.) 81.9 years (total population)
79.3 years (men)
84.7 years (women)

Ethnic composition (2011 est.) Canadian (32.2%), English (19.8%), French (15.5%), Scottish
(14.4%), Irish (13.8%), German (9.8%), Italian (4.5%), Chinese
(4.5%), North American Indian (4.2%), other (50.9%).

Major religions (2011 est.) Roman Catholic (39%), Protestant (20.3%), other Christian (6.3%),
Muslim (3.2%), none (23.9%).

Country area 9,984,670km2

Language (2011 est.) English [official] (58.7%), French [official] (22%), Punjabi (1.4%),
Italian (1.3%), Spanish (1.3%), German (1.3%), Cantonese (1.2%),
Tagalog (1.2%), Arabic (1.1%), other (10.5%).
Exports Motor vehicles and parts, industrial machinery, aircraft,
telecommunications equipment, chemicals, plastics, fertilizers, wood
pulp, timber, crude petroleum, natural gas, electricity, and aluminum.
Imports Machinery and equipment, motor vehicles and parts, crude oil,
chemicals, electricity, and durable consumer goods.

Source: CIA – The World Factbook MARKETLINE

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Key Facts and Geographic Location

Geographic location

Canada is located in North America, with the North Atlantic Ocean to the east, the North Pacific Ocean to the west, and
the Arctic Ocean to the north. It borders the US.

Figure 1: Map of Canada, 2018

Source: CIA – The World Factbook MARKETLINE

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PESTLE Analysis

PESTLE ANALYSIS
Summary

The Conservative, New Democratic and Liberal parties Canada’s politics. The Liberal’s came to power in 2015 as a
majority government after a decade of Conservative rule. The new government has reshaped the country’s policy
outlook.

Canada has a strong banking system and an environment that is highly suitable for businesses; however, the country’s
dependence on the US economy due to strong trade and financial links has rendered policymaking inefficient at times.
The federal government managed to bring its fiscal deficit under control by reverting to a path of fiscal consolidation
once the economy was out of recession. A current account deficit remains a major external concern. One of the key
domestic risks faced by the Canadian economy comes from the increasing household debt, which has raised concerns
about the existence of a housing bubble.

Canada has a strong social welfare system and scores high on the HDI. However, uneven growth in the provinces is a
cause for concern and the aging population affects the country’s competitiveness and economic productivity due to
higher social costs. To address the latter, the government is contemplating changes to the Canadian Pension Plan.
Canada's liberal immigration policy could also create tensions for the government.

Canada’s technological achievements are not reflective of its full potential; a lack of R&D involvement on behalf of
business enterprises and the education system is hampering innovation. Furthermore, the weak enforcement of anti-
piracy laws has raised questions about Canada’s intellectual property regime. Nevertheless, Canada has the potential
to perform well in terms of emerging technologies such as wireless telecommunication services and networking.

The country has one of the most flexible labor markets in the world; it operates under flexible employment regulations
that enhance opportunities and productivity growth. Canada’s corporate tax rates are low compared to other developed
nations, which provide an incentive for foreign investors to establish businesses. Although Canada provides a number
of competitive advantages for external players, the regulation of foreign investment discourages liquid capital transfers
in few services sectors. Moreover, it is one of the few developed countries with an investment review process in place.
The government is slowly but steadily opening up its services sector, a process that has started with the reform of the
Telecommunications Act in 2012.

The Canadian Government established mechanisms to meet the environmental challenges that come with economic
development. It made some progress in meeting its domestic environmental objectives and international commitments.
However, managing pollution, natural resources and biodiversity remain a challenge. While advances have been made
in cutting air pollution and policies have been created to reduce GHG emissions, the country’s performance in
preserving biodiversity, increasing energy efficiency and managing hazardous waste has been far from satisfactory.

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PESTLE Analysis

Political analysis

Overview

The Conservative, New Democratic and Liberal parties dominate Canada’s politics. The Liberal’s came to power in
2015 as a majority government after a decade of Conservative rule. The new government has reshaped the country’s
policy outlook.

Table 3: Canada – Political Landscape Analysis, 2018

Current strengths Current challenges


▪ Strong democratic setup ▪ Controversial anti-terrorism laws
▪ Flourishing foreign relations and trade

Future prospects Future risks


▪ Improving ties with China and Cuba ▪ Extremist threats
▪ Emergence of new political classes

Source: MarketLine MARKETLINE

Current strengths

Strong democratic setup

In Canada, democratic principles have been predominant since the late 19th century, when the provinces were self-
governed. Throughout the early 20th century, the nation was ruled by a coalition of the Conservative and Liberal
parties. After World War II, however, either the Conservatives or the Liberals ruled the country. Canada ranked on the
96.06 percentile in terms of the voice and accountability parameter and on the 96.63 percentile in terms of the rule of
law parameter in the World Bank’s Worldwide Governance Indicators 2016, indicative of the stability of the democratic
system.

Flourishing foreign relations and trade

Canada’s proactive attitude towards foreign relations has resulted in the development of significant trade and
investment links. The country’s economy is dependent on trade, especially with the US, and the value of exports and
imports makes up a significant proportion of its GDP. In February 2011, the US and Canada strengthened their links by
creating the US-Canada Regulatory Cooperation Council, which supports businesses by reducing red tape in many
sectors. The government has strengthened its relationship with the EU by agreeing a Comprehensive Economic and
Trade Agreement (CETA) in 2013. The deal is expected to eliminate 98% of tariff lines and was signed by both sides in
October 2016.

The Americas are a foreign policy priority, and Canada is entering into agreements within the region to pursue bilateral
and regional free trade, avoid double taxation, protect foreign investment, strengthen financial and banking institutions
and assist development. The country already has free trade agreements (FTAs) with Chile, Costa Rica, Colombia,
Peru, Jordan, Panama and Honduras. Canada also signed a free trade deal with South Korea in September 2014,

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PESTLE Analysis

which came into force from January 2015, making it Canada’s first FTA in the Asia-Pacific region. FTA negotiations
with Morocco, Japan, India, Singapore, the Dominican Republic, El Salvador, Guatemala, Nicaragua and Andean and
Caribbean countries are underway. On September 21, 2017, the Comprehensive Economic and Trade Agreement
(CETA) entered into force. It eliminates duties on 98% of the products that EU trades with Canada.

Current challenges

Controversial anti-terrorism law

The Anti-terrorism Act of 2015, or Bill C-51, came into effect in June 2015 and gained a lot of criticism from civil society
groups and the general public. The bill was passed by the Conservative government to strengthen the country’s
security and offer protection to Canadians from IS and its followers.

According to the Canadian Civil Liberties Association and Canadian Journalists for Free Expression, the law disrupts
and violates the Canadian Charter of Rights and Freedoms. Bill C-51 grants immense powers to the Canadian Security
Intelligence Service (CSIS) to stop any suspected terrorist plots in addition to information gathering. It allows several
federal departments and agencies to share the personal information of citizens more easily. According to the law, the
police could easily arrest and detain individuals as suspected national security threats without proper charges.

The bill has been criticized on the grounds that it increases censorship and suppresses free expression. Civil society
groups have also expressed concerns over the power given to CSIS and other federal departments which could result
in the widespread abuse of power.

The government must make necessary amendments to the law as promised during the election campaign.

Future prospects

Improving ties with China and Cuba

Relations between Canada and China were somewhat strained during the reign of the conservatives. However, in
September 2016, when Chinese premier Li Keqiang visited, he received an unprecedented warmth from his Canadian
counterparts. Justin Trudeau, the new liberal prime minister has long been a strong advocate of improving the country’s
relation with the Asian giant. The two countries are now considering a bilateral free trade agreement alongside a
bilateral extradition treaty. Both countries are in talks to sign an accord on cybersecurity, with Canada also applying to
join the Chinese-led Asian Infrastructure Investment Bank. In December 2017, the Canadian prime minister visited
Beijing to promote business and trade ties.

Trudeau visited Cuba in November 2016 to celebrate stable relations between the nations for over a half century. Cuba
is the country’s third-largest trade partner and Canadian companies have a firm presence in the country’s oil and gas,
power, agribusiness and tourism sectors. Trudeau announced a $6.5 million development project in order to bolster
food production in Cuba as well as the launch of an agricultural research center.

Emergence of new political classes

Canada is continuing to evolve into a multicultural society, witnessing an amalgamation of different social and linguistic
classes into its mainstream. The country has a pro-immigration policy that has attracted up to a quarter of a million
people annually since 1990. There are currently around 260 "ethnic enclaves" (defined as communities where more
than 30% of residents are of an ethnicity other than English or French) across the country. Over the years, immigrants
have played an important part in Canadian elections. In the 2015 federal elections, a significant proportion of the voters
were immigrants and a record number of 10 indigenous people were elected to the House of Commons in the 2015

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federal elections. With immigrants holding high office at a federal and national level, it is expected that the emergence
of related political groups will influence policy in favor of minorities.

Future risks

Extremist threats

Extremist attacks have rocked Canada in the past and remain a risk to the country’s political stability. In October 2014,
a lone gunman named Michael Zenaf-Bibeau shot a soldier and entered the parliament, where security officers killed
him in an exchange of gunfire. The attack was in retaliation of Canada’s military involvement in Afghanistan and Iraq.
The incident followed another terror attack in Montreal (a week before the parliament attack), where an IS-inspired
terrorist killed one soldier and injured another before being shot by police. Such incidents demonstrate that Canada is
not immune from extremists and the government must strengthen both the police and national security forces to
illuminate these threats. Aside from extremist threats, the country also faces security risks from terrorist groups
because of Canada’s intervention in fighting against terrorist organizations such as IS in the Middle East. A public
report published in 2016, which categorizes various terrorist threats to the country, affirms that though the country has
been safe from direct attacks, concerns lie in the increasing number of its own citizens leaving the country to join terror
groups. In September 2017, a Somalian man stabbed a police officer near the Commonwealth Stadium in Edmonton,
Alberta and deliberately hits four pedestrians with a rental truck. Canadian police has investigated and confirmed the
incident as an act of terrorism.

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Economic analysis

Overview

Canada has a strong banking system and an excellent business environment. However, weak investment due to the
fall in oil prices is preventing a strong recovery in economic growth. Key risks include a rise in household debt, which
has increased concerns about the existence of a housing bubble.

Table 4: Canada – Economic Analysis, 2018

Current strengths Current challenges


▪ Improving economic growth ▪ Decline in foreign investments
▪ Robust infrastructure
▪ Improving fiscal scenario
Future prospects Future risks
▪ Debt sustainability ▪ High household debt

Source: MarketLine MARKETLINE

Current strengths

Improving economic growth

Canada’s real GDP growth rate increased from 1.29% in Q1 2016 to 3.74% in Q2 2017, with real GDP growth
averaging 1.98% as compared to 0.95% during Q1 to Q4 2015. Growth was primarily driven by strong household
consumption expenditure on the back of a lower unemployment rate. According to the OECD, the unemployment rate
decreased from 7.16% in Q1 2016 to 6.49% in Q2 2017.

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Figure 2: Canada – Economic Growth and Unemployment Rate (%), Q1 2012 – Q4 2019

Real GDP growth and unemployment rate


4.0 8.0

3.5
7.5
3.0
7.0
2.5

%
%

2.0 6.5

1.5
6.0
1.0
5.5
0.5

0.0 5.0
2012q4

2014q3

2016q2
2012q1
2012q2
2012q3

2013q1
2013q2
2013q3
2013q4
2014q1
2014q2

2014q4
2015q1
2015q2
2015q3
2015q4
2016q1

2016q3
2016q4
2017q1
2017q2
2017q3
2017q4
2018q1
2018q2
2018q3
2018q4
2019q1
2019q2
2019q3
2019q4
Real GDP growth (LHS) Unemployment rate

Source: OECD MARKETLINE

Figure 3: Canada – Slowdown in House Prices (%), January 2014 to September 2017

House price growth


35.0

30.0

25.0
Growth rate (%)

20.0

15.0

10.0

5.0

0.0
Jan-14

Jan-15

Jan-16

Jan-17
Mar-14

Mar-15

Mar-16

Mar-17
Jul-14

Jul-15

Jul-16

Jul-17
Sep-17
Sep-14
Nov-14

Sep-15
Nov-15

Sep-16
Nov-16
May-14

May-15

May-16

May-17

Vancouver Toronto Canada

Source: OECD MARKETLINE

Robust infrastructure

The government’s commitment towards maintaining its infrastructure is exemplary and expenditure has been the pillar
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PESTLE Analysis

of parliament’s public policy. Over in the next decade, spending is set to be doubled from its current levels. The
government earmarked $33.0 billion for the development of infrastructure in its 2017 budget. Of the total, $20.1 billion
will be allocated to public transit infrastructure, $9.2 billion to green infrastructure, and $2.4 billion to the infrastructure
needs of rural and northern communities, while the remaining $1.3 billion will be assigned to the development of
community, cultural and recreational infrastructure.

Figure 4: Canada – Quality of Infrastructure (ranking), 2017–2018

Quality of infrastructure, 2017-18


25.0 23
22

20.0 19
out of 137 countries

16
15.0
12

10.0

5.0

0.0
Overall Road Rail Port Air transport

Source: WEO, IMF MARKETLINE

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Figure 5: Canada – Infrastructure Investment ($ billion) – Budget 2017

Infrastructure investment ($ billion) - Budget 2017


Infrastructre needs
in rural and
northern
communities, 2.4
Community, culture
and recreation
infrastructure, 1.3

Green
infrastructure, 9.2 Public transit, 20.1

Source: OECD MARKETLINE

Improving fiscal scenario

Canada is one of the few countries in the world which has reduced its budget deficits from the peak levels of 2009 and
2010. The reduction has mostly been the outcome of controlling expenditures which rose in the wake of financial crisis,
with most of the reduction being structural. The government has also made it clear that returning to balance budgets
will be the cornerstone of its future budgetary policies.

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Figure 6: Canada – Public Finances (%), 2007–2017

3.0
2.0
1.0
0.0
% of GDP

-1.0
-2.0
-3.0
-4.0
-5.0
-6.0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016f 2017f

Balance, federal government Balance, lower levels of government


Balance, social security funds Balance, general government

Source: OECD MARKETLINE

Figure 7: Canada – Government Revenue and Expenditure (%), 2007–2017

44.00

43.00

42.00
% of GDP

41.00

40.00

39.00

38.00
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017f

General government expenditures General government revenues

Source: OECD MARKETLINE

Current challenges

Decline in foreign investments

According to a report published in October 2017 by Fraser Institute, a Canadian public policy think tank, Canada lags

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behind other developed nations in terms of business investment. Indeed, investment as percentage of GDP is one of
the lowest among other 17 OECD nations. The country works with less than $10,000 worth of capital investment per
employee, the third-lowest rate among major industrial nations in 2016.

Data from UNCTAD shows a declining trend in the inward FDI inflows to Canada. Total inward FDI fell from $59.06
billion in 2014 and $41.51 billion in 2015 to just $33.72 billion in 2016. Gross fixed capital formation as percentage of
GDP also decreased from 13.6% in 2014 and 11.3% in 2015 to 9.6% in 2016.

Figure 8: Canada – FDI Inflow ($ Billion), 2014–2016

FDI inflows
80 16
70 14
60 12
50 10
$ billion

%
40 8
30 6
20 4
10 2
0 0
2013 2014 2015 2016

FDI (LHS) FDI (% of gross fixed capital formation)

Source: UNCTAD MARKETLINE

Future prospects

Debt sustainability

The government’s fiscal policies appear to be sustainable for the coming decade and it seems that government debt
will not increase. In mid-2015, the office of the Parliamentary Budget Officer predicted that federal net debt would fall
from 34.1% of GDP in 2015 to zero before 2050, and becoming negative thereafter. Welfare spending schemes, like
elderly security and pension plans, can be altered to ensure sustainability.

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Figure 9: Canada – Debt Sustainability (%), 1991–2087

250

200

150

100
% of GDP

50

-50

-100

-150

2054
2057
2060
1991
1994
1997
2000
2003
2006
2009
2012
2015
2018
2021
2024
2027
2030
2033
2036
2039
2042
2045
2048
2051

2063
2066
2069
2072
2075
2078
2081
2084
2087
Sub-national net debt Public pension plan assets Federal net debt

Source: OECD MARKETLINE

Future risks

High household debt

High levels of household debt represent a major economic vulnerability and have been on the rise since the mid-1980s.
According to the OECD, Canada’s household debt-to-disposable-income ratio stood at 166.6% during the first quarter
of 2017, higher than the UK and the US which posted respective ratios of 145.2% and 104.9%. The appreciation was
driven by the Canadian population’s propensity to buy their own homes, which stems from record-low mortgage rates.

The Canadian housing market has appreciated sharply since the beginning of the last decade, growing by 87% since
2000. Moreover, Canada experienced an increase in household prices even after the 2008 financial crisis, unlike the
US where housing prices collapsed. Furthermore, price-income and price-rent ratios in Canada are among the highest
amongst the developed nations. Despite increasing housing costs, the level of investment in households has continued
to rise and outpaced its pre-crisis peak on the back of low interest rates and loose credit conditions. It is because of low
interest rates and easy credit conditions that the household debt–GDP ratio surged to a record high.

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Figure 10: Canada – Household Debt to Disposable Income (%), 2016

Household debt
300.0

250.0
percentage of disposable income

200.0

150.0

100.0

50.0

0.0
LTU LVA ITA AUT DEU FRA USA BEL ESP FIN PRT GBR LUX CAN KOR SWE CHE AUS NOR NLD DNK

Source: OECD MARKETLINE

Figure 11: Canada – Household Debt to Disposable Income (%), Q1 2007 to Q1 2017

Household debt
180
percentage of disposable income

170

160

150

140

130

120

110

100

Canada United Kingdom United States

Source: OECD MARKETLINE

Indebtedness exposes Canadian households to the risk of rising interest rates or fall in house prices, and has the

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potential to affect the balance sheets of households and banks. Mortgages typically have fixed rates for a period of five
years, following which a floating rate applies. According to the OECD, an interest rate hike of 2.0 percentage points
could push around 10% of indebted households into commonly believed unaffordable debt-service ratios of more than
40%.

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Social analysis

Overview

Canada has a strong social welfare system and scores high on the HDI index. However, the imbalanced growth of the
provinces is a challenge, and the aging population affects the country’s competitiveness and economic productivity due
to higher social costs. The government has proposed a host of reforms to strengthen the labor market.

Table 5: Canada – Social System Analysis, 2018

Current strengths Current challenges


▪ Efficient social welfare system ▪ Regional disparities
▪ High HDI score

Future prospects Future risks


▪ Better healthcare services ▪ Aging population
▪ Increasing immigrant population

Source: MarketLine MARKETLINE

Current strengths

Efficient social welfare system

Canada has a comprehensive social welfare system at the federal and provincial levels. The Department of Human
Resources and Social Development is the federal government department responsible for implementing welfare
policies. The government supports the unemployed and underemployed through Employment Insurance, working
parents through childcare plans, and seniors through pension programs and old-age security.

The Employment Insurance program provides temporary income support to those who are between jobs or out of work
for critical personal reasons. The country uses labor market development agreements, which are bilateral agreements
made between the Canadian Government and all provinces and territories, for this purpose. For childcare, the
government has an initiative known as the Universal Child Care Benefit system, which provides parents with direct
financial assistance to support the childcare choices that help them to balance work and family. The new government is
also planning to launch another benefit plan called Canada Child Benefit, which will provide more money to Canadian
middle class families to help raise their children. Canada has a stable income security program that delivers pension
and benefits through the Old Age Security scheme and the CPP. CPP is a contributory, earnings-related social
insurance program that ensures a measure of protection for the contributor and his or her family against loss of income
due to retirement, disability or death. Old Age Security provides additional funding to eligible low-income seniors.

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Figure 12: Canada – Gini Coefficient Index, 2014

Gini coefficient
0.45
0.394
0 (perfect equality) and 1 (perfect

0.40
0.356
0.35 0.313
0.30
inequality)

0.25
0.20
0.15
0.10
0.05
0.00
The US The UK Canada

Source: OECD MARKETLINE

High HDI

Canada performs well on various social parameters. According to the UNDP’s Human Development Report 2016, the
country was ranked 10th out of 188 countries with a HDI value of 0.920. According to the CIA World Factbook, as of
2017, life expectancy for the male population stood at 79.3 years, whereas for females it was 84.7 years.

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Figure 13: Canada – Better Life Index, 2016

Income and wealth


10
Subjective well-being 9 Jobs and earnings
8
7
6
5
Personal security 4 Housing
3
2
1
0
Environmental quality Work-life balance

Civic engag. &


Health status
governance

Social connections Education and skills

Canada The US OECD

Source: OECD MARKETLINE

Flexible employment protection

Canada’s labor markets function under flexible employment protection legislation, which generally tends to increase
employment rates and acts as a bulwark against long-term unemployment. Citizens with a stable work record have
access to income support via unemployment insurance which is characterized by average replacement rates but the
short duration of benefits.

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Figure 14: Canada – Protection for Regular Employment, 2013

3.5
0 (least restrictive) to 6 (most restrictive)

2.5

1.5

0.5

POL

FRA
MEX

LUX
KOR

DEU
JPN

PRT
ESP
USA

DNK

BEL

NLD
CZE
CAN

OECD

NOR

SWE
IRL
AUS

GRC

ISR

CHL
GBR
NZL
HUN
CHE

EST

AUT

TUR

ITA
SVK

FIN
SVN
ISL

Source: OECD MARKETLINE

Figure 15: Canada – Protection for Temporary Employment, 2013

6
0 (least restrictive) to 6 (most restrictive)

0
FRA
DEU

MEX

KOR
POL

LUX
JPN

PRT
CZE

ESP
USA

NLD
SWE

DNK

BEL
CAN

NOR
AUS

IRL

ISR

OECD

CHL

GRC
GBR
NZL

CHE

HUN

ITA

EST

TUR
FIN
ISL

AUT

SVK
SVN

Source: OECD MARKETLINE

Current challenges

Regional disparity

Although Canada’s economic output has been on the rise, growth has not been evenly spread across all provinces and
territories. Quebec, Ontario, British Columbia and Alberta have emerged stronger – economically and politically – than
others. These four provinces together account for 85% of the country’s GDP.

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The per capita incomes of Alberta, Saskatchewan, Newfoundland and Labrador registered higher growth than the rest
of the country. This is because they are rich in resources and benefit from high commodity prices. Regional disparity
explains the high unemployment rate in some provinces. Programs such as Employment Insurance may be
discouraging the migration of some unemployed people from underperforming areas to "hot" labor markets.

Future prospects

Better healthcare services

The government aims to collaborate with provinces and territories under federal leadership to formulate a new health
accord. This will include a long-term agreement on funding. Trained in-home caregivers, financial support for family
care, and palliative care will all be included. By buying medicines in bulk with support from provincial and territorial
governments, drugs will be made more affordable and more easily accessible. The Employment Insurance
Compassionate Care Benefit will be made more flexible and accessible to help people to take better care of their
families.

Future risks

Aging population

Like most developed economies, Canada is facing the problem of an aging population. According to the CIA World
Factbook, the median age of the country stood at 42.2 years in 2017, which indicates that half of the population was
above this age. The population belonging to the baby boomer generation is growing older, with many of its members
nearing (or already having reached) retirement. According to the OECD, the dependency rate of the Canadian
population is set to increase. Long-term forecasts by the OECD estimate that seniors will account for 45.19% of the
working age population (20–64 years) in 2050, against just 26.49% in 2016. The aging population represents a
challenge to the country in the medium term as it could strain the healthcare and pension systems.

Figure 16: Canada – Old Age Dependency Ratio (%), 2016 and 2050

Old (+65) Dependency Ratio (20-64 years)


90.0

80.0

70.0

60.0
Percentage

50.0

40.0

30.0

20.0

10.0

0.0

2016 2050

Source: OECD MARKETLINE

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Increasing immigrant population

Canada’s immigration policy is among the most lenient in the world, making it a favored destination for entrants from
developing and underdeveloped countries. The authorities have been accused of favoring immigrants to capture their
votes. However, there are still some groups that find it difficult to integrate with the mainstream and the favorable has
become a socially contentious issue. Reservations have been expressed in some quarters with respect to the
government’s silence on immigration in view of declining employment conditions and the high unemployment rate.

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Technological analysis

Overview

Canada’s technological achievements are not reflective of its full potential. The country’s total expenditure on R&D as a
percentage of GDP stood at 1.61% in 2014. It is recognized that the country faces an innovation gap, as its R&D
expenditure as a percentage of GDP has not improved despite the rollout of some of the most generous R&D tax
incentives for business innovation. The country also performs poorly against other developed economies in terms of
patents received from the US Patent and Trademark Office (USPTO). A lack of R&D involvement on behalf of business
enterprises and the education system is hampering innovation. Furthermore, the weak enforcement of anti-piracy laws
raise questions about Canada’s intellectual property regime.

Nevertheless, Canada has the potential to perform well in terms of emerging technologies such as wireless
telecommunication services and networking. Traditionally, its machinery and equipment industry has served the
manufacturing sector, and the country has an advantage in terms of meeting requirements for technologically
advanced goods in the aerospace industry.

Table 6: Canada –Technological Landscape Analysis, 2018

Current strengths Current challenges


▪ Developed manufacturing industry ▪ Declining spending on R&D
▪ Low number of patents

Future prospects Future risks


▪ Generous R&D incentives ▪ Weak intellectual property rights (IPR) regime

Source: MarketLine MARKETLINE

Current strengths

Developed manufacturing industry

Canada is home to a well-developed manufacturing industry, which serves as a base for the development of high-end
products. The industry is supported by a low overall tax rate, R&D incentives, a qualified labor force and integration
with the North American market. The machinery and equipment industry provides required components for the newly
developed aerospace industry. More than 70% of the goods manufactured in Canada are exported to the US, and the
same trend holds true for value-added goods for which the returns are higher. The country has low production costs
compared to similarly advanced countries. Alongside manufacturing, it has also emerged as an ideal location for ICT
manufacturing.

Current challenges

Declining spending on R&D

Canada lags behind other nations in terms of R&D expenditure. The nation’s total expenditure on R&D as a percentage
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of GDP – also known as R&D intensity – stood at 1.62% in 2014, lower than 1.99% in 2005. The main reason for this
decline in R&D intensity was a weak trend of business spending on R&D since 2000. Traditionally, the Canadian IT
sector was the major funder of business R&D. However, the bankruptcy of Nortel, the country’s biggest R&D performer,
and problems with another major R&D funder, BlackBerry, affected expenditure. Another reason is the Canada–US
Auto Pact, under which Canada manufactures and assembles models developed in the US but performs almost no
automotive R&D domestically. Resource-rich sectors relating to the extraction of oil and gas perform very little R&D.
Recent economic weakness and lack of funding avenues in early stage venture capital also added to the weakness in
business innovation. The country must shore up its business innovation profile to gain a technological advantage in the
future.

Low number of patents

The low number of patents received by Canadian firms reduces the nation's technological advantage. A lack of
innovation in the private sector is one of the main reasons for this trend. Compared to the US, Japan and Republic of
Korea, the country’s patent count is very low.

Table 7: Canada – Patents Granted by USPTO (Thousands), 2012–2015

Year Canada US Republic of Korea Germany Japan


2012 6,459 134,194 14,168 15,041 52,773
2013 7,272 147,666 15,745 16,605 54,170
2014 7,692 158,713 18,161 17,595 56,005
2015 7,492 155,982 20,201 17,752 54,422

Source: MarketLine Analysis MARKETLINE

Future prospects

Generous R&D incentives

Canada’s R&D tax incentives for business innovation are among the most generous in the world. The B-index
measures the before-tax income required by a firm to break even on $1 of R&D outlay. So the 1 minus the B-index
shows the government’s focus on R&D incentives, especially for SMEs. In fact, the incentives given by Canada are
much higher than those provided by the US. Giving impetus to R&D is the key for the Canadian economy to raise its
productivity and living standards and the government rightly provides subsidies to R&D activity. This could be helpful in
the long run, as companies will find it more attractive to invest in innovation.

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Figure 17: Canada – Tax Subsidy Rates on R&D Expenditure, 2017

Tax subsidy rate on R&D expenditure (2017)


0.50

0.45

0.40

0.35

0.30
1-B-Index

0.25

0.20

0.15

0.10

0.05

0.00

BRA

TUR

DNK
IRL

KOR
CHN

JPN
CHL

AUS

HUN
ZAF

AUT

RUS

MEX
SVK

USA

LUX
CHE

NZL
DEU
NLD

CZE
LTU
LVA

SVN

NOR

GRC
FRA

ESP

BEL

POL
CAN

GBR

ISL
PRT

ITA

SWE

FIN
-0.05

Large, profitable firm SME, profitable firm Large, loss-making firm SME, loss-making firm

Source: OECD MARKETLINE

Future risks

Weak IPR regime

Although the country has put an IPR regime in place through the Patent Act, the Trade-marks Act, the Copyright Act,
the Industrial Design Act, the Integrated Circuit Topography Act and the Plant Breeders Act, enforcement is found to be
wanting by many of its trading partners, particularly the US and the EU. The International Intellectual Property Alliance
has retained Canada on its Piracy Watch List every year since 2006.

Business software piracy also remains a significant concern according to the BSA, a representative body of the world’s
largest software groups. In its Global Piracy Study, BSA estimated that losses occurring from the unlicensed use of
business software arrived at $893 million in 2015. According to the study, the levels of piracy in the country were
around 24% in 2015. Although Canada reformed its copyright law in 2012, the effectiveness of its enforcement remains
to be seen. A poor IPR regime will deter investment and hinder trade.

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Legal analysis

Overview

Canada has one of the most flexible labor markets in the world; it operates under flexible employment regulations that
enhance opportunities and productivity growth. Canada’s corporate tax rates are low compared to other developed
nations, which provide an incentive for foreign investors to establish businesses.

Although Canada provides a number of competitive advantages for external players, the regulation of foreign
investment discourages liquid capital transfers in few services sectors such as telecom, radio and broadcasting and
aviation. Moreover, it is one of the few developed countries with an investment review process in place. Nevertheless,
the government is steadily opening up its services sector, a process that started with the reform of the
Telecommunications Act in 2012.

Table 8: Canada – Legal Analysis, 2018

Current strengths Current challenges


▪ Comprehensive legal framework for business entities ▪ FDI restrictions in key sectors
▪ Favorable taxes and incentives for investors ▪ Loopholes in taxation system

Future prospects Future risks


▪ Low tax wedge ▪ Absence of a single capital markets regulator

Source: MarketLine MARKETLINE

Current strengths

Comprehensive legal framework for business entities

Canada has a comprehensive legal and regulatory framework that provides the business environment with
transparency. Regulatory processes are favorable among foreign investors, with national laws providing the freedom to
start, operate and close a business. Starting a business in Canada is far easier than in other nations; it takes an
average of 1.5 days and two procedures, compared to the OECD average of 8.5 days and 4.9 procedures according to
the World Bank's Doing Business 2018 report. Canada’s system for registering a business has been entirely online
since 2006 and there are no minimum capital requirements. The procedures needed to establish an enterprise are less
cumbersome and more transparent. All these factors make Canada a favorable destination for foreign investment.

Favorable taxes and incentives for investors

According to InvestinCanada, the country ranked first among the G7 nations in terms of corporate tax rates and cost
competitiveness. In addition, the country’s marginal effective tax rate for new businesses is the lowest among G7
countries, which is an incentive for start-ups. Canada also has one of the most favorable tax regimes for scientific
research and experimental development expenditure in the world. Generally, in addition to tax deductions for such
expenditure, tax credits are available based on expenditure. Additional incentives from provincial governments
supplement federal concessions. The government’s low tax rate resulted in a strong recovery in business investment

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PESTLE Analysis

following the global financial crisis.

The former government’s low tax plan incentivized businesses to invest in Canada. Canada currently has the lowest
overall tax rate on new business investment in the G7; product market regulation is comparatively less restrictive than
most of its OECD peers. This is beneficial for external investors.

Figure 18: Canada – Product Market Regulation, 2013

3.00
0 (least restrictive) to 6 (most restrictive)

2.50

2.00

1.50

1.00

0.50

0.00
DNK

DEU

LUX

KOR
SWE

MEX
POL
NLD

PRT

JPN

FRA
EST

BEL
CZE

IRL
ITA

CAN
ESP

NOR
OECD

CHE
CHL

GRC
GBR

NZL

FIN

HUN
AUS

ISL

ISR
TUR
AUT

SVK

Source: OECD SVN MARKETLINE

Current challenges

FDI restrictions in key sectors

Despite Canada being an advanced nation, the government’s restrictions on foreign ownership in sectors such as
telecoms, radio and broadcasting and aviation still exist. It is one of the few developed countries to have an investment
review process. While Canada maintains a 46.7% FDI limit for domestic telecom services providers, foreign ownership
of Canadian air carriers is limited to 25% of voting equity. Nevertheless, Canada amended its Telecommunications Act
in mid-2012 allowing foreign ownership of telecom carriers with a market share of less than 10% by revenue to
increase competition. Telecom carriers are permitted to continue operating even if their market share grows beyond
10% provided the increase is not an outcome of an acquisition or a merger with another domestic carrier. Nonetheless,
the results of the 2014 spectrum auction, where three major domestic telecom players (Bell, Telus and Rogers)
acquired the majority of licenses, show that further liberalization in the sector is desired.

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PESTLE Analysis

Figure 19: Canada – FDI Restrictiveness Index, 2016

1.60
Index scale from 0 (least restrictive) to 6 (most

1.40

1.20

1.00
restrictive)

0.80

0.60

0.40

0.20

0.00

MEX
LUX

DEU

KOR
POL
NLD

CZE
BEL

FRA
PRT

SWE
JPN
GBR

CHL
DNK
IRL

ITA

TUR
CHE

ESP

NZL

NOR

EST
SVN
CAN
FIN

HUN

GRC
OECD
AUS

ISL

SVK

AUT

ISR
Source: OECD MARKETLINE

Other industries in which foreign investment is restricted include oil and gas, farming, book publishing and selling,
fisheries, liquor sales, mining, collection agencies, engineering, optometry, pharmacies and securities dealers. There
will be a rise in investment activities if these sectors are fully liberalized.

Loopholes in taxation system

Canadian tax regulations are antiquated. CEOs and senior executives are offered stock option deductions that allow
them to pay tax at half the rate of ordinary working income. Loopholes also enable wealthy citizens to evade taxes –
the foremost method being leaving the country as a tax resident. Under this provision, an individual can pay a one-time
departure tax of 25% on their personal assets, and then place the assets into an offshore trust which is run at arm’s
length by trustees. Capital gains can be transferred to third parties in other countries to evade taxes. This money can
be brought back into Canada in the name of a tax-free trust. These loopholes are leading to revenue losses for the
government, which must take measures to plug the gaps.

Future prospects

Low tax wedge

According to the OECD, Canada has one of the lowest one-earner married couple two children total tax wedge (income
tax, employer and employee social security contributions and pay roll tax as a percentage of labor costs) in the OECD.

When it comes to the individual tax wedge (single, no child), Canada has lower total tax wedge in comparison to the
OECD average. Canada’s individual tax wedge stood at 31.4% (at 100% of average wage) in 2016, compared to the
OECD average of 36.02%. Low taxes on labor encourage prospective skilled migrants, who wish to migrate to Canada.
This is good for businesses as it helps attract talent to the Canadian labor pool.

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PESTLE Analysis

Future risks

Absence of a single capital markets regulator

There is no single capital markets regulator in Canada; the responsibility for regulating the securities trade lies with the
provinces. However, inefficiencies exist as the provincial authorities must file extra paperwork and coordinate among
themselves to maintain market coherence. The Conservatives have been vying to establish a national securities
regulator since 2006; however, some provincial governments are yet to agree an appropriate model. Although the
provinces of Columbia, Ontario, Saskatchewan and New Brunswick signed a memorandum of agreement in 2014
formalizing the terms and conditions of a cooperative capital markets regulatory system, the prospects of a national
securities regulator will remain elusive as long as Alberta, Quebec and Manitoba resist. Substantial gains could be
achieved by establishing a national securities regulator. Factors that will drive the idea of a single regulator are
efficiency in allocating resources, the benefits of economies of scale, the advantages of information sharing and clear
accountability.

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PESTLE Analysis

Environmental analysis

Overview

The Canadian Government has established mechanisms to meet the environmental challenges that come with
economic development. The focus of Canadian environmental policies has broadened from local and regional issues to
challenges of a global nature. Climate change, global biodiversity, ozone layer depletion and the transport of chemicals
and hazardous waste are some of the areas that appear at the top of Canada’s environmental agenda. It has made
some progress in meeting its domestic environmental objectives and international commitments. Some advances have
been made in cutting air pollution and policies have been created to reduce GHG emissions. However, the country’s
performance in preserving biodiversity, managing pollution, increasing energy efficiency and managing hazardous
waste has been far from satisfactory.

Climate change is a major issue on Canada’s environmental agenda. Other priority areas include the protection of
nature and human health, air and water quality, waste water collection and waste disposal. Although Canada has made
sustainable development a priority area, this has not yet resulted in practical policies and actions. Most of the
implementing agencies lack the legal authority to carry out enforcement.

Table 9: Canada – Environmental Analysis, 2018

Current strengths Current challenges


▪ Strong environmental policy framework and initiatives ▪ Weak environmental record

Future prospects Future risks


▪ Regulations to reduce GHG emissions from the transport sector ▪ Canadian oil sands raising environmental concerns

Source: MarketLine MARKETLINE

Current strengths

Strong environmental policy framework and initiatives

Canada has a strong environmental policy, legislative framework and well-established institutions at a federal and state
level. The Environment Act of Canada is an umbrella act, having different statutes for water, air, waste management
and preserving biodiversity. There are separate agencies under federal and provincial governments that are entrusted
with the implementation of these policy measures. The government has made substantial improvements in legislation
and the implementation of its national environmental policies by committing itself to international agreements.

In December 2016, the prime minister announced that the government had finally reached an agreement with most of
the provincial and territorial leaders on a national climate change deal. The prime minister asserted that he has secured
the blessings of the provinces dependent on resources. The deal includes introduction of a national carbon price which
is slated to take effect in 2018. According to the prime minister, the country is on track to meet its aim of reduction of
emissions by 30% below 2005 levels by 2030.

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PESTLE Analysis

Current challenges

Weak environmental record

The country has poor environmental record among the OECD countries. It performs poorly on many environmental
indicators including sewage treatment, species at risk, GHG emissions, pesticide use and nuclear waste. According to
the Environmental Performance Index 2016 published by Yale University, the nation ranks 82nd out of 121 countries on
the tree cover loss parameter with a score of 39.1 out of 100. The parameter measures the loss of tree cover over the
past 15 years. Additionally, the GHG emissions, both per capita and per unit of GDP, are among the highest in the
OECD, which suggests inefficiencies in the utilization of energy. At the same time, Canada is heavily reliant on non-
renewable energy resources, an important factor in its economic growth. Its inability to use alternative sources of
energy will add to the already high level of emissions. The former government faced extensive criticism from
environmentalists for passing Bill C-38 in 2012, which proposed major changes to environmental legislation. The bill
reduced the stringency of the federal environmental assessment process and included repeal of the Kyoto Protocol, an
international accord binding the member countries to reduce GHG emissions by a certain proportion from 1990 levels.
It will be a tough challenge for the new government to rectify the damage done because of the implementation of the
bill. to meet its COP21 target, it has must reduce GHG emissions by 30% by 2030. Low taxes on energy use have also
fueled a weak environmental record.

Figure 20: Canada – Environmentally Related Taxes (%), 2014

4.50

4.00

3.50

3.00
% of GDP

2.50

2.00

1.50

1.00

0.50

0.00
CZE
MEX

DEU

KOR
POL

LUX

SWE

DNK
JPN

NLD
FRA

BEL

PRT

ITA
CAN

OECD
SVK
CHE
ESP

NOR

IRL

EST

GRC

AUT
USA

CHL
NZL

FIN
AUS

ISL

GBR

HUN

ISR

TUR

SVN

-0.50

Energy Motor vehicles and transport Other

Source: OECD MARKETLINE

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kg per capita, thousands kg per 1000 US$, thousands

0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
2.0
1.8

0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0

Source: OECD
Source: OECD
PESTLE Analysis

Sweden Switzerland
Latvia Sweden
Switzerland Norway
Turkey France
Hungary Denmark
Portugal Luxembourg

PESTLE Country Analysis Report: Canada


Italy UK
France Austria
Spain Italy
Slovakia Ireland
UK Spain
Slovenia Portugal
Greece Netherlands
Denmark Belgium

1990
1990
Austria Latvia
Finland Hungary
Germany

2015
Poland

2015
Belgium Finland
Turkey

© MarketLine. This report is a licensed product and is not to be photocopied


Japan
Norway Slovakia
Japan

GHG emissions per capita


Germany
GHG emissions per unit of GDP

Figure 22: Canada – GHG Emissions Per Capita, 1990 and 2016
Slovenia
Netherlands
OECD - Total
Czech Republic
Iceland
Figure 21: Canada – GHG Emissions Per Unit of GDP, 1990 and 2016

OECD - Total
Greece
Ireland
US
Estonia
Czech Republic
Iceland
Poland
New Zealand
Canada
Luxembourg
Australia
Canada
New Zealand

Page 43
ML00002-006/Published 02/2018
US
Estonia
Australia
MARKETLINE

MARKETLINE
PESTLE Analysis

Future prospects

Regulations to reduce GHG emissions from the transport sector

The former government introduced new regulations to limit GHG emissions from the automotive sector. In September
2010, it introduced Passenger Automobile and Light Truck Greenhouse Gas Emission Regulations as part of its efforts
to reduce GHG emissions. The plan aims to reduce on-road emissions by establishing mandatory GHG emission
standards, in accordance with US standards, for vehicles that are manufactured from 2011 onwards. These regulations
are applicable on all companies involved in manufacturing or importing new light-duty vehicles for the purpose of sale.
The aim of the regulations is to reduce the country's total GHG emissions by 20% by 2020 compared to the 2006
levels. In 2014, regulations were amended to establish more stringent GHG emission standards for 2017–2025. Since
transportation accounts for approximately one quarter of Canada's total GHG emissions, these regulations will improve
Canada's environmental quality.

Future risks

Canadian oil sands raising environmental concerns

The efforts of global oil companies to exploit the vast “tar sands” in Alberta are fraught with environmental risk. With
proven reserves of more than 170 billion barrels, the province’s oil resources are comparable to that of Saudi Arabia.
However, the activity led to an increase in emissions and toxic chemicals in waterways. Some environmental
watchdogs advocate the withdrawal or suspension of new projects to address these concerns, while others are
campaigning for the industry to adopt a green approach. The oil sand operations have a significant environmental
footprint and the responsibility of minimizing the impact lies with the stakeholders. The government has taken a lenient
view of emissions records and has instead embarked on the expansion of oil production.

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Political Landscape

POLITICAL LANDSCAPE
Summary

In 1867, the nation came into existence under one dominion calling itself "Canada" after the provinces surrendered the
right to self-governance. Both French and British forces colonized the country; the original cause of the east–west
divide. Because of its colonial past, Canada recognizes Queen Elizabeth II as the formal head of state; the governor
general represents her. However, the prime minister is the head of the government.

For the 12 years preceding 2006, the Liberal Party ruled Canada. However, a series of financial scandals involving the
party led to the victory of the Conservative Party in the 2006 elections. Stephen Harper, leader of the party, became
prime minister and headed a minority government. In the September 2008 elections, the Conservatives led by Harper,
won the majority of the seats but fell short of an absolute majority. The decision to prorogue the parliament from
January 25, 2010 to March 3, 2010 to recalibrate economic policy proved to be unpopular. However, the Conservatives
won a resounding victory in the 2011 elections and formed a majority government, which brought stability to the
country. In the 2015 elections, the Liberal Party, under the leadership of Trudeau, emerged victorious by winning 184
seats and formed a majority government. The Liberal Party came into power after almost a decade of Conservative
rule.

Evolution

Pre-1930s

Europeans had occasional contact with Canada, which was initially inhabited by aboriginals, at least as far back as the
10th century. France established its first permanent settlement as Quebec City in 1608. French and British forces
colonized Canadian territories for more than three centuries. There were constant conflicts between the French and the
English because of the ample trade opportunities in fisheries and fur available. France ceded control of Newfoundland,
Hudson Bay and Nova Scotia (Acadia) in 1713. The treaty of Paris in 1763 gave Britain authority over Canadian
territories.

The French and British populations of the Canadian provinces became self-governing in the 1840s. In 1841, the United
Province of Canada was formed by uniting Canada East (Lower) and Canada West (Upper). By virtue of the British
North America Act, one dominion under the name of "Canada" was created on July 1, 1867, consisting of four
provinces: Ontario, Quebec, Nova Scotia and New Brunswick. Five more provinces joined the state during 1807–1905.
The political scene was dominated by the Conservative Party for most of the late 19th century (1866–1896). Sir John
Macdonald was the prime minister for this period, except during 1873–1878. In 1896, the Liberal Party, under Sir Wilfrid
Laurier, took over and ruled until 1911. Canada entered World War I in 1914 with Britain’s declaration of war on
Germany. In 1919, Canada joined the League of Nations independently from Britain.

1931–1992

In 1931, the Statute of Westminster affirmed Canada’s independence. During World War II, Canada declared war on
Germany. The economy boomed on the back of meeting requirements following World War II, as the country supplied
materials to Britain, China and the Soviet Union. The economies of the US and Canada were closely integrated in the
post-war period. The Liberal Party dominated Canadian politics during 1931–1957, before being succeeded by the
Conservatives in 1958. The Liberals, under the leadership of Lester B. Pearson, returned to power in 1963. On his
retirement, Pierre Elliott Trudeau succeeded him as prime minister in 1968. The period also saw the emergence of

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Political Landscape

secessionist movements, particularly in the French province of Quebec. In order to temporarily pacify the separatist
movement, Trudeau enacted the Official Languages Bill, which gave recognition to the French language as the official
language of Quebec. The Canada Act of 1982 cut the last legal ties between Canada and Britain and gave complete
independence to the nation.

The Canadian political landscape saw a change in 1984 when the Progressive Conservative Party, led by Brian
Mulroney, won an overwhelming victory with the highest political majority in the country's history. His government won
a second term in the 1988 elections. The free trade pact with the US, which was opposed by the Liberal Party, was the
dominant issue in these elections. The two countries eventually agreed to pursue an FTA in 1989. The US and
Canada, alongside Mexico finalized the terms of NAFTA in 1992.

Figure 23: Canada – Political Events Timeline

Pre–1950 1951–80 1981–90 1991–2000 2001 Onwards

• In 1841, the United • In 1965, Canada • In 1982, the UK • In 1992, Canada, • In 2004, the Liberal
Province of Canada adopted its own flag. transferred all its Mexico and the US Party won the
was formed. rights over Canada, signed the NAFTA. elections and Paul
• In 1968, Pierre
and Canada adopted Martin was re-elected
• In 1914, Canada Trudeau of the • In 1993, Mulroney
its own federal as the PM.
fought on the side of Liberal Party won the resigned and was
constitution.
Britain and France in elections and was succeeded by Kim • In 2006, the
World War I. elected the prime • In 1984, the Campbell as PM. Conservative Party
minister (PM). Progressive However, Jean under Stephen Harper
• In 1939, Canadian
Conservative Party Chretien of the won the elections.
forces were active in • In 1968, Parti
won the elections Liberal Party won
Italy, the Atlantic, Quebecois was • In 2008, the
under Brian the October
Europe and other formed to fight for a Conservative Party
Mulroney, who was elections to become
areas during World separate Quebec. won the elections and
elected PM. The the new PM.
War II. elected Harper as PM.
• In 1976, Parti government shifted
• In 1995, a
• In 1947, Canada got Quebecois won the its foreign policy • In 2009, the parliament
referendum for a
equal status as elections in Quebec towards the US and passed the budget
separate Quebec
Britain in the to form the Europe. with a major stimulus
was defeated by a
Commonwealth. government. package.
• In 1988, Canada and margin of 1%.
• In 1949, Canada • In 1980, a Parti the US signed a free • In 2011, the
• In the 1997 and
became a founding Quebecois-initiated trade agreement that Conservative Party
2000 elections,
member of the North referendum for a boosted the share of won the elections and
Chretien was re-
Atlantic Treaty separate Quebec exports to the elected Harper as PM
elected as PM.
Organization was rejected by 60% Canadian GDP from for the third time.
(NATO). of Canadian voters. 25% to 40%.
• In 2015, the Liberal
• In the 1950 war in Party won the
Korea, Canadian elections with a huge
forces took part in the majority and Justin
UN war effort. Trudeau was elected
as the new PM.

Source: MarketLine MARKETLINE

1993–2017

In 1993, Mulroney resigned as the leader of the Progressive Conservatives and was succeeded by Kim Campbell to
become Canada's first female prime minister. She continued until the October 1993 elections, in which the Progressive
Conservatives suffered a defeat, winning only two seats compared to 169 in the previous election. Jean Chretien, a
Liberal, then became prime minister. Chretien won two more terms after the 1997 and 2000 elections, retiring from
office in 2003 to be replaced by Paul Martin. Under Martin, the Liberals were reduced to a minority government in the
2004 federal election. As the Liberals did not have a majority, the opposition parties were able to pass a motion of no-

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Political Landscape

confidence which led to the government’s dissolution in 2006. This was followed by early elections which saw the
Conservatives forming a minority government. The Conservatives’ victory was partially attributed to the Liberals losing
their voters’ support over a financial scandal. Stephen Harper, the leader of the Conservative Party, took over as prime
minister and was forced to form a minority government as his party fell 31 seats short of 155 seats. The Conservatives
followed a policy of seeking alliances with smaller parties on an issue-by-issue basis rather than forming a permanent
coalition.

Due to conflict over the 2008 budget, the opposition parties formed a coalition to bring down the government, which led
to Prime Minister Stephen Harper asking the governor general to prorogue the parliament in December 2008.
Parliament was prorogued until January 26, 2008 and the subsequent backlash against the coalition meant that the
Conservatives had escaped a vote of no-confidence. The Conservative-led government asked the governor general to
prorogue the parliament for the second time in 12 months in December 2009. This was seen as a move to avoid a
debate on the government's alleged involvement in the torture of Afghan detainees. Nevertheless, Harper managed to
prorogue the parliament to March 3, 2010.

The opposition managed to move a no-confidence motion against the government in March 2011 which ultimately led
to the downfall of the minority government. In the ensuing May 2011 elections, however, the Conservatives won a
resounding victory and formed a majority government. After a decade-long Conservative rule, the Liberal Party
regained its political prominence and emerged victorious by by winning 184 seats in the October 2015 elections. The
Liberal Party formed the majority government with Trudeau as the new prime minister.

Structure and policies

Key political figures

The key political figures in Canada are:

 Prime Minister Justin Trudeau.

 Governor general Julie Payette.

Figure 24: Canada – Key Political Figures, 2018

Justin Trudeau is Canada’s 23rd prime minister. He heads he Liberal party of Canada. He is
the second youngest prime minister and is the son of former prime minister Pierre Trudeau.
He earned a degree in education from University of British Colombia. He entered politics
following his father’s death. He became the member of parliament in 2008 by winning the seat
for Liberal party Papineau. He was re-elected as MP from Papineau in the 2011Canadean
federal election. He won the leadership of the Liberal Party in April 2013 and led the party to a
huge victory in the 2015 federal elections.

Julie Payette is the 29th governor general of Canada, assumed office in October 2017.
Payette was a businesswoman and a former member of the Canadian Astronaut Corps before
she assumed office as the governor. She is the fourth female governor general of Canada but
the first to have flown to space. As the governor general, she has urged the Canadians to
work together on issues including climate change, migration and poverty.

Source: MarketLine MARKETLINE

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Political Landscape

Structure of government

Canada is a federal parliamentary democracy and a constitutional monarchy. The Queen is the constitutional head of
state, as Canada is a commonwealth nation. The governor general represents the Queen. However, real executive
power is vested in a council of ministers, with the prime minister as its head. The parliament comprises the Senate and
the House of Commons, which is the legislative body. Governance powers are shared between the federal and
provincial governments as defined by the Canadian constitution. The provincial government is headed by a
democratically elected premier.

Structure of parliament

The bicameral parliament of Canada consists of the Queen, the Senate and the House of Commons. The 105 senators
are appointed by the governor general on the recommendation of the prime minster. The 338 members of the House of
Commons are elected from the districts or ridings through a plurality voting system, where the candidate with the most
votes is declared the winner. The size of the House of Commons, where seats are proportionately distributed among
the provinces, is revised after every census, conducted once in every five years.

Figure 25: Canada – Political Structure (Central Government)

Canadian Parliament (Center)

Governor General

Senate House of Commons


(Upper House) (Lower House)

• Prime minister is the leader of the


• 105 members house
• Appointed by governor general • 338 members
• Expected to give regional • Members elected by a plurality of
representation popular votes in separate
constituencies
• 5-year term
• 5-year term

Source: MarketLine MARKETLINE

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Political Landscape

Key political parties

Conservative Party

The Conservative Party of Canada is currently in the opposition, with Rona Ambrose serving as the interim leader. The
party was formed in 2003 by the merger of the Canadian Alliance and the Progressive Conservative Party of Canada.
The parties came together because neither was able to expand its national influence. Their strategy was to avoid the
Liberal Party’s victory in the elections by preventing the split of the right-wing vote that resulted in Liberal Party’s
victories in 1993, 1997 and 2000. Historically, conservatism has indicated the combination of a hard-right attitude with
support for state-funded social programs. However, there is a second form of conservatism, mainly in Western Canada,
which believes in the privatization and reform of the political system, including the decentralization of federal authority.
The party's policies indicate the coming together of these two disparate views. The party adopted the middle way and
supports a market economy approach in the economic sphere, since most of the members of the new party are from
the western provinces. The party favors lower taxes and takes a tough stance on issues of law and order. It also
supports high military spending. In its current form, the party is seen as pro-American, and is attempting to establish its
economic and social institutions along the same lines as those of the US. It currently has 99 seats in the House of
Commons.

New Democratic Party

The New Democratic Party constitutes former communists, immigrants and industrial workers as its members. In 1958,
the Canadian Labour Congress and the Co-operative Commonwealth Federation formed a joint committee called the
National Committee for the New Party to bring together the political left and organized labor. The union eventually
evolved into the New Democratic Party in 1961. The New Democratic Party supported the minority government of the
Liberals from 1972 to 1974. In 1974, the party passed a motion of no-confidence alongside the Progressive
Conservatives to force an early election. This action backfired as the New Democratic Party ended up losing half of its
seats in parliament. After lackluster performances between 1975 and 1987, the party saw 43 of its MPs elected to the
house in 1988. However, the party was routed in the 1993 elections, winning only nine seats.

After encountering more setbacks in 1997 and 2000, the party elected Layton as its new leader in 2002. Under his
leadership, the party fared well by winning 19 and 29 seats in the 2004 and 2006 elections, respectively, before
winning 37 seats in the 2008 elections. However, its crowning moment came in the 2011 federal election, when the
party won a record 103 seats to become the official opposition. The party lost its parliamentary stronghold in in 2015,
with only 44 seats.

The party advocates gender equality, corporate tax increases, poverty reduction, environmental and human rights
protection, expansion of public transport and healthcare, social assistance, wage hikes and lower taxes for small
businesses.

Liberal Party

The Liberal Party of Canada, whose members are known as "Grits", follows center-left ideologies with liberal social
policies and moderate economic strategies. It is the only party existing from the times of Confederation, and is
therefore the country’s oldest functioning party at a federal level. It came into existence in 1867 and was in power for
most of 1921–1948, following a progressive social policy. The party remained in power throughout the 1960s and
1970s, but was defeated in the 1984 elections. It regained power during 2000–2006. In 2004, the it faced the challenge
of a united Conservative Party and although they retained enough support to continue in government, they were
reduced to a minority. A motion of no confidence against the then Prime Minister Martin triggered snap elections in

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Political Landscape

2006, where the Liberal Party suffered a defeat, winning just 103 seats compared to 133 in 2004. The party was
relegated to third place in the 2011 elections and lost its position as the official opposition. However, the party rose to
power again in the 2015 elections, forming a majority government with 184 seats in the House of Commons.

Composition of the parliament

The most recent federal elections were held in October 2015. The Liberal Party of Canada won 184 of 338 seats and
regained its prominence in parliament with a majority. It was followed by the Conservatives with 99 seats, the New
Democratic Party with 44 seats, Bloc Quebecois with 10 seats, and the Greens with one seat.

Figure 26: Canada – Composition of Parliament (Number of Seats), 2015

Bloc Quebecois , 10
Greens, 1

New Democratic
Party, 44

Liberal Party, 184

Conservative Party,
99

Source: CIA – The World Factbook MARKETLINE

Key policies

Economic

The new Liberal government has committed to run budget deficits until 2019 in order to support the economy. In the
2016–2017 budget, the government cut the second marginal tax rate from 22% to 20.5%, while introducing a new top
marginal rate of 33% above an income of CAD200,000 ($150,085). It had already revamped the existing income tax
rates in order to raise more revenue to fund new infrastructure spending of C$60 billion ($44.62 billion) over the next
decade. A proposed allocation of C$120 billion ($90.05 billion) has been earmarked for infrastructure, over the course
of the next decade. The 2017–2018 budget has projected total expenses at $330.2 billion, of which $37.1 billion has
been earmarked for health transfers, $22.0 billion for employment insurance benefits, and $13.3 billion as social
transfers among others.

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Political Landscape

Social

Under its Economic Action Plan 2015, the former government focused on enhancing childcare and proposed
improvements to the Universal Child Care Benefit, which provides parents with up to C$100 ($74.37) per month per
child until they turn six. It also promoted child adoption by enhancing Adoption Expense Tax Credits.

The new Liberal government plans to make post-secondary education more affordable and will increase the maximum
Canada Student Grant to C$3,000 ($2,231) per year for low-income full-time students and C$1,800 ($1,338.60) per
year for low-income part-time students. Aside from this, the government plans to introduce a new Canada Child Tax
Benefit and will cancel Universal Child Care Benefits. The intention is to provide Canadian families with more money to
raise their children. The Child Tax Benefit is in line with household income, making it highly convenient for single-parent
families and low-income families. With the help of this benefit, the government aims to lift 315,000 Canadian children
out of poverty. The 2017–2018 budget aims to create a stronger healthcare system and has earmarked $11.0 billion to
fund home care and mental health, as well as $828 million to improve healthcare outcomes in indigenous people.

International relations

The Americas are a foreign policy priority, and Canada is developing agreements within the region to pursue bilateral
and regional free trade, avoid double taxation, protect foreign investment, strengthen financial and banking institutions
and assist development. The country already has FTAs with Chile, Colombia, Costa Rica and Panama. The
government is engaged in more FTA negotiations with Morocco, South Korea, India, Singapore, the Dominican
Republic, El Salvador, Guatemala, Nicaragua and Andean and Caribbean countries. In September 2017, a new trade
agreement, CETA came into force between EU and Canada. The new agreement remove custom duties, make
European firms more competitive in Canada and open up Canadian services market to EU companies.

Performance

Governance indicators

The World Bank report on governance usesd voice and accountability, political stability and absence of violence,
government effectiveness, regulatory quality, rule of law and control of corruption as indicators for 214 countries and
territories over 1996–2015. Daniel Kaufmann of the Brookings Institution, Massimo Mastruzzi of the World Bank
Institute and Aart Kraay of the World Bank Development Economics Research Group conducted the study. For any
country, a percentile rank of zero corresponds to the lowest possible score and a percentile rank of 100 corresponds to
the highest possible score.

Canada had a percentile rank of 96.06 out of 100 in terms of voice and accountability in 2016. This measures the
extent to which a country's citizens are able to participate in selecting their government, as well as freedom of
expression, association and the media. Democracy has been deep-rooted in Canadian politics since the beginning of
self-governance in the 19th century. The democratic setup has strengthened with passing years, with the entry of new
parties such as the Greens. In comparison, its neighbor the US scored a percentile rank of 84.24, while the UK ranked
on the 90.64 percentile.

Canada had a comparatively high percentile rank of 93.33 out of 100 in terms of political stability and absence of
violence in 2016. This measures perceptions of the likelihood that the government will be destabilized or overthrown by
unconstitutional or violent means, including domestic violence and terrorism. Comparatively, the US and the UK were
poor performers with percentile ranks of 58.57 and 59.05, respectively.

Most developed nations perform well in terms of government effectiveness, which measures the quality of public

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Political Landscape

services, the quality of civil services and the degree of their independence from political pressure, the quality of policy
formulation and implementation, and the credibility of the government's commitment to such policies. Canada had a
percentile rank of 95.19 out of 100 in 2016, higher than both the US and the UK, which ranked on the 91.35 and 92.79
percentiles, respectively. Broad policy direction in Canada has remained stable under both Conservative and Liberal
rule. Most policies have an element of continuity rather than change.

Canada had a percentile rank of 94.23 out of 100 in terms of regulatory quality in 2016. This measures the ability of the
government to formulate and implement sound policies and regulations that permit and promote private sector
development. Canada’s percentile rank was higher than the US's rank of 91.83 but lower than the UK's rank of 95.19. A
well-developed and transparent regulatory structure explains the nation's high ranking.

Canada had a percentile rank of 96.63 out of 100 in terms of rule of law in 2016. This measures the extent to which
agents have confidence in and abide by the rules of society, and in particular the quality of contract enforcement, the
police and the courts, as well as the likelihood of crime and violence. The UK and the US had respective percentile
ranks of 91.83 and 92.31.

Canada had a high percentile rank of 95.19 out of 100 in terms of control of corruption in 2016. This measures the
extent to which the elite and private interests exercise public power for private gain, including both petty and grand
forms of corruption, as well as the capture of the state. Barring a few financial scandals, corruption is minimal in
Canada. It fared well compared to other G8 nations, higher than the US at 89.90 but lower than the UK which received
a percentile rank of 94.23, in the same year.

Outlook

Trudeau’s Liberal Party came to power in a landslide victory in the October 2015 elections which left the Conservatives
and the separatists in minority positions. The extensive agenda of increased spending on infrastructure, provision for
tax benefits to the middle classes, addressing environmental concerns, legalization on marijuana and support to Syrian
refugees, made them popular amongst the public. The majority government is expected to follow policies which will
replace the former party’s conservative agenda.

The new prime minister has already forayed on his promise of improving relations with China, with both sides now
considering a bilateral free trade agreement and a bilateral extradition treaty. The new administration is reaching out to
better its relations with its long-standing allies, especially Cuba and the other Latino countries.

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Economic Landscape

ECONOMIC LANDSCAPE
Summary

According to MarketLine, Canada had real GDP of $1.87 trillion in 2017. Although the economy contracted by 3.2% in
2009, it rebounded with a growth rate of 2.9% in 2010, buoyed by a government stimulus package and the central
bank’s monetary policy that revived employment and investment. The economy grew at a rate of 3.1% in 2011, but
slowed in the following year to 1.60%, as fiscal consolidation and high household debt reduced consumption and
external headwinds arising from the country’s strong links with the US economy depressed exports and business
spending. In 2014, the economy grew by 2.61%. However, it slowed to 0.81% in 2015 owing to fall in oil prices. In
2016, economic growth rebounded and grew by 1.38%.

Evolution

Pre-1980

The Canadian economy closely followed the US economy’s booms and depressions. World War II led to fast economic
growth in Canada, especially Western Canada, which is rich in natural resources. It also sowed the seeds of regional
disparity that persists today. After the war, GDP growth gathered momentum, unemployment was low and consumer
goods production increased. During this period, both the federal and provincial governments initiated a number of
social welfare measures. The discovery of new oil fields in the late 1940s added to the economic boom. Financial
growth continued unabated into the late 1970s.

1980–2016

Following economic growth that lasted for almost 25 years in the post-war era, Canada’s economy slipped into
recession during 1980–1985. While international economic conditions were the main reason, monetary policies
pertaining to high nominal and real interest rates aggravated the situation. The economy expanded during 1985–1990,
but the growth rate declined markedly during the early 1990s as a result of high interest rates and a slowdown in the
US and global economies. Constraints on fiscal policy occurred due to the burden of international payments on federal
debt. Although economic slowdown during this period was less dramatic than the recession of the 1980s (GDP fell by
2.1% over 12 months in 1990–1991 compared to 6.7% during 1981–1982), it took longer to recover. An increase in
exports and a moderate rise in retail spending drove the process of economic recovery as GDP grew by 0.85% in
1992. The economy maintained steady growth during 1993–1994, registering average annual growth of 3.65%.

However, rising public debt, tight monetary conditions and the sluggishness of exports to the US affected the economy
in 1995–1996. Consequently, it grew by 2.61% in 1995 and 1.58% in 1996. Over the next two years, a better fiscal
position and the easing of monetary policy drove economic growth, which was underpinned by strong domestic
demand within the private sector. Economic growth averaged 4.20% during 1997–1998. Economic activity slowed in
2001 due to the bursting of the IT bubble; however, the slowdown was not as pronounced as in the US. The economy
decelerated but grew by 1.48% in 2001 and rebounded to 2.90% in 2002. Weak external demand due to the sharp
appreciation of the Canadian dollar once again affected the economy in 2003, and cut the growth rate to 1.87%.
Economic momentum recovered in subsequent years, with growth averaging 2.38% during 2004–2008. Although the
economy contracted by 3.17% in 2009 in the aftermath of the global financial crisis, it rebounded with growth of 2.9% in
2010, buoyed by the government’s stimulus package and the central bank’s easing of monetary policy. The economy
grew at a strong rate of 3.12% in 2011, but growth slowed in the following year to 1.60% as fiscal consolidation and

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Economic Landscape

high household debt pulled down household consumption and external headwinds arising from the country’s strong
links with the US economy depressed exports and business spending. The economy grew by 2.35% and 2.61% in
2013 and 2014, respectively, due to strong recovery in the US economy. However, due to a continuous dip in global oil
prices, the economy grew at a stunted rate of 0.8% in 2015. It rebounded and posted a growth rate of 1.38% in 2016.

Figure 27: Canada – Evolution of GDP Growth (%), 2006–2016

4.00

3.00

2.00

1.00
Growth rate (%)

0.00
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

-1.00

-2.00

-3.00

-4.00

Year

Source: Country Statistics, MarketLine MARKETLINE

Structure and policies

Overview

Canada has a well-developed financial system that comprises banks, insurance companies, trust and security dealers.
Many financial institutions, particularly banks and insurance companies, have consolidated their product offerings. The
financial services sector comes under the shared jurisdiction of both the federal and provincial governments. Both
levels of government regulate the insurance, trust and loan sectors.

Financial authorities and regulators

The primary regulator of federally chartered financial institutions and federally administered pension plans is the Office
of the Superintendent of Financial Institutions (OSFI). It supervises and regulates all banks and federally incorporated
or registered trust and loan companies, insurance companies, co-operative credit associations, fraternal benefit
societies and pension plans. It functions as a regulator to safeguard policy holders, depositors and pension plan
members from undue loss.

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Economic Landscape

The Canadian securities market is currently governed provincially, resulting in the system being administered by 13
different provincial and territorial securities regulators. A national securities regulator does not exist at present.

In the absence of a regulator, the Investment Industry Regulatory Organization of Canada (IIROC) is working as the
national self-regulatory organization, overseeing all investment dealers and trade activity in Canada. The IIROC was
established in 2008 by merging the Investment Dealers Association of Canada with Market Regulation Services. The
IIROC undertakes its regulatory responsibilities by setting and enforcing rules covering the business and financial
conduct of dealer firms and their employees and trading activity in Canadian equity markets. The country’s major
exchanges reached an agreement in 1999 to restructure along the lines of market specialization. While the Toronto
Stock Exchange became the sole exchange for trading senior equities, the Montreal Exchange assumed responsibility
for derivatives and the Canadian Venture Exchange (created through a merger of the Vancouver, Alberta and Winnipeg
stock exchanges) handled junior equities.

Stock exchange

The TMX Group owns and operates Canada's two major national stock exchanges: the Toronto Stock Exchange, which
serves the senior equity market, and TSX Venture Exchange, which serves the public venture equity market. The TMX
Group also owns the Natural Gas Exchange, which is the North American exchange for the trading and clearing of
natural gas and electricity contracts. The total number of companies listed on the TMX group was 2,207 in March 2017.
The market capitalization of total companies listed on TMX Group stood at $2.84 in March 2017.

Insurance

According to MarketLine, the market value of the Canadian insurance market stood at $109.8 billion in 2016,
representing a compound annual growth rate (CAGR) of 3.6% during 2012–2016. In comparison, the US and Mexican
markets posted respective CAGRs of 1.5% and 9.6%, to value $1.35 trillion and $24.4 billion. The non-life insurance
segment is expected to be the most lucrative for the Canadian insurance market in 2016, with total GWPs of $64.6
billion, equivalent to 58.7% of the market's overall value. In comparison, life insurance sales generated GWPs of
$45.25 billion in 2016, equal to 41.2% of the market's aggregate revenues.

The performance of the market is forecasted to decelerate, with an anticipated CAGR of 2.6% over 2017–2021, which
is expected to drive the market to a value of $124.17 billion by the end of 2021. Comparatively, the US and Mexican
markets are forecast to register respective CAGRs of 1.96% and 5.98% to value $1.48 billion and $31.2 billion.

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Economic Landscape

Performance

GDP and growth rate

Canada’s economy was one of the best performing among the developed nations during 2003–2008, with GDP
growing at an average rate of 2.3%. The global financial crisis of late 2008 reduced the growth rate to 1.0% in 2008,
which was followed by an economic contraction of 3.2% in 2009. The economy grew at a strong rate of 2.9% in 2011.
As fiscal consolidation and high household debt pulled down household consumption and dependence on the US
economy depressed exports and business spending, the economy slowed to 1.6% in 2012. With the upswing in the US
economy recovery, the economy revived in 2013 and 2014 with respective growth rates of 2.3% and 2.6%. However,
according to MarketLine estimates, the economy decelerated in 2015 at a rate of 1.20% due to falling global oil prices.
With a marginal recovery in the oil prices and revival of the international trade, the economic growth of Canada
accelerated to 1.38% in 2016. MarketLine forecasts the Canadian economy to grow by 3.17% in 2017.

Figure 28: Canada – GDP and Growth Rate ($ / %), 2012–2022f

2.500 3.50

3.00
2.000
2.50

Growth rate (%)


$ trilliion

1.500
2.00

1.50
1.000

1.00
0.500
0.50

0.000 0.00
2012 2013 2014 2015 2016 2017f 2018f 2019f 2020f 2021f 2022f
Year
GDP Real GDP growth rate

Source: Country Statistics, MarketLine MARKETLINE

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Economic Landscape

GDP composition by sector

Canada’s GDP composition by sector is similar to most other developed economies, being primarily dominated by the
services industry. In 2016, services and industry accounted for 69.75% and 28.49% of GDP, respectively, with
agriculture contributing 1.76%.

Figure 29: Canada – GDP Composition by Sector (%), 2016

Agriculture, 1.76%

Industry, 28.49%

Services, 69.75%

Source: Country Statistics, MarketLine MARKETLINE

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Economic Landscape

Agriculture

The sector is heavily subsidized and largely dependent on exports. Over 52 million acres of agricultural land is used
primarily for grazing livestock, of which 30 million acres is natural vegetation. In 2016, agriculture growth was -0.2%,
compared to 1.2% in 2015 according to MarketLine. Agricultural growth averaged 3.3% during 2012–2016. MarketLine
forecasts the agricultural sector to grow by 3.3% in 2017.

Figure 30: Canada – Agricultural Output, 2012–2017f

35.00 10.00

34.00
8.00
33.00
6.00

Growth rate (%)


32.00
CAD billion

31.00 4.00

30.00
2.00
29.00
0.00
28.00

27.00 -2.00
2012 2013 2014 2015 2016 2017f

Agriculture output

Source: Country Statistics, MarketLine MARKETLINE

Note: sectoral figures are given in local currency due to fluctuations

in exchange rates.

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Economic Landscape

Industry

In 2016, industrial growth stood at 1.0% as compared to -0.5% in 2015, according to MarketLine. Industrial growth
averaged 2.0% during 2012–2016. The majority of manufacturing facilities are branches of US firms. Nevertheless, the
country produces aircraft, industrial machinery, telecommunications equipment, motor vehicles and automotive
components. According to MarketLine, the industrial sector is expected to reach 3.8% in 2017.

Figure 3: Canada – Industrial Output, 2012–2017f

580.00 8.0

7.0
560.00
6.0

540.00 5.0

4.0
CAD billion

Growth rate (%)


520.00
3.0

500.00 2.0

1.0
480.00
0.0

460.00 -1.0
2012 2013 2014 2015 2016 2017f
Year
Industry output Growth rate

Source: Country Statistics, MarketLine MARKETLINE

Note: sectoral figures are given in local currency due to fluctuations

in exchange rates.

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Economic Landscape

Services

Services growth stood at 1.7% in 2016, compared to 0.38% in 2015, averaging a rate of 2.9% during 2012–2016.
According to MarketLine, the services sector is forecasted to grow by 3.5% in 2017. A significant element of this sector
is business services, which includes financial services and real estate. The country also has an active entertainment
industry, creating content for both local and international consumption. Tourism is of ever-increasing importance, with
the majority of international visitors coming from the US, although the appreciating Canadian dollar has restricted the
growth.

Figure 4: Canada – Service Output, 2012–2017f

1.40 6.00

1.35
5.00

1.30
4.00
CAD trillion

1.25
3.00

Growth rate (%)


1.20

2.00
1.15

1.00
1.10

1.05 0.00
2012 2013 2014 2015 2016 2017f
Year
Services output Growth rate

Source: Country Statistics, MarketLine MARKETLINE

Note: sectoral figures are given in local currency due to fluctuation in

exchange rates.

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Economic Landscape

Fiscal situation

According to the International Monetary Fund (IMF), the country recorded a budget deficit of 1.87% of GDP in 2016,
following a deficit of 1.1% in 2015. The deficit is forecasted at 2.2% of GDP in 2017, according to the IMF. The
government plans to run budget deficits until 2019 to fund infrastructure spending and support the economy.

Exports and imports

In 2016, Canada’s total trade stood at $982.9 billion, as compared to a trade value of $1.02 trillion in 2015. The
Canadian economy is heavily dependent on trade with the US. According to the CIA World Factbook, the US
accounted for 76.4% of Canada’s exports and 52.2% of its imports in 2016. China was Canada’s second-largest
trading partner, accounting for 12.1% of its imports in 2016. Mexico accounted for 6.2%.

Figure 5: Canada – External Trade ($), 2012–2017f

1,400.00

1,200.00 1134.88 1152.66

1023.20 998.16
982.94
1,000.00

800.00
$ billion

587.55 589.24
563.41
600.00 547.33 534.49 513.08 517.40
488.70 469.86 480.76

400.00

200.00

-
2013 2014 2015 2016 2017f
Exports Imports Total

Source: Country Statistics, MarketLine MARKETLINE

Current account

According to the IMF, the country recorded a current account deficit of 3.3% of GDP in 2016 as compared to 3.4% in
2015 and 2.4% in 2014. The current account deficit widened due to the lowering of oil prices, which reduced the value
of energy exports.

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Economic Landscape

International investment position

FDI

According to the United Nations Conference on Trade and Development, FDI inflows into Canada decreased from
$41.51 billion in 2015 to $33.72 billion in 2016. Total inward FDI stock stood at $956.06 billion as of 2016.

Credit rating

Canada's foreign currencies rating are considered stable, with an AAA long-term and F1+ short-term rating given by
Standard & Poor's in July 2017.

Key monetary indicators

Inflation

According to MarketLine, inflation stood at 1.1% and 1.4% in 2015 and 2016, respectively. It marginally rose to 1.6% in
2017. The inflation rate has been rising at a fast pace due to the strong depreciation of the Canadian dollar. The
weakening of the currency has put upward pressure on the prices of imported goods, especially food items.

Figure 6: Canada – Consumer Price Index and Index-based Inflation (%), 2012–2022f

125.0 2.5

120.0
2.0

115.0

Percentage (%)
1.5
Consumer Price Index

110.0

1.0
105.0

0.5
100.0

95.0 0.0
2012 2013 2014 2015 2016 2017f 2018f 2019f 2020f 2021f 2022f
Year
Consumer price index Inflation

Source: Country Statistics, MarketLine MARKETLINE

Interest rate

The Bank of Canada hiked its lending rate by 25 bps to 1.25% in January 2018, the highest rate in nine years.

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Economic Landscape

Unemployment

In 2016, Canada’s unemployment rate stood at 7.0%, higher than the pre-crisis rate of 6.1% in 2008. However,
according to MarketLine, it stood at 6.40% in 2017.

Figure 7: Canada – Unemployment (%), 2012–2022f

1.40 7.40

7.20
1.35
7.00

1.30 6.80
Unemployment (thousands)

Unemployment Rate (%)


6.60
1.25
6.40
1.20
6.20

1.15 6.00

5.80
1.10
5.60

1.05 5.40
2012 2013 2014 2015 2016 2017f 2018f 2019f 2020f 2021f 2022f
Year
Total unemployment Rate of unemployment (%)

Source: MarketLine MARKETLINE

Outlook

The fall in oil prices since mid-2014 weakened economic growth and suppressed business investments. The ongoing
weakness in resource exports and business investments is expected to slow the economy. However, robust
infrastructure spending will cushion the economy to an extent and boost future prospects. A potential threat is a
looming housing bubble due to record high levels of household debt. In order to boost the sluggish economy, the newly
elected Liberal Party has proposed fiscal deficits of less than C$10 billion ($7.5 billion) annually in the first three fiscal
years of its rule to fund new infrastructure spending worth C$60 billion ($46 billion) annually. The government expects
to return to a balanced budget in 2019–2020.

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Social Landscape

SOCIAL LANDSCAPE
Summary

Canada’s social landscape has most of the usual characteristics of any developed nation. The country’s liberal
immigration policy makes it a preferred destination for migrants. Given the demographic situation, Canada is among
the few countries in the developed world that has a large proportion of working age people. A steady increase in
healthcare expenditure has been instrumental in improving the health of the Canadian population.

Evolution

Owing to its colonial past, Canada is home to a diverse population. In the post-war years, the country encouraged
immigration to meet its labor force needs. A growing population with an increasing market size ensured the economic
development of the country. During the 1960s, in the middle of the baby boom, the fertility rate was around 3.5. The
decline in fertility thereafter played a role in slowing the pace of population growth. Fertility remained at 1.5–1.6 children
per woman for the last 10 years and the government has been once again encouraging immigration to increase the
population.

The government has implemented a number of social security policies covering issues such as healthcare, pensions
and education. However, economic growth has not led to an equitable society. Income disparity has been widening
with the higher income groups benefiting the most. The social safety net saw its beginning in 1940, with the federal
government taking the lead when unemployment was widespread following the Great Depression. During the 1950s,
seasonal workers in the agricultural, forestry and fishery sectors were added to the list of unemployment insurance
recipients in addition to industrial workers. During the 1970s, it became easier to get unemployment insurance benefits
– the coverage was widened and benefits increased. In 1996, unemployment insurance was renamed Employment
Insurance under a new program that requires people to work longer to qualify, distributes fewer benefits, and links the
level of those benefits to regional unemployment rates.

Structure and policies

Demographic composition

Composition by age and gender

According to MarketLine, those aged 65 and above mad up 16.7% of the total population in 2017, with 67.3%
belonging to the 15–64 age group. Those in the 0–14 age group account for the rest. According to the CIA World
Factbook, the sex ratio at birth in 2016 was 1.06 males per female.

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Social Landscape

Table 10: Canada – Population by Age (as a Percentage of the Total Population), 2017

Age Female Male

0–4 4.94 5.28

5–9 4.94 5.27

10–14 5.04 5.42

15–19 5.30 5.79

20–24 6.11 6.77

25–29 6.53 6.93

30–34 6.49 6.89

35–39 6.32 6.66

40–44 6.15 6.44

45–49 6.40 6.68

50–54 7.21 7.63

55–59 7.40 7.49

60–64 6.69 6.44

65–69 5.84 5.60

70–74 4.78 4.09

75–79 3.53 2.80

80+ 6.33 3.83

Source: Country Statistics, MarketLine MARKETLINE

Urban/rural composition and migration

In 2017, 82.2% of the Canadian population dwelled in urban areas according to the CIA World Factbook. Most
immigrants originate from China, India, Pakistan, Iran, the US, Romania, the UK, South Korea and Colombia.

Ethnic composition

According to the CIA World Factbook, the country’s ethnic composition is diverse, with 32.2% Canadians, 19.8%
English, 15.5% French, 14.4% Scottish, 13.8% Irish, 9.8% German, 4.5% Italian, 4.5% Chinese, 4.2% North American
Indian and 50.9% other communities. The total adds up to more than 100% because respondents were able to identify
more than one ethnic origin.

Religious composition

Roman Catholicism is the dominant religion with 39% of the population practicing according to the CIA World Factbook.
Protestants constitute 20.3%, other Christians 6.3%, Muslims 3.2%, while others and none constitute the rest.

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Social Landscape

Figure 8: Canada – Composition by Religion, 2011

others
9%

None
Catholic
21%
39%

Hindu
2% Muslim
3%
other Christian
Protestant
6%
20%

Source: MarketLine MARKETLINE

Education

In Canada, public education is free for all citizens and permanent residents until the end of secondary school. However,
there is no integrated system of education under a single federal department. The provincial departments of education
are responsible for the delivery and assessment of education at elementary and secondary levels within their
boundaries. Post-secondary institutions have varying degrees of autonomy from direct provincial government control.
Local governance of education is usually entrusted to school boards, school districts, school divisions or district
education councils. The schools cater to the needs of the English- and French-speaking population.

System of education

In most provinces and territories, local education authorities provide kindergartens. These centers offer one year of pre-
first-grade, non-compulsory education for five-year-olds. Compulsory schooling varies from one jurisdiction to another,
but most require attendance at school from age six to 16. In most provinces, elementary schools cover six to eight
years of schooling and are followed by middle school or junior high, then secondary school. Besides the government-
run schools, there are also private institutions. Although these schools are privately funded, they are required to meet
the general standards prescribed by the relevant Ministry of Education. These schools charge a tuition fee and offer a
variety of subjects. In many cases, they receive partial funding from the province or territory.

Secondary school covers the final four to six years of compulsory education. In the first few years, students mostly take
compulsory courses with optional modules. The proportion of options increases in later years, which enables students
to prepare for the job market or to meet the differing entrance requirements of post-secondary institutions.

Healthcare

Healthcare services

The healthcare system in Canada is primarily dominated by the public sector, with more than 70% of healthcare
contributions coming from the federal and provincial governments. Most of the government expenditure comes through

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Social Landscape

Medicare, the universal health insurance system in Canada. There are also smaller programs in the provinces that are
carried out in accordance with the regulations provided under the Canada Health Act. Healthcare services include
insured primary healthcare and hospital care, and in some provinces and territories, supplementary health benefits
such as prescription drug coverage are not included.

Social welfare

Canada has an extensive list of social welfare measures at a federal and provincial level. The Department of Human
Resources and Social Development is a federal government department responsible for the implementation of social
welfare policies.

Employment

 Employment policies and programs are aimed at promoting labor force participation. The department provides
support to unemployed and underemployed people, and those facing barriers to employment. The majority of
employment programs are decentralized.

 The Employment Insurance program provides temporary income support to those who are between jobs or
are out of work for certain critical personal reasons.

 The country uses bilateral labor market development agreements made between the Canadian Government
and all provinces and territories.

Performance

Healthcare

Average healthcare expenditure as a percentage of GDP stood at 10.3% during 2009–2015. In 2015, total healthcare
spending measured 10.2% of GDP.

According to a 2017 report by the Fraser Institute, the national median waiting time for elective treatment between
referral from a general practitioner and receipt of treatment was 21.2 weeks in 2017, the longest ever recorded.
Reducing waiting times, as a result, has been a priority concern for Canadian policymakers since 2004. Nevertheless,
according to the OECD, Canada performs well in terms of providing primary care by preventing costly hospital
admissions due to chronic conditions.

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Social Landscape

Figure 9: Canada – Healthcare Expenditure ($ / %), 2009–2015

200.0 10.7

180.0 10.6

160.0 10.5

10.4
140.0
10.3
120.0

Percentage (%)
10.2
100.0
$ billion

10.1
80.0
10.0
60.0
9.9
40.0 9.8

20.0 9.7

0.0 9.6
2009 2010 2011 2012 2013 2014 2015

Year
Total Healthcare Expenditure Total Healthcare Expenditure as a % of GDP

Source: Country Statistics, MarketLine MARKETLINE

Income distribution

Standard of living

On the income Gini coefficient, which ranges from zero (perfect equality) to 1 (perfect inequality), Canada scored 0.32
in 2011 according to the OECD. The coefficient is lower than that of the US (0.39) and Mexico (0.47) on the parameter
of household income inequality. The transfer of money to the poor, unemployed and other disadvantaged classes has
been recognized as one of the major factors for reducing inequality. The prevailing social and economic conditions
make Canada one of the best countries to live in.

Education

Canada has a literacy rate of 99%. Public funding for education comes either from the provincial government or
through a mix of provincial transfers and local taxes collected either by the local government or by boards with taxing
powers. In 2016, public education expenditure stood at 9.7% of GDP.

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Social Landscape

Figure 10: Canada – Educational Expenditure ($ / %), 2009–2015

160.0 10.00

140.0 9.00
8.00
120.0

percentage of GDP
7.00
100.0 6.00
$ billion

80.0 5.00

60.0 4.00
3.00
40.0
2.00
20.0 1.00
0.0 -
2009 2010 2011 2012 2013 2014 2015

Expenditure on education Expenditure as % of GDP

Source: Country Statistics, MarketLine MARKETLINE

Outlook

Canada performs well on various social parameters, with a high human development index and an efficient social
security system. Given the demographic situation, Canada is among the few countries in the developed world to have a
large proportion of working age people (those between 15 and 64). Flexible employment protection legislation has been
welcomed by the unemployed. However, like other developed countries, Canada’s population is aging. Although fertility
rates have improved marginally since the beginning of the last decade, they remain considerably lower than the
replacement rate of 2.1. In such a scenario, immigration, which has accounted for two-thirds of population growth in
recent times, will be the major source of population growth. However, the government’s liberal immigration policy could
create tensions.

An aging population will also strain healthcare and pension expenditure; this has already begun as the baby boomers
started retiring in 2011. To address these needs, the federal and provincial governments are working in collaboration to
revamp the pension plan and strengthen the healthcare services. In addition, the government has taken measures to
reduce the skills mismatch in the job market, which should make the labor market more efficient in the medium-to-long
term.

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Technological Landscape

TECHNOLOGICAL LANDSCAPE
Summary

Canada’s progress in terms of technological development has not been satisfactory. The country’s annual R&D
expenditure as a percentage of GDP stood at an average of 2% during 2005–2011 and has been declining ever since
according to Statistics Canada. It is a recognized fact that Canada faces an innovation gap as the country does not fare
well in terms of R&D expenditure as a percentage of GDP. The number of external patent applications and researchers
in the nation are low relative to the size of its qualified labor force. Canada also performs poorly compared to other
developed countries such as the US and Japan in terms of patents received.

Canada’s geographical proximity and trade and investment relations with the US make it an attractive destination for
investment. Traditionally, its machinery and equipment industry has served the manufacturing sector. However, with
the changing economic order and emergence of the knowledge industry, its significance has declined. Nevertheless,
Canada has an advantage in terms of meeting requirements for technologically advanced goods in the aerospace
industry. The education system has not been overhauled to meet new industrial needs, and private firms are unwilling
to spend money on developing new technology.

Evolution

During the post-war years, Canada’s manufacturing industry boomed. At first, large amounts of resources were
devoted to atomic research. Later, the government started promoting innovative practices to meet the needs of other
manufacturing industries. A number of national research councils existed during the 1950s and 1960s. The government
also monitored research activities at universities. The Science Council of Canada was founded in 1966 to provide
advisory services to the government. The research activities of the government gathered momentum during the late
1990s after it achieved a balanced budget in 1997–1998. With increasing global competition, private enterprises in
Canada have been encouraging innovation. Besides technological developments in industries, research activities in life
sciences have also been receiving government funds.

Structure and policies

Canada has a centralized innovation system directed by its federal government. In 2007, it produced a new science
and technology (S&T) and innovation policy, which set out a comprehensive, multi-year S&T agenda. The Innovation
Management Association of Canada works to expand the commercialization of technologies. Provincial programs are
being initiated to promote regional innovation clusters.

The S&T strategy and its policy commitments will be guided by four core principles: promoting world-class S&T
excellence, focusing on priorities by targeting basic and applied research in areas of strength and opportunity,
encouraging partnerships by supporting S&T collaborations involving the business, academic and public sectors at
home and abroad, and enhancing accountability by implementing strong governance and reporting practices to deliver
and demonstrate results.

Intellectual property

The intellectual property policy group consists of two directorates: the Intellectual Property Policy Directorate and the
Patent Policy Directorate. The limited number of patents received by Canadian firms reduces the nation's technological
advantage. A lack of innovation in the private sector is one of the main reasons for the low number of patents.

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Technological Landscape

Compared to the US, Japan and Germany, the country’s total patent count is minimal.

R&D

The government has identified the following as its priority research areas:

 Environmental S&T

 Natural resources and energy

 Health and related life sciences and technology

 ICT

Canada lags behind other nations in terms of R&D expenditure. The nation’s total expenditure on R&D as a percentage
of GDP – also known as R&D intensity – stood at 1.62% in 2014, lower than 1.99% in 2005. The main reason for this
decline in R&D intensity was a weak trend of business spending on R&D since 2000. Traditionally, the Canadian IT
sector was the major funder of business R&D. However, the bankruptcy of Nortel, the country’s biggest R&D performer,
and problems with another major R&D funder, BlackBerry, affected expenditure. Another reason is the Canada–US
Auto Pact, under which Canada manufactures and assembles models developed in the US but performs almost no
automotive R&D domestically. Resource-rich sectors relating to the extraction of oil and gas perform very little R&D.
Recent economic weakness and lack of funding avenues in early stage venture capital also added to the weakness in
business innovation. The country must shore up its business innovation profile to gain a technological advantage in the
future.

Technology agreements and pacts

The Department of Foreign Affairs and International Trade’s S&T program plays a significant role in enhancing the
country's S&T capacity, competitiveness and prosperity by generating effective international collaborations for
Canadian research institutions, universities and firms. The department has entered into bilateral agreements with
China, the EU, France, Germany, India, Israel, Japan and South Korea. These agreements aim to foster international
R&D collaboration and its commercialization. They also aim to incorporate world leading research into the development
of innovation processes. Under its International Science and Technology Partnerships Canada program, the country
supports partnerships with Brazil, California, China, India and Israel.

Performance

Internet access market

According to MarketLine, mobile penetration stood at 85.0 per 100 people in 2017 with subscribers totaling around 31.2
million in 2017. Internet users as a percentage of the total population stood at 90.75%, with users totaling 333.3 million
in 2017.

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Technological Landscape

Figure 11: Canada – Internet Users (Millions), 2013–2017f

34.0 92.0

33.5 91.0
33.0
90.0
32.5
Internet users in millions

89.0
32.0

Percentage (%)
31.5 88.0

31.0 87.0
30.5
86.0
30.0
85.0
29.5

29.0 84.0

28.5 83.0
2013 2014 2015 2016 2017f
Year
Number of users Percentage of population

Source: Country Statistics, MarketLine MARKETLINE

Outlook

Despite being a developed economy, Canada has not excelled in terms of innovation. The primary reason for this is the
low involvement of provincial governments and less than optimal public-private partnerships for technological
development. Software piracy remains a concern. In its Global Piracy Study, BSA estimated that losses occurring from
the unlicensed use of business software arrived at $893 million in 2015. According to the study, the levels of piracy in
the country were around 24% in 2015.

The new government is planning to invest C$200 million ($148.73 million) annually in a new program called Innovation
Agenda. The program’s aim is to stimulate and expand emerging national network for business innovation. An
additional C$100 million ($74.36 million) will be supplied annually to the existing Industrial Research Assistance
Program which provides support to SMEs to innovate.

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Legal Landscape

LEGAL LANDSCAPE
Summary

The Canadian legal system has an independent judiciary that is free from other branches of government. The federal
structure of Canada has also been extended to its judicial system. Legislative authority and responsibility are divided
between various levels of government. The Constitution of Canada is the supreme law of the country. It sets out the
basic principles of democratic government and defines the powers of the three branches of government: executive,
legislative and judiciary. It also divides lawmaking powers and responsibilities between the federal and provincial levels
of government. Criminal and civil law is based on the British system of common law, although civil law in Quebec is
based on the French system.

Canada has a complex labor law system, which has been a point of contention among different political parties.
Employers in Canada have to keep abreast of the latest developments in employee relations and employment
standards. This has been noted as an area recording amendments at a robust pace. The tax regime is to a large extent
governed by the federal Income Tax Act and its regulations. Sales tax, corporate tax and other laws of the provinces
and territories are required to be followed by organizations doing business in Canada.

Evolution

The present legal system has evolved from various European systems that were prevalent during the 17th and 18th
centuries. The British North America Act of 1867 serves as the constitutional document for Canada. The Constitution
Act 1982 made Canada's constitution independent from Great Britain and affirmed the Constitution of Canada to be the
supreme law of Canada.

The present legal system uses two different regimes: common law and civil law. In Quebec, civil law forms the basis of
judgments, whereas common law applies in the other provinces and territories. Common laws are uncodified, while civil
laws are based on a comprehensive statement of rules and general principles.

Structure and policies

Judicial system

Structure of the system

The final court of appeal is the Supreme Court, and it has jurisdiction over constitutional, administrative, criminal and
civil law. The federal government appoints the chief justice and other judges of the Supreme Court. The court has eight
judges aside from the chief justice and has a special role as advisor to the federal government. At times, the
government may ask the Supreme Court to interpret the constitution. The provincial courts of appeal and Federal Court
of Appeal are the next levels. The Federal Court of Appeal is a superior court with civil jurisdiction, but it can deal with
matters specified in federal statutes (laws). The provincial courts mostly deal with criminal cases and family matters.

At a provincial level, there are provincial/territorial superior courts and federal courts. Provincial courts/provincial
tribunals and federal administrative tribunals are in the lowest level of the hierarchy.

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Legal Landscape

Figure 40: Canada –Judicial Structure, 2018

Supreme Court
of Canada

Court martial Provincial Federal court of


appeal court courts of appeal appeal

Provincial/
Military courts territorial Federal courts
superior courts

Federal
Provincial
administrative
courts
tribunals

Provincial
administrative
tribunals

Source: MarketLine MARKETLINE

Legislative relations between the union and the states

The central government is responsible for issues such as defense, foreign affairs, criminal law, immigration, banking
and national currency, international trade and intellectual property. The provinces deal with regional issues such as
direct taxation, education, social programs, and rights related to private property and commerce.

The minister of justice is also the attorney general of the country. Most criminal code offences fall under the jurisdiction
of the relevant province. The Department of Justice, which is headed by the attorney general, carries out prosecutions
under all other federal laws.

Taxation

Income tax

Both the federal and provincial governments impose income tax on individuals. The federal government’s tax rates are
high compared to those of provincial governments. Income taxes throughout Canada are highly progressive, with high
income individuals paying a significantly higher percentage than low income residents. As of 2018, the Federal tax rate
in Canada ranges from 15% to 33%.

Corporation tax

The corporate tax rate in Canada as of 2017 was 26.5% of which 15% is federal tax and 11.5% provincial tax
component. There is a significant difference between rates in provinces.

Other taxes to be incurred by employers

In some provinces of Canada, employer health tax is imposed on employers. In some provinces, it is referred to as the
Health Services Fund. Employees pay premiums for the Employment Insurance System and the CPP, and employers
pay premiums for workers' compensation. These premiums are not considered to be taxes as they allow employees to
receive payments from the programs, whereas taxes are used to fund government activities.
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Legal Landscape

Labor laws

The government has attempted to balance employee-employer rights by making changes in legislation. Both federal
and provincial governments are responsible for labor laws. The federal government is responsible for the regulation of
all interprovincial industries such as airlines, telecommunications and railways. Most other industries, covering the
majority of employers in Canada, fall under provincial jurisdiction.

Employment standards legislation gives mandatory minimum conditions of employment, governing areas such as hours
of work, overtime pay, minimum wages, holidays, vacations, equal pay for male and female employees, employee
benefit plans, leave, severance and termination pay. There are exemptions for specified categories depending on the
jurisdiction. For example, supervisory or managerial employees are often exempt from provisions surrounding hours of
work and overtime pay. Labor laws are transparent and do not allow discrimination between people based on social
class or gender.

Occupational health and safety laws are considered important in Canada and employees have the right to refuse to
work in an unsafe place. Fines are imposed for failure to adhere to health and safety requirements. Termination
requirements differ across provinces.

An employee’s entitlements are calculated based on his or her length of service. They range from one to eight weeks'
written notice of termination or pay in lieu of notice.

Performance

Effectiveness of the legal system

The country has performed well in international business rankings that evaluate the business environment and
economic freedom. Regulatory processes are favorable among foreign investors, with national laws providing the
freedom to start, operate and close a business. Starting a business in Canada is far easier than in other nations as it
takes an average of 1.5 days and two procedures, compared to the OECD high income average of 8.5 days and 4.9
procedures according to the World Bank's Doing Business 2018 report. The procedures needed to establish an
enterprise are less cumbersome and more transparent.

Canada's labor market is one of the most flexible in the world. It operates under flexible employment regulations that
enhance employment and productivity growth. The non-salary cost of employing a worker is moderate and dismissing a
redundant employee is relatively costless. The labor laws do not necessitate retraining or replacement before firing a
worker. Canada has comparatively high income tax and a number of loopholes are exploited by residents to evade this.
The Canada Revenue Agency is the administrative agency for taxation.

Outlook

Canada has a comprehensive legal framework that ensures ease in doing business. The country offers a favorable
business regime with ample business freedom, and has one of the most flexible labor markets in the world. The country
provides a number of competitive advantages for foreign investment; however, it is restricted in some sectors such as
air transport, telecommunications and financial services. The liberalization of restricted sectors will create a large
number of business opportunities for investors. Business enterprises operating in Canada have to adhere to a number
of regulations at both the federal and the provincial level, which acts as a deterrent for investors. More often than not,
regulations and tax rates vary widely across provinces. The legal climate for business could become more attractive if
the federal and provincial governments agree to a uniform business legislation and taxation regime.

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Environmental Landscape

ENVIRONMENTAL LANDSCAPE
Summary

The government has taken many steps to establish mechanisms to meet the environmental challenges that come with
economic development. The focus of environmental policies has broadened from local and regional issues to
challenges of a global nature. Climate change, global biodiversity, ozone layer depletion and the transportation of
chemicals and hazardous waste are some of Issues topping the country’s environmental agenda. The country has
made some progress in meeting its domestic environmental objectives and international commitments. Some advances
have been made in cutting air pollution and policies have been created to reduce GHG emissions. However, the
country’s performance in preserving biodiversity, managing pollution, increasing energy efficiency and managing
hazardous waste has been far from satisfactory. The country was not able to achieve the emission reduction targets
set under the first round of the Kyoto Protocol, which ran up to 2012; as a result, Canada withdrew from the protocol in
December 2011. Additionally, the government has taken a lenient view of its emissions record and has instead
embarked on the expansion of oil production. This could be deleterious to the environment. The government has also
ratified the Paris COP21 agreement, while charting out a national climate change deal which will allow carbon pricing to
take effect from 2018.

Evolution

The government began to recognize the environment as a significant issue in the 1970s, when it participated in a
number of national and international debates. In 1971, the Department of the Environment Act combined different
federal environment entities into Environment Canada. Conservation received most of the attention of environmental
policymakers during the 1970s. The scope of environmental acts gradually widened throughout the 1980s, and many
ecological policies on land use, forestry, wildlife, heritage, chemicals and water were brought into effect. It was during
this period that Canada began to explore various options for sustainable development. During the 1990s, Canada
became a proactive member in a number of international negotiations. The country ratified some important
environmental treaties and most of its domestic policies were centered on its international commitments.

Structure and policies

Environmental regulations

Some acts, such as the Canadian Environmental Protection Act, are intended solely to protect the environment from
pollution. Others, such as the Canada Wildlife Act and the Canada Water Act, focus on conservation. The Clean Air Act
of 2006 took a comprehensive approach to address the problem of worsening air quality and GHG emissions. The
government initiated a plan called Eco Action that will require major industrial sectors to tackle climate change and help
to clean the air. This is one of the main features of the government's comprehensive environmental agenda.

In 2007, Canada EcoTrust for Clean Air and Climate Change was launched to provide financial support to provincial
and territorial projects aimed to reduce GHG emissions and air pollutants. A series of new programs, such as
EcoFreight, were launched to reduce pollution caused by freight transportation. EcoFreight is made up of six initiatives,
two of which specifically focus on the trucking industry. The other initiatives involve air, rail, road and marine
transportation. A freight technology demonstration fund was also established, which provides cost-shared funding and
develops partnerships on shore-based power. In July 2011, the country introduced a 2% renewable fuel requirement
for diesel fuel.
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Environmental Landscape

Water pollution is another area receiving attention from regulators. The federal government has jurisdiction over
fisheries, navigation and federal lands. In a significant development in 2006, Environment Canada's Ice Service
assumed operational responsibility of the Integrated Satellite Tracking of Pollution (ISTOP) program to fight marine
pollution. ISTOP is a satellite surveillance program for the detection of possible discharges of oil due to marine
transportation and offshore oil production.

The Federal Sustainable Development Act, which became a law in 2008, requires the federal environment minister to
develop a Federal Sustainable Development Strategy (FSDS) every three years. The government prepared the first
FSDS for years 2010–2013. In 2013, it tabled a new FSDS to improve environmental sustainability by addressing four
themes: addressing climate change and air quality, maintaining water quality and availability, protecting nature and
shrinking the environmental footprint – beginning with government.

The government also reiterated Canada's commitment to protecting the environment and citizens against the harmful
effects of persistent organic pollutants. The Renewable Fuels Regulation was implemented and requires an average of
5% renewable content in gasoline. In addition to the Renewable Fuels Regulations, the government has imposed
regulations since 2011 to reduce GHG emissions from passenger and heavy duty vehicles.

Kyoto Protocol on climate change

The UN Framework Convention on Climate Change sets an overall framework for intergovernmental efforts to tackle
the challenge posed by climate change. It recognizes that the climate system is a shared resource, the stability of
which can be affected by industrial and other carbon dioxide and GHG emissions. The convention has universal
membership, with 192 countries having ratified it. However, Canada’s image was tarnished among environmentalists
after the December 2009 climate change summit in Copenhagen. The Kyoto Protocol was ratified by the previous
Liberal government, but both Liberal and Conservative governments have done little to meet GHG reduction goals. At
the Bonn meeting in 2011, the government confirmed that it would not support the extension of the Kyoto Protocol after
2012, joining Russia and Japan in rejecting any extension of the global pact to control GHG emissions. In December
2011, Canada withdrew from the protocol. The government has taken a lenient view of its emissions record and has
embarked on expansion of oil production. This could have a deleterious impact on the environment. To meet its COP21
target, the country must reduce its GHG emissions by 30% by 2030.

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Environmental Landscape

Performance

Environmental impact
Canada has the worst environmental record in the OECD. It performs poorly on many environmental indicators
including sewage treatment, species at risk, GHG emissions, pesticide use and nuclear waste. According to the
Environmental Performance Index 2016 published by Yale University, the nation ranks 25th out of total 180 countries
assessed. CO2 emissions dropped from 607.4 million metric tons in 2014 to 589.2 million metric tons in 2015.

Figure 41: Canada – Carbon Dioxide Emissions (Tons / %), 2008–2015

620.0 8.0

600.0 6.0

580.0 4.0

Percentage (%)
Metric tons (millions)

560.0 2.0

540.0 0.0

520.0 -2.0

500.0 -4.0

480.0 -6.0
2008 2009 2010 2011 2012 2013 2014 2015
Year
Volume Growth rate

Source: Country Statistics, MarketLine MARKETLINE

Outlook

The International Energy Agency expects renewable energy capacity to expand by almost 15 gigawatts (GWs), from
86GWs in 2012 to 101GWs in 2017, with regions such as Alberta, Ontario and Quebec as leaders. Wind energy is
expected to account for over 50% of the overall capacity addition in the renewables over the medium term.
Nevertheless, a lack of binding renewable energy targets and few financial incentives act as impediments to the growth
of renewable energy. Grid integration challenges in some provinces also remain a barrier for renewable energy
production and distribution. The government is planning to address the environmental challenges and fulfill the
country’s G20 commitment of phasing out fossil fuel subsidies for a cleaner environment. The government plans to
work in collaboration with provincial governments to reduce carbon pollution, and has established a national climate
change deal which includes carbon pricing.

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Appendix

APPENDIX
ISO codes of selected countries

Country ISO code Country ISO code


Australia AUS Japan JPN
Austria AUT Korea KOR
Belgium BEL Luxembourg LUX
Canada CAN Mexico MEX
Chile CHL Netherlands NLD
Czech Republic CZE New Zealand NZL
Denmark DNK Norway NOR
Estonia EST Poland POL
Finland FIN Portugal PRT
France FRA Slovak Republic SVK
Germany DEU Slovenia SVN
Greece GRC Spain ESP
Hungary HUN Sweden SWE
Iceland ISL Switzerland CHE
Ireland IRL Turkey TUR
Israel ISR United Kingdom GBR
Italy ITA United States USA
Brazil BRA Indonesia IDN
China CHN Russian Federation RUS
India IND South Africa ZAF

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Appendix

Ask the analyst

MarketLine’s Country Analysis Practice consists of a team of economists, analysts, and researchers, all with expertise
in their given fields. For any questions or comments about this report you can contact the author directly at
reachus@marketline.com.

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the findings, conclusions and recommendations that MarketLine delivers will be based on information gathered in good
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Appendix

PESTLE| Country
MarketLine AnalysisHouse,
John Carpenter Report:John
Canada
Carpenter Street | ML00002-006/Published 02/2018
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