Regulatory roadblocks and industrial carbon costs have helped drive investment out of Canada

Canada’s economy, adjusted for population growth and inflation, has barely grown for the past 10 years. Per capita gross domestic product (GDP) rose at an average compound annual growth rate (CAGR) of 0.41 per cent as calculated by the World Bank.

This ultra-slow growth, common in advanced economies, is not universal.

According to the World Bank, Japan’s GDP per capita grew at an average annual rate of 0.8 per cent over the past 10 years; Germany’s by 0.52 per cent; the U.K.’s by 0.63 per cent; and Spain’s by 1.34 per cent. Unimpressive, but all beating Canada.

More strikingly, South Korea managed 2.19 per cent over 10 years and 2.30 per cent over 15 years. The United States achieved 2.0 per cent and 1.7 per cent, respectively.

Canada’s deeper, longer-term problem is extraordinarily weak investment, which is essential to future productivity and economic growth. Business investment improved in the second quarter of 2026, but one quarter does not erase a decade of poor performance. Government policies that make investment more expensive, difficult or uncertain have helped create that problem.

While the World Bank’s B-Ready assessment rates Canada highly on some measures of its business environment, such measures tell us only so much about whether investors will actually risk their money here.

A better test of Canada’s business environment is whether it actually attracts investment.

Canada’s capital investment has been extraordinarily low over the past 10 years. The Royal Bank of Canada says net investment outflows from Canada exceeded $1 trillion between 2015 and 2024. For every dollar of foreign direct investment entering Canada during the decade, two dollars went abroad.

A chart in the report shows that business investment per Canadian worker declined over the decade as well, which RBC calls an unprecedented “capital recession.”

That investment failure did not occur in a policy vacuum. Leaving aside the oil price crash in 2014-16, government policies and regulatory uncertainty made major projects more difficult and costly to pursue. Major projects such as the Northern Gateway and Energy East pipelines were ultimately cancelled after years of regulatory, political and economic uncertainty. Coastal GasLink faced years of protests, blockades and, in some cases, deliberate damage to equipment and infrastructure.

Ottawa now appears to recognize that Canada has a problem. The federal government has created a Major Projects Office and introduced measures intended to accelerate approvals for projects it considers to be in the national interest. It has since referred a growing list of energy, transportation and critical-mineral projects to the office.

That is a welcome change. But announcing a faster approval process and actually getting projects built are two different things. Investors will judge the new system by whether projects can move from proposal to construction with greater speed and certainty.

Another obstacle is the high cost of industrial carbon. A Fraser Institute study estimated that Ottawa’s former plan for a $170-per-tonne industrial carbon price in 2030 would cost Alberta two per cent of provincial GDP and Canada 1.3 per cent. While Ottawa has since reduced the planned 2030 price to $115, industrial carbon costs remain, and Canadian projects still have to compete for investment against projects elsewhere.

The Pathways Project, a proposed carbon-capture network for Alberta’s oil sands, will cost more than $16 billion, much of which will be borne by oil sands producers, with considerable tax credits and offsets to make it more digestible. Governments are trying to advance the project, but expensive technical and commercial issues remain unresolved. Higher costs make Canada less attractive for investment. Capital can go elsewhere.

There are signs that Canada can reverse this investment failure. RBC says foreign direct investment reached nearly $100 billion in 2025, the highest level since 2015 and the first time in a decade that inflows exceeded outflows. The bank also identifies $1.8 trillion in potential investment opportunities in key industries over the next decade.

There are more recent encouraging signs as well. Business investment increased in the second quarter of 2026, including stronger spending on machinery and equipment. Major private investments are still being announced when projects have regulatory approval and investors can see a reasonable prospect of predictable returns.

None of this erases the investment weakness of the previous decade. But it shows that capital has not abandoned Canada. It will come when investors believe projects can be approved, built and operated profitably.

Canadian governments have finally begun trying to make major projects easier to build. They should keep going. The real test will not be how many projects governments announce or refer for expedited review, but how many attract private capital and actually get built.

Without sustained stronger investment, productivity and living standards will continue to suffer. Then, and only then, might Canada escape from the miasma of economic stagnation.

Ian Madsen is a senior policy analyst at the Frontier Centre for Public Policy. A Chartered Financial Analyst (CFA) with an MBA in Finance and extensive experience managing institutional investment portfolios, Ian specializes in complex financial valuation models and economic analysis. He is a former president of the Saskatchewan and Edmonton CFA Societies and has spent decades advising on North American financial markets.