Is This A Good Time to Invest in Canada?

Is this a good time to invest in Canada? To answer this, we would need to breakdown what types of investments are available to you in Canada. Investment simply means purchasing an asset with the aim that it generates some income at a later date. Making an investment usually involves some level of risk of losses.

Forms of Investment

Growth Investments: these are investments that are aimed towards growing the amount of money that has been put in. It is typically more aggressive. The major objective of growth investments is to accumulate wealth within a short to medium time frame. Growth Investments come with the highest risks.

Examples are stocks trading, crypto-currency, building a business, purchasing assets for hire etc.

Fixed Income Investments: these are investments for which the potential outcome or benefits are predetermined at the point when it is made. Such investments are Government Bonds, Treasury Bills, and Fixed Interest Deposits.

Conservative Investments: these are investments that are made mainly for wealth preservation. The aim is not to earn a ridiculously high level of income within a short period.

Conservative Investments yield income at lower rates of returns but the advantage is that they carry a relatively small amount of risk. Examples of such investments are Precious metal investments e,g. Gold Bars, Real Estate & Property Investments. Etc. 

Social Investments: these are investments for the purpose of social good. Most times the benefit is not realized immediately but over decades. Examples are Scholarships, Research etc. 

As we can see, Investment exists in different forms with distinct characteristics, inherent risks and benefits.

Advantages of Investment

• Wealth growth
• Wealth preservation
• Helps to hedge against the effects of inflation
• Entrepreneurial accomplishments

Investing in Canada 2021

To determine if it is a good time to invest in a particular country at a particular time, we have to identify the features of a good investment destination and evaluate the country’s profile with respect to each of them at that particular time. 

Features of a Good Investment Destination

Now let’s have an objective look at how to identify a good investment destination, its meanings, Implications on Investing, and the current Canadian outlook on each of them.

These tips are valid for both local and international potential investors.

The answer is a personal one and should be answered on a sector basis. A good time to invest in agriculture in a country may not necessarily be a good time to invest in tech.

Geographic Landscape

This involves the Location, Climate, and Potential Natural Disasters that occur in a country. These have serious for the types of investments that can be made in certain parts of a country at a particular time.

A wrong decision with this can mean limitless losses. For instance, if a country is located in an arid region like the Sahara region, an Investment in manufacturing skating shoes or wind-breakers may not be a wise decision.

Canada Geographical Landscape: Located in North America, Climate is generally cold, and Potential Natural Disasters include Avalanches, Earthquakes, Floods, Tornadoes and Hurricanes. If you are investing in Canada, ensure you access relevant information on Insurance covers against some of these.

Economic Landscape

In the economic landscape of a nation, we have to evaluate variables such as Inflation rate, Currency rate and volatility, and its dominant Economic system.

Inflation: is the rate at which prices of goods and services increase in a country over a period of time.

Currency Rate: refers to how the country’s currency measures up against Gold or prominent fiat currencies in global trade. i.e. $USD, Pounds, Euro or Chinese Renminbi.

Currency Volatility: involves the historical evaluation of changes in the value of the currency over time. It helps to determine if the country’s currency is a reliable store of value. These can be vital if the nature of your investment involves the importation of raw materials, the exportation of finished products. If you are an International Investor you also have to worry about the repatriation of earnings to your home country

Canada Economic Overview

Inflation = Average of 2%

Currency= CAD0.8/USD$ , CAD $72.75 / Gram of Gold.

Social Landscape

Demography, Literacy rate, Income rates and Culture of the people.

• Demography refers to the age and population distribution of the people in a country. This has an implication of the quantity of patronage you can get for certain products within the country. For example, if a country’s population is dominantly youthful, Investing in items such as smartphones and fancy sneakers might have a higher chance of success than investing in walking sticks or building nursing homes.  It can also help you to decide on specific investment locations within the country.
• Literacy rate: The number of people that can read and write. It goes a long way to determine the quality of employees that may be available to you. If the country has a low literacy rate. If your mode of investment requires unskilled labour you might have a good chance of success.
• Income rates: will determine the pricing of your products and investments. If they are too cheap the people will simply switch to cheaper options, if they are too expensive people will not be able to afford them.

Canada Social Landscape

• Demography: 35m total population. The average age is 42 years. 40% of the population are 25-54 years old. The largest Cities are Ontario and Montreal.
• Literacy Rate: 99% literacy rate
• Income Rates; $55,000 CAD annually

Legal framework

Property rights, Embargos Sectors available to Intl investors or Exclusive to locals, Immigration Laws, Income Repatriation Policy

• Property rights: Before investing in a particular country, you should evaluate the current legal framework in place. You have to examine the laws on Property rights and how they are being enforced.

Canada has a standard legal system in place to ensure that property rights are guaranteed for all. The Global Rule of Law Index measures, accessibility, impartiality, effectiveness. In 2020, Canada was ranked 19^th out of 128 countries which put the country in the top 10% across the world.

• Banned List/Embargos: You also have to identify commodities that are currently on the countries ban/embargo/restriction list. Having your key raw material on the country’s banned list can put paid to your investment goals before they began.

Canada Banned Products list includes Firearms, Radar detectors and items of Child pornography.

• Indigenized or Nationalized Sectors: Some countries reserve investment in certain sectors for their own citizens or for their government exclusively. The knowledge of this will help to decide if you can invest in the country at that moment.

The Canadian economy is largely a Free Market economy. However, certain sectors are considered well dominated by the Government. These sectors include Airline Industry, Radium & Uranium Mining, Hydro-Electric Power and the Potash Industry.

If you intend to invest in any of these sectors you should be wary of the government’s nationalization policy.

• Immigration Laws: If you are looking to start up a business in a country, immigration laws will go a long way to influence the quantity and quality of talent that you can attract from all over the world.

Canada’s immigration laws are quite progressive compared to other developed nations. Since 2020, Canada has welcomed over 300,000 migrants annually. This ensures that businesses within Canada have a diverse array of talent available in the labour force.

• Income Repatriation Policy; if you are an international investor this is a very crucial signal. It involves the ease at which you can transfer your earnings and profits back to your home country.

Canada offers a tax-efficient income repatriation policy to which is very attractive for International Investors and Immigrant workers.

Investment Incentives In Canada

Loans available to startups, VAT on products, Tax rates for Intl Investors, & Tax Law/Tax holidays, Tariffs

• Startup Loans: you should examine if you will be eligible for startup loans from the government or from financial institutions in the country.

The Canadian Government does a great job supporting new Investments through various startup loans, Business grants including Mandatory Employee Related Costs.

Information on Business support funds be found on Canada.ca/grants

• Taxes & Tariffs: The types of taxes and the rates are vital signals you should also look out for before choosing an investment destination.

In Canada, Personal income tax is pegged at 15%. While Companies Income Tax (CIT) is around 13%. This is very competitive and attractive in comparison to its neighbouring countries. The pandemic has also seen the government of Canada introduce concessions to keep existing companies afloat and attract new ones.

Political Landscape

The political landscape has to with a brief preview of issues relating to War, civil unrest, terrorism, election dates, foreign policy or trade wars.

Canada has a relatively peaceful political landscape. Strict gun-laws and an efficient Police system all ensure that the crime rate is kept at the minimum.

• Election Dates and Policy Continuity: Many countries usually have dramatic policy changes when there is a change in government. If you are an investor, you will do well to look out for the countries next federal election date or provincial election date in the city of destination.

You can also look at the country’s history of policy continuity especially in sectors that are relating to your investment.

The next Federal Elections in Canada will take place on October 16, 2023. This means that for the next 2 years, there is little chance for drastic economic policy changes.

• Infrastructure: You should also have an overview of the level of infrastructure and social amenities available in the country at the particular time and what it costs to access them. e.g Electricity, Public Health etc.

Canada has highly developed infrastructures which serve as an aid to the smooth running of businesses.

Lucrative Sectors to Invest in Canada 2021

Some of the lucrative investments in Canada in recent time are

1) Real estate: Landed property in affordable provinces in Canada can be very profitable. Provinces like Regina, Saskatchewan and Winnipeg, Manitoba have properties within an affordable range of $250,000 CAD to $350,000 that can quickly appreciate on yield significant rent income over the next few years.

If you can afford it, this real estate one sector you should be looking into.

2) Stocks: The Toronto Stock Exchange has a Market Cap of $1.5b with an annual dividend rate of about 15%. You should get a slice of this 500M pie. If you have some spare funds that you are looking to invest in, call your broker now.

3) High-Interest Savings Account: If you are looking to wait out the uncertainties of the global pandemic, you can still make conservative investments in High-Interest Savings Accounts. Canadian Banks offer attractive rates between 1.5% to 2.30% returns.

4) Tech Startups: the pandemic has affected nearly every sector except tech. Tesla Stock and Amazon stock have most notably been on the rise since the pandemic began in Q1 2020.

The Canadian government has set up startup hubs in popular cities across the country to aid quick growth and access to talent.  

5) Bonds and Securities: Financial Instruments issued by the Canadian government are basically risk-free. They are good conservative investments in these perilous and uncertain times. Canadian Government Bonds are available from 1 to 30-year tenors. A 5-year Canadian Bond currently offers a yield of 0.5% if held to maturity.

Conclusion

Is it a good time to invest in Canada?

Canada is one of the world’s best destinations for Investment at the moment.

The challenges posed by the global pandemic appear to have been surmounted as the economy seems to have bounced back towards pre-pandemic levels. Maintaining a GDP growth rate of 2.3% in the last quarter of 2020.

Similarly, the Toronto Stock Exchange, Canada’s main equity market index surged 4% over the last 3 months of 2020. Having recorded positive figures for the third successive month, experts preach caution amid fears of a second wave and new mutation of the Covid-19 virus.

Asides from its vibrant GDP growth rate and bullish stocks, some of the key features that point towards an attractive destination of 2021 are Ease of Doing Business Ranking, Repatriation Policy, Attractive tax rates and guaranteed Property Rights.