Annual report

2020–2021

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© Her Majesty the Queen in Right of Canada, as represented by the Minister of Industry, (2019).

Cat. No. Iu1-15E-PDF
ISSN 2291-6768

Aussi offert en français sous le titre Loi sur investissement Canada – Rapport annuel 2020-21.


Message from the Director of Investments to the Minister of Innovation, Science and Industry

Dear Minister:

I am pleased to present the 2020-21 Annual Report on the Investment Canada Act. The Act is a vital part of the government's broader framework to facilitate beneficial foreign investment that contributes to innovation, growth and job creation in Canada.

While the previous two fiscal years saw all-time highs of investment filings under the Act, the current year's total of 826 certified applications for review and notifications represented a 19.6 percent decrease from the previous year. This is likely attributable to the effects of the COVID-19 pandemic on global foreign investment flows, and also to some degree to the increased scrutiny of foreign investment undertaken as a result. That said, irrespective of its effect on the number of investment filings, the economic impact of the pandemic has only increased the international attention paid to foreign investment review policies and frameworks, a growing trend of awareness that pre-existed the current fiscal year.

During fiscal year 2020-21, three applications for review were submitted and all were approved as being of likely net benefit to Canada. The remaining 823 investment filings were notifications, including 247 filed in respect of new businesses established in Canada by non-Canadians.

All of the 826 investment filings, as well as additional investments not subject to an application or a notification requirement, were reviewed for their potential to cause national security harm. Eleven of those investments resulted in section 25.3 Orders for review, of which four subsequently required no further action under the ICA, four were withdrawn by the investor and three resulted in a section 25.4 final order:  one to block the investment and two requiring the non-Canadian to divest or wind-up the Canadian business.

Although mentioned in the previous annual report, the importance and time-sensitive nature of COVID-19-related policy developments warrant mention again. The Policy Statement on Foreign Investment Review and COVID-19, published in April 2020,provides greater transparency regarding how the Act will be applied during this unprecedented period. Additionally, from July until December 2020, certain national security timelines were temporarily extended through legislation. This ensured sufficient time for investments to be scrutinized for potential harm to Canada's national security. Finally, in March 2021, the Guidelines on the National Security Review of Investments were updated, with particular emphasis on sensitive technologies, sensitive personal data and critical minerals, and on state-owned and state-influenced investment, which foreign investors and Canadian businesses should take into consideration in their investment planning.

I look forward to continuing to support the administration of the Act in a manner that encourages investment, economic growth and employment opportunities in Canada while ensuring that Canada's national security is protected.

Yours sincerely,
Simon Kennedy, Director of Investments


Introduction

The Investment Canada Act (the Act or the ICA) is an integral part of a broader regulatory framework that Canada relies upon for the review of foreign investments into the country. With its stated purpose "to provide for the review of significant investments in Canada by non-Canadians in a manner that encourages investment, economic growth and employment opportunities in Canada and to provide for the review of investments in Canada by non-Canadians that could be injurious to national security", the Act is applied broadly across the economy to weigh the economic impacts and mitigate potential national security harms posed by foreign investments. The Minister of Innovation, Science and Industry (the Minister) is responsible for administering the Act except with respect to net benefit reviews of cultural businesses, which are administered by the Minister of Canadian Heritage.

Pursuant to section 38.1 of the Act, the Director of Investments is required to submit an annual report on the administration of the Act, which is to be made available to the public. This is the Annual Report for fiscal year 2020-21 for investments administered by the Minister.

Net Benefit

Applications for Review

Where a non-Canadian proposes to acquire control of an existing Canadian business valued at or above the relevant net benefit review threshold, the non-Canadian must file an application for review of likely net benefit to Canada. The application contains prescribed information that the non-Canadian is required to provide, including its plans for the Canadian business. In addition, the non-Canadian may be asked to provide any other information that is necessary for the Minister to conduct a proper review of the proposed investment.

The review assesses the proposed investment against factors set out at section 20 of the Act:

  1. the investment's effect on the level and nature of economic activity in Canada, including employment, resource processing, and the utilization of parts, components and services;
  2. the degree and significance of participation by Canadians in the Canadian business;
  3. the investment's effect on productivity, industrial efficiency, technological development, and product innovation and variety;
  4. the investment's effect on competition;
  5. its compatibility with industrial, economic and cultural policies; and
  6. its contribution to Canada's ability to compete in world markets.

These six factors provide predictability for investors while maintaining flexibility for the Minister to ensure the overall economic benefit to Canada of investments. The Minister may only approve an investment when satisfied that, in light of these factors, it is likely to be of net benefit to Canada. In coming to a conclusion, the Minister may consider all of the information available, including the application for review, plans and undertakings, and results of consultations with provincial and territorial governments.

2021 Key net benefit review thresholds
Private Sector, WTO Investors:
$1.043 billion
Private Sector, Trade Agreement Investors:
$1.565 billion
State-Owned, WTO Investors:
$415 million

Notifications

Where a non-Canadian establishes a new Canadian business, acquires control of an existing Canadian business valued below the relevant net benefit review threshold, or acquires control of an existing Canadian business through an indirect investment, the non-Canadian is required to file a notification containing prescribed information. Unlike an application for review, however, the investment is not subject to a net benefit review under the Act.

Administrative Documents

To provide greater clarity and transparency, the Minister has issued Guidelines, Interpretation Notes and other administrative documents to assist investors in understanding the Act and how it is applied in specific circumstances. For example, there are guidelines on the net benefit assessment of investments by state-owned enterprises. They state that the Minister will take into account the investor's commercial orientation and corporate governance, among other considerations. These administrative documents are available on the Investment Canada website.

National Security

Part IV.1 of the Act provides the government with the authority to review investments in Canada by non-Canadians for their potential injury to Canada's national security. This Part applies to a broader set of investments than covered by the net benefit provisions, including greenfield and minority investments. There is no financial threshold that must be surpassed before such a review is conducted.

The Minister is responsible for the administration of the national security process, with the review itself a multi-step process led by Canada's national security agencies. Based on a recommendation from the Minister, following consultation with the Minister of Public Safety, the Governor-in-Council (GiC) has the authority to take any measure necessary with respect to an investment.

This can include:

  • directing an investor not to implement an investment;
  • authorizing an investment on condition that the investor give certain written undertakings or on terms and conditions that the GiC considers necessary under the circumstances; or,
  • requiring the investor to divest control of its investment.

Highlights from Fiscal Year 2020-21

  • In total, 826 investment filings (applications for review and notifications) were certified, a significant decrease from the 1,032 filings in 2019-20:
    • This included three applications for review, all of which were approved (down from nine in the last fiscal year). The transactions were assessed using Enterprise Value; dollar values have not been made public due to the confidentiality provisions of the Act.
    • The remaining 823 filings were notifications, with a total Enterprise Value of $37.26 billion and a total Asset Value of $22.50 billion.
    • Of the notifications, 247 pertained to the establishment of a new Canadian business.
  • All 826 investment filings, as well as additional investments in Canada by non-Canadians, were reviewed by the prescribed investigative bodies under the Act, including Canada's national security and intelligence agencies, for their potential to harm Canada's national security.
    • A total of 23 investments received a section 25.2 notice under the national security provisions of the Act, while one other investment immediately proceeded to a national security review under section 25.3;
    • Following the issuance of section 25.2 notices, 12 of the 23 investments later received a notice of no further action under paragraph 25.2(4)(a), while one was withdrawn by the non-Canadian investor;
    • Of the 11 investments that received section 25.3 notices (compared to seven for 2019-20), four required no further action under paragraph 25.3(6); four were withdrawn by the non-Canadian; and three resulted in a section 25.4 final order (one to block the proposed investment and two to divest or wind-up the Canadian business).
  • Significant policy developments during fiscal year 2020-21 were prompted by the COVID-19 pandemic:
    • The Policy Statement on Foreign Investment Review and COVID-19 (the COVID-19 Policy Statement) was issued in April 2020, stating that investments in Canadian businesses related to public health or in the supply of critical goods and services, as well as investments by state-owned enterprises, would be subject to enhanced scrutiny. This enhanced scrutiny will apply until the economy recovers from the effects of the pandemic.
    • Certain timelines for national security reviews were temporarily extended pursuant to a Ministerial Order issued under the Time Limits and Other Periods Act (COVID-19). These extensions expired on December 31, 2020.
  • Additionally, an update to the Guidelines on the National Security Review of Investments (NS Guidelines) was announced on March 25, 2021 to add sensitive technologies, sensitive personal data, critical minerals and investments by state-owned or state-influenced investors as factors that indicate potential national security concerns.

Impact of COVID-19

There can be no doubt that the COVID-19 pandemic had a profound impact on economic activity in Canada and globally during the period of this Annual Report. With respect to foreign direct investment (FDI) flows, the United Nations Commission on Trade and Development's (UNCTAD) World Investment Report 2021Footnote 1 noted that global FDI flows fell by 35 percent from 2019 levels. The same report also found that FDI flows to Canada fell by 50 percent year over year. This decline occurred in both cross-border M&A activity as well as greenfield investments.

While FDI as measured by UNCTAD is not directly comparable to data collected under the Act, the two trended in similar directions. Compared to fiscal year 2019-20, the number of notifiable transactions – which includes both acquisitions of control of existing Canadian businesses and greenfield investments by non-Canadians – fell by 20.0 percent and the number of reviewable transactions fell by two-thirds. While the total value of investments as measured by Asset Value increased by 47.8 percent (or $7.28 billion), the total value of investments as measured by Enterprise Value decreased by 26.0 percent (or $12.94 billion).

The pandemic also had other impacts in Canada. As will be discussed below, the Minister issued the COVID-19 Policy Statement, which indicated that the government would apply enhanced scrutiny to specific types of investment. In addition, the government introduced regulatory changes that temporarily extended the national security review periods in recognition of the challenging working environment caused by the pandemic. These measures, among other factors, resulted in 24 investments being implicated under the national security provisions of the Act. This number was nearly equivalent to the total number of investments implicated under the national security provisions in the four prior years combined. Despite that high number of initial actions, the number of final section 25.4 GiC orders (three) was in line with prior years.

Policy Developments

Trade Agreements

On July 1, 2020, the Canada-United States-Mexico Agreement came into force. The private sector trade agreement net benefit review threshold, formerly available under the North American Free Trade Agreement, continues to apply to private investors whose country of ultimate control is the United States or Mexico.

As a result of Brexit, between January 1, 2021 and March 31, 2021, private investors whose ultimate country of origin was the United Kingdom were subject to the World Trade Organization, non-state-owned enterprise net benefit review threshold. As of April 1, 2021, the Canada-United Kingdom Trade Continuity Agreement – an interim agreement based on CETA – came into force, resulting in qualifying UK investors being once again subject to the higher private sector trade agreement net benefit review threshold.

Policy Statements

On April 18, 2020, the Minister published the COVID-19 Policy Statement. It announced temporary, enhanced scrutiny of FDI of any value, controlling or non-controlling, in Canadian businesses related to public health, or involved in the supply of critical goods and services to Canadians or to the government, and by state-owned investors or private investors assessed as being closely tied to or subject to direction from foreign governments. This enhanced scrutiny of certain foreign investments under the ICA will apply until the economy recovers from the effects of the COVID-19 pandemic.

On March 25, 2021, the Minister published an update to the NS Guidelines. Investments involving sensitive personal data (paragraph 8(xi)), specified sensitive technologies (paragraph 8(ii) and Annex A), critical minerals (paragraph 8(v)), and investments by state-owned or state-influenced investors (paragraph 7) have been included in the NS Guidelines in light of evolving national security concerns.

Regulatory Changes

On July 27, 2020, An Act respecting further COVID-19 measures received Royal Assent and brought into force the Time Limits and Other Periods Act (COVID-19). Pursuant to this legislation, the Minister issued a Ministerial Order on July 31, 2020, temporarily extending certain periods of national security review under the Act: it lengthened, in the review timeline, the initial review period following a filing (by 15 days) and the section 25.2 extended initial review period (by 45 days). The Order also extended the deadline for the Minister to take action under Part IV.1 of the ICA for investments that are subject to the Act but do not require a filing. For these investments, the relevant period continued to be determined from the date of implementation of the investment (with the initial review period lengthened by 135 days). By force of legislation, the periods reverted to the norm on January 1, 2021.

Net Benefit Activity under the Investment Canada Act

This section details the quantity, target sectors, geographic origins and destinations of investments subject to the filing requirements of the Act during the past fiscal year. Pursuant to the Act and its associated Regulations, investments are valued either by "Enterprise Value," which takes into account the Canadian business' market value, debt and cash, and is used for direct investments by private sector investors from WTO member countries; or "Asset Value," which is calculated based on the Canadian business' book value where the investor is a state-owned enterprise or is from a non-WTO member country. Additionally, the establishment of a new Canadian business and indirect investments, in which a Canadian business is acquired as part of a larger global transaction, are also measured by Asset Value.

Total Investments

In fiscal year 2020-21, 823 notifications were certified and three applications for review were approved under the Act, for a combined 826 filings. This represents a decrease of 20.0 percent from 2019-20, when there were 1,032 combined filings.

Of the total number of notifiable investments this year, 53.8 percent (444 filings) were calculated by Enterprise Value, a decrease from 61.6 percent (636 filings) the previous fiscal year. Investments calculated by reference to Asset Value increased to 46.3 percent (382 filings) from 38.4 percent (396 filings) the fiscal year prior.

Continuing a trend, investments measured by Enterprise Value ranged more broadly in value than those measured by Asset Value. Within this wider range, a noticeable 71.8 percent of investments measured by Enterprise Value fell between $1 million and $100 million. Those investments measured by Asset Value were predominantly below $100 million in value, with the greatest concentration – 67.0 percent – under $1 million.

Figure 1. Total investments by value

Applications for Review

The most recent year saw a significant diminishment of applications for review, to only three, compared to previous years. This represents one-third of the nine approved applications in each of 2017-18 through 2019-20. As noted above, the COVID-19 pandemic suppressed foreign investment, including cross-border M&A, globally. 

All three applications for review in 2020-21 were measured by Enterprise Value, whose total was significantly less than last year's $50.2 billion. This report cannot provide the precise dollar value of the three investments in order to maintain the confidentiality required by the Act.

Figure 2. Number of applications for review and related Enterprise Value and Asset Value.

Length of Reviews

The Act provides an initial 45-day period for reviews, which the Minister can extend by up to another 30 days. This statutory timeframe can be further extended, with consent of the investor, for as long a duration as necessary to complete the review.

The length of reviews has been fairly consistent in recent years. For 2020-21, an average of 77 days was necessary from certification to approval. Excluding an outlier, 2019-20's average review period was 73 days, while 72 days were required on average in 2018-19. The median review period in 2020-21 was also 77 days, similar to 76 days in 2019-20, though more than the 64 median days in 2018-19.

Notifications

Of the notifications, required for acquisitions of control of a Canadian business valued below the net benefit review thresholds, for indirect acquisitions and investments to establish a new Canadian business, a total of 823 were certified in 2020-21. This represents a decrease of 19.6 percent from 2019-20. This significant decrease may be attributed in large part to the diminished FDI inflows to Canada resulting from the COVID-19 pandemic.

Notifications measured by Asset Value had a total value of $22.50 billion and an average value of $58.89 million, while those measured by Enterprise Value had a total value of $37.26 billion and an average value of $84.48 million (Figure 3).

While the total number of notifications decreased, the average value of investments measured by Asset Value and Enterprise Value both increased from the previous fiscal year. In 2020-21, the average Asset Value investment was $58.89 million versus $38.64 million in 2019-20 – representing a 52.4 percent increase. Meanwhile, the average Enterprise Value investment was $84.48 million in 2020-21, versus $80.01 million, representing a 5.6 percent increase.

The total Asset Value increased, from $15.22 billion in 2019-20 to $22.50 billion (a 47.8 percent increase), while total Enterprise Value dropped from $50.33 billion in 2019-20 to $37.26 billion (a 26.0 percent decrease).

The five largest Asset Value notifications accounted for 33.1 percent of the total value in 2020-21 whereas in 2019-20 they accounted for 14.6 percent. Conversely, the five largest Enterprise Value notifications accounted for only 11.1 percent of all such notifications, which is a reduction from the prior fiscal year, in which the five largest Enterprise Value notifications accounted for 17.1 percent of the total value. This mirrors the relative increase and decrease in total Asset and Enterprise Values.

Notifications regarding the acquisition of control of an existing Canadian business continued to be significantly higher than those regarding the establishment of new Canadian businesses, continuing a trend discernable in recent years (though at a somewhat lower ratio of 70.0 percent to 30.0 percent, which has been decreasing steadily since 2015-16, when it was 79.0 percent to 21.0 percent). Concomitant with this relative stability in the ratio of acquisitions to establishments, the total number of new businesses, 247, though a slightly lower figure than the 255 for fiscal years 2019-20 and 2018-19, has remained relatively stable despite the drop in overall notifications.

Figure 3. Number of notifications and related Enterprise Value and Asset Value

Investment by Sector

Investments into Canada are classified into five broad sectors based on the North American Industry Classification System (NAICS) codes. As in previous fiscal years, the number of Business and Services Industries sector investments in 2020-21 predominates, followed by those in the Manufacturing sector. However, as can be seen in Figure 4, the Business and Services Industry sector forms a smaller percentage of total sectoral values in 2020-21 than it did the previous fiscal year. The same applies to the Resources sector.

  • Resources: As with all sectors in 2020-21, there were fewer investments than last fiscal year. Values in this sector also fell, most significantly for Enterprise Value - from $27.10 billion in 2019-20 to just $5.31 billion in 2020-21.
  • Manufacturing: Although the number of investments in this sector dropped by nearly 50 and total Enterprise Value decreased, total Asset Value nearly doubled, from $5.86 billion in 2019-20 to $11.01 billion in 2020-21.
  • Wholesale and Retail Trades: Despite the fact that this sector saw nearly 20 fewer investments, values increased, most noticeably Asset Value, from $984 million in 2019-20 to $3.56 billion in 2020-21.
  • Business and Services Industries: This sector experienced a drop of 119 investments from fiscal year 2019-20 and a decrease in total Enterprise Value from $34.83 billion in 2019-20 to $10.07 billion in 2020-21, but an increase in total Asset Value from $1.10 billion to $1.87 billion.
  • Other Services: Maintained the most consistency in number of investments, with only a loss of four investments. By contrast, both Asset and Enterprise Values fell in this sector, the latter from $22.49 billion in 2019-20 to $9.48 billion in 2020-21.
Table 1. Investments by Sector and Total Value
- Number of investments Value of Investments ($M)
Asset Value Enterprise Value
Resources

37

$1,905

$5,306

Manufacturing

145

$11,014

$9,759

Wholesale and Retail Trades

107

$3,557

$2,648

Business and Services Industries

338

$1,872

$10,068

Other Services

199

$4,147

$9,477

Figure 4. Enterprise Value and Asset value by Sector
(notifications and applications for review)

Investment by Country or Region of Origin

The Act requires investors to provide the jurisdiction of their ultimate controller.Footnote 2 Consistent with recent fiscal years, in 2020-21, the United States of America, the European Union, the United Kingdom and China were the top countries or regions of origin. These four jurisdictions accounted for 84.4 percent of all in-bound investments (697 of 826), including 97.3 percent of the total value of investments measured by Asset Value, and 90.3 percent of the total value of investments measured by Enterprise Value.

Figure 5. Investments by country or region of origin.

Table 2. Top Investors
- Number of investments Value of Investments ($M)
Asset Value Enterprise Value
United States

448

$8,479

$23,742

European Union

146

$11,797

$4,906

United Kingdom

61

$787

$4,460

China

42

$838

$537

India

23

$10

[Supressed]

Note: The value of the one investment from India that was measured by Enterprise Value has been removed for reasons of confidentiality.

The top five source countries or regions of origin for investment represented 720 investments or 87.2 percent of all investments in 2020-21, Of these, the United States remained the predominant investor, accounting for 54.2 percent of all investments, an increase from 47.0 percent in 2019-20, and 63.7 percent of Enterprise Value compared to 59.5 percent in 2019-20, though it was surpassed in Asset Value by the European Union. By marked contrast, the number of investments by United Kingdom investors represented a significant decrease from 184 in 2019-20 when it stood ahead of the European Union's 164 total investments, to 61 in 2020-21. This is a reversal of the trend between 2018-19 and 2019-20, when the United Kingdom's investments had increased more than twofold, from 74 to 184.

By surpassing the United Kingdom in number investments, the European Union was second only to the United States, as was the case in 2018-19, when United Kingdom investments were included in the European Union tally.

While the number of investments from the top three investor jurisdictions decreased in 2020-21, those from China changed minimally, with 42 total investments in 2020-21 compared to 41 in 2019-20 and 36 in 2018-19. Moreover, the value of China's total investments as measured by Enterprise Value grew from $48 million in 2019-20 to $537 million in 2020-21, although the value of its investments as measured by total Asset Value fell from $1.47 billion in 2019-20 to $838 million in 2020-21.

Table 3. Top E.U. Investors
- Number of investments Value of Investments ($M)
Asset Value Enterprise Value
European Union

146

$11,797

$4,906

France

32

$3,608

$840

Germany

25

$319

$133

Sweden

19

$11

$360

Ireland

14

$7,585

$263

Luxembourg

11

[Supressed]

$231

Note: The value of the one investment from Luxembourg that was measured by Asset Value has been removed for reasons of confidentiality.

Sectoral Investment by Top Source Countries or Regions

The ranking of sectors of investment for the top five source countries or regions of origin were:  Business and Services Industries (40.3 percent); Other Services (24.8 percent); Manufacturing (17.7 percent); Wholesale and Retail Trades (12.9 percent); and Resources (4.3 percent).

  • United States: 179 investments of a total 448 (39.9 percent) were in the Business and Services Industries sector, followed by 126 (28.1 percent) in the Other Services sector and 84 (18.8 percent) in the Manufacturing sector.
  • European Union: Similarly, most investments from the European Union fell in the Business and Services Industries sector – 52 investments of a total 146 (35.6 percent). The next three sectors were more evenly distributed: Manufacturing at 32 investments (21.9 percent); Other Services at 30 investments (20.6 percent) and Wholesale and Retail Trades at 26 investments (17.8 percent). as with the United States, the Resources sector came last, seeing only six investments (4.1 percent). Compared to the previous fiscal year, the Business and Services Industries sector predominated in 2020-21, whereas the Manufacturing sector held the highest percentage in 2019-20.
  • United Kingdom: The majority of its investments were also in the Business and Services Industries, with 30 of 61 total investments (49.1 percent), a significant drop from 150 of 184 total investments (81.5 percent) in 2019-20. This lower figure and the more even distribution across sectors are likely tied to the overall decline in investments from the United Kingdom.
  • China: As in past fiscal years, the Business and Services Industries sector was the source of most of China's investments, with 22 of 42 total (52.4 percent), representing roughly half the country's total investments, as was the case in 2019-20. The remaining sectors were significantly lower: Wholesale and Retail Trades and Other Services each saw eight investments (19.1 percent), while Manufacturing and Resources each saw two investments (4.8 percent)
  • India: Typically, Australia is one of Canada's top investment sources. However, in 2020-21, it was surpassed by India. India's investments came only from three sectors: the largest source was in Business and Services Industries at 16 investments; followed by Other Services (five investments); and, Wholesale and Retail Trade (two investments).

Figure 6. Investment by Top Country or Region of Origin and Sector

Investment by Province and Territory

The most substantial provincial and territorial destinations of investments in 2020-21 were Ontario at 393 of 826 total (47.6 percent), followed by British Columbia at 186 (22.5 percent), Quebec at 124 (15.0 percent), and Alberta at 59 (7.1 percent). In sum, these provinces accounted for 762 investments (92.3 percent). Measured by total value, Ontario was still the primary destination of investments in 2020-21, but Quebec surpassed British Columbia despite having fewer total investments.

Figure 7. Destination by number of Investments

Figure 8. Destination by value of Investments

National Security Activity

This section provides information on the administration of Part IV.1, Investments Injurious to National Security, including characteristics of investments that have required intervention under the ICA. Certain details of investment proposals are not included in this Report, in compliance with the confidentiality and privileged information requirements of the Act and to protect national security.

Prospective investors contemplating investments in Canada, and Canadian businesses, will find this information helpful as they plan their investment proposals. In addition, the NS Guidelines and COVID-19 Policy Statement provide an illustrative list of factors that the government may consider when assessing whether an investment poses a national security risk. International investors, Canadian businesses, and their advisors may contact the Investment Review Division to discuss proposed investments and, where applicable, are strongly encouraged to file a notification at least 45 days prior to planned implementation, whenever such investments may involve the factors outlined in these documents. The NS Guidelines also provide information on the national security review process itself.

The supplemental detail provided in this report furthers transparency and provides prospective investors and Canadian businesses with pertinent information to allow them to plan their investment proposals.

About the National Security Review Process

Part IV.1 applies to investments by non-Canadians into Canada, regardless of whether the investment is subject to an application for review or notification. The government relies on a variety of means to identify non-notifiable investments, including referrals from security and intelligence agencies, news releases, media reports and commercial databases. These transactions are assessed for: 1) the applicability of the Act; and 2) potential for national security injury. The following tables in this Annual Report reflect government actions taken with respect to applications for net benefit review, notifications and non-notifiable investments. As such, all 823 certified notifications and three applications for net benefit reviewed and approved in fiscal year 2020-21, as well as greenfield and minority investments which were not subject to filing requirements, were reviewed under the multi-step national security review process set out in the Act.

The Minister is responsible for administering Part IV.1 of the Act and makes a recommendation after consultation with the Minister of Public Safety and Emergency Preparedness. During the initial period of review and throughout the review process, security agencies and other relevant prescribed investigative bodies, including ISED and Public Safety, assess information and intelligence related to the Canadian asset being acquired or business being established, the terms of the investment and the foreign investor. This may include consultation with Canada's allies. The Minister may require the investor or the Canadian business or entity to provide any information, for example incremental to that contained in a mandatory filing, considered necessary for the purposes of reviewing the investment for national security injury.

The Minister, after consultation with the Minister of Public Safety and Emergency Preparedness, is responsible for referring investments that could be injurious to national security to the GiC, who may order a review under section 25.3. A section 25.3 order is required to have been made by the GiC before an order can be imposed on the investment under section 25.4. A section 25.4 order may include any measure to protect national security, including to block the investment, order divestiture, or impose conditions on the investment.

For greater certainty, a section 25.3 order is not required for the security and intelligence agencies and other prescribed investigative bodies to review an investment. The legal authorities under the Act to investigate are the same from the moment the Minister becomes aware of an investment or a proposed investment, through each period of the multi-step review process.

The multi-step national security review process timelines are set out in Figure 9.

Figure 9. National Security Review Timelines

Notices and Orders Issued Under Part IV.1

During fiscal year 2020-21, 24 investments were implicated under Part IV.1: 23 investments received notices issued under section 25.2 of the Act; and one investment was immediately subject to a section 25.3 notice for review. The total of 24 investments is almost equal to all the investments implicated under Part IV.1 in the previous four years.  Although the number of investment filings decreased, the number of actions taken under the national security review comparatively increased, which is consistent with recent policy direction. For example, the enhanced scrutiny of certain investments was announced in the COVID-19 Policy Statement in April 2020, and the NS Guidelines were updated in March 2021 to include new national security factors, i.e., specific sensitive technologies, sensitive personal data, critical minerals and state-ownership and influence. The composition of investment flows and complexity of deal proposals are other exogenous factors that affect the national security review process.

Of the 23 investments that received a section 25.2 notice in 2020-21, one was withdrawn by the investor and 12 were permitted to proceed with no further action taken under the ICA after further investigation by national security and intelligence agencies. The remaining ten received a section 25.3 order from the GiC, continuing the national security review. Along with the one investment for which there was one GiC order for review under section 25.3 immediately made, there were 11 such orders in 2020-21. Therefore, while the number of 25.2 notices in 2020-21 was 130 percent higher than 2019-20, the number of 25.3 GiC orders for review was only 57 percent higher, indicating that the enhanced scrutiny allowed the government to protect national security without always proceeding to a GiC order for review.

Of these 11 investments, two resulted in the GiC issuing a final order requiring the investor to divest itself of, or wind-up, its investment and one resulted in the GiC issuing a final order prohibiting the investor from completing the investment. Four were withdrawn by the investor and four were permitted to proceed when no further action was found warranted under the ICA.

The average length of review for the 11 investments subject to a section 25.3 order was 225 days from the date of certification or, where there was no filing, first government action to conclusion.

Table 4. contains a five-year history of notices and orders issued under Part IV.1.

Table 4. Notices and Orders Issued Under Part IV.1 Over the Last Five Years
- 25.2 Notice of potentials.s.25.3 Order for review Para.25.2(4)(a) Notice of no further action under ICA Withdrawal following s.25.2 Notice s.25.3 Order for review Para.25.3(6) Notice of no further action under ICA Withdrawal after s.25.3 Order for review issued s.25.4 Final Order
2020-21

23

12

1

11

4

4

2 Divest

1 Block

2019-20

10

3

0

7

1

3

3 Divest

2018-19

9

2

0

7

3

2

2 Divest

2017-18

4

1

1

2

0

1

1 Block

2016-17

4

2

0

5Footnote *

0

0

3 Divest

2 Conditions Imposed

5 Year TOTAL 50 20 2 32Footnote * 8 10

10 Divest

2 Block

2 Conditions Imposed

Note: The fiscal year runs April 1 to March 31. Actions following the issuance of a 25.2 notice may have been taken in a subsequent fiscal year but were further to a 25.2 notice made in the fiscal year of reporting. For example, for fiscal year April 1, 2018 to March 31, 2019, nine 25.2 notices of potential section 25.3 order for review were made. The resulting actions may have been in the 2018-19 or 2019-20 fiscal year. Where a 25.2 notice was not issued prior to a section 25.3 order, all actions related to the case are ascribed to the fiscal year in which the section 25.3 order was issued. As a result of this method of reporting, one investment that had been previously reported under 2015-16 is now accounted for in 2014-15.

Characteristics of Investments Subject to Section 25.3 Orders for Review

Under Part IV.1 of the Act, proposed or implemented investments are assessed based on the facts and context related to the particular transaction under review. In assessing investments under the national security provisions of the Act, and as articulated in the NS Guidelines, the terms of the investment, the nature of the asset or business activities involved, and the parties, including the potential for third-party influence, are considered.

Table 5. contains a five-year history of investments that have been subject to orders for review under section 25.3 of the Act, and their characteristics.

Determinations made by the Minister or GiC under Part IV.1 are made on a case-by-case basis. The information provided below on the characteristics of investments that have been subject to orders under section 25.3 of the Act, from fiscal years 2017-18 to 2020–21, should be read in that context.

Table 5. Country of Origin and Sector of Investments Subject to Section 25.3 Orders Over the Last Five Years

OriginFootnote *

Industry Sector (NAICS or SIC)Footnote **

Outcome following Section 25.3 Order

2020-21

China

2122 (NAICS) - Metal Ore Mining

Blocked

China

2373 (NAICS) - Highway, Street, and Bridge Construction

Withdrawal

Taiwan

3254 (NAICS) - Pharmaceutical and medicine manufacturing

No further action under the ICA

Russia

5112 (NAICS) - Software publishers

No further action under the ICA

China

5415 (NAICS) - Computer systems design and related services

No further action under the ICA

China

5415 (NAICS) - Computer systems design and related services

No further action under the ICA

United Arab Emirates

5415 (NAICS) (NAICS) - Computer systems design and related services

Divestiture

China

5417 (NAICS) - Scientific research and development services

Withdrawal

United Kingdom

5223 (NAICS) - Financial transaction processing

Withdrawal

China

5614 (NAICS) - Business support services; and 5179 (NAICS) - Other telecommunications

Divestiture

China

6215 (NAICS) - Medical and diagnostic laboratories

Withdrawal

2019-20

China

4179 (NAICS) - Other machinery, equipment and supplies merchant wholesalers

Divestiture

France

4881 (NAICS) - Support activities for air transportation

Divestiture

United Kingdom

5223 (NAICS) - Activities related to credit intermediation

Withdrawal

Belarus

5415 (NAICS) - Computer systems design and related services

No further action under the ICA

China

5415 (NAICS) - Computer systems design and related services

Withdrawal

China

5417 (NAICS) - Scientific research and development services

Divestiture

Luxembourg

56 (NAICS) - Administrative and support, waste management and remediation services

Withdrawal

2018-19

Singapore

3325 (NAICS) - Hardware manufacturing

Withdrawal

China

3333 (NAICS) - Commercial and service industry machinery manufacturing

Withdrawal

Switzerland

3336 (NAICS) - Engine, turbine and power transmission equipment manufacturing

Divestiture

Switzerland

3339 (NAICS) - Other general-purpose machinery manufacturing

No further action under the ICA

China

4541 (NAICS) - Electronic shopping and mail-order houses

No further action under the ICA

China

4851 (NAICS) - Urban transit systems

Divestiture

China

5223 (NAICS) - Activities related to credit intermediation

No further action under the ICA

2017-18

China

2379 (NAICS) - Other heavy and civil engineering construction

Block

China

3254 (NAICS) - Pharmaceutical and medicine manufacturing

Withdrawal

2016-17

China

3351 (SIC) - Manufacturing Industries - Telecommunication Equipment Industry

Conditions Imposed

China

3359 (NAICS) - Other electrical equipment and component manufacturing

Conditions Imposed

China

3366 (NAICS) - Ship and boat building

Divestiture

Cyprus

4821 (NAICS) - Rail transportation

Divestiture

China

5179 (NAICS) - Other telecommunications

Divestiture

Note: The fiscal year runs April 1 to March 31. The section 25.3 order for review and subsequent section 25.4 order or outcome is ascribed to the fiscal year in which the section 25.2 notice was issued. If no such notice was issued, the action is ascribed to the fiscal year in which the section 25.3 order for review was made. As such, one case that had been previously reported under 2015-16 is now accounted for in 2014-15.

Conclusion

The year 2020-21 is likely to represent an outlier due to the impact of the COVID-19 pandemic. The disruption depressed economic activity and FDI flows while concurrently elevating national security concerns about investments that could negatively affect Canada's response to the pandemic. While economic recovery may be slow and sporadic, depending on the public health situation, it can only be hoped that 2021-22 finds us returning to a semblance of normality. 

Appendix

Interpretive Notes

  • All references to the 2020-21 fiscal year in data, tables, charts and explanations mean from April 1, 2020, to March 31, 2021.
  • In the section titled "Activities under the Investment Canada Act in 2020-21", investments are ascribed to the year corresponding to their final action: the certification date for notifications, and the date of the Minister's decision for applications.
  • Acquisitions are recorded by the Asset Value or the Enterprise Value of the Canadian business to be acquired, based on its most recent audited financial statements, not by the purchase price. The value of a new business proposal is recorded on the basis of the planned amount of investment over the first two years.
  • The actual number and value of acquisitions of control and new business establishments by international investors may not be wholly reflected for reasons which include the following:
    • From time to time, two or more investors may submit applications for review to acquire the same Canadian business. In such cases, each proposal is recorded as a separate transaction.
    • In June 1999, responsibility under the Act for investments related to cultural activities listed in Schedule IV of the Investment Canada Regulations was transferred to Canadian Heritage. Accordingly, our statistics since that time do not include foreign investments in Canadian businesses engaged strictly in activities listed in Schedule IV.
    • A number of filings are submitted to ISED at the proposal stage and processed promptly under the terms of the Act. However, for commercial or other reasons, investors who have submitted a notification or application may subsequently choose not to implement the investment or to implement it at a later time.

Data Comparison with Other Statistical Sources

The principal purpose of the Act is the review of investment activity by international investors. For each fiscal year, a report on the administration of the Act is produced and made available to the public.

Data collection is limited to new business proposals and acquisitions of control by foreign investors. Results only represent a portion of the value of international investment in Canada, and therefore cannot be compared with either the FDI flows or stock figures published by Statistics Canada. For example, the value of major plant expansions by established foreign investors in Canada is not captured under the Act.