Manitoba’s Low Business Investment

SUMMARY:

Manitoba has the lowest rate of capital investment per capita in western Canada and the third lowest in the country, after two Maritime provinces. Over the last ten years, the accumulated new investment amounts to only 40% of the Canadian average. This indicates a chronic lack of confidence in Manitoba’s investment climate and its economic policies. It is also a predictor of lower relative living standards and another signal that policies need to be reformed to increase investment levels.

OBSERVATIONS:

• Net fixed business investment per capita is the amount of capital being spent by businesses on plants, machinery, equipment, and buildings per person after accounting for depreciation. (Note: the statistic also includes non-residential and residential structures – this explains why B.C. does well in this comparison.) These investments partly determine labour productivity; high investment levels generally lead to faster economic growth and higher wages and salaries, while lower investment levels imply less growth and lower living standard increase.
• Accumulated between 1981 and 2001, Manitoba’s per capita rate of capital investment was only 27% of Alberta’s, 32% of B.C.’s, and 41% of the Canadian average. Saskatchewan, with a less diversified and more volatile economy, received slightly more new net business investment than Manitoba.
• This relative lack of business investment is related to Manitoba’s slower growth in real wages per capita. Between 1991 and 2001, per capita real incomes grew three times faster in Alberta than Manitoba (.4% per year in Manitoba versus 1.3% in Alberta).
• Investment in plant and equipment is a function of an attractive policy environment. Manitoba needs to revisit its tax and regulatory policies if it wants to increase growth in the economy and wages. Uncompetitive taxes (relatively high marginal rates on personal income and high effective rates of taxation on capital), a proportionately large public sector relative to the size of the provincial economy, a heavy reliance on federal transfers and unbalanced labour regulations are early candidates for reform if the province is to reverse what appears to be an entrenched capital drought in Manitoba.

Source: Statistics Canada, Public Institutions Division, Financial Management System; Fraser Institute