The North American Free Trade Agreement (NAFTA) has been in the news in recent months because of President Trump’s desire to renegotiate the trade deal. Although various aspects of the treaty have become a topic of public discussion, such as the dairy sector, as well as subsidies for aerospace companies, what has been less talked about, but perhaps more impactful in scope, is the effect that these NAFTA negotiations can have on the continent’s investment sector.
Chapter 11 of NAFTA is specifically titled: Investment. It provides an established and predictable set of rules to invest across the borders of Canada, the United States and Mexico, while also establishing dispute-resolution mechanisms that facilitate the movement of capital across national boundaries.
The Donald Trump factor
However, since the rise of Donald Trump onto the American political landscape, accompanied by his skepticism towards established trade treaties, an uncertainty about the future of NAFTA has most definitely had an impact on Canada’s investment sector.
According to Global News, a report prepared by research firm Pitchbook states that only $490 million dollar was invested in venture capital in Canada so far this year ending in April, which predicts a significant decline from 2016, which saw a record $2.11 billion invested in Canada’s venture-capital sector.
Canada’s private-equity sector was hit particularly strongly, in which only $990 million was raised up until April of this year, which is down from a level of $3.4 billion from the same time last year, and suggests totals this year will be below the $7.3 billion for all of last year. This puts Canada’s private-equity sector on pace to have its worst year since 2012.
The current uncertainty
So, the uncertainty surrounding NAFTA renegotiations seems to have a detrimental effect so far on Canada’s investment sector. What does this mean moving forward? Well, it can mean one of two things.
On the one hand, this current unease about NAFTA reflects just how much Canada has become dependent on the treaty, and how important its continuation is to provide stability and predictability.
On the other hand, there are suggestions that Canada might have to start thinking very seriously about the prospect of an end to NAFTA. Former Canadian Prime Minister Stephen Harper himself has recently said that he doesn’t believe the cancellation of the treaty is a bluff from President Trump. Instead, forces are at play south of the border that have made protectionism more prevalent.
Nevertheless, good investors know they have virtually no control over the politics of trade and investment. Instead, investors should always look for opportunities, despite any uncertainty. As the NAFTA process works itself out, Canada has ratified its free-trade treaty with Europe (CETA), and there will always be landing spots for global capital, whether it’s south of the border, or across an ocean or two.
