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Canada Unemployment Rate

Investment decisions are often complicated and require many facts to be investigated. If there is a choice between two countries to invest in, they should be compared in terms of economic development, legislation, and labor conditions. Therefore, Canada and Mexico will be contrasted to decide on the efficient investment. Although those states are different concerning economic conditions for FDI; they both have risks, advantages, and disadvantages, but only the detailed analysis will allow selecting the best alternative for investment.

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Economic Outlook

In order to compare Canada and Mexico, their main economic indicators are to be considered taking into account the data of several recent years. The first indicator is the GDP growth rate. According to the World Bank, the lowest GDP growth rate of Canada was in 2009 constituting about 2.95% annually. Thus, the country showed a  GDP decline, and it was probably caused by the consequences of the global financial crisis of 2008. Then, the GDP growth rate improved and reached 3.08% in 2010. In 2011, it increased again and became 3.14%. Even though the GDP growth rate of Canada declined a bit after that, it remained positive. In particular, it was 0.94% in 2015 and 1.47% in 2016 (“GDP Growth (Annual %)”). As for Mexico, changes in GDP growth rate were similar, namely, there was a decline in GDP by 4.7% due to the global economic crisis. Then, the state experienced economic recovery, and Mexico showed rapid growth of GDP by 5.11% in 2010. Later, similarly to Canada, it witnessed a reduction in GDP growth rate, but currently it remains positive. GDP growth rate of Mexico was 2.63% in 2015 and 2.3% in 2016 (“GDP Growth (Annual %)”). Hence, nowadays both countries have positive GDP growth, but for Mexico, this rate is higher.

The second economic indicator that will be analyzed for both states is public debt. It is important to consider because the size of public debt can influence the level of risk for the country, and if the former is relatively high, the risk of economic issues and default will be significant. For Canada, public debt was 98.4% of GDP in 2015 and 99.4% of GDP in 2016 (“Canada”). For Mexico, those figures were 47.3% of GDP and 50.2% of GDP, respectively (“Mexico”). Therefore, Mexico has less substantial public debt than Canada; thus, Mexico represents lower risks of economic default.

The third economic indicator that will be analyzed in dynamics is the inflation rate. The latter is important for foreign investment considerations because inflation shows how price level changes in the country; hence, it can provide possible risks of investment, as its value may vary in different currencies. Inflation rates will be examined in dynamics since 2010. For Canada, the inflation rate was 1.8% in 2010, and it is quite low in most states of the world. In 2011, the inflation rate grew and reached 2.9%. After that, it declined again constituting 1.5%, 0.9% and 1.9% in 2012, 2013 and 2014 respectively. During recent years, the inflation rate remains low (1.1% in 2015, 1.4% in 201,6, and 1.6% in 2017) (“Inflation Rate, Average Consumer Prices”). It is also necessary to study projections for the inflation rate for the nearest years. According to IMF, it is estimated that the inflation rate in Canada will be 1.8%, 2.1%, and 1.9% in 2018, 2019, and 2020 respectively (“Inflation Rate, Average Consumer Prices”). Thus, in the closest time, the inflation rate in Canada is expected to grow, but not significantly. As for Mexico, the inflation rate was 4.2% in 2010, and it is quite low in most states of the world but higher than in the developed countries. In 2011, the inflation rate declined to constitute 3.4%. After that, it was 4.1%, 3.8%, and 4% in 2012, 2013, and 2014 respectively. During the following two years, the inflation rate was relatively low (2.7% in 2015, and 2.8% in 2016). In 2017, it grew again and was 5.9% (“Inflation Rate, Average Consumer Prices”). As maintained by IMF, the inflation rate in Mexico will be 3.8%, 3.1,% and 3% in 2018, 201,9, and 2020 respectively (“Inflation Rate, Average Consumer Prices”). Hence, the inflation rate in Mexico is expected to decline in the short run, and it is lower compared to most developing countries.

The fourth economic indicator used for contrasting Canada and Mexico is the unemployment rate and its dynamics. For Canada, the unemployment rate is declining currently. It was about 7.3% in February 2016, and it was the maximum point. Then, it was declining gradually and reached 6.3% in October 2017. It is projected that the unemployment rate of Canada will be about 6.3-6.4% in 2018 (“Canada Unemployment Rate”). For Mexico, the unemployment rate is also reducing at present. It was about 4.5% in October 2016, which was the peak point. Nevertheless, it was declining gradually and reached 3.5% in October 2017. It is predicted that the unemployment rate of Mexico will be about 3.5-3.6% in 2018 (“Mexico Unemployment Rate”). Thus, Mexico has a  lower unemployment rate compared to Canada.

After the analysis of economic indicators, it is important to study the general economic situation and predictions for the nearest future. According to the study of OECD, in Canada, economic growth is expected to intensify in 2017-2018 due to expansionary fiscal policy adopted by the authorities, gaining wealth by household,s, and resumption of business investments, mostly in the resource sector (“Canada”). In 2018, economic advancement will be likely to decline a bit, but it will remain substantial. Currently, the Canadian government is taking steps to return the economy to full employment. Rapidly increasing housing prices will be accompanied by growing interest rates. Economic and social development will also be supported by recent investments of the government in the country’s infrastructure, social housing, innovative project,s and education; moreover, these measures will contribute to the important role of the state in the globalized economy. Economic and social growth will be also possible due to government social programs and investments. For 2017-2018, it is predicted that Canada will see the growth of employment, a  decline in the unemployment rate, the rise of average wages, and an increase in household disposable income (“Canada OECD”). One more positive feature of Canada is that it is relatively easy to do business and is ranked by the World Bank #18 by the ease of conducting business (“Doing Business in Canada”). In general, at present, the  Canadian economy demonstrates a favorable situation as well as positive trends for the nearest years.

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According to OECD, in Mexico, economic growth is predicted to intensify in the closest time after a declining rate at the end of 2016 (“Mexico”). Business confidence is enhancing, and therefore, investment is likely to increase in this country. At present, the state experiences some problems with inflation, mostly due to toa a high interest rate of 6.75%, and the government is expected to take some steps to cope with high inflation. Owing to open borders and growing FDI, the Mexican economy is getting many benefits nowadays. However, some barriers to foreign investment and trade still exist in the country, and they should be removed to improve the situation in the country. Meantime Mexico faces different social issues such as inequality, corruption, and low level of education, which contribute to economic questions. In 2018, it is projected that GDP will grow, CPI will decline and unemployment will remain stable (“Mexico OECD”). In terms of ease of doing business, Mexico is ranked #49, which is higher than the average index in the region (“Doing Business in Mexico”). Thus, it is harder to conduct business in Mexico in comparison with Canada. Moreover, economic and social issues can lead to business problems.

Labor Laws

In Canada, labor laws have peculiarities that should be known to foreign investors. The main issue related to labor legislation in this country is that different provinces can pass their labor regulations, and employees adhere to different rules in each province. Additionally, labor regulations have their peculiarities in all fields. For instance, such industries as telecommunications and infrastructure are regulated by federal labor legislation, because they operate across Canada. At the same time, other industries are regulated by provincial laws. Besides, the province of Qu?bec has unique language and employment considerations that should be taken into account by foreign investors. However, in general, labor legislation is efficient in Canada, as labor standards and safety requirements are high for employees. Moreover, in Canada, it is not allowed to dismiss employees at will without serious reasons for employment termination (Kelly and Poysa). In Mexico, labor legislation was subject to drastic changes recently. In this country, there is only one Federal Labor Law that works for all employees. Currently, legislation is being amended hence becoming more oriented on global standards, as well as friendly to both employers and employees. Legislation requires minimum wages and work conditions, in addition to the percentage of foreigners that can be hired (up to 10%). There are also demands for work hours and breaks (Mir?n). In general, Mexican labor legislation can be regarded better for foreign investors compared to the Canadian one, because laws are universal for the whole state.

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Unions and Fringe Benefits

In Canada, labor unions have considerable power. About 30% of Canadian employees are members of unions (Kelly and Poysa). It is required to certify each labor union while meantime unions have high demands to different aspects of their work, including the minimum number of members. Employees who do not belong to the union = also have labor rights and certain minor requirements (Kelly and Poysa). In Canada, there are different types of payments and employees benefits, which are governed both at the national and local levels. The Canada Pension Plan and the Employment Insurance address all employees in Canada and provide benefits for the latter. Nonetheless, there are other benefit systems, such as local health insurance systems (LeGault). Thus, unions and fringe benefits are various in Canada. By contrast, in Mexico, unions are developing quickly, and new labor legislation aims at improving conditions for labor unions and unionization. However, the role of unions is not very essential. Statutory benefits are diverse in Mexico, but there are statutory benefits that should be paid by all employers, namely holiday bonuses, overtime pay, vacations among others. Besides, employers can pay additional benefits (Mir? n). In general, foreign investors are not likely to face the problems of unions and benefits in Mexico.

Foreign Investment Laws

In Canada, the attitude to foreign direct investors is positive. All investments are regulated by the Investment Canada Act (ICA). Nevertheless, foreign investments are prohibited or restricted is several economic sectors. In Canada, nearly a half of foreign direct investments are from the US. It is also important to consider sectors where FDI is banned. For instance, FDI is limited to commercial aviation, electric power generation, energy, fishing, financial services, and other sectors (“Canada – 1-Openness to, and Restriction on Foreign Investment”). As for Mexico, it is also open to FDI and has laws that are most favorable for accepting FDI. Similarly to Canada, it has limitations for FDI in some economic sectors, such as telecommunication, hydrocarbons, and transportation; moreover, most FDI is from the US (“Mexico – 1-Openness to, and Restriction on Foreign Investment”). Thus, the two countries are favorable for investors having adopted laws regarding foreign investments. Limitations for FDI are minor and exist only in certain economic sectors.

Risk Analysis

In the case of Canada, the anticipated risks for investments are relatively low. Inflation and unemployment may advance, but the growth will be slow. The country has high public debt and it can pose risks in future. However, the former is properly managed. The levels of corruption and other business problems are very low. Some issues may be related to labor legislation and labor unions, because they act differently in various provinces. In general, the current policies of government contribute to low risks of the country. Besides, OECD’s ranking regarding the ease of doing business supports the proof of the small risks.

For Mexico, the general risk level is higher compared to Canada. In this country, the economic situation is expected to improve in the nearest future, but the state represents a relatively high inflation rate. Moreover, business and investment risks may occur due to corruption, which remains substantial in different spheres. In the case of investment, a business may be involved in corruption to develop in Mexico. Therefore, OECD’s ease of doing business ranking advocates for substantial risks of the country.

Strengths and Weaknesses of the Contrasted Countries

Basing on the analysis, one can argue that Canada has the following strengths:

  • Careful attention of the government to economic and social policies that are likely to lead to considerable benefits in the nearest future;
  • Great ease of doing business;
  • The positive GDP growth rate in the recent years;
  • Low inflation rate in recent years;
  • In general, the economy is expected to grow in 2018.
  • In parallel, it has some weaknesses, such as:
  • The projected growth of inflation rate for the nearest three years;
  • High public debt (it is almost equal to the annual GDP of Canada);
  • Complicated labor regulations that differ for each province;
  • Foreign investments are limited or restricted in some sectors.

Concerning Mexico, it has such strengths:

  • The positive GDP growth rate during the recent years (higher compared to Canada);
  • The projected decline of inflation rate for 2018-2020;
  • Relatively low public debt, if compared to Canada;
  • Lower unemployment rate than in Canada;
  • Positive government policies implemented recently to improve foreign trade, investment, and open borders;
  • General predictions of economic growth in 2018;
  • More standardized labor legislation, if compared with Canada.

However, weaknesses in Mexico are as follows:

  • It is harder to conduct business, if compared to Canada;
  • Relatively high inflation rate in comparison with Canada, which is mostly caused by high interest rates;
  • Different social issues (i.e. inequality and corruption) that contribute to current economic problems;
  • Foreign investments are limited or restricted in some sectors.

Final Investment Decision

If it were required to decide in what country to invest $10 million currently, I would select Canada for several reasons. Firstly, in the closest time, Canada is expected to establish a more positive economic situation and have better indicators in contrast to Mexico, and this is mostly caused by positive government policies of Canada. In particular, Canada will have lower inflation rate and higher growth of consumption. Secondly, Canada will be chosen due to its better social and political situation. Hence, the Canadian government has adopted different policies to promote social development and improvements, such as investments in innovations, education, and infrastructure. Mexican government has also implemented some policies, but the country still experiences numerous social and political issues, namely inequality and corruption in various spheres. Thirdly, according to the OECD ranking, doing business in Canada is much easier in comparison with Mexico (the global rankings of the contrasted states are #18 and #49 respectively) (“Canada OECD”; “Mexico OECD”). Concerning foreign investment legislation, both countries favor them and receive most investments from the US. Despite some minor issues in labor legislation, Canada will be selected for investment due to more effective economic and social conditions as well as lower risks.

Conclusion

The detailed analysis of countries helped to decide on the country to invest in. Consequently, both Canada and Mexico are expected to grow economically in the nearest future. They are predicted to show positive changes in GDP and employment. Nonetheless, some problems exist, such as complicated labor laws in Canada and corruption with inflation in Mexico. However, in Canada, the overall risk level is lower, and this country would be selected to invest $10 million currently.

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