Canada 1

Positive Business Climate

•Canada understands the importance of its business community and has created an environment to encourage its success.

•Canadian laws are among the best in the world at promoting fair competition.

Source: The Economist (EIU), August 24th, 2001

Business Environment of Top TenCountries, Rank in 2001-2005

Wo

rld

Ran

k

1st 2nd 3rd

4th 5th 6th

7th

10th9th8th

Competition Laws — World Rank

Ind

ex,

Ran

ked

by

Fai

rnes

s31st30th27th

19th8th7th

3rd

Source: World Competitiveness Yearbook 2001

Canada’s strong fiscal situation

C

• Canada's fiscal situation has turned around dramatically:

- In 1994, Canada’s deficit (as a percentage of GDP) was 6.7%, the third highest in the G-7 and significantly above the U.S. rate.

- However, by 1997, Canada became the first G-7 country to post a surplus in the 1990s, and is the only G-7 nation to project three straight financial surpluses from 2001-2003.

- Federal government spending (as a % of GDP) reached a 50-year low in 2000-01, the key source of the Canadian fiscal turnaround.

* Includes federal, provincial/state and local ** ProjectionsSource: OECD Economic Outlook, April 2002, Preliminary Edition

Total Government Surplus*

The Institute for Management Development ranked Canada as the best fiscally managed country in the G-7 in 2000

Federal Budgetary BalancePublic Accounts Basis

Canada 2

Source: Finance Canada

0.0

-3.0

-6.0

% of GDP

1992

-93

1993

-94

1994

-95

1995

-96

1996

-97

1997

-98

1998

-99

1999

-200

0

2000

-01

2001

-02

Surplus

Deficit

+

Federal Program SpendingPublic Accounts Basis

1993

-94

1994

-95

1995

-96

1996

-97

1997

-98

1998

-89

1999

-00

2000

-01

2001

-02

2002

-03

2003

-04

10

12

14

16

% of GDPProjected

1994

1995

1996

1997

1998

1999

2000

2001

2002

**

2003

**

02468

10

-2-4-6-8

% o

f G

DP

Canada

A Strong Fiscal Surplus

3

• From 2001-2002, Canada had the highest government surplus of any G-7 country. The same projection is expected to continue into 2003.

Total G-7 Government Surplus (%)2001-2003

Source: OECD Economic Outlook, April 2002, Preliminary Edition

20022001

2003

Canad

a

France

Germ

any

Italy

Japan

U.K.

U.S.

0

2

4

-2

-4

-6

-8

-10

Canada

Low Inflation and Low Interest Rates

4

• Canada’s targeted inflation rate is locked between 1% to 3%.

- Over the past five years, Canadian inflation averaged 1.9% — 30% lower than the U.S. rate.

Sources: Statistics Canada and the Federal Reserve Bank of St. Louis

Inflation

Long-Term Interest Rates

1994

1995

1996

1997

1998

1999

2000

2001

0

1

2

3

4

Ye

ar-

Ov

er-

Ye

ar

% C

ha

ng

e

• Canada's excellent fiscal situation and low inflation are reflected in low domestic interest rates.

Source: Bank of Canada, Government long-term bond. U.S. Treasury, Constant Maturity long-term bond.

Last data points plotted: Canada – May 31, 2002; U.S. – June 10, 2002

1994 1995 1996 1997 1998 1999 2000 2001 20023

5

8

10

%

Canada

A Growing Domestic Economy

5

• Canada’s GDP grew at an annual rate of 6.0% in the first quarter, the best performance among the G-7.

- The OECD and IMF both forecast Canada to lead the G-7 in economic growth in 2002 and 2003.

Real GDP Growth Projections 2002-2003 (%)

20032002

2.5

1.4

2.02.3

1.4

0.9

-1.0

3.6

3.02.8

3.4

2.92.7

0.8

U.S.Can

ada

France

Italy

Germ

any

U.K.

Japan

0

2

4

20032002

3.2

1.4

1.9

2.5

1.5

0.7

-0.7

4.0

3.02.8

3.5

2.82.5

0.3

U.S.

Canad

a

France

Italy

Germ

any

U.K.

Japan

0

2

4

Source: International Monetary Fund, May 2002

Source: OECD Economic Outlook, April 2002, Preliminary Edition

Canada

Canada Welcomes Foreign Investment

Source: Statistics Canada

2001

6

• Foreign direct investment in Canada has more than doubled since 1990.

• Increasingly more investment goes to knowledge-based industries in high-tech manufacturing and services sectors.

• The U.S. is the dominant source of foreign capital.

- In 2001, the U.S. share of foreign direct investment (FDI) in Canada was 67%.

Wood & Paper

Energy & Metallic Minerals

Finance & Insurance

Services & Retail

Other

Machinery & Transportation

$321 Billion

Distribution of Foreign Direct Investmentby Industry

1990

$131 Billion

Distribution of Foreign Direct Investmentby Region/Country

U.S. 67.0%

E.U. 23.8%

Japan 2.6%

Other 6.6%

Source: Statistics Canada

2001

Gilles P. Ouimet, President and CEOPratt & Whitney Canada Inc.

"A knowledge based workforce, a competitive R&D tax structure, government support programs such as Technology

Partnerships Canada, and well established infrastructure in Canada: these attributes make Canada the top choice for

Pratt & Whitney Canada in considering future R&D investmentsin the ever increasing competitive world of aerospace."

Canada

Sound Financial Institutions

7

• According to Moody’s Financial Strength ratings, Canadian Banks rank 1st among the G-7 in terms of their intrinsic credit worthiness.

E E+ D D+ C C+ B

Japan

France

Italy

Germany

U.K.

U.S.

Canada

Average Bank Financial-Strength Rating

B= strong intrinsic financial strength C= good D= adequate E= very weak

Source: The Economist, March 2000Statement of the IMF Mission on Canada,

January 31, 2001

“Canada has a highly advanced financial system that is among the soundest in the world. The

profitability, asset quality, and capitalization levels of Canadian financial institutions remain high.”

Canada

…A Good Environmental Record

8

•Canada ranks highest among the G-7 countries in terms of the level of impact the environment has in shaping economic policies.

•Perfect=100•Country rank based on five criteria of environmental sustainabilitySource: Yale Center for Environmental Law and Policy, 2001

Environmental Sustainability Index* 2001

50 60 70 80

Italy

Japan

U.K.

Germany

France

U.S.A.

Canada

Canada

Solid Microeconomic Policies

9

• According to The Economist, Canada ranks 2nd among 21 countries in a Lehman Brothers study pertaining to the effectiveness of microeconomic or structural policies.

• These rankings are based on three micro-policy categories:

• policies that increase an economy’s long-term potential growth rate. For example, spending on education and R&D.

• policies that affect labour market performance or reduce the lowest rate of unemployment at which inflation is stable (NAIRU).

• policies that increase product market competition.

Economic Health* Index of structural policies, 0=worst, 10=best

3 4 5 6 7

Netherlands

Finland

Ireland

Switzerland

Sweden

Australia

UK

New Zealand

Canada

USA

Source: The Economist, March 17th, 2001*Based on a study of 21 countries.

Canada

Less Paperwork for New Businesses

10

•Canada makes it easier to set up a new business, with less paperwork than any other country.

•Canada is the most efficient place to pull together worldwide research or production teams.

Total Number of Business Start-up Procedures*

Source: The World Bank and Harvard University,taken from The Globe and Mail, November 14, 2000

*Procedures divided into five major categories: Safety & Health, Environment, Taxes, Labour, and Screening.

0 2 4 6 8

Norway

Israel

Denmark

Finland

Ireland

Sweden

USA

New Zealand

Australia

Canada

Canada

Forward-Looking Framework Policies

11

• The economic policies of the government of Canada are focused on making Canada a world leader in the global knowledge-based economy of the 21st century. Commitments include:

- Making Canada the most connected Government to its citizens by 2004.

- Making high-speed broadband access available to Canadians in all communities by 2005.

- Becoming one of the top five countries for research and development by 2010.

- Shaping a "National System of Innovation“; and

- Providing marketplace frameworks/services benchmarked against the best in the world.

Government Policies/Programs Aimed at Building the Knowledge Infrastructure

21st Century Chairs for Research Excellence

Networks of Centres of Excellence

Canadian Foundation for Innovation

Canadian Institute for Health Research

Telecommunications Policy

Technology Partnerships Canada

Granting councils (NSERC, MRC, SSHRC)

Communications Research Centre

Industrial Research Assistance Programme (NRC)

Co-operative sectoral research programs (PAPRICAN)

Canadian Network for the Advancement of Research, Industry and Education (CANARIE)

SR&ED (Scientific Research & Experimental Development) tax credit for private sector research and development

Leading edge information systems: Strategis; CISTI (NRC); Cdn. Technology Network; Sector Competitive Frameworks

J. David O'Blenis, President,Honeywell Aerospace Canada

"Aerospace is truly a global business and these wins [move of Power Management and Generating systems to Toronto, expansion of plants in Montreal and Summerside, and

investment of more than $50 million in a new headquarters, engineering and

manufacturing facility] for Canada were made possible by the excellent business

climate here: sound fiscal management in the public sector, attractive R&D tax

incentives, and unique opportunities to partner with Governments to achieve growth.

It is clear to me that the decisions taken at the Corporate level of our global business to

focus our growth here show great confidence in Canada."

Canada Offers Much

Canada 12

• Canada's economic fundamentals are excellent — government policies are geared toward competitiveness.

• Canada provides assured access to the world's richest economy, in addition to having a large and growing domestic market of its own.

• Canada provides a cost-competitive and future-oriented environment for business:

- quality, productive workers;- a competitive tax system;- prime locations for R&D activities;- abundant energy at low prices; and- an excellent infrastructure.

• Canada is an outstanding place to live, invest and do business.