Canada needs a major new capital formation network to unlock over $1.1 million in liquid assets sitting on the non-financial corporate sector’s balance sheet, according to a new report by RBC Thought Leadership.

Deployment of this cash could crowd in additional pools of capital, including institutional, risk, foreign, and state capital – unlocking more than $1.8 trillion of investment, said the report by Jordan Brennan (photo at left), managing director at RBC Thought Leadership, and Farhad Panahov (photo at right),  economist at RBC Thought Leadershp.

Their proposed capital formation framework includes four pillars, each targeting an incremental layer in the capital stack:

• A brownfield-to-greenfield asset recycling program.
• Scale-enabling procurement.
• Reforms to Canada’s corporate income tax and foreign investment regimes.
• Leveraging of state capital.

“This capital formation framework is about restoring Canada’s investability by reducing uncertainty, creating scale where capital mandates require it, transferring early-stage risk away from private investors and improving after-tax returns on productive investment,” Brennan and Panahov said.

Canada is back on the radar of global investors, they noted. Last year, direct foreign investment in Canada reached nearly $100 billion, the highest level since 2015.

Canada is emerging from an unprecedented capital recession, according to Brennan and Panahov’s report. This renewed interest comes after a decade of weak business investment, stalling productivity and stagnating living standards.

Between 2015 and 2024, more than $1 trillion of investment exited Canada – the largest capital exodus in Canadian history. For every dollar invested in Canada from abroad, two dollars exited.

Canada accounted for nearly 10 percent of global outward foreign direct investment over the past decade, having exported more capital than any country on Earth save the U.S. and China.

Moreover, Canada now ranks last among G7 nations in investment in both machinery and equipment and intellectual property. Only about 30 percent of Canadian capital formation goes into these productivity-enhancing categories – half of what the U.S. invests.

However, a $1.8-trillion investment opportunity over the next 10 years could make Canada the G7’s growth leader, Brennan and Panahov said.

RBC Thought Leadership’s research and analysis indicates that there is an immense opportunity in six export-oriented, R&D-intensive and strategically significant industries:

• Oil and Gas: $705 billion in investment. New oil pipelines and LNG terminals could elevate Canada to energy superpower status, diversifying trade, providing energy security to allies and fostering carbon capture and sequestration technologies.
• Electricity: $670 billion in investment. A transformative expansion of power across nuclear, hydro and renewables, coupled with grid modernization, would ensure a reliable, affordable, non-emitting system while strengthening Canada’s competitiveness in a power-hungry heavy industry.
• Agriculture and Food Processing: $205 billion in investment. Enhanced support for R&D could unleash a multi-decade, export-led growth cycle that strengthens domestic food sovereignty and enables food security to allied countries.
• Metals and Minerals: $200 billion in investment. With NATO partners eyeing alternatives to a China-dominant critical mineral supply chain, Canada could hedge this concentration risk, power the West’s energy transition, and strengthen defence and advanced manufacturing supply chains.
• Defence: $19 billion in investment. Canada plans to nearly triple defence spending to five percent of GDP by 2035, which could generate $100 billion for Canadian companies and transform Canada from a defence equipment importer into a contributor to allied military capabilities, particularly in emerging areas like Arctic surveillance and space-based defence systems.
• Space: $12 billion. Canada’s economic ambitions should extend out of this world, according to their report Investments in the space industry would advance the country’s excellence in satellite communications, space robotics, earth observation, and aerospace engineering, creating new opportunities in defence, high-tech and advanced manufacturing.

Canada has “more than enough capital” to power the country’s growth ambitions

For a Canadian economy worth $3 trillion annually – and given that RBC’s report is focused on six industries that, collectively, represent less than 10 percent of GDP – the $1.8-trillion figure is substantial, Brennan and Panahov said.

“However, it is attainable over the next decade, especially given the pools of capital to draw upon,” they said.

Between pension funds and asset managers, Canada is sitting on nearly US$10 trillion in capital, according to their report. And while estimates vary, the global capital pool sits somewhere between US$150 trillion to US$200 trillion.

“Simply put: There is more than enough capital to power the country’s growth ambitions,” they said.

However, the barriers are execution, predictability and risk tolerance, according to their report. “What’s needed is more boldness and commercial ambition.” Growth requires tradeoffs in three interlocking areas, they said:

• Raise risk tolerance in the Canadian ecosystem and dismantle burdensome regulatory, permitting and project delivery barriers while respecting the rights of Indigenous people and protecting the environment.
• Inject process certainty: Investors are adept at navigating risk but flee when hemmed in by vague rules and shifting frameworks.
• Reward risk-taking and entrepreneurship to stimulate innovation and growth.

Their report presents two future scenarios: Trend Growth and Step Change. The Trend Growth scenario paints a picture of Canada 10 years out if current policies and investment patterns remain unchanged. The Step Change is an investment growth scenario that conceives a decade of purposeful national strategy, federal-provincial coordination and targeted investment.

The Step Change, which represents a 65-percent capital injection boost from the Trend Growth scenario, shapes a new and prosperous Canada, Brennan and Panahov said.

Under the Step Change scenario, this new and prosperous Canada could include:

Oil and Gas: two new oil pipelines, one to the West Coast and the other south to the U.S., increasing production capacity by a third. Canada’s oil production grows to 7.1 million barrels per day by 2035, up from 5.13 million b/d in 2024.

The Oil Sands Alliance’s $16.5-billion Pathways carbon capture and storage project captures and permanently stores up to 22 million tonnes per year of carbon dioxide.

Three new major LNG projects add 3.8 billion cubic feet per day to Canada’s LNG export capacity: LNG Canada Phase 2, Ksi Lisims LNG, and Tilbury LNG expansion.

Electricity: In the Step Change scenario, Canada transforms and radically augments its energy system across generation, transmission and distribution, including policy measures that drive decarbonization and electrification-led economic growth.

The country builds 119 gigawatts of new generation capacity – nearly double the trend growth scenario.

In addition to the Darlington small modular nuclear reactors and Bruce C expansion project, new nuclear projects include the Peace River (Alberta), Point Lepreau (New Brunswick), Wesleyville (Ontario), and Saskatchewan small modular reactor nuclear projects.

Canada significantly ramps up its wind power beyond projects already in place: electricity grid expansion of 240,000 kilometres – double that in the Trend scenario.

The expanded system is cleaner, more flexible and self-sufficient. It is responsive to economy-wide electrification and the major demand drivers that are likely to unfold in the coming decades, including:

• Population growth and associated electricity demand at the household level (e.g. electronics, heat pumps, etc.).
• Electric vehicle adoption, which has stalled with the removal of incentives, but may rebound with Ottawa’s new automotive strategy. Stricter tailpipe emissions standards, renewed EV rebates, and charging infrastructure aim to hit 75-percent EV sales share by 2035.

Metals and Minerals: In the Step Change scenario, market forces continue to govern the exploitation of base and precious metals, but critical minerals have become a national priority.

Ottawa leads coordinated federal-provincial action and advances several de-risking mechanisms.

The Step Change scenario is a transformation of the mining sector into a linchpin of Canada’s industrial and geopolitical strategy,

In this scenario, Canada develops a series of projects, both early and late stage, across a range of precious and base metals and critical minerals. Canada becomes a leader in the Critical Minerals Production Alliance, developing its reserves of copper, lithium, graphite, nickel, cobalt and rare earths. Canada catalyzes:

• Development of all late-stage projects, including the Eagle’s Nest nickel mine in Ontario’s Ring of Fire and the Casino copper mine in Yukon, among others.
• Early-stage projects across the range of metals and minerals. Canada is a reliable supplier of critical minerals to NATO partners. Canada strengthens national and international supply chains while building domestic processing capacity.

Defence: The Step Change scenario includes $300 billion in defence spending over the coming decade that strengthens advanced manufacturing and better enables Canada to contribute to NATO’s collective defence. Canada reaches its full NATO target of five percent of GDP by 2035, including:

• A linear rise in core defence assets.
• A greater share of spending is allocated to capital equipment and military hardware.
• Large domestic procurement for next-generation aircraft, ships, cyber defence architecture, and Arctic infrastructure.

If Ottawa sustains its commitment to source defence spending at least 70 percent domestically over the coming decade (up from 30 percent currently), then Canadian producers stand to gain $100 billion in incremental revenue (this excludes spending on dual-use infrastructure).

Canada builds both sides of the defence-space axis. Defence spending revitalizes Canada’s industrial base. Space catalyzes dual-use technology.

Space: Space is imagined as an essential component of national security and economic competitiveness. Canada achieves sovereign launch capability.

Space represents a unique convergence of strategic necessity and capital formation opportunity. As a strategic industry, space capabilities underpin national sovereignty through Arctic surveillance, defence communications, and climate monitoring but it also functions as a productivity layer across other industries.

This includes Earth observation and geospatial analytics enhance efficiency in agriculture, mining, energy, infrastructure, and insurance, making it essential to any capital-deepening strategy. 

The Step Change scenario represents Canada:

• Doubling its global market share of the space economy from one percent to two percent.
• Building sovereign launch capacity, underpinned by an increase in satellite launch cadence, in keeping with funding commitments in Budget 2025.
• Deepening dual-use integration with defence. “Space catalyzes dual-use technology, enabling Canada to become a meaningful contributor to allied space and defence capability.”
• Modernizing procurement around speed, commercial partnering and risk-sharing.
• On the space-defence axis, government earmarks a modest share of incremental defence spending growth for dual-use space, procured primarily via contractor-owned/contractor-operated service contracts – creating predictable revenues that crowd-in private capital at scale.

Agriculture and Food Processing: Canada unleashes another multi-decade growth cycle.

In the Step Change scenario, Brennan and Panahov envision a 1970s-style investment boom, built on the back of strengthened support for R&D and IP.

More public and private capital flows into research and IP generation, which brings technological advancement and capital deepening, incrementally improving farm efficiency and facilitating the adoption of new technologies.

• Canada regains its international agri-food market share, rising from seventh to fifth, reinforcing its status as an agri-food superpower.
• Public and private R&D-related spending would need to increase by 50 percent just to match GDP-adjusted levels from the 1980s. However, returns on the R&D investment could be 10 times to 20 times.
• Canada undertakes a deliberate, coordinated effort to trigger a new investment and innovation cycle across the industry. Capital spending surges, underpinned by large-scale adoption of emergent ag technologies, including crop genetics, more efficient machinery, and enhanced production systems.

The Step Change growth scenario also imagines Canada expanding and deepening export markets, especially for processed foods.

For food manufacturing, this means exports climb above current levels. The result is not only food sovereignty, but the provision of food security to allied and friendly countries, reinforcing Canada’s standing as an industrial leader and trusted partner.

Capital is not flowing to where it is needed at the speed or scale required

For decades, Canada’s capital framework was built along familiar lines of private enterprise operating in relatively free markets with increasingly open borders, all governed through multilateral institutions, according to the RBC report.

Comparative advantage and cost efficiency dictated capital flow. “The new age we are entering is defined by fragmentation and a larger role for the state, with industrial capability, sovereignty, and geopolitical alignment adding to the traditional calculus of profit and loss,” Brennan and Panahov said.

Canada does not lack capital, but the systems to deploy it are maladapted to the new age, they noted. “Capital is not flowing to where it is needed at the speed or scale required – it’s a capital mismatch. A modern capital formation framework for Canada must focus on better integrating capital pools with investable assets.”

The proximal source of capital to finance growth is the companies themselves. Canada’s non-financial corporate sector, which holds more than $1.1 trillion in currency, deposits and debt securities on its balance sheet, is the first layer in the capital stack.

Their proposed framework focuses on four additional pools of capital: institutional, risk, foreign, and state:

Institutional capital:

Large pools of institutional capital – pension funds, global asset managers, insurers – are positioned to invest in long-duration, de-risked assets with predictable cash flows. Canada produces too few of these assets. Instead, many opportunities exist at earlier stages of development – projects burdened by regulatory uncertainty, permitting delays or commercialization risk.

To ensure the asset recycling framework is effective, Brennan and Panahov suggest:

• Clear eligibility criteria focused on mature, revenue-generating assets.
• Ring-fencing the proceeds of divestitures for new infrastructure investment (not general revenue).
• Transparent valuation and governance standards.

This build-prove-privatize model would attract private capital and enable productivity-enhancing investment in core infrastructure without straining public finances, they said.

Risk capital:

Canada’s risk capital ecosystem performs relatively well at the early stages. Venture capital and private equity support a steady pipeline of innovation, but not enough companies make the transition from startup to scale.

The country lacks late-stage growth capital, as well as the demand signals – procurement, anchor customers, deep domestic markets – needed to support commercialization. As a result, successful companies remain stranded at mid-size, unable to grow domestically.

The scale mismatch in Canada is most pronounced among mid-size firms. Large pools of institutional capital like pension funds require projects to meet minimum size, maturity and cash-flow thresholds. Yet many Canadian projects and enterprises are either too small or too early-stage to qualify.

Commercial-enabling procurement can help bridge this gap, but the model must evolve from an administrative function to an industrial policy tool, Brennan and Panahov said.

Rather than buying platforms, government should purchase capabilities through outcome-based contracts. Government would act as anchor customer, channeling public demand to create revenue certainty for projects and companies that struggle to access capital because of commercialization risk.

“Smart procurement would crowd-in private capital, harness competition, transfer risk and encourage innovation, creating a capital formation cascade.”

Brennan and Panahov point to NASA’s Commercial Crew and Cargo Program as an illustrative example. Historically, NASA designed, owned, and operated its assets using cost-plus contacts with heavy bureaucratic oversight and limited commercial reuse.

After 2005, NASA flipped the model – transforming the playbook from “build and own” to “buy and use.” NASA became an anchor customer, purchasing services from private companies that design and own multi-customer assets. Launch costs fell 10-fold, with reusable rockets, autonomous docking and space tourism some of the notable innovations.

Applied in Canada, the model could:

• Act as a strategic demand signal.Build on the anchor customer model to provide sustained demand through long-term contracts, reducing commercial uncertainty, and incentivizing the significant capex required for frontier technology development.
• Performance-based contracting.Transition from cost-plus to fixed-price service delivery for mature assets, using competitive tendering that rewards enhanced capability while managing cost overrun risks.
• Administrative streamlining.Reduce bureaucratic burden on contractors, allowing them to focus scarce resources on capability development, productivity improvements and serviceability.

The result would be aligned incentives, a clearer commercialization pathway for small and medium-sized firms, and a more dynamic eco-system of companies with the enhanced ability to service domestic needs while competing internationally, Brennan and Panahov said.

Foreign capital:

Foreign capital remains an underleveraged source of growth. Global investors prioritize jurisdictions that offer policy clarity, speed, and competitive returns.

Canada possesses the core endowments required to compete for global investment but consistently underperforms on execution. Lengthy approval timelines and policy volatility increase uncertainty and the cost of capital.

Reform would improve investor certainty while boosting after-tax returns, Brennan and Panahov said.

The system for screening and approving foreign investment can be made more rules-based and strategically aligned by distinguishing between sectors that are commercially or strategically sensitive and sectors where capital is actively welcomed.

Reforms could preserve national security while enhancing the attractiveness of Canada as an investment destination by:

• Introducing fast-track pathways for low-risk investments such as minority stakes, investments from trusted allies or projects in cleared sectors.
• Creating strategic investment corridors with preferred allies, aligning policy, capital and industrial strategy in areas like mining, energy, and advanced manufacturing.

These changes would shift the Investment Canada Act from a perceived barrier to a predictable facilitator for foreign investment that simultaneously safeguards national interests while welcoming global capital, Brennan and Panahov said.

Canada must overhaul its corporate income tax regime to make it more competitive

Canada also requires a more competitive corporate income tax regime, Brennan and Panahov said.

Since 2018, when the U.S. and others reformed their systems, Canada lost its corporate tax advantage. That’s why leading tax experts are calling for “big bang” tax reform that incentivizes investment rather than creating ever-more layers of distortionary tax credits.

They suggest two options to boost after-tax returns on capital that are worth further study:

1. Canada could tax distributed profits while exempting retained earnings. Estonia and Latvia offer full exemption for retained business profits, for example, and have been successful at attracting foreign direct investment. Assuming this option could be made compliant with international tax treaties and Organisation for Economic Development and Co-operation minimum tax rules, Canada could:

• Tax profits that are distributed – dividends, buy-backs, and deemed distributions.
• Exempt profits that are retained within the business, incentivizing reinvestment in R&D, IP formation, machinery and equipment, and business expansion.

Importantly, this approach could be made revenue-neutral for governments by eliminating the impact of other inefficient and distortionary tax incentives, which would become redundant.

Despite being revenue-neutral for government, this reform would make Canada a more attractive destination for investment by meaningfully lowering the marginal effective tax rate. It would also directly and materially reward firms that channel capital into productive activities in Canada.

2. A suite of reforms which would improve Canada’s tax competitiveness by:

• Lowering the federal corporate income tax rate. Reduce statutory corporate income tax rates to enhance Canada’s competitiveness relative to other jurisdictions, particularly following recent U.S. tax reforms.
• Full expensing of capital investments. Allow businesses to immediately deduct the full cost of machinery, equipment, and intellectual property investments rather than depreciating them over time. This would provide immediate cash flow benefits and reduce the cost of capital for growth-oriented investments.
• Enhanced capital gains treatment. Increase capital gains exemption limits for business investments and expand business rollover allowances to facilitate reinvestment and business succession planning, while maintaining fairness.

This comprehensive approach would make a strong statement about Canada’s commitment to being a preferred destination for global capital while maintaining revenue sustainability and international tax compliance.

State capital:

State capital could be deployed at scale, not to replace private capital but to catalyze it. In a more fragmented global political economy, governments are playing a bigger role in directing capital flows through procurement, equity stakes, and other de-risking mechanisms.

Canada has deployment vehicles –there is a spate of Crown corporations and public financial institutions; but co-ordination and execution hinder the deployment of state capital and the crowding in of private investment.

Canada faces a persistent challenge in financing projects and technologies that are commercially viable over the long term but fail to clear private investment hurdles in the near term.

These are typically first-of-a-kind technologies or strategic assets – small modular nuclear reactors, critical minerals, rare earth processing, carbon capture – where long lead times, uncertain demand, or price volatility crate a gap between risk tolerance and Canada’s strategic interests.

“The issue is not the absence of capital but of risk-bearing capacity. Private investors unwilling to absorb early-stage uncertainty when timelines stretch over decades and revenue streams remain unclear.”

The result is underinvestment precisely in the industries that are most critical to Canada’s industrial and geopolitical positioning, Brennan and Panahov noted.

A more active deployment of state capital can help close this gap – not by displacing private investment, but by reshaping the risk-return profile to crowd it in. A range of instruments can be utilized:

• Public-equity stakes in early-stage or systemically important projects or firms, allowing the state to absorb initial risk while preserving upside participation.
• Price floors to reduce commodity volatility and support project viability, particularly in shallow or immature markets such as rare earth mining and processing.
• Long-term offtake agreements that provide revenue certainty, enabling project developers to secure debt or equity financing against contract demand for long horizon projects.
• Strategic stockpiling to stabilize markets and signal sustained public demand in priority sectors.

These tools are already deployed in peer jurisdictions, particularly in critical minerals and energy, where governments act as market makers rather than market observers.

An outstanding question is not whether to use these tools – but how to deploy them at sufficient speed and scale.

While insufficient by itself to fuel the Step Change scenario, the deployment of corporate Canada’s spare cash and other liquid assets could create a cascading effect, crowding in additional pools of capital, Brennan and Panahov said.

“But this great opportunity won’t last. In an era of intensified competition, capital will flow to countries that make investments viable. Canada needs to move quickly – turning ambition into action.”

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