08/09/2012 06:11 EDT | Updated 10/09/2012 05:12 EDT

Canadian business investment improving, C.D. Howe says

Canadian businesses are better than their OECD peers when it comes to investing in themselves but they still lag their U.S. counterparts, a major Canadian think-tank says.

A C.D. Howe Institute report published Thursday says that after years of underperformance, Canadian businesses are now spending more on tools for workers, including machinery, equipment and non-residential buildings such as factories.

The group's projections for 2012 show that Canadian businesses are set to invest more per worker than the OECD average – 105 cents per worker, compared to a dollar per worker elsewhere in the OECD – the best performance against other developed countries since the early 1990s.

But while Canada is faring better compared to international peers, Canadian businesses still lag those in the U.S. in terms of investment. This year, Canadian business investment per worker will rise to 91 cents for every dollar invested by a U.S. company. That's up from an average of 85 cents during the previous decade.

Regional variance

But the report’s authors say the results vary greatly from province to province. For much of the last decade, Ontario businesses saw an average of 77 cents investment per worker. That's set to slide to 70 cents this year.

It's in contrast with much higher rates of investment in B.C., Alberta, Saskatchewan, and Newfoundland and Labrador.

C.D. Howe says new policies are necessary to motivate more investment in struggling provinces.

"Policies that enhance competition and remove biases against non-residential investment could boost capital spending by businesses and improve Canadian workers’ prospects for higher incomes,” said Benjamin Dachis, Senior Policy Analyst for C.D. Howe.

The authors also caution that Canada’s results are more favourable in light of a field weakened by European and American downturns.