When Prime Minister Mark Carney was asked what makes Canada more appealing to foreign investors than the United States, he responded, "Well, we have the rule of law." This statement was met with laughter, highlighting a significant disconnect between perception and reality regarding Canada’s investment climate.

An analysis of the current investment environment suggests that Carney's assertion may be more political rhetoric than a reflection of economic conditions. While the United States faces political and transactional risks, Canada is grappling with systemic, legal, and structural challenges that could deter long-term investments.

The concept of the “rule of law” in Canada is intended to provide certainty and predictability for investors. However, many investors are finding the opposite to be true. They are encountering a fragmented legal system, bureaucratic hurdles, and uncertainties surrounding property rights.

A recent ruling by the B.C. Supreme Court in the case of Cowichan Tribes v. Canada has raised concerns among landowners and businesses. The court recognized Aboriginal title to land in a developed area of Richmond, which, while not expropriating the land, has created significant uncertainty regarding land ownership. This decision has shaken investor confidence and raised questions about the stability of property rights in Canada.

Carney has criticized the U.S. for its unpredictability, yet Canada faces its own challenges, particularly with internal borders. The country is often described as a collection of 13 provinces and territories that struggle to operate as a unified economy. A notable example of this dysfunction is the ongoing issues surrounding the Trans Mountain pipeline project. Regulatory delays and inter-provincial disputes have stalled the project, leading Kinder Morgan, the private-sector proponent, to abandon it. The federal government ultimately had to nationalize the project to move it forward, raising questions about Canada’s commitment to free-market principles.

Recent tensions between Alberta and British Columbia over new pipeline proposals further illustrate the unpredictability that investors face. The ongoing conflicts among provincial leaders create an environment where companies may hesitate to invest billions in projects that could be jeopardized by political disagreements.

The regulatory landscape in Canada has also been criticized for creating a hostile environment for investment. The duty to consult with Indigenous groups, while constitutionally important, has become a lengthy and unclear process, leading to delays and uncertainty for potential projects. This has been evident in Ontario’s Ring of Fire, where opportunities to supply critical minerals are stalled due to legal and regulatory challenges.

In contrast, the U.S. often provides the certainty and speed that investors seek. While projects in the U.S. may face hurdles, they do not typically encounter the same level of bureaucratic obstruction that can arise in Canada. The perception is that in Canada, the “rule of law” has devolved into a “rule of lawyers,” where the legal process itself can become a barrier to investment.

A 2023 survey by the Fraser Institute found that energy executives are more deterred by regulatory duplication and disputed land claims in Canada compared to the U.S. This suggests that the Canadian government’s own actions and budget proposals indicate a recognition of the challenges facing the investment climate. The recent budget, titled “Canada Strong,” appears to be an attempt to address these long-standing issues, signaling that the current system may not be functioning as intended.