The Digital Dividend: The Economic Potential of Canada’s Data Sovereignty

Data is not the destination

We are living in a data-driven world, yet Canada has had limited strategic oversight on the growing importance of its digital resources. In the modern information economy, intangible capital drives innovation and economies.

While some call data the “new oil,” we should think bigger. Data is the new soil: a resource from which new ideas, services, and industries can grow. Like fertile land, it yields value only when nurtured, responsibly governed, and cultivated through purposeful innovation. At the same time, there is a growing concern that too much data and digital infrastructure are in the hands of foreign tech giants.

Data alone does not generate prosperity. Without protecting, scaling, and investing in the domestic digital economy and its intangible assets, Canada—so rich in natural resources—risks becoming a supplier of raw digital inputs while value is created elsewhere.

Demystifying data sovereignty and residency

Data residency refers to where data is physically stored. This can be important for highly sensitive information, such as health records. Data sovereignty, by contrast, is defined by the Government of Canada as a nation’s right to control access to and disclosure of its digital information, subject only to its own laws regardless of where the data is stored.

Residency can improve access and protection, but it is not sufficient for sovereignty. For example, U.S.-based firms operating cloud infrastructure are subject to the U.S. CLOUD Act, which can compel companies to disclose the data they hold—even if that data belongs to Canadians.

True data sovereignty is therefore rooted in legal jurisdiction and regulatory authority, not server location.

Data sovereignty can improve economic opportunity

Our reliance on foreign technology, capital, and platforms has left our digital economy exposed and dependent on systems and polices outside of our jurisdiction. To unlock real economic opportunity, Canada can treat data sovereignty as a national imperative. This means building and owning the foundations of the digital economy, such as cloud infrastructure, compute capacity, and regulatory frameworks.

When pursued strategically, data sovereignty supports innovation, improves productivity, and strengthens long-term competitiveness.

Intangibles fertilize the digital economy

Intangible assets, including intellectual property (IP), software, data, and algorithms, are indispensable to modern growth. Statistics Canada found that data accounted for nearly a third of the intangible capital that fuelled the digital economy in 2025. Yet software, IP, and organizational knowledge accounted for more growth in labour productivity than data alone.

Ownership matters for intangible assets, according to that Statistics Canada research. When firms own and leverage intangible assets, they gain a critical edge in innovation, scale, and productivity.

Dependence on foreign capital is limiting our growth potential

Foreign investment highlights the strength of Canada’s tech ecosystem, but it also carries long-term costs. For example, from 2019 to 2021, over half of venture-backed Canadian tech firms were acquired by foreign firms. From 2014 to 2024, the Canadian Venture Capital Association reports late-stage domestic capital accounted for 13.9 per cent of dollars invested in rounds over $50 million, while two-thirds came from Canadian–U.S. co-investment.

While acquisitions provide liquidity, they often transfer ownership of proprietary data, algorithms, and platform IP. These assets are central to long-term productivity growth.

Foreign platforms capture a majority of Canada’s digital value

Canada’s digital dependence has measurable economic consequences. In 2020, Canada’s digital economy contributed about $123 billion. Yet estimates suggest that foreign platforms mediated 60 per cent of all products and services that Canadians ordered digitally.

This imbalance drains value from the domestic economy and constrains the growth of our own digital roots. When Canadian firms handle data and digital transactions, more wealth is retained in local economies.

Data privacy is a critical barrier to economic growth and digital trust

Investment in digital infrastructure and intangibles is necessary but insufficient without trust, and there is growing social concern about data misuse, AI, and large online platforms. Data sovereignty is inseparable from data privacy and regulatory enforcement.

Yet Canada’s Privacy Act and PIPEDA (Personal Information Protection and Electronic Documents Act) have not evolved to address emerging risks in the digital era for individuals and organizations alike. Compared with the EU’s more stringent General Data Protection Regulation (GDPR), they lack enforcement strength and scope. Bill C-27, which was introduced in the previous parliament to modernize Canada’s approach to data governance and better safeguard Canadians’ data, has not been reintroduced since the election. As such, there are still gaps in our data regulations at the federal level.

In the absence of federal reform, Ontario, Alberta, and Quebec have advanced their own provisions on AI, individual protections, and enforcement. The result is a patchwork of rules, creating uncertainty for individuals and inconsistency for businesses.

Stronger privacy enforcement can level the digital playing field. Holding platforms accountable for anti-consumer practices such as opaque data collection or algorithmic pricing can support competition and boost consumer confidence. Evidence suggests firms with strong data safeguards are more likely to innovate, as consumer trust reduces financial and reputational risk.

Solutions for sovereignty

Securing Canada’s domestic computing infrastructure, intellectual property, and firm innovation capacity allows us to grow a modern digital economy. Encouragingly, momentum is building. Federal investments in sovereign computing, IP retention, and capital cost deductions to build and protect intangible assets signal a strategic shift toward domestic value creation.

Yet sovereignty requires more than ownership and regulation. It requires capacity.

When Canadian firms can create, retain, and capitalize on intangible assets, it leads to higher profits, better pay, and a vacuum for skilled talent. When intangibles are retained, they create value that goes beyond profit. It nurtures innovation, talent development, and inclusive growth.

Data sovereignty in the 2025 federal budget

While Budget 2025 does not explicitly frame initiatives under “data sovereignty,” several measures indirectly support it:

As the Canada–U.S. relationship is being reset, we’re examining what Canada must do to thrive in this changing world. Get the latest research.