Canada Report: Ahead of the Curve in Returning to Pre-Recession Conditions
Sound decision-making by Canadian banks and businesses has resulted in the nation's weathering the global economic downturn better than most and putting it in a position to grow more rapidly.
Steve Stackhouse-Kaelble (Fall 2011)

For everyone who thinks the business pages are incapable of reporting anything but dismal news, take a look to the north! Canada, which made it through the recent economic downturn in a lot better shape than many other Western nations, has had plenty of good business news to report lately, and is ready to generate more positive headlines.

To begin with, hear what Avery Shenfeld, chief economist, and Benjamin Tal, deputy chief economist, at CIBC World Markets Inc. have to say: "Canada's business sector, including small- and medium-sized enterprises, emerged from what was a deep global recession in good shape to participate in today's recovery." The economic researchers completed an in-depth look at the Canadian economy a few months ago, and seem to have been pleased with what they saw.

For one thing, they saw bankruptcies on the decline. In fact, they report that the recession of 2008 and 2009 was the first downturn on record in which Canadian business bankruptcies actually declined, and bankruptcies continued to fall through 2010. Yes, that's right.while American papers were filled with bleak stories of corporate carnage, Canadian companies were avoiding most of the wreckage. True, there were layoffs, but as the economists point out, the employment picture rebounds a lot more rapidly when companies are still in business, ready to ramp up again.

The Outlook

Clearly, the global economy remains shaky. But economists watching Canada like what they've seen in recent months and are hopeful that the good news will continue. RBC Economics Research foresees a healthy gain in exports, spotlighting a shift in economic drivers over the next couple of years. Even though consumer spending may slow a bit, the business sector stands ready to pick up the baton, according to RBC. "In the final analysis, we see Canada's economy growing at an above-potential clip in 2011 and 2012."

RBC keeps tabs on Canada, the United States, the United Kingdom, and the Euro Zone, and noted earlier in the summer, "Canada, once again, is the economy that is furthest along in terms of returning to pre-recession conditions. Canada's economy has been a frontrunner in the race to expansion."

How did Canada fare so much better? Sound decision-making on the part of businesses and banks. Companies were able to put on the brakes gently to avoid crashing into the wall. And banks and their regulators were served well by their particularly cautious nature. As a result, the financial sector remained in the business of loaning money to small businesses, and businesses were still there, ready to borrow and grow.

Looking ahead, the view is equally positive. To cite CIBC World Markets again, there has been an impressive recovery in capital spending and business investment. As Shenfeld and Tal note, it's not just a matter of being able to spend: "Corporations also have to be willing to take on risks, and here, the outlook is promising." Specifically, while the strong Canadian dollar is not necessarily welcomed by manufacturers seeking to export, it has been accompanied by an increase in the import of machinery and equipment. And those tend to be the building blocks of a healthy manufacturing sector down the road. "The surge in imports of machinery and equipment has clearly been facilitated by a strengthening Canadian dollar," Shenfeld and Tal report. "We expect the loonie's strength to persist over the longer term, which should help boost investments going forward in sectors that can remain competitive."

As of this past March, Canada's manufacturing sector was operating at 81 percent capacity, well ahead of the rest of the economy and getting near levels recorded before the recession. That's an indicator of potential investment on the way. The trends also look positive for capacity investments in the oil sands and utilities sectors in the coming years.

From a federal governmental perspective, the focus is on supporting jobs and growth through the "Next Phase" of Canada's Economic Action Plan. The plan calls for a stable, low-tax environment; development of a highly skilled and flexible work force; support of innovation and the adoption of new technologies; and expanded access to markets abroad.

Now let's take a look across the nation to see how each of its regions is faring:

Atlantic Canada
It should come as no surprise that the economy of Canada's Atlantic provinces has always been strongly linked to the area's natural resources. Aquaculture would seem to be a natural, with so many miles of shoreline, and so are mining and offshore oil and gas exploration. And, of course, tourism - the lovely landscape attracts visitors from Canada, the United States, and beyond.

But amid the peaceful and bucolic settings of Nova Scotia, Prince Edward Island, New Brunswick, and Newfoundland and Labrador, a bumper crop of cutting-edge business continues to sprout, providing an economic resiliency many Western nations would envy. This can be attributed to many factors, but first and foremost is the region's pro-jobs attitude and desire to strongly welcome investment and reach the world with its products.

Tangible evidence of this attitude comes in the form of the Canada/Atlantic Provinces Agreement on International Business Development (IBDA). Renewed this summer for another five-year term, the IBDA is a federal/provincial agreement designed to help Atlantic Canadian businesses enter and succeed in international markets. It includes a $10 million investment to boost export-related activities.

According to Newfoundland and Labrador's Minister of Innovation, Trade and Rural Development Susan Sullivan, "Over the years, [IBDA] has improved the export readiness and led to new opportunities for businesses from a wide range of industry sectors." Since the launch of the agreement in the 1990s, IBDA funding has helped launch the exporting activities of some 200 Atlantic Canadian companies and provided assistance to more than 300 exporting companies hoping to define and enter new markets. Another 450 companies have used the aid to increase their sales and presence in existing markets.

The region's global connections have lured investment from elsewhere, as well. For example, Korea-based Daewoo Shipbuilding & Marine Engineering earlier this year opened its DSME Trenton Ltd. facility, which is focused on producing wind turbines and blades. In launching the Nova Scotia operation in June, CEO Nam-Ki Lee proclaimed, "We are well on our way to creating a renewable energy cluster in Nova Scotia." The facility, a former railcar plant, already has dozens of orders to fill.

That renewable energy cluster also includes homegrown Solartron Energy Systems Inc., which marked 2011 by increasing its production of solar collectors that power boiler heating systems, tanks, radiant heating, and air-conditioning systems. "Clean energy is a large and growing international market and one in which Nova Scotia companies excel," says legislative assembly member Brian Skabar, speaking on behalf of the minister of Economic and Rural Development. Energy-efficiency also drives the business of LED Roadway Lighting, which landed healthy investment from outside Nova Scotia to help build its expertise in high-tech, low life-cycle-cost street lighting fixtures.

Nova Scotia is growing other kinds of technology companies as well. Techlink Entertainment International Ltd., for example, is using a $1.5 million secured loan from Nova Scotia Business Inc. to build its Gameplan product that integrates into video lottery terminals to provide new gaming options. And Unique Solutions Design Ltd. has landed significant investments as it builds game-changing retail technology that uses body scan kiosks to help shoppers determine the best-fitting clothes. The company plans to use the funding to open more than 300 kiosks across North America.

Meanwhile, Prince Edward Island was the site chosen for a consolidation of various Tube-Fab Ltd. operations from multiple places in Canada and the United States. The company serves, among others, the aerospace sector with tube-bending, shaping, and fabrication of tubular and machine components. The project means about 100 new jobs and more high-tech credentials for a province historically known for mussels, potatoes, lupines, and "Anne of Green Gables."

PEI's great year also has seen additions to the island's life-sciences cluster, including a $2.8 million investment by Novartis Animal Health Canada Inc. at its Victoria R&D facilities. And contract management software leader Upside Software Inc. has expanded into PEI to tap into the province's growing IT sector.

The New Brunswick provincial government has shared a $3.3 million financial package to aid Innovatia Inc., which provides a range of documentation, training, and other support services. The package will help the Saint John company implement a major contract with a global ICT company. The province also continues to support its mainstay aquaculture industry, including recent financial support for the New Brunswick Aquarium and Marine Centre, which includes aquaculture research facilities. Earlier this year, New Brunswick launched Invest NB to boost its focus on attracting new businesses, and in July the province dropped its corporate income tax to 10 percent, which it says is the lowest rate in Canada and the United States.

Newfoundland and Labrador also is aiming to ease the way for new businesses. It recently launched BizPaL, an online business permit and license information service designed to slash paperwork and save entrepreneurs time and money. And as in New Brunswick, aquaculture research and development is an important focus; the government recently delivered a million dollars to the Canadian Centre for Fisheries Innovation, one installment in a larger contribution toward helping the fishing and aquaculture industries become more productive and profitable. Other R&D recently supported by the government includes an investigation of natural gas hydrates on Newfoundland and Labrador's continental margin.

All in all, economists at Royal Bank of Canada expect modest growth in the Atlantic Provinces. Newfoundland and Labrador has been seeing strong growth in construction, exports, and employment in 2011, with hefty oil revenues fueling the economy. RBC projects that demand for PEI's agricultural and seafood products should be healthy, while the manufacturing and financial sectors of Nova Scotia are continuing their growth trends. New Brunswick, which has enjoyed growth in its export-oriented manufacturing and natural resource sectors, should see gains in the domestic economy as well, according to RBC projections.

Economy watchers at Royal Bank of Canada see healthy recovery in the country's most populous province, Ontario. Stats from the Ontario Ministry of Finance indicated strong job growth in the fourth quarter last year - an annualized rate of 3.8 percent, among the best numbers in at least four years. And the first part of 2011 was continuing to look healthy, enough to lead economists to declare that the losses of the recession have been almost entirely recovered now. Compare that to the sluggishness south of the border, and it seems like a miracle. But considering that Ontario claimed some 60 percent of all new Canadian jobs in the first part of 2011, it's not a surprising result.

What that means is a healthy rebound in consumer spending, along with encouraging strength in the housing market. Adding further encouragement is the demand for Ontario-made motor vehicles. Output of cars and trucks in the first quarter of this year was up 20 percent over the same period a year earlier. Work at Ontario's assembly plants was subsequently slowed by supply-chain disruptions linked to the earthquake and tsunami in Japan, but those issues were expected to be only temporary.

There are countless strong stories to share, and Ontario adds more almost daily. Among the most recent, the province is supporting Centra's new facility that will develop innovative manufacturing processes for airplane fuselage, landing gear, and wing and flight control components. The streamlined manufacturing facility will feature automated finishing and assembly lines using eco-friendly equipment and processes. The planet benefits - and so do 108 people claiming new jobs there. Another example: With the province's help, Dana Holding Corp. is adding 102 jobs to help it create leading-edge battery cooling systems for hybrid and electric vehicles.

Looking to the future, Ontario recently inked a deal with Cisco to develop initiatives that will help drive key economic-development goals and support technology R&D. The province and the tech giant have planned a long list of partnerships supporting education, health and wellness, energy, IT innovation, and the development of so-called "smart+connected" communities.

"There is enormous potential to build a solid R&D springboard in Ontario," says Nitin Kawale, president of Cisco Canada. Ontario's Minister of Economic Development and Trade Sandra Pupatello calls the deal "a vital part of our economic strategy to help Ontario turn the corner."

In Quebec, 2011 got off to a good start, picking up following a relative pause reported by the Institut de la statistique du Québec in the third quarter last year. Growth is not breathtaking but is respectable, on a pace to nearly match last year's overall GDP advances that were the biggest in Quebec since 2000. The business economists at RBC anticipate recovery in some of Quebec's key manufacturing and service industries, along with strong business investment and more gains in the job market. Though the latter parts of 2011 could see renewed sputtering in the housing market and at the cash register, according to some projections, consumer spending is anticipated to build again in 2012.

Like Ontario, Quebec is making strides to capitalize on the promising electric vehicle business. Earlier this year, the province provided a $7.4 million grant to Phostech Lithium to establish Quebec's first lithium iron phosphate commercial production facility. Emploi-Québec added a quarter million dollars to support training at the $78 million facility. Leaders from Quebec also have been reaching across the Atlantic to explore research and innovation partnerships with European Union counterparts. A Quebec-EU innovation forum held last spring in Montreal focused on such areas as green aviation, renewable energy, next-generation ground transportation, and green information and communication technologies.

Western Canada
Some of Canada's strongest growth can be found in the West, where resources may be king, but numerous advanced sectors also drive the economy. According to the forecasters at the Royal Bank of Canada, Alberta, Saskatchewan, and Manitoba are in line to continue strong economic growth, thanks to solid demand for their products and a healthy wave of investment. Oil sands, in particular, represent a high-growth area; according to CIBC World Markets, Canada's energy sector accounts for about 15 percent of private-sector business investment, and oil sands make up two-fifths of that capital spending in energy.

In Alberta, the economy grew by 3.7 percent in 2010, and economists are anticipating it could hit 4.3 percent in 2011. A lot of that has to do with big-time spending in the oil sands business. RBC Equity Research gauged the 2011 capital budgets of those companies developing oil sands projects and pegged them in the $19 billion range; if that holds, that would be a jump of nearly 50 percent over the previous year. That means non-conventional crude production is on the upswing, and also translates into enviable job growth. And the more people with good jobs, the better things are for other sectors, including retailing.

As promising as resource-based growth is, Alberta is working hard to develop a diversity of industries. For example, earlier this summer the Alberta government joined with Western Economic Diversification Canada, the Western Economic Partnership Agreement, Medtronic Inc., GE Healthcare, the University of Calgary, and others to support an international study having to do with implantable cardioverter defibrillators. The partners are providing $16.8 million to help get the pilot phase off the ground. Also, a $5.5 million Edmonton-based pilot facility is working on production of nanocrystalline cellulose, which is a nano-material made from plants and said to be stronger than steel. "This has the potential to be one of the technologies that literally changes the world," according to Alberta's Minister of Advanced Education and Technology Greg Weadick.

In Saskatchewan, economic growth last year was even higher than that experienced by Alberta, thanks in large part to increased potash production and the 19 percent boost that gave to the mining and oil/gas extraction sector. There's plenty of potential for more growth in the future.just ask the Fraser Institute, which in its 2011 Global Petroleum Survey ranked Saskatchewan as the best place in Canada for oil and gas investment. Agriculture in Saskatchewan is smaller but still important, and it's a good thing mining and extraction are doing so well, because adverse weather conditions have put a damper on the agricultural sector. All in all, though, the economy is healthy and the jobless rate is about as low as it gets in Canada right now, which is fueling strong in-migration. And that, in turn, is pumping up the housing market, where a 6 percent gain in construction activity was in the forecast for 2011.

As in Saskatchewan, Manitoba saw a drop in agricultural production last year but a jump in mining and oil/gas production. This year, the expectation has been for continued oil/gas and mining growth, albeit a bit more moderate. Some gains in manufacturing, which had leveled off in 2010, are also expected. Construction was remarkably healthy through the downturn - activity was up more than 7 percent in 2009, in fact, and nearly as much in 2010. A number of big projects are winding down now, so construction growth is on a more moderate (but still positive) path at this point. Still, more big projects are in the works, according to CIBC, including a major hydro power plant.

Among Western provinces, British Columbia has seen the slowest overall economic pace lately. It has a different mix of business, and a number of its domestic sectors have been sluggish. Mining was good in 2010, but according to RBC was tailing off earlier this year in a wide range of commodities, including coal, copper, lead, zinc, gold, and silver. All of this has meant slower job prospects, which has put the damper on population growth. Still, economists are hopeful, in part because of the successes that British Columbia's exporters are having in such places as China. And one of the country's biggest upcoming hydropower projects could come British Columbia's way. All in all, RBC economists are looking for a modest uptick in the province's economic growth rate next year.

The West may be big, but it's a small world too, when it comes to collaboration and partnership for an improved economy. The provinces work together in a number of ways - and in some cases reach across the border to partner with American states. For example, late last year the governments of British Columbia and Washington State agreed to develop a joint regional marketing plan with the hopes of attracting investment and creating new jobs. And one of the fruits of the New West Partnership, launched not long ago, is an agreement between the energy ministers of Alberta, British Columbia, and Saskatchewan intended to strengthen Canada's position as an energy powerhouse.

Area Development Online   All contents copyright © 2013 Halcyon Business Publications, Inc.