How a country reacts to adversity says a lot about its character. Because of its prudent fiscal policies, top-notch business incentives, strong financial system, and strategic investments in technology, education, and health care, Canada is emerging from the global recession with impressive rankings. For the second consecutive year, the World Economic Forum reported that Canada has the soundest banking system in the world. Financing has not been an issue for most Canadian companies. In fact, PricewaterhouseCoopers' (PwC) 2009 Business Insights Survey revealed that 88 percent of executives who responded said their plans have not been compromised by lack of financing.
"Companies for the most part are still able to manage their debt through this challenging economic environment," says Eric Castonguay, managing director for PwC Corporate Finance.
Although interest rates on new loans have increased over the past year, they have generally been offset by a 2.5 percent decrease in the prime rate, and a similar decrease in banker-acceptance rates. The net result has had a minimal impact on the effective interest rate paid by companies with solid balance sheets.
"Canadian banks are well managed and did not require the public bailouts that have haunted the industry globally," adds George Sheen, director of PwC Canada Financial Services. "The banks have stuck by their clients and provided credit when they needed it."
Paul Volcker, a top economic advisor to the Obama administration and former U.S. Federal Reserve Board chairman, told American lawmakers that they needed to learn from Canada's banking system as they overhaul federal banking regulations.
Based on forecasts by the Organization for Economic Co-operation and Development (OECD), the Conference Board of Canada expects Canada to rank fifth in the world in 2010 for economic growth because of the stable banking sector and relatively low unemployment rates compared to other countries. Strong gains are expected in GDP growth, unemployment rate, employment growth, and inward and outward FDI performance index.
"Canada is better placed than many countries to weather the global financial turbulence and worldwide recession," says Charles Kramer, division chief for the International Monetary Fund's Western Hemisphere Department. "This resilience can be attributed to three factors: First, a track record of sound macroeconomic policy management left the country in prime form at the beginning of the global turmoil; second, a proactive response by government to the economic crisis; and third, a stable financial system."
The Bank of Canada projects Canada's gross domestic product to grow by 2.9 percent in 2010, compared to a contraction of 2.5 percent last year. The Economist Intelligence Unit believes Canada's inflation rate of 2.1 percent will hold steady over the next five years, at a significantly lower figure than the 3.2 percent rate in the United States. Canada's total net debt-to-GDP ratio is also the lowest in the G7.
This stability makes Canada a choice destination for companies planning to relocate or expand. According to Dun & Bradstreet's Global Risk Indicator, Canada is one of the world's safest countries in which to invest. Because of Canada's top-ranked fiscal balance sheet and excellent long-term growth prospects, the country has been given a AAA international credit rating from Moody's Investors Services since 2002.
Economic recovery in Canada appears to be well ahead of other countries. The Thirteenth Annual Global CEO Survey by PricewaterhouseCoopers showed that, overall, CEOs in Canada are more optimistic about the prospects for short- and long-term growth in their respective industries, compared to their global counterparts. Nearly 40 percent of Canadian CEOs said their industry's recovery was already under way, compared to 23 percent for those in other countries. Canadian CEOs were also twice as likely to say that global economic recovery was in progress. As a result of these positive indicators, about half of the Canadian CEOs plan to increase their work forces in 2010.
Canada is a good place to do business, regardless of the economic climate. As part of NAFTA, Canada has access to about 450 million consumers, and a combined GDP of more than US$17 trillion - the most lucrative market in the world. The United States is Canada's primary trading partner, with two-way goods-and-services trade totaling $740 billion in 2008, or nearly $1.4 million a minute in trade. Seventeen of Canada's 20 largest cities are within a 90 minute drive of the U.S. border, and many Canadian plants and factories are closer to target U.S. markets than American production sites are. The two countries have partnered to create a "smart border" that uses technology to speed the flow of trade across the border without sacrificing security.
Canada has a skilled and motivated work force, and continues to attract some of the brightest minds from around the world, thanks to its business-friendly immigration policy for qualified immigrants. According to the OECD, Canada leads higher education achievement. More than half of all Canadians between the ages of 25 and 35 have received postsecondary education, either at the university, college, or technical level. Its engineering, business, and management schools also rank highly.
Canada leads all G7 countries in ease of doing business, according to the 2009 IMD World Competitiveness Yearbook. The Economist Intelligence Unit forecasts Canada as the top place to do business in the G7 for the next five years due to its strong trade relationships and access to Asia-Pacific markets. To enhance its competitive position, Canada has invested over $1 billion in the Asia-Pacific Gateway and Corridor Initiative to support stronger infrastructure links among Canada, NAFTA, and Asia-Pacific markets. As part of the initiative, private investors are participating in projects ranging from bridge construction to terminal infrastructure at Canada's western ports.
Canada recently opened a Foreign Affairs and International Trade Canada branch in Wuhan, China, one of four new offices Prime Minister Stephen Harper announced in December 2009. This location will strengthen the trade and investment ties between Canada and Hubei Province, especially for agriculture, food, environmental technology, and transportation.
World Trade magazine has ranked Canada among the top three countries for "investment and trade opportunities," and for good reason: Canada has the lowest payroll taxes among the G7 countries, and by 2012, Canada's corporate income tax rate will fall from 18.5 percent in 2010 to 15 percent in 2012 - less than half the U.S. rate. And Canada's universal healthcare system provides a significant human resources cost advantage as compared to U.S. employers.
Canada has invested billions of dollars over the last decade to create robust research and development (R&D) facilities and initiatives. Canada ranks second in the G7 for the quality of scientific research in government and university laboratories. The Canadian Foundation for Innovation supports technology clusters across the country in industries ranging from pharmaceuticals to fuel cells to information and computer technologies (ICT). Generous R&D tax credits are available to qualifying companies through the National Research Council, Business Development Bank of Canada, Canada Revenue Agency, and other funding sources.
Canada's diverse economy is anchored by traditional, natural resources-based industries such as timber, mining, oil, and gas, as well as knowledge-based industries. The federal government has created business incentives and academic support for key growth markets such as aerospace, agri-food, automotive, biotech, life sciences, plastics, software, electronics, and alternative energy. Global giants and start-ups alike have formed thriving clusters in Montreal, Ottawa, Toronto, Calgary, Winnipeg, and Vancouver, as well as other major cities along the Canada-U.S. border.
Take Canada's agri-food sector, the world's fourth-largest exporter of agricultural products and the country's second-largest manufacturing industry. These clusters that nurture innovation and research, as well as private-sector collaboration, are attracting major capital investment, such as international food-processing firm Zeb Rice Limited's $14 million, 45,000-square-foot production facility in rural Manitoba.
"When our company decided to expand in North America, we looked for sites that met our criteria," says Makhdoom Abbas, president and CEO of Zeb Rice. "Southern Manitoba is an ideal fit for us. In commodities such as pulse crops, margins are very thin. This location enables us to keep our costs low without compromising the quality of our products. We looked at a number of sites across the American and Canadian Midwest, but this was our number one choice. The people in this region have a positive, cooperative attitude. We knew we'd have a local work force that would be loyal and dependable."
Canada's life sciences clusters and its talented pool of scientists and researchers are globally known for being at the forefront of discovery. The presence of more than 390 pharmaceutical and 400 biotech companies has made Canada the country with the third highest number of biopharmaceutical firms in the world. Canada leads the G7 in growth of health research patents, and ranks fourth internationally. The world's top pharmaceutical companies also look to Canada for its high-quality contract research and manufacturing services.
To further develop strong research ties with U.S. academic institutions, Peter Van Loan, Minister of International Trade, recently announced 15 research initiatives under the Canada-California Strategic Innovation Partnership (CCSIP) that involve 425 research personnel at 21 Canadian universities and eight University of California campuses. The schools are contributing a total of $1 million in funding.
ICT is another high-growth market, especially for new wireless technologies. One of hottest clusters is the Waterloo region, known as the "Technology Triangle," where advances in manufacturing and ICT are especially notable. An outstanding postsecondary educational system of 50,000 students provides a constant stream of graduates for these high-tech industries. Waterloo's local economy is expected to grow 3.3 percent in 2010, and 4.2 percent from 2011 to 2014, according to the Conference Board of Canada.
New developments in the Technology Triangle include Open Text's plans for a $20 million expansion of its Waterloo headquarters. Sandvine was recently awarded $1 million in federal government funding to aid its expansion into the wireless market. The Waterloo-based company will receive the funds through the National Research Council's industrial research assistance program. Sandvine's R&D facilities are equipped with the latest sophisticated technologies for developing next-generation solutions for network integrity, operations management, and traffic optimization for cable, DSL, fixed wireless, and mobile operators.
Quality of Life
From its scenic natural beauty to its cosmopolitan cities, Canada offers an enviable quality of life. It has one of the highest standards of living in the world, with universal healthcare, safe neighborhoods, and low crime rates. Cultural diversity is embraced. In a 2009 quality of life ranking of 215 world cities by Mercer Human Resources Consulting, four Canadian cities ranked among the top 25.
Quality of life considerations have lured foreign companies to Canada. Schoeck, headquartered in Baden-Baden, Germany, is one of Europe's leading suppliers of innovative, structural load-bearing insulation products. It recently established a facility in the Technology Triangle.
"During our market investigation in 2008, we identified four key aspects when choosing the right spot for our new company," says Christian Witt Baquero, vice president and manager of sales and engineering for ComBAR Schoeck Canada. "The location had to be central, ideally connected to one of the main highways with focus on minimized traffic congestion, relatively close to the Greater Toronto Area, and already have some good, established German companies. Kitchener fulfilled all four aspects entirely. [The Waterloo region is] also one of the most beautiful areas in the world, and an ideal place for business and living."