Op-Ed: Canada continuing to lose ground in global competitiveness (Business in Vancouver)

December 20, 2018

In 2018, the penny dropped on Canada’s diminished attractiveness for new business investment.

The past year saw a chorus of voices across the business community urging governments to recognize Canada’s faltering competitiveness, amid near-record capital outflows, sagging domestic equity markets and punishing price discounts for the country’s No. 1 export product: Western Canadian oil.

For the Justin Trudeau government, this was a hard message to absorb. The prime minister and his ministers prefer to concentrate on social and environmental issues and are preternaturally inclined to endless blather about the (never-defined) “middle class.” When the country’s most prominent CEOs and investment managers started to express alarm over money and talent fleeing the country, Ottawa’s instincts were to look the other way.

By the fall, however, the pressure to act had reached a breaking point, and the government responded via Finance Minister Bill Morneau’s November 2018 economic and fiscal update. The update announced a handful of measures to enable quicker writeoffs on certain types of investment, as well as a commitment to review the regulatory obstacles that are inhibiting business growth across large swaths of Canada’s economy.

In truth, the fall update will do little to change the situation. With U.S. President Donald Trump’s administration busy cutting taxes and paring back regulations while continuing to embrace a protectionist approach to trade policy, Canada is struggling to remain in the game. Our long-standing weaknesses in the areas of business innovation and firm scaling make the country’s long-term economic challenges even more daunting.

The World Economic Forum’s latest assessment ranks Canada 12th among 140 countries in overall competitiveness – far from a stellar showing. We are rated 53rd for our burden of government regulation, 34th in speed of technology adoption and 29th for “future orientation of government.” Canada’s international reputation as a location for large-scale industrial investment has taken a beating in the face of stalled energy infrastructure development, growing litigation risks for project proponents, ever-mounting regulation, escalating taxes and noisy intergovernmental squabbling over energy, environmental, infrastructure and carbon issues. A slow-moving jurisdiction in a fast-changing world, Canada is becoming a place where process and self-congratulation substitute for action and strategy.

As one indicator of Canada’s waning competitiveness, consider what’s happened to our exports since 2000. The picture is sobering: we rank near the bottom among both the G20 countries and the advanced economies in the growth of merchandise exports. Annual export growth has averaged 2.5% in U.S.-dollar terms, barely keeping pace with domestic inflation. Over the same period, world trade has been expanding by roughly 6% per year. U.S. exports have grown by 4.1% per year, Germany’s by around 6% and South Korea’s by more than 7%.

Given this, it’s not surprising that Canada’s international market share in traded goods has plummeted – dropping from 4.3% in 2000 to just 2.4% last year, according to a recent report from the Canadian Manufacturers and Exporters.

In some ways the picture is even worse than the above numbers suggest. That’s because Canada has been producing and selling vastly more crude oil. In fact, the bulk of our total export gains since 2000 reflect growing shipments of oil, all destined for the United States. If we remove oil from the statistics, the value of our exports has been inching ahead by a meagre 1% to 1.5% per year since 2000. No wonder Canada’s presence in global markets is shrinking.

Federal government decision-makers and their counterparts in the provinces need to get to work tackling the bewildering array of tax, regulatory, infrastructure and other policy barriers that are holding back investment and business growth in many of the industries that produce Canada’s traded goods and services. Progress on these issues holds the key to improving Canada’s export performance and overall competitiveness.

Jock Finlayson is the Business Council of British Columbia’s executive vice-president and chief policy officer.

As published by Business in Vancouver.

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