While Canada retains a “B” grade and improved its ranking from 11th in the last pre-recession report card for 2008, it is more a reflection of weakness among its peers than of a stellar Canadian economy.
This is a chart on the How Canada Performs report card.“This “B” grade should be viewed as relative because Canada fares poorly when compared with the top-performing economies. With the exception of inflation and employment growth, Canada ranks far below the best countries on all other economy indicators,” said Glen Hodgson, senior vice-president and chief economist.
“Canada has been a chronic laggard on several important economic indicators—notably, labour productivity growth and competition for global investment. And even in areas where Canada has improved, other countries are still doing better.”
For each indicator, the Conference Board ranks the performance of all country from top to bottom, and divides this range into four equal segments from “A” to “D”.
Along with most of its peers, Canada gets an “A” grade on inflation. Canada gets “B” grades for gross domestic product (GDP) growth, labour productivity growth, employment growth, and the unemployment rate. But Canada’s overall ranking is pulled down by “C” grades on income per capita and outward foreign direct investment (FDI), and a “D” on inward FDI.
Canada’s ranking on income per capita dropped from sixth position among comparator countries in 2000 to eighth in 2008, and remained there through 2012. Canada’s income per capita was US$36,138 in 2012—nearly $12,000 below Norway, the top performer.
Furthermore, income per capita in Canada is 84 per cent of income per capita in the United States. The income gap tripled between 1980 and 2012. The importance of productivity shows up in this measure—lower labour productivity in Canada accounts for the largest component of the income gap.
Canada attracted 2.7 per cent of the world’s foreign direct investment in 2011 and accounted for 2.5 per cent of world GDP. This performance placed Canada sixth out of 16 countries on inward FDI in 2011, which suggests, at first glance, that Canada is a relatively attractive market for investors.
Nevertheless, Canada is one of 13 countries to earn “D” grades on inward FDI. Belgium is the runaway leader on this indicator, with eight times more inward FDI than its share of the global economy. Belgium’s performance effectively lowers the grades of the other 15 countries.
Canada gets a “C” grade on the Outward FDI Performance Index for 2011 and ranks 10th. Since the late 1990s, the stock of Canadian direct investment abroad has been greater than the stock of FDI in Canada. This shift indicates that Canadian firms are using foreign direct investment to build global value chains and serve customers in other countries. That said, Canada still ranks far behind the top performers, particularly the two countries that earn “A” grades—Belgium and Switzerland.
How Canada Performs is a multi-year research program at The Conference Board of Canada to help leaders identify relative strengths and weaknesses in Canada’s socio-economic performance. The How Canada Performs website presents data and analysis on Canada’s performance compared to 15 peer countries in six performance categories: Economy, Innovation, Environment, Education and Skills, Health, and Society.
The Conference Board’s Centre for Business Innovation (CBI) hosted the two-day summit on how to re-think, re-new and transform firm-level innovation in Canada.
Daniel Muzyka, president and CEO of The Conference Board of Canada told the attendees that the time for innovation is now.
“One of the resonating themes of this Summit, that I agree with wholeheartedly, is we have many prescriptive reports about the nature of the innovation gap and how to close it. The real challenge is to get on with it.”
“A focus on cost-cutting and efficiency has helped many Canadian organizations weather the economic turbulence, but this approach will ultimately render them obsolete. Only the constant pursuit of innovation can ensure long term success,” he added.
Canadian firms have only limited formal innovation management systems, said Michael Bloom, Vice-President, Organizational Effectiveness and Learning, The Conference Board of Canada. Yet key findings of the Conference Board’s Innovation Metrics for Management 2012 survey indicate that firms that both allocate time for innovation and manage their processes get improved results.
“Spending time is not enough, formal innovation management is needed. This does not suggest that we argue for more control of innovation, but better coordination of innovation activities. It is something that should twig (in organizations), and it has not twigged yet,” said Bloom.
John Lutz, president of IBM Canada, described the five Vs of “big data”—velocity, volume, variety, veracity and vulnerability.
Lutz added that “we believe we can make a difference in Canada as a key part of a globally integrated enterprise that has innovation as its foundation.
“We apply our management system all over the world, and we get fabulous innovation results in Canada,” he said. “The Canadian university system is magnificent. Public-private partnerships can help accelerate investment and commercialization of innovation so we all can benefit."
Terry Stuart, chief innovation officer of Deloitte, highlighted how Canadian start-up firms are high-growth “gazelles” in the first five years of their existence, but slow down their innovation and become “water buffaloes” by failing to grow beyond a certain size after the first five years.
The leaders of two organizations that are taking action on innovation presented their approaches during a luncheon.
Suzanne Fortier, president of the Natural Sciences and Engineering Research Council, launched the Interim progress report of the Strategy for Partnerships and Innovation. “NSERC’s Strategy for Partnership and Innovation is a blueprint for action to increase Canada’s benefits from its investments in research and development.”
In his luncheon keynote address, Nitin Kawale, President, Cisco Systems Canada Co., said Canadian organizations need to let go of the old notions of work, and focus on productivity rather than work hours of 9-to-5. He added that organizations need to forego the concept of work-life balance for a different approach of work-life blending.
“People are not the problem. Productivity is not a Canadian worker problem…People are ready, but Canadians organizations are not,” said Kawale. “Canadians are extremely productive in their personal lives. If organizations allowed Canadians to be as productive in their professional lives as they are in their personal lives, Canada would be a lot better off.”
Amanda Lang, senior business correspondent with CBC News and author of the new book, The Power of Why, called on the attendees to ask hard questions about why Canada should be the “sweet spot” on innovation when compared to other countries. She stated that a culture of complacency and risk aversion may offer some of the answer.
“Our natural-born curiosity got drummed out of us. What got drummed into us was fear of the wrong answer,” said Lang.
Salary gains continue to be strong in Alberta and Saskatchewan at approximately four per cent this year, compared to three per cent nationally, according to The Conference Board of Canada's Mid-Year Pulse Check of its annual compensation planning outlook survey. Watch as Allison Cowan, Senior Research, Compensation and Industrial Relations for the Conference Board, discusses the issue of salary increases and how it’s affecting the manufacturing sector.
Salary gains continue to be strong in Alberta and Saskatchewan at approximately four per cent this year, compared to three per cent nationally, according to The Conference Board of Canada’s Mid-Year Pulse Check of its annual compensation planning outlook survey.
“Economic growth is uneven across the country. While employers are feeling the pinch in Ontario and other parts of eastern Canada, the oil and gas sector is pushing up wages in Alberta and Saskatchewan,” said Ian Cullwick, Vice-President, Leadership and Human Resources Research.
"Salaries in oil and gas this year are rising slightly faster than we projected, and labour markets in western Canada are tightening. We have heard from natural resources firms that virtually all of them are having trouble finding the skilled workers they need.”
Salary growth projections have been revised upwards in Saskatchewan (four per cent) and Alberta (3.9 per cent). The projections for Quebec (2.7 per cent), Ontario (2.5 per cent), and British Columbia (2.5 per cent) have been revised downward, and remain below the national average of three per cent.
View video commentary by Allison Cowan, Senior Research, Compensation and Industrial Relations.
The Conference Board conducted its Compensation Planning Outlook 2013 Mid-Year Pulse Check survey in December 2012. A total of 237 organizations replied, representing a response rate of 59 per cent of the 401 organizations that completed the Compensation Planning Outlook survey in the summer of 2012.
While most industry salary projections have changed little since last year, more than half of the companies in the food, beverage, and tobacco industries reported revising salary increases down in recent months. As a result, the expected increase across these industries has fallen from 2.9 per cent to 2.3 per cent.
More than two-thirds of respondents said economic conditions in 2013 will be comparable to those of 2012. A quarter think business conditions are likely to improve, while only seven per cent believe that conditions will deteriorate in 2013.
“The industry will continue to benefit from brisk growth in vehicle sales, both this year and next,” said Michael Burt, Director, Industrial Economic Trends. “While Canadian sales are set to surpass their pre-recession level this year, sales in the United States are not expected to return to 2007 volumes until 2014. This increasing U.S. demand is expected to lead to a prolonged recovery in Canadian auto exports.”
This is a chart of truck sales in Canada 2012Through the first eight months of 2012, Canadian automotive production rose almost 20 per cent compared to the same period last year. Sales in Canada surged 7.1 per cent between January and August of this year and are on track to reach 1.72 million vehicles—the highest levels since 2002. Across Canada, truck sales continue to outnumber passenger car purchases—particularly in the Prairies where brisk activity in the mining and construction industries is driving sales.
U.S. sales have posted double-digit sales growth three years in a row, culminating in a 15 per cent increase in Canadian exports this year. Yet, U.S. sales remain 1.7 million units below where they stood in 2007, leaving room for further growth – assuming that Congress and the White House take measures to avoid the looming fiscal cliff.
Going forward, production growth will slow over the next five years from this year’s torrid pace. Canadian sales gains will be limited as the demand that built up during the recession has effectively dried out. As well, in 2014 General Motors will close one of its Oshawa plants and growth in sales will start to level off in the United States.
Overall, Canada’s ranking declined to 14th place in 2012 – from 12th place in 2011 and 10th place in 2010. But in the sub-area of innovation and business sophistication factors, Canada fell six places from 15th to 21st – no other top-ranked country dropped nearly as much.
The publication Who Dimmed the Lights? Canada’s Declining Global Competitiveness Ranking, for the Conference Board’s Centre for Business Innovation, argues that Canada needs to take advantage of its basic strengths, leverage its abundance of natural resources and skilled workers, and produce value-added products and services for domestic and international markets.
“Canada’s declining overall ranking is indicative of the country’s competitiveness malaise,” said Douglas Watt, Director, Organizational Effectiveness and Learning. “This decline raises concerns about the country’s ability to leverage its relatively strong socio-economic footings for competitive advantage. Some of our top competitors are increasing their competitiveness, so Canada must improve just to keep pace. If we don’t do something, Canada’s future prosperity is in jeopardy.
“Fourteenth place out of 144 countries is good—but ‘good’ really isn’t good enough anymore. Future national competitiveness—the underpinning of social and economic prosperity—requires that our competitive advantage shift to the production of more value-added goods and services. The key is to pursue new opportunities and enter new markets in order to move away from being excavators of minerals, hewers of wood, movers of bitumen, and wardens of water.”
This Conference Board briefing provides a Canadian business perspective on the findings of The Global Competitiveness Report 2012–2013, the 34rd edition of the World Economic Forum’s report. The Conference Board of Canada is the Canadian Partner Institute at the World Economic Forum’s Centre for Global Competitiveness and Performance.
The Global Competitiveness Index consists of three sub-indexes that capture the core elements of a country’s competitiveness, including:
- Basic requirements (e.g., institutions, infrastructure, and macroeconomic environment): Canada ranks 14th, a decline of one position.
- Efficiency enhancers (e.g., higher education and training, labour market efficiencies, technological readiness, market size): Canada ranks a respectable sixth.
- Innovation and business sophistication factors (e.g., nature of competitive advantage, capacity to innovate): Canada falls six places, from 15th to 21st.
Canada has strong fundamentals when it comes to supporting productivity, business performance, and competitiveness. Our population is healthy, our education system is solid, and our institutions and infrastructure are, for the most part, a boon to the country’s economic strengths and competitive potential.
However, Canada’s year-over-year decline (from 11th in 2011 to 22nd in 2012) was particularly significant in indicators of innovation performance—such as university–industry collaboration in R&D, quality of scientific research institutions, capacity for innovation, company spending on R&D, and government procurement of advanced technology products.
This decline is especially disappointing given that Canada is an advanced economy and at a stage of development where its future prosperity rests mostly on its capacity to innovate. The gap between Canada’s inability to leverage its economic and structural strengths for value-added performance and competitive advantage is one of the greatest roadblocks to improved competitiveness and future prosperity.
Switzerland, Singapore, and Finland are the top three countries in the World Economic Forum’s 2012-2013 rankings. Each of the top three economies performs well across all three competitiveness sub-indexes (basic requirements, efficiency enhancers, and innovation and business sophistication).
Chart showing the percentage of Americans who own e-readers from November 2010 until February 2012. Published by the Conference Board of Canada in association with the Business Development Bank of Canada (BDC), the Canadian Industrial Profile service provides a five-year forecast for production, employment, revenue, cost and profitability for six industries each quarter.
The Summer 2012 edition includes outlooks for Aerospace Products Manufacturing, Furniture Products Manufacturing, Motor Vehicle Parts Manufacturing, Paper Products Manufacturing, Printing Services and Wood Products Manufacturing.
“The continuing financial crisis in Europe is the primary risk to some of Canada’s high-profile manufacturing industries. Turmoil in the eurozone could further undermine business and consumer confidence in the United States and emerging economies,” said Michael Burt, Director, Industrial Economic Trends. “Most of the industries covered in this outlook are experiencing healthy production growth, but the strong Canadian dollar will limit the prices that export-oriented industries receive for their goods.”
“Despite the continued improvement in revenue, profitability, and job creation across all sectors, we’re not out of the woods yet,” cautions Pierre Cléroux, vice-president and chief economist with BDC. “The manufacturing sector is still far from its pre-recession highs and unless Canadian businesses make significant investments in productivity, they will have difficulty competing in the new economic environment.”
Surging Sales Driving Auto Parts Production
The recovery of the auto industry is in full swing, thanks to surging vehicle sales in North America. Canada’s motor vehicle parts production will grow by almost 15 per cent in 2012, but it is still well below pre-recession highs. The strong Canadian dollar, however, will limit price growth. As a result, industry profits are forecast to increase modestly from $1.2 billion in 2012 to slightly more than $1.5 billion in 2016.
Aerospace Industry Boosts Production, But Profit Growth Limited
After three years of declining or stagnant production, aerospace industry output will grow by almost seven per cent in 2012. Strong demand for aircraft in emerging countries, along with expectations for a sustained recovery in the United States, will help to boost production by more than three per cent annually over the next four years. However, weak price growth will limit the industry’s profitability to about $500 million annually in the next couple of years.
Wood and Furniture Industries Count on U.S. Housing Market
A long-awaited rebound in the key U.S. housing market is expected to support the outlook for both the wood and furniture industries. Home delinquency rates and inventories are falling, pent-up demand for new construction is driving increased building, and prices have stabilized in many markets. Buoyed by export demand, overall production in 2012 will increase by 3.3 per cent in the furniture products industry and by almost eight per cent in the wood products industry. Prices, however, will increase only modestly over the next four years.
After losing $114 million in 2011, the wood products industry is expected to return to the black in 2012, posting a profit of $208 million. Wood industry profits are expected to more than triple next year to $673 million. Meanwhile, profits in the furniture products industry are forecast to stabilize at about $400 million annually through 2016.
Internet Proliferation Shreds Outlook for Paper Products and Printing Services
Online media, e-readers and tablet computers are displacing demand for paper and printing services. As a result, production levels in both the paper products and printing services industries will continue their recent declining trend. The industries have shed about 20,000 jobs each since 2008. Yet, despite declining production and limited price growth, both industries are marginally profitable. Printing services firms are expected to post profits of $254 million this year, while the paper products industry is forecast to make $229 million this year.
The outlook for paper products manufacturers is expected to show modest growth beginning in 2013. Growing demand in emerging markets will help boost production and profitability. As well, the industry is exploring new uses for forest resources (with governments as a partner through the Bio-Pathways Partnership Network), such as producing biochemicals and bio-energy from wood fibre. The global markets for products such as green chemicals and alcohols are potentially worth billions of dollars.
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“The recovery of the auto industry is in full swing,” said Michael Burt, Director, Industrial Economic Trends. “And an encouraging sign for the Canadian industry is that many of the best-selling models are assembled here.”
“Consumers in Canada and the United States, who held off new vehicle purchases in recent years, are back in the showrooms to replace their older models. Low interest rates, dealer incentives, and fresh models are also boosting demand, although increased competition will squeeze profit margins. Even high fuel prices are encouraging consumers to trade in older vehicles for more fuel-efficient cars and trucks.”
In response to brisk sales, automakers will ramp up production by an expected 12 per cent this year. Canadian vehicle sales are expected to reach pre-recession levels this year; the United States is forecasted to return to its pre-recession sales total in 2014. In addition to the revitalized Detroit automakers, a rebound in production of Japanese automakers Toyota and Honda is underway following the supply disruptions caused by the 2011 earthquake and tsunami.
The Canadian industry will also benefit from moderating prices for raw materials and a weaker loonie. This is a silver lining for the industry in what remains a period of elevated risk brought on by the European debt crisis and slowing economic growth. If U.S. job growth continues to wane in the months to come, Canadian auto exports will be negatively affected.
The industry’s forecast pre-tax profit of $1.5 billion in 2012 is its highest level since 2002, when the dollar traded at 62 cents U.S. In 2013 and beyond, profits are expected to stabilize at just over $1.5 billion annually. Fierce competition among the major automakers – such as consumer incentives – will keep profit margins low.
“Canada’s economy has rebounded nicely from the 2008-09 recession, especially when compared with the performance of many other advanced economies. But closing the remaining gap on potential output and full employment will be a long and protracted process, as real GDP growth will be lacklustre over the next few years,” said Pedro Antunes, director of National and Provincial Forecast.
Overall real GDP in Canada is forecast to grow at an average pace of 2.7 per cent between 2012 and 2016. In 2012, the rate of growth is expected to be 2.3 per cent, followed by 2.8 per cent in 2013, according to the Conference Board’s Canadian Outlook-Spring 2012. Modest growth in household spending and fiscal restraint by all levels of government are the major culprits for relatively slow economic growth over the next couple of years.
Canada’s economy was near full employment before the 2008-09 recession. Although Canada has recovered all the jobs lost during the recession, it will take another four years to bring the unemployment rate back down to about six per cent.
Several factors will temper the short-term effects of baby-boomer retirements on the labour force. These include robust levels of immigration, a greater proportion of older women in the workforce and the expectation that many boomers will choose to delay their retirements by one to two years to recoup some of the losses to their nest eggs.
After 2014, the wave of baby boomer retirement is expected to accelerate, tightening labour markets and putting pressure on employers to increase wages. For the economy to afford higher wages, Canada’s productivity will need to improve through the substitution of capital investment for increasingly-scarce labour.
After 2016, economic growth is forecast to slow to an average of 2.1 per cent annually. The decline to real GDP growth is due to soft labour force growth brought on by boomer retirements, and a shift in spending patterns from an aging population.