Like other trading nations, Canada’s fortunes are linked to those of the U.S.; however, diverse Canadian business activity in the world’s largest emerging markets bodes well for Canada’s long-term prospects.
CANADA IN THE WORLD
The measure of a successful economy is not always how well it performs during good times, but how it copes and the opportunities it identifies when the chips are down. In many ways, that’s where Canada finds itself heading into the second quarter of 2008.
Last year, exporters faced what Stephen S. Poloz, senior vice-president, Corporate Affairs, and chief economist at Export Development Canada (EDC) describes as a “perfect storm” of deteriorating global conditions and a rising dollar.
But exports still rose by two per cent indicating an unexpected degree of exporter resilience, Mr. Poloz wrote in his weekly EDC commentary in January this year.
Now, those same exporters are looking for new opportunities to continue weathering the storm of 2008 and beyond.
EDC believes there will be an overall decline in both export volumes and export values in 2008, even if the U.S. economy avoids recession.
Though the potential global economic impact of a U.S. slowdown cannot be understated, EDC nevertheless expects Canadian exports to emerging markets will grow, particularly in the agri-food, fertilizer, farm machinery, aerospace and other equipment sectors.
Rob Forbes, EDC vicepresident International Business Development, suggests Canadian exporters seeking new opportunities have a good look at Latin America as an option.
“As a relatively small global player, we need to build in areas where we already have strengths, and Latin America fits the bill,” he says. “Canada has a fairly significant footprint in the region and a strong, recognizable brand.”
Mr. Forbes says the Latin American market is by no means mature and has room to grow. Its major sectors include oil and gas, mining, and infrastructure and engineering – all areas in which Canada has world-leading expertise.
Another emerging market favoured by Mr. Forbes is India. He believes opportunities for Canadian companies may be even bigger here than in China, because India’s market is more open and its business practices more transparent.
“The Indian private sector –‘India Inc.’ – is driving growth and presents some tremendous opportunities for Canada, and many companies are taking advantage of them. For example, EDC business in India grew by 61 per cent last year alone,” he says, noting EDC’s activity here directly reflects the success being enjoyed by Canadian companies.
A third area of opportunity is the Gulf Co-operation Council (GCC) – a political and economic union formed by the oilrich nations of the UAE, Saudi Arabia, Oman, Qatar, Bahrain and Kuwait. The GCC’s abundant wealth and desire to expand its economy through diversification make it very attractive to Canadian companies that want to establish a presence in the region.
Canadian exports to the GCC more than doubled in the five years to the end of 2006, reaching $1.6 billion Cdn.
Canadian interest in the GCC is further underscored by the fact that EDC has helped more companies do business in GCC countries than in any of the BRIC nations (Brazil, Russia, India and China). EDC has recently established its first permanent representation covering the GCC markets in Abu Dhabi.
Mr. Forbes is also bullish on Canadian opportunities in Russia, especially in natural resource development. He cautions, however, that Russia’s market is not without its challenges, including emerging capacity constraints and bottlenecks likely to constrain real economic activity, and structural reforms that are either lagging or have been postponed.
When it comes to Canadian business sectors that are strong enough to succeed in virtually any global market, Mr. Forbes says banking and financial services are an obvious choice.
“Some companies have been very successful in developing markets in target regions,” he says. “For example, Scotiabank is building a strong franchise in the Americas and now has close to 25,000 Spanish-speaking employees.”
He says Canadian banks seeking to build their business abroad must drive future value and sustainable competitive advantage through customer service. Their challenge will be to do so in competitive environments where they will face some of the world’s biggest banks.
Other major Canadian financial institutions, such as Manulife, have long been active globally and proved their capabilities in foreign markets. More recently, Canadian pension funds and asset management companies have increased their offshore investing activities significantly in the past 18 months.
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