Navigating Uncertainty: A Call to Action for Canada’s Economic Future

In the world of business, the only certainty is uncertainty. 

Elections, trade barriers, conflicts, climate change and disease are, for better or worse, part of the fabric of society. 

A scan of the headlines offers a look at the uncertainty we are faced with: the climate crisis is becoming more urgent, almost by the day; government indebtedness is at an all-time high, with the IMF expecting global public debt to soon exceed $100 trillion; the incredible pace that new and viable technologies emerge is resulting in displaced workers and exposing vulnerabilities in our systems and regulations; and the vast ripple effect of demographic changes is leading to rising healthcare costs, affecting labour markets and food security, shifting the centres of global wealth creation and exacerbating political tensions. 

Together, these events are manifesting as a surge in geoeconomic fragmentation. Countries, including Canada’s largest trading partner, are looking to protect their business interests by appealing to economic nationalism and leaning on industrial policies once considered taboo in a globalizing world.

Canada is at a tipping point.

Canada is also, critically, in a position not only to overcome this tectonic shift but also to thrive.

We truly have what the world needs right now—energy, critical minerals and food—and stand to prosper if our financial sector, governments and businesses help get these products and services to international markets with the right safeguards in place.

We might see changes in the specifics of international trade—it may become more regional, for example, or we may see different partnerships or new business models succeed—but it will continue. The gravitational pull of comparative advantage—not to mention the benefits afforded to business, government and society at large—is too difficult to resist in the long term.

The challenges we face are multi-faceted, and as we navigate this paradigm shift, it is imperative that the key players in Canada’s exporting landscape take decisive action to secure the country’s future prosperity. 

Canada needs a longer-term approach on the part of government, longer-term thinking on the part of the private sector, and a longer-term view from our financial institutions. 

We need a coordinated approach from all of Canada’s institutions to help ensure Canada is equipped to compete in the short term while planning for and anticipating the long term.

Calls to Action for Businesses

Canadian businesses need to invest with long-term aspirations. Coming out of the COVID pandemic, Canadian companies were investing quite a bit, for example, as we leveraged digital technologies to change how we interact with customers and employees. 

Notwithstanding that period, business investment is below pre-pandemic levels. In fact, investment per worker is below the average for the last 20 years. 

Not only is it moving in the wrong direction, it is moving in the opposite direction of some of Canada’s key competitor markets, including the United States and Mexico.

The Bank of Canada has shown that, in the mid-1980s, the Canadian economy was producing 88% of the value generated by the US economy per hour. By 2022, that number fell to 71%

Among our G7 peers, only Italy saw a larger decline in productivity compared to the US in that timeframe.

This trend presents a significant problem in terms of Canada’s ability to grow.

We need to invest in our employees to help ensure workers have the right skills to keep pace with changing technologies, remain agile and help a business—and its customers—thrive. 

We need to invest in digital technologies and artificial intelligence to help collect and analyze data that can inform logistics and planning and also to help reduce energy consumption.

We need to invest to increase Canada’s output and enhance our competitiveness.

Calls to Action for the Financial Sector

The financial sector can support Canadian companies by taking a longer-term perspective and expanding their risk appetite around international growth because Canada needs to diversify its exports.

Most Canadian exports—77%—go to the United States. Our second largest trading block is the European Union, where 4.5% of our exports go.

Both regions are strong and stable partners that will continue to play an important role to Canadian exporters. 

However, on a global scale, Canada’s share of exports has fallen from more than 4% in 2000 to 3% last year. And there’s no reason this needs to be the case. 

We have 15 trade agreements with 51 countries. Those agreements cover about two-thirds of global GDP and 1.5 billion consumers. They give Canadian companies a fundamental advantage in accessing consumers across the world—many living in countries with significant demand for Canadian goods and services.

Tapping into this opportunity will pay dividends for a business and for the country. 

For example, research shows that exporters who sell to multiple markets have export volumes 20% higher than those who don’t. 

Further, 51% of Canada’s total export value is generated by the 6% of our exporters who sell to at least 10 different markets. 

The benefits of diversifying extend well beyond sales volumes, too. Companies that diversify their exports tend to be more innovative, have higher productivity levels, employ more people and pay higher wages. 

Financial institutions need to offer companies support and encouragement so they can reap these benefits.

At Export Development Canada, we have been focusing on high-value industries—the sectors that offer the best potential for long-term and sustainable growth—to help ensure companies operating within them have the resources to grow and thrive. 

Based on our research and analysis, those sectors are:

• Agrifood: a wide range of industries, from farm-to-factory and factory-to-consumer.
• Cleantech: processes, products or services that reduce negative environmental effects of a business or a sector. Wind, hydro, nuclear and other non-renewable or non-emitting energy resources; energy efficiency; sustainable use of resources; and environmental protection activities are all examples.
• Advanced manufacturing: innovative technologies and methodologies used to improve products, processes and services.
• Digital industries: technologies like additive manufacturing, robotics and the Internet of Things, and innovations used to capture, transmit, process and display data electronically. 
• Some natural resources: critical minerals that will play a key role in developing solutions to help the world transition to a low-carbon economy. 

There remains much more work for us to do, but for our part, EDC has expanded our risk appetite and is deploying capital to support these segments in key markets. 

We believe this is how we can have the most meaningful impact on our customers and how they, in turn, can have the most meaningful impact on the Canadian economy. 

Calls to Action for Government

Every level of government—federal, provincial and municipal—needs to take a long-term approach to policy and regulation-setting so businesses have a sense of certainty while they focus on growing and succeeding.

Corporate tax rates, investment tax credits and government programming are all areas that can encourage investment in innovation and productivity.

We can also look at removing interprovincial trade barriers which stand in the way of labour mobility, hiked prices for consumers and served to decrease Canada’s productivity.

In short, we need policies that encourage, rather than hinder, business investment—policies that can foster partnerships with like-minded countries and middle-powers to help build industries and resilient supply chains and—critically—help Canadian businesses transition to a lower carbon future. 

However, all this would be for nothing if the different levels of government don’t invest in trade-enabling infrastructure like rail, ports, containers and pipelines.

Right now, for example, the ports on the west coast are particularly clogged, forcing some exporters to find alternate—and often longer and more expensive—routes for their goods. 

Investing in pipelines can pay off down the road as well. Of course, the world is trying to move away from oil and toward cleaner sources of energy. For now, though, we still need fossil fuels, and Canada has a significant—and cleaner—supply we could be sending to markets with a distinct need. 

Today, energy infrastructure can help supply more international markets with what Canada has in abundance. Tomorrow, the infrastructure can transport hydrogen, captured carbon and more. 

Transitioning from fossil fuels doesn’t mean we have to abandon the infrastructure supporting it. 

A Final Word

It’s incumbent on the institutions in Canada’s trade ecosystem to supply the right support, intelligence and connections so exporting businesses—and the wider economy—can benefit from the wealth of opportunities in front of us right now.

We are living in an important geopolitical moment where Canada’s capabilities dovetail perfectly with the interests and needs of the world’s fastest-growing regions. 

Canada can’t afford to be left behind. Because no matter what disruptions an economy faces, global trade will endure. 

It continued after the 2008 financial crisis, and it continued despite the crippling supply chain issues during and after the pandemic. 

Looking ahead, Canada must be coordinated in our response to such disruptions. As a team, we can build a stronger and more sustainable trade that’s beneficial to Canada and to all our trading partners.

We are stronger together, pulling in the same direction and toward the same goal: being competitive in the short term and building for the future.