Canada's exporters stuck in neutral by not tapping into vast emerging market
Chinese experience shows Canadian companies can compete and win
TORONTO, April 16, 2013 /CNW/ - Canadian exporters have shown they can compete
and win in the highly competitive Chinese market but too few companies are
tapping into broader emerging market opportunities, limiting the ability of
the economy to grow, finds a new report from CIBC World Markets Inc.
The report notes that despite the fact that Canada has nine free trade
agreements beyond the U.S., we have largely failed to tap into a global trade
market that has grown some 70 per cent since 2002.
"The volume of Canadian exports today is at the same level it was a decade
ago," says Benjamin Tal, Deputy Chief Economist at CIBC, who co-authored the
report with CIBC Economist Andrew Grantham. "Regardless of how you look at it,
this was a lost decade for Canadian exports. The lone bright spot has been in
the very competitive Chinese market."
"Although the share of Chinese imports stemming from Canada remains at just a
little over one per cent, it has at least edged up over the last 10 years. In
contrast, most other developed countries have seen their share of Chinese
imports fall over that same period. And it is not an oil story, with petroleum
only a small proportion of Canadian shipments destined for China."
Mr. Tal notes that Canadian companies have shown strength in performance
against their southern neighbours. Of the top 15 Canadian exports to China, 10
face U.S. competition. "But even with a strengthening Canadian dollar that is
a battle some sectors have been winning. Improvements in market share within
areas such as oil seeds, grain and fruit, along with pulp and aircraft, are
proof of that fact."
He also says Canadian exporters are holding their own against Chinese
manufacturers seeking to further expand exports to Canada's top trading
This success demonstrates that Canada can and should compete in other emerging
markets says Mr. Tal. He notes that Canada has had some success diversifying.
The share of non-U.S. exports in total Canadian exports rose from 13 per cent
at the start of the decade to 25 per cent today. But we've been stuck at 25
per cent for more than four years. And almost all of the improvement has come
from two sources: the UK and developing countries.
"A closer look at the trade flows to the UK reveals that virtually all of that
gain was due to the 300 per cent increase in the price of gold—hardly an
inspiring diversification story. So we are left with developing countries as
the key source of Canada's export diversification of the past decade. And this
diversification story is also very concentrated, and becoming more so.
"Since 2003, China has accounted for more than half of the growth in
developing market exports. But in the past five years, it has accounted for
all of the growth. Exports to all other developing countries (with the
exception of tiny Bulgaria) have actually seen declining shares of our
emerging markets exports. So despite intensifying efforts, Canadian export
diversification is losing momentum. In fact, on a year-over-year basis, our
exports to non-U.S. destinations are now falling."
The report notes that this over dependence on China also holds risks as growth
there has slowed and authorities are starting to refocus the economy more
towards domestic consumption. That will require a different product mix that
Canadian companies may not be positioned to fill. At the same time,
competition is becoming "fierce and rising fast" as more companies seek to
fill the needs of a growing consumer society.
While many commentators have pegged the slide in Canadian exports on the surge
in the value of the Canadian dollar, Mr. Tal says this argument is too simple.
"A quick glance suggests that the 35 per cent appreciation in the value of the
loonie between 2000 and 2007 indeed worked to slow the pace of export
expansion. But despite this massive appreciation, exports still managed to
expand at a pace of just over 1.5 per cent a year."
Mr. Tal and Mr. Grantham conducted a detailed sectoral analysis of the impact
the rise in the Canadian dollar had on Canadian manufacturing found no direct
correlation between the value of the loonie and economic performance.
Although some high vulnerability sectors such as paper manufacturing and
furniture did underperform, other equally vulnerable sectors such as machinery
and electrical equipment actually outperformed. He also found this on the
other side of the spectrum, where sectors not dependent on a low dollar, such
as textiles and chemical manufacturing, lost market share.
"The key question is to what extent Canadian exporters are adjusting quickly
to reverse [the downward] trend", says Mr. Tal. "What the experience in China
does show, though, is that Canadian companies can compete and succeed in
developing markets. That should encourage them to broaden their horizons into
other growth markets in the decade ahead."
The complete CIBC World Markets report is available at:
CIBC's wholesale banking business provides a range of integrated credit and
capital markets products, investment banking, and merchant banking to clients
in key financial markets in North America and around the world. We provide
innovative capital solutions and advisory expertise across a wide range of
industries as well as top-ranked research for our corporate, government and
Benjamin Tal, Deputy Chief Economist, CIBC World Markets Inc. at (416)
956-3698,firstname.lastname@example.org or Kevin Dove, Head of External Communications
SOURCE: CIBC World Markets
To view this news release in HTML formatting, please use the following URL:
CO: Canadian Imperial Bank of Commerce
NI: FIN ECO
-0- Apr/16/2013 11:30 GMT
Press spacebar to pause and continue. Press esc to stop.