Canada's exporters stuck in neutral by not tapping into vast emerging market potential: CIBC

Canada's exporters stuck in neutral by not tapping into vast emerging market 
potential: CIBC 
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 
partner. 
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: 
http://research.cibcwm.com/economic_public/download/if_2013-0416.pdf 
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 
institutional clients. 
Benjamin Tal, Deputy Chief Economist, CIBC World Markets Inc. at (416)  
956-3698,benjamin.tal@cibc.ca or Kevin Dove, Head of External Communications 
at 416-980-8835,kevin.dove@cibc.ca. 
SOURCE: CIBC World Markets 
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CO: Canadian Imperial Bank of Commerce
ST: Ontario
NI: FIN ECO  
-0- Apr/16/2013 11:30 GMT