Canada Inc. Strains to Sell Post-Oil Economy in Davos Rebrandby
New leader Trudeau pushes high-tech, services at Swiss event
Canadian economy struggling under weight of oil crash
Canada’s business elite went to Davos to talk up the country’s potential as a high-tech hub that can handle weak oil prices. First, they have to get past the price of cauliflower.
A recent social media frenzy over the cost of imported groceries as the Canadian currency slides underscores the challenge faced by executives who accompanied newly-elected Prime Minister Justin Trudeau to the World Economic Forum’s annual meeting in the Swiss mountain town last week.
They were at pains to argue that even with the country smarting from the double blow of plunging oil prices and a tumbling dollar, it can be re-invented as a center of advanced services and manufacturing no longer beholden to natural resources.
"While we’ll go through this period of readjustment, it’s probably in the long term beneficial," Mark Wiseman, the chief executive officer of the Canada Pension Plan Investment Board, said in an interview in Davos. "It doesn’t mean it’s not going to be painful in the short term."
There was no shortage of bad news about the Canadian economy during the four-day Davos summit, which attracted about 2,500 delegates from the global business and political elite, including the likes of Larry Fink, the chief executive officer of BlackRock Inc., and UBS AG Chairman Axel Weber. The Bank of Canada on Wednesday cut its 2016 growth forecast to 1.4 percent, from 2 percent in October, as oil fell to its lowest level since 2003 and the Canadian dollar plunged with it.
“People who invest billions of dollars in the global economy gather here and I’ve been spending the past few days pitching them on Canada,” Trudeau told reporters on Friday before he left Davos.
The dollar’s decline to under 70 U.S. cents -- its lowest since 2003 -- has had particularly stark effects. This month Canadians took to Twitter and Facebook to express astonishment at C$8 heads of cauliflower and C$3 cucumbers, which are imported throughout the winter.
Nonetheless, Trudeau embraced a role as a garrulous salesman-in-chief in Davos at events around town, meeting with Alibaba Group Holding Ltd.’s Jack Ma, and executives from Facebook Inc. and Microsoft Corp. He led a panel discussion titled "A New Chapter for Canada," featuring a slate of ministers as well as Royal Bank of Canada CEO David McKay and Andrew Fursman, who heads Vancouver’s 1QB Information Technologies Inc.
Trudeau is "tapping into the expectation that many Canadian businesspeople have, that with the support of the prime minister, with the support of the ministers, that Canadian companies should be able to expand in these areas," Bill Downe, the CEO of Bank of Montreal, said in Davos. "I give him pretty high marks, for the first stage."
In his Davos appearances, Trudeau highlighted tech success stories and urged delegates to focus on "what’s between our ears," rather than resources in the ground. It was a variation of one of the central planks of his winning campaign against former prime minister Stephen Harper: that Canada had for too long neglected innovation in favor of a single-minded focus on the oil industry.
Trudeau faces a tall order turning his pitch into reality. Of Canada’s two largest-ever tech success stories, one, Nortel Networks, went bankrupt in spectacular fashion. The other, smartphone maker BlackBerry Ltd., is currently clinging to relevance after falling far off the pace set by Apple Inc. and Google Inc.
While promising startups have emerged, “Canada needs to do much more in encouraging the development of high-tech clusters -- preferential tax incentives and regulations, more investment in R&D, more infrastructure and human capital," said Nariman Behravesh, the chief economist of research firm IHS Inc. and a Davos regular.
The government’s ability to deliver on such needs will be limited by economic conditions. The relatively heavy and hard-to-refine crude produced by its western oil patch is trading at an almost 50 percent discount to benchmark grades, squeezing tax revenue. If what BP Plc CEO Bob Dudley in Davos called "a flood of oil" on world markets continues, the weakness could lead to a subsequent deluge of bankruptcies and unemployment.
To make matters more difficult, it’s not clear how much benefit Canadian manufacturers will reap from lower energy costs and a weaker currency, since significant factory capacity was lost during the commodity boom, re-locating to other countries.
“Canada has lost over 7,000 exporting companies since the financial crisis,” RBC’s McKay said. “Even with a lower dollar, it will take some time for new companies to find new customers and new markets. They will lift our exports but it will take time."
A federal budget expected in March will lay out Trudeau’s vision in more detail, with some economists calling for deficits far larger than the C$10 billion he promised during his campaign in order to prime the economy. Bank of Canada Governor Stephen Poloz last week held off cutting interest rates, arguing the central bank should wait until promised stimulus measures are unveiled before deciding whether to act.
Yet whatever his worries at home, Trudeau’s Davos visit got plenty of attention.
The 44-year-old posed for selfies with everyone from actor Kevin Spacey to the Chief
Rabbi of Moscow and received a standing ovation from a group of young delegates
from 38 countries whom he spoke to about diversity.
Should he and his delegation have wanted to toast their success at selling a new brand for Canada, though, they needed to be careful. At 125 Swiss francs, a bottle of Moet Champagne at Davos’s famed Piano Bar a few years ago would have set them back the equivalent of C$133. Now, it would be C$174.