OTTAWA – Amid hopes that Canadian manufacturing will drive economic growth in a rustic reeling from low oil prices, internal federal documents warn the sector’s rebirth is staring at “significant” structural obstacles.
In a current memo addressed to Economic Development Minister Navdeep Bains, advisers point to industry hurdles which include low productivity, poor innovation, a failure to scale up and weak participation in global value chains.
The fate of Canadian manufacturing may have consequences that reach past the industry, the briefing note says.
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“The manufacturing sector is really a cornerstone from the economy along with a catalyst for broader economic activity,” it notes, identifying several “hot issues” for that new minister.
“It is likely to help spur export-led development in the second 1 / 2 of 2015 and into 2016; however, it also faces significant structural challenges.”
Manufacturing makes up about nearly 11 per cent of Canada’s growth – as measured by gross domestic product – and employs 1.7 million people, the memo says.
The document, labelled “secret,” was ready for Bains as he took over your cabinet post in November. It was obtained through the Canadian Press underneath the Use of Information Act.
The memo may help guide Bains’s decisions and also influence the federal budget, expected late the following month.
The Liberal government has been exploring ways to respond to the economical shock of sliding commodity prices, that have hit the economy hard – especially in the oil sector.
The slump forced the economy to contract within the first 1 / 2 of 2015 – mainly because non-energy sectors were very slow in obtaining the slack.
Many experts had been expecting the exchange rate, which has dropped together with oil prices, to help revive exports and also the manufacturing industry.
The authors of the briefing note place some of the blame for the insufficient a bounce-back on inadequate reinvestment. Canada, like other developed economies, lost a lot of jobs, companies and investment during the global recession, they note.
Moving forward, the document says, the sector must deal with a global manufacturing environment that’s changing rapidly due to technological advances “poised to disrupt many of the sectors that anchor Canada’s economy.”
“This represents both a menace to incumbent business models and an chance of the ones that are able to be on the innovative of recent technology.”
Small- and medium-sized manufacturers have struggled to achieve the size of their international competitors, preventing them from competing around the global stage, it adds.
The news isn’t all bad, however. The advisers say Canada packs the potential essential to take care of the changing industry, thanks to a good science base and highly educated workforce.
“Canada’s rich manufacturing heritage and established presence across the country is a strong foundation for future success.”
Getting there’ll require new streams of sustained investment essential for innovation, productivity-boosting technology and research and development, the memo notes – adding that Canadian firms happen to be “chronically under-investing” in those areas.
Canadian firms have had to adjust to the big shift toward “value-added” manufacturing and their shrinking share from the ever-important Usa market, said Craig Alexander from the C.D. Howe Institute think tank.
Alexander asserted while the lower loonie increases the edge against your competitors for Canadian companies, the falling exchange rate also discourages investment since it hikes the cost of imported equipment.
The shadow of uncertainty within the economic outlook serves as another deterrent to investment, added Alexander, C.D. Howe’s vice-president of economic analysis.
“This is really one thing I’m deeply concerned about, because Canada’s competitiveness is incredibly weak, particularly when you look at Canada’s productivity performance.”
Asked about the challenges faced through the manufacturing sector, Alexander exclaimed, “Oh heavens, where to start?”
