Canada isn’t a trading nation.
Qualitative evidence: A nation of traders wouldn’t need a Minister of International Trade Diversification to do what the invisible hand has failed to do for decades, even as opportunity exploded in Asia and parts of Latin America.
Quantitative evidence: 45,081 companies shipped goods abroad in 2018, a mere 0.7 per cent of the Canadian enterprise population, according to data that Statistics Canada release on May 14.
Almost four times as many companies imported goods from abroad as exported it, a 10 per cent increase from 2016, when the shock of the 2014-15 oil-price collapse began to subside. That suggests an increasing level of global engagement as digital technology makes it easier to find useful stuff and better prices anywhere in the world.
But it probably also shows that foreign companies are making better use of Canada’s network of free-trade agreements than homegrown firms. The number of exporters increased only four per cent over the same period. It’s progress, but not enough to offset new import competition.
Canadian companies have been gifted preferential access to most of the world’s most desirable markets, but unless they start running, many will be trampled by hungrier rivals.
“Thirty-five million people in Canada, 1.5 billion (potential consumers) covered by free-trade agreements; the world’s your oyster,” Mairead Lavery, the Northern Ireland-born head of Export Development Canada, said. “But it’s a two-way trade path. So those 1.5 billion people will also be looking to see how Canada is as a market. So guys, the burning platform is here. Let’s see what we can do.”
Lavery made those comments a few days before the StatCan numbers confirmed her concern about Corporate Canada’s readiness to navigate global markets upended by the trade wars. They were refreshingly honest remarks about our standing in the global trading arena. Contrary to myth, Canada is an under-performer that has been ceding market share since the 1990s. Lavery, a former Bombardier Inc. executive, signed up earlier this year to help remedy the situation.
“It’s not easy being an entrepreneur,” Lavery told me in an interview in Ottawa, her first since her appointment as president and chief executive of EDC in January. “So I don’t think they are risk averse by any stretch. I think they lack the confidence for that bigger next step.”
The stakes are pretty high. We’re an aging society that will find it increasingly harder to generate wealth. So we shouldn’t be avoiding export markets just because they don’t speak English or French. And yet three quarters of our already tiny pool of exporters ship to only one country. Their unwillingness to diversify has left the country poorer.
The value of exports by companies that ship to more than one country increased by about 55 per cent from 2010, three times more than than international sales by companies that do business in one country, according to Krishen Rangasamy, an economist at National Bank.
“Diversification of trade is not only crucial in helping shield Canada from U.S. protectionism, but it can be lucrative too,” Rangasamy said in a report.
It’s probably time to make this column a little cheerier, if only because Lavery, the protagonist, was unfailingly pleasant throughout our 75-minute conversation. She was there to meet me in the lobby when I arrived at EDC headquarters late on a recent Thursday afternoon. I ignored her and extended my hand to greet one of her communications executives. I had never met Lavery and I hadn’t bothered to Google her. A reporter is conditioned to expect to be received by newsmakers, not greeted by them at street level.
“I have a very democratic mandate, meaning I’m going to be supportive of micro-companies, small companies, medium-sized companies, and very large companies,” she said. “I have the ability to tailor my services to meet all of them.”
To be sure, EDC’s leaders rarely have achieved the status of “newsmaker,” even on the business pages. Benoit Daignault, the former GE Capital executive who served as president and chief executive for five years starting in 2014, and Stephen Poloz, who was running the agency when the previous government chose him to lead the Bank of Canada in 2013, rarely said anything in public.
They had their reasons, I’m sure. But their silence has left a financial institution that had a net income of $830 million in its 2018 fiscal year — almost four times more than Laurentian Bank, Canada’s seventh-biggest private lender — with very little mind share. EDC, which was created by the government of William Lyon Mackenzie King in 1944, has about 13,000 clients — more than ever, and yet only a sliver of the overall market.
Lavery plans to do things differently.
“The thing I detest the most is hearing from anyone, ‘EDC is the Government of Canada’s best kept secret.’ It just drives me insane,” she said. “I don’t think we were tooting our own horn enough. We weren’t visible. We weren’t going out. We weren’t talking about the successes and the failures that we’ve had. Like, we play in risky markets. We need to talk about that. We need to talk about our experiences.”
Lavery runs an outfit that has the luxury of being able to confront risk without worrying too much about earning big profits. (It tends to do so anyway. EDC paid a dividend to the federal government of about $970 million in 2018, according to the agency’s latest annual report.) The sole shareholder is the Government of Canada, and the current managers of the later enterprise have set a goal of increasing exports by 50 per cent by 2025.
Bill Morneau, the Finance Minister, used his fall economic update to announce more than $1 billion of initiatives aimed at coaxing more Canadian companies to export, including $44.1 million to expand the Trade Commissioner Service.
Free-market ideologues will cringe at the notion of the government spending so much money on path making. But for whatever reason, Canadian companies won’t do it on their own. “It’s clear there are market gaps and those market gaps exist in the small (business) space. They exist in very risky markets,” Lavery said. “That’s where I play. EDC plays in over 160 countries. That’s really huge. Canadian banks aren’t playing in 160 countries around the world.”
Canada isn’t a trading a nation. But with the right kind of help, it might become one.
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