Canadian Manufacturing

Canada must build links with emerging economies, says EDC

Agency says companies in all sectors should look ahead and follow high-growth markets because there's a strong business case for diversification



MONTREAL—Canadian companies need to build links with emerging markets such as India even though the lower value of the Canadian dollar and the U.S. economic recovery are currently boosting exports to the United States, the head of Export Development Canada said April 14.

Agency CEO Benoit Daignault says it would be foolish to ignore Canada’s largest trading partner in light of growing demand for metals and lumber from the U.S. auto and housing sectors.

But he says Canadian firms must begin to hedge their bets and prepare for an eventual stabilization of the American market by creating links with high-growth markets.

“Don’t ignore the U.S. market but companies in all sectors should look ahead and follow high-growth markets (because) there’s a very strong business case for diversification,” he said in a speech to the Montreal Council on Foreign Relations.

He said India is one of those big opportunities, along with China, if Indian Prime Minister Narendra Modi, now visiting Canada, can rein in his country’s bureaucracy.

“Entrepreneurs are more comfortable doing business in India, but bureaucracy and red tape have been huge issues in the past and everybody’s hopeful that with the new government things are going to be a lot easier,” Daignault said in an interview.

He said the world’s largest democracy is not at the same stage in development as China. While China has shifted from supplying the world with low-priced goods to expanding its domestic economy, India is focused on building its infrastructure.

That means foreign companies that aim to sell to the middle class can do well in China but those focused on building airports, roads and ports see bigger promise in India.

Daignault said Canada is well-positioned to take advantage of business opportunities in India because of the comfort with the Indian legal system, strong ties between the residents of the two countries and growing interest from Canadian companies.

Other high-growth markets are Asia, Mexico, South America, Africa and the Middle East, where a growing middle class is propelling demand for value-added goods and services in such fields as education, food, health-care, environment and financial services.

Overall, Canadian exports grew by 10 per cent last year, helped by a 15 per cent depreciation in the Canadian dollar.

Three-quarters of Canadian exports are currently directed to the U.S., compared with 7.7 per cent to Europe and 6.4 per cent to emerging Asia. However, overall exports to emerging markets surged to 15 per cent in 2013 from just five per cent in 2000.

Canadian exports to China totalled $18.7 billion in 2014, compared with $1.3 billion to India. Exports to emerging markets, including these large countries, is expected to grow by four per cent this year and by five per cent in 2015, according to the EDC.

Only four per cent of Canadian companies sell abroad. Some are wary about volatility, but not all emerging markets face the same risks as doing business in Brazil and Russia, which are facing steep economic downturns, Daignault said.

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