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OTTAWA – Amid hopes that Canadian manufacturing will drive economic development in a country reeling from low oil prices, internal federal documents warn the sector’s rebirth is staring at “significant” structural obstacles.
In a recent memo addressed to Economic Development Minister Navdeep Bains, advisers indicate 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 will have consequences that reach beyond the industry, the briefing note says.
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“The manufacturing sector is really a cornerstone of the economy along with a catalyst for broader economic activity,” it notes, identifying several “hot issues” for that new minister.
“It is expected to help spur export-led development in the second 1 / 2 of 2015 and into 2016; however, it also faces significant structural challenges.”
Manufacturing accounts for 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 Access to 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, which have hit the economy hard – especially in the oil sector.
The slump forced the economy to contract within the first half of 2015 – in large part because non-energy sectors were very slow in picking up the slack.
Many experts have been expecting the exchange rate, that has dropped together with oil prices, to assist revive exports and the manufacturing industry.
The authors of the briefing note place a few of the blame for that insufficient a bounce-back on inadequate reinvestment. Canada, like other developed economies, lost a lot of jobs, companies and investment throughout the global recession, they note.
Moving forward, the document says, the sector must cope with a worldwide 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 those that are able to be around the innovative of new technology.”
Small- and medium-sized manufacturers have struggled to reach the scale of the international competitors, preventing them from competing on 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 nation is a strong foundation for future success.”
Getting there’ll require new streams of sustained investment necessary 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 experienced to adjust to the large shift toward “value-added” manufacturing as well as their shrinking share from the ever-important United States market, said Craig Alexander from the C.D. Howe Institute think tank.
Alexander said that while the lower loonie helps increase the edge against your competitors for Canadian companies, the falling exchange rate also discourages investment since it hikes the price of imported equipment.
The shadow of uncertainty over the economic outlook serves as another deterrent to investment, added Alexander, C.D. Howe’s vice-president of economic analysis.
“This is really one of the things I’m deeply concerned about, because Canada’s competitiveness is incredibly weak, specially when you appear at Canada’s productivity performance.”
Asked concerning the challenges faced by the manufacturing sector, Alexander exclaimed, “Oh heavens, how to start?”
