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| Industry Canada's definition of SMEs: a small enterprise has up to 99 employees and a medium-sized enterprise has 100 to 500 employees. | |
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China is surpassing Canada as the U.S.'s biggest supplier of imports. In 2006, Canadian exports to the U.S. dipped 2% to $358.7 billion.
However, our trade with the rest of the world rose 15% to $80.8 billion. This is the first time in over 10 years that a decline in exports to the U.S. has been more than offset by an increase in exports to the rest of the world.
In general, and compared with most G8 countries, Canada is a healthy place to create and grow a business. Canada continues to enjoy one of the fastest growth rates and highest living standards among industrialized countries. It is the only industrialized country with a fiscal surplus, a declining public debt, and historically low inflation and interest rates.
It is in this relatively positive context that our SMEs are being pushed to adjust to powerful global forces, notably the rising influence of developing nations such as China, India and Russia. The slower U.S. economy and the rising value of the Canadian dollar also affect our SMEs. SME manufacturers, in particular, are starting to move up the value chain and seek global opportunities.
A resilient economy: Last year, Canada's economy showed resilience in the face of the slowing American economy. In 2006, it grew by 2.7%, helped by a 4.5% rise in consumer spending and a 5.4% growth in the global economy.
Low interest rates: Entrepreneurs continued to benefit from the low cost of borrowing. Short-term interest rates have been at historically low levels for several years and, after rising in early 2006, ended the year at a level slightly below long-term rates. Fixed-term rates remained unchanged from last year.
Profitability: The growth rate of corporate profits slowed to 6.7% after double-digit growth in 2004 and 2005.
A strong Canadian dollar: The value of the Canadian dollar surpassed US$0.90 in 2006 but ended the year at US$0.86, similar to the previous year. However, it is still 40% higher than the 2002 low of US$0.62. A strong dollar makes our manufactured goods more expensive for foreigners to buy but reduces the cost of importing machinery and equipment that enhance productivity. A strong dollar also poses a challenge for Canada's tourism sector.
Business costs: Commodity prices rose again in 2006; crude oil prices ended the year at US$60 a barrel, triple the 2001 low of US$20 a barrel. The cost of industrial materials rose by almost 25%, the largest increase in over 10 years.
These developments increase the costs of producing and transporting goods. It is increasingly hard to pass these costs on to consumers. And global competition makes it impossible for our entrepreneurs to compete on price alone.
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One trend does not bode well for Canadian businesses: their weaker productivity.
When we compare ourselves with our biggest, closest market and competitor, the United States, the numbers are clear: our GDP per capita is $42,400, while theirs is $51,600. The difference is $9,200.*
This difference means that we are less successful than Americans in adding value to our human, physical and natural resources. According to research, this gap has grown in the last 10 years, despite our economy's relatively strong performance of the past decade.
This relatively low productivity is a weakness of Canada's economic environment. SMEs created and grown in this environment face a higher hill in becoming globally competitive than do SMEs from other, more competitive countries. | |
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* MARTIN, Roger. Agenda for Canada's Prosperity:
Report on Canada 2007 (Toronto: Institute for Competitiveness and Prosperity, 2007).
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