Strong loonie shifting Canadian production offshore: EDC

TheGlobeandMail.com – report-on-business/economy/trade
Published Thursday, Feb. 10, 2011.   Julian Beltrame, Ottawa— The Canadian Press

Canadian firms are increasingly shifting their production offshore in response to the pressures of globalization and the strong loonie, Export Development Canada says.

A new study from the Crown corporation shows sales from foreign affiliates of Canadian firms grew by more than twice the rate of exports from firms inside Canada between the years 2000 and 2008.

Exports from foreign affiliates expanded from $367-billion in 2000 to $508-billion in 2008.

As well, overseas investment assets by Canadian firms nearly doubled from $356-billion to nearly $650-billion during the period.

During the same period, the loonie moved from the low 60-cent levels early in the decade to well above parity with the U.S. dollar during the 2008 commodity boom.

Although comparable data is only available to 2008, the study’s author Jean-François Lamoureux says the trend has likely accelerated since the economic downturn. If up-to-date data were available, it would show that sales from foreign affiliates is now on par with total exports originating from inside Canada, he said.

While the trend has some negative implications for certain types of jobs in Canada, Mr. Lamoureux says the shift is a net winner for Canadian firms and employees.

“This is showing Canadian companies are adapting to the realities of global trade today,” he explained.

“By doing so, they are becoming more productive, by having an overseas presence they are getting closer to clients and becoming more valued members of their supply chain, and it’s helping them adapt to the strong Canadian dollar.”

Mr. Lamoureux said the shift to foreign production by Canadian firms could result in the loss of manufacturing jobs, but also drives employment at head offices and on the research and development side. It’s also arguable whether the firms would be in business at all if they did not take advantage of foreign opportunities, he said.

“Ultimately what it does is create jobs that are higher up the value chain in Canada,” he said.

The Canadian economy experienced remarkable job growth during this same period, with unemployment dipping to below 6 per cent prior to recession that began in late 2008.

As well, Canada’s trade surplus with the rest of the world expanded, even with the shift to offshore production that the study shows was well under way.

The recession changed all that, however, and Canada has had a trade deficit with the rest of the world since, although the size of the deficits have declined in recent months.

Economist Carl Weinberg of U.S.-based High Frequency Economics forecasts that data Friday from Statistics Canada will show the trade deficit reaching $800-million for the month of December, despite strong shipments of commodities and at higher prices.

Mr. Weinberg puts the blame squarely on the dollar.

“Currency appreciation both crimps manufactured goods exports and lowers the local currency revenues from the sale of U.S. dollar prices commodities,” he points out.

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