Services exports: Canada’s quiet growth engine

Posted on May 8, 2015 in Debates – ROB/Commentary/Executive Insight
May. 06 2015.   Glen Hodgson and Danielle Goldfarb

Many Canadians and much of the world continue to view Canadian trade through the rear-view mirror, focusing on exports of natural resources and advanced manufactured goods, such as autos and airplanes. These traditional export sectors have struggled recently. However, there is an important but underappreciated bright spot in Canada’s trade picture. Canadian companies have been quietly and steadily increasing their international sales of services.

Unseen to many, services have accounted for some of Canada’s strongest recent trade growth. Many of Canada’s services exports support highly skilled, high-paying jobs. Trade growth by extension supports overall economic growth and contributes to rising living standards.

Here are the facts. Three out of the five fastest-growing Canadian exports over the past decade were financial services, computer services and management services. (Agricultural products, along with metals and minerals, were also in the top five thanks to strong global commodity prices.)

Ontario’s manufactured exports declined over the past decade, but the province actually posted positive overall export growth. Why? Ontario’s growth in exported services was larger than the decline in manufacturing exports. Ontario’s economy is dominated by the service sector, and some of those services are now being actively sold globally.

The growth in sales of services in global markets represents a dramatic shift in a short period of time. Whereas services were rarely traded globally in the past, it is now both possible and attractive to sell services globally. The rise of the Internet and the emergence of the digital economy allows real-world information to be sent anywhere in the world in an instant.

Canada’s well-educated work force is good at creating and managing information and ideas – so a Canadian architecture company can now instantly send its blueprints to Asia. The ability to operate globally via the digital economy has made it easier for Canadian banks and insurance companies to expand their global operations by selling services via local affiliates in Europe, Asia and Latin America (in person, online and by mobile phone).

Moreover, today’s business world is built on a deepening integration of products and services. As emerging markets continue to grow and the U.S. economy rebounds, there will be continued demand for many of Canada’s resources and manufactured products. With each resource or product sale comes Canadian expertise and a chance to sell related services to business clients and consumers. Canadian companies are succeeding internationally by integrating client services into their product offerings. Leave out services and firms may fail to sell their product.

Policy makers have tended to give more weight to goods exports and imports, and relatively less weight to traded services. Reducing barriers to traded services requires more than lowering duties on traded goods. Restrictions on moving people, information and making investments in foreign markets can have a negative impact on global sales of services. Barriers to traded services are now beginning to be addressed in Canada’s next generation of trade agreements, and policy makers are starting to think about how to incorporate high-value services trade into their strategies for trade expansion.

We need to bridge the knowledge gap between the importance of traded services and the attention they actually get in research, policy and trade development practices. As one step toward this, the Conference Board of Canada is co-hosting a meeting in Toronto on May 6 and 7 with the Canadian Council of Chief Executives on “selling Canada’s expertise and services in global markets.” The meeting brings together business leaders, policy makers, leading researchers and media to advance evidence-based research and thinking on this topic.

The takeoff in Canada’s high-end services exports may not be obvious to the naked eye, but the opportunities are here and Canada needs to position itself to take advantage.

Glen Hodgson is senior vice-president and chief economist at the Conference Board of Canada. Danielle Goldfarb is associate director of the Global Commerce Centre at the Conference Board of Canada.

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