Ontario, Alberta will lead the pack over next five years, CIBC report says

TORONTO -- Ontario and Alberta will foster the most growth in small businesses in Canada over the next five years due to immigration and strength in the energy sector, according to a CIBC study released yesterday.

"A combination of factors have propelled Ontario and Alberta to the top of the pack, namely above-average economic growth, favourable demographics and a higher concentration of industries that are conducive to small-business growth," said Benjamin Tal, an economist at CIBC World Markets.

The CIBC report, Canadian Small Business: A Growing Force, also predicted that small-business economic activity would grow by 3.5 per cent in 2004 while the GDP grows by 2.8 per cent.

"Next year seems to be a recovery year, not really a strong recovery, but nevertheless a recovery after a disastrous 2003," said Mr. Tal, referring to the negative economic impact of SARS, the single case of mad-cow disease and the August power outage that paralyzed most of Ontario for several days.

"Whenever we have a recovery, small business is first out of the gate. They usually outpace the overall economy during the early stages of the economic cycle . . . because they're simply flexible enough to do so."

Ontario, where 36 per cent of Canada's small businesses are located, currently has the best outlook for small-business growth, with Alberta just slightly behind.

"Ontario's fast-growing business services and retail sectors will spawn much of the province's small-business activity, as these sectors are 'small-business friendly,' " the report said.

It also pointed to a "strong wave of new immigrants" that will boost growth in Ontario of small businesses -- those with fewer than 50 employees.

"In Ontario we're going to see significant increase in immigration coming from other countries, and we know that new immigrants have a higher propensity to be self employed," Mr. Tal said. "That's something that we don't see in Alberta."

Alberta's strength lies in its ties to the energy sector and a projected increase in the number of workers aged 35 to 55, who have a high likelihood of being self-employed, the report said.

While small-business owners are expected to benefit from continued low interest rates -- CIBC predicts that rates won't rise from their current decades-long low until late 2004 or into 2005 -- the strength of the dollar is doing more harm than good, according to the bank.

The strong dollar -- which CIBC sees trading at between 70 cents (U.S.) and 75 cents for the near future -- has a negative impact on almost 30 per cent of small businesses in Canada, and a positive impact on about 20 per cent.

"By region, small businesses in Ontario are the most vulnerable to the impact of a stronger dollar -- largely due to the province's large exposure to the U.S. and its reliance on the auto industry," the report said. "British Columbia is also highly sensitive to a rise in the dollar, largely due to its reliance on the forestry industry."

Across the country, small businesses in the service industry are expected to prosper in 2004, the CIBC report said.

"By far, the strongest growth in small-business formation in this industry is in the home health-care services, which saw a dazzling 25-per-cent growth in small-business formation since 2000," the report said. "Another promising subsector for small-business growth is funeral services. That industry segment . . . has grown by no less than 26 per cent since 1995."

The report also cited retail, construction, full-service and fast-food restaurants and computer services as growing fields for entrepreneurs in the next few years.

CIBC also said that by the end of the decade, 20 per cent of Canadians would be self-employed, compared with 15 per cent in 2002.