What specific markets could Canada look to in the next five or six years to enhance its productivity or to increase its exports?
PH: It’s clearly the faster-growing economies, and clearly those economies are the ones that are catching up with the rest of the world. Technology, free trade agreements and international institutions have together enabled emerging markets to open up and to participate in the global growth we see at the moment. Being in catch-up mode, they are growing much more quickly. They can borrow technology that’s already been developed and implement that to leapfrog over hurdles that our economy has faced in the past, and that gives them a faster growth dynamic. The BRIC nations are the ones where growth is fast-paced and the level of activity is highest. But there are faster-growing nations that are in that sub-BRIC class, and those are the ones that excite me as well, because the annual rates of growth are well into the double digits, and so the share of their trade as a percentage of our total trade is climbing even more quickly than the emerging-market average. The ones that have the most promise at the moment, as far as we can see, are economies like Indonesia and Vietnam; and there is a fair amount of growth between Canada and South Africa. We see the Pacific Alliance economies doing very well – Mexico, together with Colombia, lots of potential in Peru, as well. And, of course, our success continues with the Chilean economy, thanks in part to our free-trade agreement with them.
SR: As I mentioned before, the U.S. will continue to be the dominant destination for our exports, but at the same time, these emerging economies, as Peter pointed out and as I pointed out in my recent paper, the BRIC economies as well as sub-BRIC economies like Indonesia, South Africa and Vietnam, they’re going to be the fast-growing economies. We need to strengthen our commercial linkages with them by having trade and investment agreements.
How can Canadian exporters position themselves in the next five to six years to compete with low-cost rivals that are coming out of emerging markets?
PH: We’ve got a couple of different problems here. One is how we actually structure our businesses to deal with these competitive pressures. The other is we just don’t have the labour. Going into this cycle, we’ve got significant demographic pressures, so when we hit 2016, according to the medium-case demographic projection from Statistics Canada, our population 15 to 54 years old actually starts to decline; 2016 is the first year it declines, and it goes on for five or six years after that. We’ve never had to deal with that during peace time that I can see. Business is generally not prepared for that kind of demographic hit. The reason I pick on that age cohort is that it is the highest participation cohort in the economy. Once you get into the 55+ crowd, the participation rates tend to drift downward. It is a critical group. That means we’re going to have to think differently about how it is we actually do business. I believe one of the ways of doing that is to engage in something I’m calling importing labour without moving it. That is taking more labour-intensive parts of our production process and finding countries where that can be done more efficiently than it can be done here in Canada, and then economizing on our labour by actually moving it up the value chain. So that means engaging in a number of different exercises that increases human capital, so that they can actually do more productive work inside of Canada. The fundamentals are there for that, I think, but that’s a huge strategic way of not only competing with, but working together with, these fast-growing, emerging markets for mutual betterment.
SR: I agree with Peter that we need to move up the value chain. We have to specialize in high value-added activities, and that can be done by strengthening our trade and investment linkages with fast-growing, emerging economies so that we can take advantage of low value-added and low-to-medium value-added activities. Some of these tasks can be shifted there, and at the same time we can concentrate on natural resources, which is a competitive advantage, and high-value activities.
Responses have been edited and condensed.