There are some obvious downsides to the sub-70-cent (U.S.) dollar. But there are also benefits, particularly for Canadian exporters.JONATHAN HAYWARD/The Canadian Press
There are some obvious downsides to the sub-70-cent (U.S.) dollar.
A winter break in Florida may now be out of reach. So too is that California cauliflower at the grocery story.
But there are also benefits, particularly for Canadian exporters.
It's not just about manufactured goods. A wide array of high-value services, once destined primarily for domestic consumption, are now readily traded globally – everything from financial and accounting services to engineering, architecture, information technology, communications and scientific research.
A cheap dollar means Canadians have a competitive advantage in exporting these high-wage, high-value services, particularly in the U.S.
Canada is also a bargain for foreign tourists, whose spending here is logged as a service export. Consider that the full price of a daily lift ticket in U.S. dollars is about $59 at Quebec's Mont Tremblant, compared with $94 at Killington, Vt. A day of skiing at Whistler, B.C., costs $90 (U.S.) versus Vail, Colo., at $165.
Canadian companies are starting to tap into the 70-cent advantage, as the Bank of Canada detailed this week in its quarterly business outlook survey.
And if they aren't, they should be. Companies that export to the United States or sell their products in U.S. dollars are now enjoying a significant competitive edge because most of their costs are incurred in Canadian dollars, while their sales are logged in U.S. dollars.
The Bank of Canada says some companies are also switching to Canadian suppliers over foreign ones to reduce their input costs. A few firms are even moving production back to Canada to take advantage of lower costs here, according to the bank, which surveys executives at roughly 100 companies, chosen to reflect the makeup of the Canadian business sector.
It's Canada's currency advantage. And unless companies are actively exploiting it, they're likely being hurt by it. The Bank of Canada pointed out that a majority of Canadian companies are facing higher costs for the goods they import, including machinery and technology.
Innovative, growth-minded companies take the conditions that the economy hands them and make the most of it.
"We're seeing a perfect storm of growth in U.S. demand, a lower dollar and Canadian service sectors that are well positioned to take advantage of that," explained Danielle Goldfarb, an economist at the Conference Board of Canada.
"We view our country as a natural resources exporter, but if you look at our economy and our exports, services are increasingly a key part of the picture, not a marginal part."
Services made up 15 per cent of Canadian exports in 2014, up from 12 per cent in 2000. Three out of five of the fastest-growing export categories over the past decade were services – financial, computer and management services. Add in such things as after-sales support and services embedded in goods, and the service share of total exports exceeds 40 per cent, according to recent research by the Conference Board of Canada.
Exports of tradeable services grew 35 per cent between 2001 and 2012, a sharp contrast to the 1.8-per-cent decline in goods exports over the same period, according to a 2014 C.D. Howe Institute study.
But, becoming a services superpower is complicated, even with a cheap dollar. Yes, the U.S. is a land of opportunity for services exporters. But a lot of the recent growth has come from selling oil and gas services in Asia and emerging markets, and those are now slowing for obvious reasons, pointed out Daniel Schwanen, vice-president of research and a trade policy expert at C.D. Howe.
"Services should be more competitive. We should see a pickup," Mr. Schwanen said. "But it's been slow so far."
Canada's exports of commercial services will slow to 1.8 per cent this year from 2.7 per cent in 2015, he said.
The low dollar is making Canadian talent cheaper compared with the U.S. But Mr. Schwanen pointed out that highly mobile talent, such as computer programmers and engineers, may be reluctant to relocate to Canada where their skills are worth less.
The cheap dollar may be the hook that gets these suppliers in the door. But keeping those customers will depend on delivering consistent quality and value – as the dollar falls, and when it inevitably moves back up again.