When the Canadian dollar peaked above parity with the U.S. greenback in 2011, some sectors of the economy cheered. Manufacturers, however, who had for many years enjoyed an export advantage thanks to a lower-value loonie, were not among that group.
What a difference four years makes. Today, the loonie is worth about 78 cents (U.S.).
In the face of that decline, it’s no surprise that economists predicted a manufacturing renaissance that would energize assembly lines across the country, particularly in Ontario and Quebec. While manufacturing exports have grown – by about $68-billion between 2011 and 2015 – growth has been slower than expected and concentrated in some key sectors.
“I’m not really surprised by the numbers, but I am a little disappointed why they haven’t been a bit stronger,” says Jayson Myers, chief executive officer of the Ottawa-based industry advocacy group Canadian Manufacturers & Exporters.
Among the factors hampering the manufacturing recovery are weak demand from the oil and gas sector and constricting “buy American” policies in the United States.
Walid Hejazi, an associate professor at the University of Toronto’s Rotman School of Management, takes that analysis a step further.
He points to the predicament that manufacturers faced when the dollar was at its peak: They could try to make themselves more competitive by investing in costly new equipment and research and development, or they could simply bank their profits and close up shop.
Many, he laments, opted for the latter approach and took much of Canada’s manufacturing capacity with them.
Mr. Myers, however, says we’re in better shape than our slow manufacturing growth might suggest.
“If you take energy exports out of the equation, our manufacturing exports are up close to 25 per cent over two years,” he says. “The low dollar is doing what it’s supposed to do, but our strong export performance in manufacturing is offset by downward pressures in the domestic oil and mining sector.”
Indeed, Canadian factories are humming, at least in some areas. Here are five manufacturing sectors seeing robust growth thanks in part to the loonie’s decline.
Canadian production is up nearly 100 per cent from 2011 levels – to $10.9-billion from $5.5-billion – according to Statistics Canada. That surge can be attributed to a wealth of industry talent, innovative technologies and production flexibility not found in many other countries, Mr. Myers says.
“In the U.S. you’ll get facilities that manufacture huge volumes of a certain product,” he says. “But we’re more adept at manufacturing short product runs for specific products for world markets. The dollar is lower, demand is up and prices are strong, and that really helps the pharmaceutical industry.”
Production of passenger cars and light trucks is up nearly 50 per cent from 2011, thanks in large part to a spike in demand from south of the border, according to a recent report from the Conference Board of Canada.
Its authors credited that surge to “strong economic fundamentals, ultra-loose credit conditions and low gas prices,” but they also noted challenges ahead.
Layoffs expected this year at key facilities, including General Motors’ Oshawa, Ont., assembly plant, will likely slash production levels through 2017. And as manufacturers continue to shift production to markets such as Mexico, Canada’s auto industry will face headwinds in the high-stakes fight to retain high-paying jobs.
Well-publicized setbacks for Bombardier’s C-series aircraft aside, Canada’s aerospace industry has taken flight just as the dollar has crash-landed.
Case in point: Exports of aircraft, parts and engines grew to $21.9-billion last year from $13.2-billion in 2011, according to Statistics Canada.
“A majority of jet engines used around the world are manufactured in Montreal by Pratt & Whitney and General Electric,” Mr. Myers says. “You have all sorts of technological companies around the aerospace sector in general across Canada. You have landing gear, fuselage, helicopter and parts companies in Toronto and Winnipeg.”
Few Canadians would guess that food makes up one of this country’s strongest export sectors. But with a 42-per-cent increase in exports since 2011, food and beverage manufacturing earns a spot on the list.
“It’s one of the more interesting manufacturing sectors because it’s stable through the business cycle,” says Conference Board of Canada chief economist Glen Hodgson.
A recent Conference Board of Canada report noted that industry exports are hovering at record highs because of strong U.S. demand and a weak dollar that make Canadian food products highly competitive. Food is one of only a few manufacturing sectors likely to grow as Canada continues its transition to an increasingly knowledge-based economy.
Furniture and fixtures
Furniture makers are enjoying significant growth, with exports jumping to nearly $6-billion last year from $4-billion in 2011. They can thank a rising U.S. demand for high-quality Canadian products.
“You can design and manufacture furniture here in Canada because you have access to a really strong household and corporate customer base in the U.S.,” says Mr. Myers.
Canadian manufacturers have left production in the so-called disposable furniture category to international heavyweights such as IKEA and low-cost Asian manufacturers. Instead they are focusing on design and production innovations that allow them to sell goods at higher prices, he said.
“It’s a great example of a traditional industry that’s doing well right now because the materials, design and products, as well as the way the products are being manufactured and sold, are anything but traditional.”Report Typo/Error
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