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File photo of a manufacturing operation in Toronto. (Fred Lum/The Globe and Mail)
File photo of a manufacturing operation in Toronto. (Fred Lum/The Globe and Mail)

Morning Business Briefing

What ‘de-industrialization’ and ‘survival of the fittest’ look like in Canada Add to ...

These are stories Report on Business is following Thursday, April 10, 2014.

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Factory shakeout
A new manufacturing sector is taking hold in Canada after a “survival of the fittest” shakeout, a new study suggests.

“An overvalued currency, compounded by the trauma of a deep U.S. recession, has overwhelmed segments of the sector and caused many to question whether there is any future for manufacturing in Canada,” economists Benjamin Tal and Nick Exarhos of CIBC World Markets said in their report today.

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“But a closer look suggests that a different manufacturing sector is rising from the ashes,” they added.

“Though some failed to survive, many who did are stronger, leaner and more productive.”

The CIBC economists note that, six years later, manufacturing in Canada remains 10 per cent below the pre-crisis levels.

Manufacturing’s share of the economy has plunged to 12 per cent from 16 per cent in the past 10 years, at the fastest pace ever.

Looked at another way, manufacturing companies disappeared at a rate of 20 per cent, while other firms were created to the tune of 10 per cent.

In the United States, manufacturing slumped to 13 per cent of gross domestic product, from 16 per cent in the 1970s.

“De-industrialization is not a uniquely Canadian story, but a common reality in the developed world,” they said.

But what they see is a different world, based on growth in productivity since 2009, sensitivity to changes in net exports, labour costs, and how much of the Canadian market foreigners hold in a given industry, among others.

The “brightest prospects” under those measures put the wood products industry at the top, followed by the primary metals, machinery and aerospace industries.

“Talks regarding large scale repatriation of manufacturing activity to North America are highly premature,” said the CIBC analysts.

“But there is no denying that the post-recession leaner and smarter North American manufacturing sector is better positioned to stop the bleeding,” they added, noting that U.S. producers can rely on a better competitive standing and “brand advantage” to forge further into emerging markets.

“As for Canadian firms, the long and painful adjustment is starting to pay off, with many industries better positioned to take advantage of the weaker dollar to regain positions in U.S. markets and to better integrate into global supply chain opportunities.”

Goldcorp ups the ante
Goldcorp Inc. is raising its hostile bid for Osisko Mining Corp. to $7.65 per share or $3.6-billion in an attempt to knock out a friendly deal between Osisko and Yamana Gold Inc., The Globe and Mail's Bertrand Marotte reports.

Vancouver-based Goldcorp said today its offer now stands at 0.17 of a Goldcorp common share plus an increase in the cash portion of its offer to $2.92 for each Osisko share, from 0.146 and $2.26, respectively.

Goldcorp’s previous unsolicited bid was valued at about $6.30 per share, while the agreement between Montreal-based Osisko, Yamana and two of Canada’s biggest pension funds is valued at $7.57 a share.

Greek bond issue better than expected
Greece made a dramatic return to the sovereign debt markets today with a bond sale that attracted enormous demand, indicating that global investors are convinced the euro zone crisis is truly over, our European correspondent Eric Reguly reports.

The sale was expected to raise at least €3-billion – about €1-billion more than expected – at a yield, or coupon, of 4.95 per cent. The yield was also better than expected. Before the sale, economists predicted the treasury would have to pay 5 per cent, perhaps 5.25 per cent.

While the sale was greeted with jubilation within the government, a car bomb that exploded in central Athens as a reminder that violent social upheaval is still an ever present danger even if the Greek economy is slowly on the mend. The bomb detonated outside a Bank of Greece building, though not near the main bank building itself, causing no injuries.

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