A production line is shown during a tour of a Honda manufacturing plant in Alliston, Ont., on Apr. 5, 2023. Honda says it will start producing the Civic Hybrid next year at its plant in Alliston, Ont.Cole Burston/The Canadian Press
Dennis Darby is the president and chief executive officer of Canadian Manufacturers & Exporters
Among the resolutions that inevitably mark the start of every year, manufacturers are beginning 2024 with the firm intent to ensure we have a comprehensive strategy for our sector, turning the page decisively on 20 years of declining investment.
The welcome news that Honda Canada is considering building on its nearly 40-year commitment to Canada with an $18-billion investment in an EV manufacturing facility has galvanized this resolution into resolve. It also raises the bar for policy makers to continue to do their part in collaboration with the private sector.
On the heels of recent EV-supply-chain investments by Volkswagen, Stellantis and Northvolt, it is tempting for governments to think their work is done, and that large projects will continue to come to Canada on their own. But in the highly competitive world of investment, where every country, state and province are putting their best foot forward to attract capital investments, there is no such thing.
To continue to attract new large-scale investments, policy makers on Parliament Hill and at Queen’s Park in Ontario must remain attentive to the hard task of consistently building the case for Canada.
In a quiet Ontario town, Honda’s unusual EV plans could mean big changes ahead
Global companies make capital allocation decisions for the long-term – think decades, not years. Policy needs to match this timeframe. This requires agility to remove red tape from often rigid government programs, the courage to offer competitive incentives despite the constraints of limited budgets, and a continuous commitment to reform our tax system as well as our energy and transportation infrastructure.
The economic reward for this hard work is well worth it.
Expanding manufacturing companies and new production mandates bring with them know-how and resources that augment the local ecosystem of firms. It is no coincidence that U.S. manufacturing investment has increased at more than twice the pace of Canada’s over the past three years, boding well for future manufacturing activity south of the border. The doubling down by the U.S. on industrial strategy through the Inflation Reduction Act is strong evidence of the benefits the country sees in this approach as it builds its EV supply chain. With 77 per cent of Canadian exports going to the United States, we ignore this trend at our peril.
After years of stagnant economic and productivity growth, a critical part of orchestrating a turnaround is taking a longer view on the role of governments in the economy.
For example, it is always easy to criticize the arrival of temporary workers to supervise machinery installation or other aspects of setting up a new automotive or battery plant. This ignores the reality that setting up a modern industrial facility, deeply connected with the production system of a global automaker, is a highly specialized endeavour. The knowledge of those coming to Canada will flow to our local workers through on-the-job knowledge transfers, in ways that no university or community college will ever be equipped to do.
More fundamentally, foreign investments in manufacturing benefit our economy and our workers in the long run. This is unlike efforts to build new clones of Silicon Valley by betting massively on tech start-ups, which generate very few lasting economic benefits, as demonstrated by University of Toronto chair of innovation studies Dan Breznitz.
In contrast, manufacturing investments leave behind tangible capital, anchored in real communities. This is what economists refer to as the high “multiplier” or spin-off effects of the sector on the economy. There are three reasons for this. First, the sector sources a large share of goods and services from within Canada. Second, the sector is trade-oriented, and the dollars it generates from export sales brings new income into Canada as opposed to recirculating income already present within the country. Third, manufacturers pay relatively high wages, and this leads to significant impacts from employee spending.
In other words, manufacturing investment represents new energy in our economy, and a unique opportunity to recover the standard of living which has eroded in the early 21st century.
Now is the time to confront skeptics and secure the long-term benefits of the manufacturing renaissance before us.
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