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Factories seek budget help but must also innovate, adapt to high dollar

Finance Minister Jim Flaherty is seen picking up a new pair of pre-budget shoes at the Roots Leather Factory in Toronto March 20, 2013.


Canada's struggling manufacturing sector is looking to get help today from a Conservative government budget that addresses their needs in tough times.

The continued high value of the Canadian dollar and slumping global demand have been hammering exporters.

But manufacturers must get used to operating in a high-dollar environment and focus on the things that can done at home to increase innovation and productivity, say economists and industry players.

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Since last summer, real Canadian manufacturing output has fallen almost 4 per cent, while U.S. output has risen more than 2 per cent, according to a research note on Thursday by BMO Capital Markets chief economist Douglas Porter.

"A disturbing divergence to say the least," he says.

"While generally not big fans of targeted, industry-specific moves, there is little doubt that manufacturing (along with tourism) is THE big loser from the persistently overvalued Canadian dollar," he said.

Jayson Myers, head of the Canadian Manufacturers and Exporters, says "every business in Canada should be expecting a high exchange rate, and a highly competitive environment. It's going to be highly volatile."

Canadian manufacturers need to work harder at turning out specialized products and services for customers and that requires a lot more innovation, he said.

He says an anticipated extension of the Accelerated Capital Cost Allowance beyond its current expiry of 2013 will go a long way to helping companies make the necessary investments in the new technologies required for innovation.

The allowance allows businesses to write off investments in new equipment and machinery over three years instead of 14.

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"That has to be central in their [the government's] manufacturing strategy," he said.

Also expected to be announced Thursday is a more targeted approach to funding R&D, compared to the previous across-the-board R&D tax credit program that critics said failed to get companies to commit more to R&D.

BMO Capital Markets economist Sal Guatieri says measures aimed at helping manufacturers in the latest federal budget will no doubt be welcome, but the onus is on the companies themselves to do more.

"If Canada can do anything to facilitate that improvement, all the better, but it really is up to Canadian companies to get their house in order," he said.

Over the past decade, labour productivity in the U.S. has risen twice as fast as in Canada, he said.

Fixing that is "a tremendous challenge. It's going to take a long time to recover lost productivity," he said.

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