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Tunnel vision: Most Canadian CEOs believe the economy must diversify

Cameco’s Cigar Lake mine in Saskatchewan. ‘We’ve become overly reliant on the resource industry,’ one tech-sector CEO said.

David Stobbe/Reuters

Almost two-thirds of Canadian executives say the country is too dependent on resource industries and needs to become more diversified to inject better balance into the economy.

But the latest C-Suite Survey of business executives also shows a deep divide between those in the resource sector and those in other sectors, over the long-standing concentration of Canada's economic might in mining, oil and gas, and other resources.

Sixty-two per cent of respondents said the downturn in commodities is a reminder that there is too much emphasis on extractive industries, and that there is a need for diversification. About 30 per cent said it makes sense to count on the country's natural resources – and those executives think the sector will recover as the commodity cycle rebounds.

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The results reflect very different views depending on which sector the executives work in. Almost 80 per cent of those in the service industry say Canada is too dependent on resources, while only 44 per cent of executives at the top of mining companies feel that way.

"The reality is that we've become overly reliant on the resource industry," said David MacDonald, chief executive officer of Softchoice Corp., a Toronto-based technology services firm. "I think we've gone backward in the last 20 years in diversifying the economy.

"We have become more hewers of wood and drawers of water than we were." As a result, he said, "there is no doubt in my mind that we have created more risk in our economic environment."

This overemphasis on resources is supported by the policies of the federal government, which is "obsessed with building a pipeline across North America, which only helps one industry," Mr. MacDonald said.

He and others who feel the same way don't want the resource industry to be diminished, but they are looking for more effort to create jobs in other sectors, particularly those that are technology-related.

Sue Paish, chief executive officer of medical testing company LifeLabs Medical Laboratory Services, said it is important that "we balance our reliance on natural resources with our ability to innovate."

It is not a question of ignoring natural resources, Ms. Paish said, but Canada should avoid being "singularly focused or singularly reliant on any particular sector of the economy."

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Not surprisingly, many executive in the resource sector disagree.

"I've always felt you should play to your strengths," said Jim McFarland, CEO of Valeura Energy Inc., a gas and oil exploration firm based in Calgary. "We are one of the superpowers in the world in terms of energy supply so I think we should take advantage of that."

It isn't an "either/or" situation, Mr. McFarland said, and there is no reason Canada can't have a large, strong resource sector along with healthy manufacturing and services. "It would be great if there were some things we can do as a nation to boost innovation in the manufacturing sector, [while] at the same time making hay while the sun shines in the energy industry," he said.

Frank Smeenk, chief executive of KWG Resources Inc., an exploration company active in Ontario's mineral-rich Ring of Fire region, said worry about a concentration in resources is "very misguided."

It results from "a lack of appreciation of what this country is really all about," Mr. Smeenk said. Resources "are the blessing we have and it is silly to ignore it. It is nihilistic to not understand what the wealth of the country really is."

The C-Suite Survey shows that resource company executives are far more optimistic about a turnaround in commodity prices in the next couple of years, compared with those in other sectors. While 54 per cent of resource executives strongly agree that a recovery is coming, only 16 per cent of executives in other kinds of businesses are that positive. And two-thirds of resource executives expect resource stocks to gain "somewhat" or "significantly" in 2014, while one-third of executives in other businesses expect those kinds of gains.

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When it comes to support for the resource business, executives in that sector said the best thing governments can do is to streamline the permitting process and cut red tape on projects. Tax reductions also get widespread support, and executives would like to see greater clarity on regulations and more consistent rules.

A majority of executives across all sectors agree that companies must innovate and adopt new technologies to be more productive, in light of a relatively weak economy and low commodity prices.

But it is difficult for resource companies to invest in innovation – or acquisitions – at the moment, said Willy Kruh, global chair of consumer markets at KPMG. That is because weak commodity prices are forcing them to cut capital and operating costs to improve their balance sheet. "When you are cutting costs … there is less money to spend on innovation and a hope for the future," he said. "You can't grow by cutting costs."

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