Canada’s Services Exports to the BRICs

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Lydia Gosselin Couture
Office of the Chief Economist
September 2010

Summary

In recent years, growth in Canadian exports of services to the BRICs (Brazil, Russia, India, and China) have surpassed the growth in Canada’s overall exports of services and amounted to $2.0 billion in 2007. However, Canada still underperformed in these emerging economies in terms of services exports. BRICs’ imports of services have increased at a much faster pace than Canadian exports, and Canada lags behind other key developed countries in the value of service exports to these fast-growing markets. Canada’s poor performance is mostly due to lower levels of commercial services exports, which have been falling since 2003. Emerging economies such as the BRICs offer growing opportunities for Canadian exporters. These countries now accounts for one tenth of global service imports. Services, and commercial services in particular, are a high-valued export that is important for Canadian economic growth, Canada’s consistent underperformance in these fast growing markets does not bode well for the future.

Background

BRICs’ Imports of Services

The BRICs comprise four fast growing markets - Brazil, Russia, India, and China - which are increasingly open to trade, and whose services imports have been rising significantly over the past few years. Between 1999 and 2007, BRICs imports of service more than doubled, reaching $294.4 billion; in 2008,Footnote 1 they further jumped to $361.4 billion. Among BRIC countries, China is by far the largest importer of services, accounting for nearly half of the BRICs’ total imports. Together, the BRIC countries now account for about a tenth of the world’s services imports.Footnote 2

Canada’s Services Exports to BRIC Countries

Between 1999 and 2007, Canadian exports of services to the BRICs experienced significant growth (51.8 percent), outpacing the growth in Canada’s overall services exports (29.8 percent). Nonetheless, exports to the BRICs remain low and totalled only $2.0 billion in 2007, representing 2.8 percent of Canada’s total services exports.

Values of BRICs Imports of Services and Canadian Exports of Services to BRICs in Billions of Canadian Dollars
 199920002001200220032004200520062007
BRICs Imports of Services113.493124.417141.531157.047161.492192.475217.421243.818294.423
Canada's Exports of Services to the BRICs1.3051.5401.6081.6731.6591.8931.8752.1371.981
Canada's Exports of Commercial Services to the BRICs.607.679.730.761.828.763.547.553.397
BRICs Share in Canada’s Total Service Exports2.43%2.58%2.68%2.64%2.69%2.90%2.77%3.11%2.84%

On a country basis, China was the recipient of more that half of Canadian services exports to the BRICs in 2007, with exports reaching almost $1.1 billion. Canadian services exports to India amounted to $324 million. Canadian exports of services to Brazil totalled $305 million in 2007 and were somewhat volatile (ranging between $287-412 million) between 1999 and 2007. Over the same period, Canada’s services exports to Russia more than doubled: much of this growth occurred over 1999-2003, and exports have been fairly stable since then, as additional gains in travel and transport were offset by declines in commercial services. In 2007, exports to Russia amounted to $281 million.

Canada’s Exports of Services to BRICs by Categories, 1990-2007

Canada’s exports of services to BRICs (Brazil, Russia, India and China) in millions of Canadian dollars for Travel, Commercial Services and Transportation and Government Services:

  • Travel was 190 in 1990, remained steady until increasing to 222 in 1995, and then began to increase to reach a high of 889 in 2007.
  • Commercial Services started at 91 in 1990, slightly increased to peak at 828 in 2003, and then decreased to 397 in 2007.
  • Transportation and Government Services began at 216 in 1990, remained steady until increasing to 293 in 1997, began to steadily increase to reach a peak of 737 in 2006, then dropped to 696 in 2007.

Source: Office of the Chief Economist, DFAIT
Data: Statistics Canada

Overall, the poor performance of Canadian exports to the BRIC countries was mostly the result of declining exports of commercial services. In fact, both travel and transportation and government services exports to the BRICs increased more than twofold between 1999 and 2007, while commercial services fell by 34.6 percent. After peaking in 2003, commercial services exports have fallen $431 million to $397 million in 2007, a 52.1 percent decline over 2003. As a result, commercial services, which accounted for over half of our services exports to theBRICs in 1999, represented only about a fifth of Canadian exports to those four countries in 2007. This is quite different from the pattern observed in Canada’s services exports to all non-U.S. countries, where commercial services still hold a fairly similar share to that of 1999, accounting for about half of exports.

Canada’s Performance Relative to Competitors

Compared to other key developed countries, Canada underperforms in services exports to the BRICs. Once adjusted for the size of the exporting economy, Canadian exports were well below those of the U.S., the UK, and Japan in 2007, and the gap has widened since 2003.

Finally, in terms of growth, Canada also lags behind other countries. Between 1999 and 2007, Canada had the lowest annual rate of growth of services exports to BRIC countries compared to the U.S., the UK, and to Japan.

Value of Services Exports to BRICs, Scaled by Exporting Country’s GDP

The value of services to BRICs (in percent), scaled by exporting country’s GDP for Canada, the United States, the UK and Japan in 2003 and 2007:

  • Canada’s value was 0.14% in 2003 and 0.13% in 2007.
  • The United States’ value was 0.15% in 2003 and 0.25% in 2007.
  • The UK’s value was 0.24% in 2003 and 0.42% in 2007.
  • Japan’s value was 0.13% in 2003 and 0.24% in 2007.

Source: Office of the Chief Economist, DFAIT
Data: Statistics Canada, National Statistical Agencies, and IMF International Financial Statistics. All data in Canadian dollars.

Conclusion

High-value exports such as services, and especially commercial services, represent good opportunities for Canadian exporters, and are also important for Canadian economic growth. Due to the poor performance of commercial services in recent years, Canada lags behind other key countries in terms of services exports to the BRIC markets. Canada generally underperform in services, but it is particularly apparent in these particular countries.

Footnotes

Footnote 1

2008 is the most recent data available for services imports of these countries. All data/calculations in Canadian dollars.

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Footnote 2

Data: World Trade Organisation,Times Series on International Trade

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