Diversification of Canada’s Exports - What and Whereto

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Florence Jean-Jacobs
Office of the Chief Economist
November 5, 2009

Summary

Canadian exports have been following a pronounced diversification trend away from the U.S. and to emerging and developing countries over the last decade. The regions driving this shift are Asia-Pacific and, to a lesser extent, Latin America and the Caribbean (LAC) which together account for over 70% of our exports to emerging and developing markets. In general, resource-based sectors have been leading the diversification (agri-food, metals and minerals, and chemicals) – particularly to Asia. However, the same trend was observed in higher value-added products like machinery and electrical equipment, aerospace and automotives. These exports were growing the fastest in LAC. We can expect this trend to continue, as the growth of private consumption and import demand from emerging regions continue to outpace that of traditionally advanced economies, offering tremendous opportunities for Canadian exporters.

Diversification Trends

Since 1999, the share of Canadian merchandise exports destined to the U.S. has fallen sharply, from 86.7% to 77.6% in 2008, and reaching a low of 74.9% over January-August 2009 (for goods and services, the share is even lower at 70% for the first half of the year). The share of our exports destined to emerging and developing countries went from 4.1% in 1999 to 9.4% in 2008, and reaching a record 11.3% year-to-date (January-August). The export shares of most regions increased by a factor of two or more between 1999 and 2008 (Asia: 2.6, LAC: 1.9), with the export share of Emerging Europe increasing the most by more than quadrupling. The diversification trend has been amplified by the crisis as exports to the U.S. have fallen more sharply than to the emerging and developing markets. As a result emerging countries in Asia now have a share of 5.2% of our exports so far in 2009 relative to 3.8% in 2008, and in the Middle East & North Africa (MENA) region the share has reached 1.8% (up from 1.3% last year). While the U.S. share may recoup somewhat post-crisis, we can expect the diversification trend to continue in the long term.

Regional Patterns

Share of Canadian Exports Going to Emerging/Developing Countries (1999 to Jan-Aug 2009)

In 1999, 0.2 went to Sub-Saharan Africa, 0.6 went to the Middle East & North Africa, 0.2 went to Emerging Europe, 1.6 went to Latin America & the Caribbean and 1.4 went to Emerging Asia-Pacific. In 2000, 0.1 went to Sub-Saharan Africa, 0.6 went to the Middle East & North Africa, 0.2 went to Emerging Europe, 1.5 went to Latin America & the Caribbean and 1.6 went to Emerging Asia-Pacific. In 2001, 0.2 went to Sub-Saharan Africa, 0.5 went to the Middle East & North Africa, 0.2 went to Emerging Europe, 1.8 went to Latin America & the Caribbean and 1.7 went to Emerging Asia-Pacific. In 2002, 0.2 went to Sub-Saharan Africa, 0.5 went to the Middle East & North Africa, 0.2 went to Emerging Europe, 1.5 went to Latin America & the Caribbean and 1.7 went to Emerging Asia-Pacific. In 2003, 0.2 went to Sub-Saharan Africa, 0.6 went to the Middle East & North Africa, 0.3 went to Emerging Europe, 1.5 went to Latin America & the Caribbean and 2.1 went to Emerging Asia-Pacific. In 2004, 0.2 went to Sub-Saharan Africa, 0.6 went to the Middle East & North Africa, 0.4 went to Emerging Europe, 1.8 went to Latin America & The Caribbean and 2.5 went to Emerging Asia-Pacific. In 2005, 0.2 went to Sub-Saharan Africa, 0.7 went to the Middle East & North Africa, 0.5 went to Emerging Europe, 1.9 went to Latin America & the Caribbean and 2.6 went to Emerging Asia-Pacific. In 2006, 0.3 went to Sub-Saharan Africa, 0.8 went to the Middle East & North Africa, 0.6 went to Emerging Europe, 2.3 went to Latin America & the Caribbean and 2.9 went to Emerging Asia-Pacific. In 2007, 0.4 went to Sub-Saharan Africa, 1.0 went to the Middle East & North Africa, 0.7 went to Emerging Europe, 2.6 went to Latin America & the Caribbean and 3.4 went to Emerging Asia-Pacific. In 2008, 0.4 went to Sub-Saharan Africa, 1.3 went to the Middle East & North Africa, 0.9 went to Emerging Europe, 3.0 went to Latin America & the Caribbean and 3.8 went to Emerging Asia-Pacific. For Jan-Aug 2009, 0.4 went to Sub-Saharan Africa, 1.8 went to the Middle East & North Africa, 0.9 went to Emerging Europe, 3.1 went to Latin America & the Caribbean and 5.2 went to Emerging Asia-Pacific.

Source: Office of the Chief Economist, DFAIT and the data is from Statistics Canada.

In the last ten years, significant export diversification away from the U.S. occurred in all sectors, with the exception of the energy and automotive sectors.

Emerging Asian markets have claimed a larger share of our resource-based commodities – e.g. in metals and minerals, their share has more than quadrupled, to 5.3% in 2008, and they now receive 8.5% of our chemicals exports. Meanwhile, Latin America is the destination for a growing share of higher value-added products: machinery and electrical equipment (5.2% of exports in that sector go to that region, up 3.1 percentage points), aerospace (4.1%, up 3.5 p.p.), automotives (2.3%, up 1.6 p.p.). In the aerospace sector, the export shares of Middle East & North Africa and Emerging Europe have also increased significantly, to 3.4% and 2.6%, respectively.

Share of Increase in Exports to Non-U.S. Markets (1998-2008)

Canada’s share of increase in exports to Non-U.S. markets for various sectors from 1998 to 2008:

  • Metals & Minerals: 37.1%
  • Agri-Food: 17.1%
  • Machinery & Electrical: 14.2%
  • Chemicals: 12.8%
  • Energ:y: 12.4%
  • Aerospace: 4.0%
  • Miscellaneous Manufacturing: 2.0%
  • Automobiles: 1.6%
  • Wood & Paper: 1.1%

Source: Statistics Canada

Sectors Leading Diversification

In value terms, the sectors leading the increase in exports to non-U.S. markets are metals and minerals (accounting for 37.1% of the gain), followed by agri-food (17.1%) and machinery and electrical equipment (14.2%) – led by gas turbines  and construction-related equipment. The aerospace sector, though smaller in value terms, saw a large increase in the export share going to non-U.S. markets.

Non-US Share of Exports by Sector
Sector19992008YTD 2009
Agri-Food37.7%47.0%46.8%
Metals & Minerals18.8%41.1%41.9%
Energy6.5%7.1%8.7%
Chemicals15.3%24.3%22.1%
Wood & Paper21.0%28.6%27.5%
Machinery & Electrical13.5%28.5%31.5%
Automotive2.2%5.2%5.8%
Aerospace22.2%42.0%49.0%
Miscellaneous Manufacturing10.4%15.9%17.9%

Year-to-date in 2009 (January-August) aerospace is the only sector posting an increase in global exports (up 46.1% to non-U.S. destinations). 2009 saw increased exports of higher manufacturing products to MENA, energy to Asia, and machinery and electrical equipment to LAC. The diversification has deepened in all sectors except for wood and paper, agri-food, and chemicals so far this year.

Diversification in Asia

Change in Exports, by Sector (1999-2008)

Canada’s Change in Exports (in billions of Canadian dollars) for various sectors to Emerging Asia-Pacific and other emerging/developing countries, respectively, from 1999 to 2008:

  • Agriculture & Food: 2.875 and 4.5
  • Metals & Minerals: 3.5 and 3.25
  • Energy: 0.25 and 1.1
  • Chemicals: 3.4 and 1.75
  • Wood & Paper: 1.5 and 0.8
  • Machinery & Electrical: 1.5 and 4
  • Automotive: 0.0 and 1.2
  • Aerospace: 0.2 and 0.88
  • Miscellaneous Manufacturing: 0.275 and 0.75

Source: Office of the Chief Economist and Statistics Canada

Note: Values might not be 100% accurate due to lack of data.

Within emerging markets, the share of Canadian exports going to Asia has been increasing, on the strong performance of the Canadian resource-based sectors in that region. The bulk of the increase in exports is attributable to metals and minerals and chemicals, which together are responsible for more than half of the gain. Agri-food and machinery and electrical equipment are also contributing. The increase in exports to Emerging Asia over the last decade has been leading diversification to emerging markets in several sectors, responsible for over two-thirds of the gain in chemicals exports, and more than half of the gain in metals and minerals.

Footnotes

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