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Canada's State of Trade: Trade and Investment Update 2012
IV. Overview of Canada’s Trade Performance
In 2011, Canada’s trade in goods and services went through a second consecutive year of strong recovery after the 22-percent loss in 2009 during the global recession. Both exports and imports continued to regain lost ground: exports reached 95 percent of their pre-recession value, while imports reached their highest value on record. Both exports and imports expanded in most sectors. Commercial activity in some sectors exceeded its pre-recession peaks and recorded highestever levels. Overall terms of trade continued to improve in 2011, but they are still below the 2007 levels.
Export growth was led by energy products and industrial goods, with strong price recovery behind the improvements, but also some increases in volumes exported. Machinery exports have stopped declining in 2011 and produced a volume-driven improvement, while export volumes for the troubled automotive and forestry sectors improved for the second consecutive year.
Imports reached new highs in 2011, driven by the stronger domestic economy relative to its global peers in the EU, Japan and the United States. Greater import volumes drove the increases in nearly every sector, except for the energy sector, which was buoyed by prices, and the forestry sector. Increased consumer and business confidence and investment in inventories contributed to the rally.
Total growth in exports exceeded the growth in imports, thereby reducing the 2010 trade deficit level by over a quarter. Growth in exports of goods was particularly strong, driving Canada back into trade surplus territory for goods after two years of deficits. The deficit in exports of services widened somewhat, offsetting the goods improvement to a degree. Increased deficits in current transfers and especially in investment income mitigated the improvement coming from the trade balance side. As a net result Canada’s current account deficit decreased only slightly, from $50.9 billion to $48.3 billion.
Goods and Services
Overall, Canada’s international trade continued its progress up the recovery path, growing by 10.6 percent last year. Canada’s total exports of goods and services increased by 11.8 percent in 2011. This amounted to an increase in exports of $56.3 billion to $532.4 billion (Table 4-1). Imports of goods and services also rebounded significantly at 9.4 percent, or $47.8 billion, to reach $555.6 billion— their highest-ever recorded value. As a result of these movements, the trade deficit narrowed by $8.6 billion (a 26.9-percent reduction), from $31.8 billion in 2010 to $23.2 billion in 2011. This was the third consecutive trade deficit in Canada after 15 years of surplus. Canada’s deficit originated in the 2009 meltdown in world trade; the improved trade balance in 2011 represented the first improvement since that event.
|Exports of Goods and Services||Imports of Goods and Services||G&S|
|2011||2011 share||% growth over 2010||2011||2011 share||% growth over 2010||2011|
|ROW = Rest of World|
Source: Statistics Canada, CANSIM Table 376-0001
|Exports of Goods||Imports of Goods||Goods|
|2011||2011 share||% growth over 2010||2011||2011 share||% growth over 2010||2011|
|Exports of Services||Imports of Services||Services|
|2011||2011 share||% growth over 2010||2011||2011 share||% growth over 2010||2011|
|Countries or regions||2007||2008||2009||2010||2011|
|Countries or regions||2007||2008||2009||2010||2011|
The natural disasters in Japan that devastated the Japanese economy in 2011 were behind the decline in imports from that country. The dominating share of the United States in Canada’s overall trade declined somewhat, from 66.0 percent in 2010 to 65.1 percent in 2011, continuing a downward trend that dates back to 2000, when the U.S. share stood at 76 percent.
While there were gains to all destinations in exports of goods and services, exports to the United States grew the least at 10.5 percent, but contributed the most to the increase with $35.1 billion in gains. This was due to the sheer volume of exports to Canada’s No. 1 trading partner, which now stand at $370.3 billion, or 69.5 percent of Canada’s total exports of goods and services. This was down from 70.4 percent in 2010. Exports to other major areas grew faster than the average: by 12.6 percent to the EU, by 15.3 percent to Japan and by 16.4 percent to the rest of the world (ROW), which includes all of the OECD countries (with the exception of the United States, the EU and Japan) and all of the non- OECD countries together. As a consequence, shares of all these other export destinations grew at the expense of the United States. Exports to the EU went up $6.2 billion last year to reach $55.3 billion, notwithstanding the Euro zone’s financial and fiscal difficulties. Likewise, despite the challenging conditions in the Japanese economy, exports of goods and services to Japan advanced by $1.7 billion and stood at $12.6 billion for the year. Exports to the ROW grew the fastest, which raised the ROW share of Canadian exports of goods and services from 17.0 percent in 2010 to 17.7 percent in 2011. That translated into an increase of $13.3 billion in exports to these countries, which reached $94.2 billion last year.
Imports of goods and services from all the major areas grew more slowly than exports to them. In 2011, Canada imported 7.6 percent more goods and services from the United States, or $23.9 billion, than the previous year. This growth was slower than average and reduced the market share of the United States in the import mix to 60.8 percent (amounting to $337.8 billion), down from 61.8 percent a year earlier. Unlike on the export side, imports from Japan contracted— by $683 million, or 5.9 percent. That led to a reduction in Japan’s import share from 2.3 percent in 2010 to 1.9 percent in 2011. The import shares dropped by these two major economies were picked up almost exclusively by the ROW destinations, which expanded their combined share to 26.3 percent in 2011, up from 25.1 percent in 2010 and 24.1 percent in 2009. The value of imports of goods and services from the ROW into Canada grew by $18.7 billion last year, up 14.7 percent, to reach $145.9 billion. Import growth from the EU stood at 10.6 percent, with its share expanding slightly to 11.0 percent. The value of imports from the EU increased by $5.9 billion, ending the year at $61.1 billion.
The narrowing of the trade deficit by $8.6 billion was primarily due to the increasing surplus with the United States. Faster growth of exports over imports translated into an $11.2-billion improvement in trade balance with the United States, for a surplus of $32.5 billion. The trade balance with the EU changed little in 2011, showing a small improvement of $0.3 billion, while the trade balance with Japan improved significantly— from a deficit of $0.6 billion to a surplus of $1.8 billion. These improvements were partly offset by the worsening trade deficit with the ROW, which increased by $5.4 billion in 2011 and stood at $51.7 billion at the end of the year. Overall, last year marked the first improvement to the overall trade balance since the 2009 crisis, shaving over a quarter off Canada’s atypical trade deficit.
Trade, Output and Jobs in Canada
The ratio of exports to gross domestic product (GDP) is often used to gauge economic health, the rationale being that exports creates jobs and increases income by expanding the market for domestically produced goods and services. In this regard, the economic environment of the 1990s was quite favourable for Canadian exporters: the share of exports in GDP grew substantially over the 1990s, peaking at 45.6 percent in 2000, up from only 25.1 percent in 1991, and then declining to 31 percent in 2011.
However, comparing exports to GDP is misleading because GDP is a measure of the value-added content of output whereas exports are the equivalent of gross sales, regardless of where the intermediate inputs were produced. In order to assess the domestic content of exports, the import content of the exports should be removed.
Statistics Canada has produced a number of studies that use Input-Output (I/O) tables to show the extent to which imports and employment are embodied in exports. The I/O tables provide a comprehensive accounting of the purchases made by all industries in producing their products. By subtracting purchases from other industries from gross production, the value added and imports by industry can be derived. This then can be used to estimate the import intensity of an industry and to remove the import content of production.
These studies have shown that as the share of exports in GDP climbed over the 1990s, Canadian firms also increasingly used imports to produce exports (Cameron , Ghanem and Cross ): the overall import content of Canada’s exports peaked at roughly one-third in 1999 (Ghanem and Cross ) before falling to 27.1 percent in 2003 (Ghanem and Cross ). Removing the import content of exports, the share of valueadded exports in GDP has declined, from 31.4 percent in 2000 to 27.9 percent in 2004 (Ghanem and Cross ). However, these Statistics Canada studies have been largely silent on the number of jobs embodied in exports, with one exception: the 1999 study by Cameron that reported 21 percent of all jobs were directly or indirectly derived from exports.
The following section re-visits the import and job embodiment of exports using the 2008 Statistics Canada I/O tables—the most recent year available.
Imports and employment embodied in exports in 2008
In 2008, exports accounted for 35.4 percent of GDP. However, when the import content (26.3 percent) is removed from gross exports, the share of value-added exports in GDP slips to 26.1 percent. Table 1 shows that, on average 10.1 percent of all jobs were directly related to exports, and generated an additional 0.9 jobs indirectly (through supplying inputs needed to produce the exported good—such as steel for making cars) for each direct job created.1 This means that for the economy overall, 19.3 percent of all jobs were directly or indirectly related to exports, or one in five jobs.
The six major sub-sectors of the economy display considerable variation in their export orientation, or share of exports in sectoral GDP. As expected, construction activities are almost exclusively focused on the domestic market, while Canadian manufacturers, always searching for new offshore markets, have the greatest degree of export orientation, at 164 percent. While it may seem odd for a sector to register a degree of export orientation in excess of 100 percent (given that exports are only one part of total production), this is explained by the fact that the I/O tables report exports by sector and express these on a gross value basis, whereas GDP represents the value added in the sector. Thus, a sector such as manufacturing gets credited for the full export value but may contribute only a small portion of the value added to the final products that are exported. In addition, increased fragmentation of the production process has resulted in trade flows outpacing production, as intermediate products may be traded across the border several times before the product is finalized. The net result is likely the inflation of export flows on a gross basis (due to multiple counting) relative to the value being added at each stage of production.
|Sector||Exports as a share of GDP (%)||Import content of exports (%)||Value-added exports as a share of GDP (%)||Percentage of industry jobs directly related to exports (%)||Export employment multiplier (%)||Percentage of all jobs in the sector related to exports (%)|
|Source: Statistics Canada I/O division and author’s calculations|
|Agriculture, forestry, fishing, & hunting||65.4||18.8||53.1||23.0||1.9||43.6|
|Mining and oil & gas extraction||76.5||7.8||70.5||32.5||3.7||118.6|
The import content of exports in most sectors is approximately 10 percent, with minor variations. The exceptions are agriculture, forestry, fishing, and hunting, at just under 19 percent, and manufacturing, at just over 40 percent.
As expected, given the heavy weighting of goods in Canada’s overall exports, the goods sectors held the greatest share of industry jobs related to exports. Manufacturing led the way at 43 percent of all jobs directly related to exports in 2008. Mining and oil and gas extraction were next at about one-third of jobs, followed by agriculture, forestry, fishing, and hunting.
Table 1 shows that the export employment multiplier is greatest for mining and oil and gas exploration, at 3.7. When combined with the impact of direct employment (32.5 percent), exports of minerals, and oil and gas generate employment in the economy equivalent to 118.6 percent (or more than all) of the jobs in this sector. Similarly, with more than 40 percent of all manufacturing jobs directly dependent on exports, and a total employment multiplier of 2.2, exports in manufacturing generate the equivalent of 93 percent of all manufacturing jobs across the economy. At the other end of the spectrum, for each job generated by services exports, an additional half-of-ajob is created elsewhere in the economy. Overall, exports of services generate only 6 percent of all services jobs directly and the equivalent of 9 percent of all services jobs across the economy in total.
Do exporting industries pay more?
One of the supporting arguments for open trade is that exporting firms pay their employees higher wages than non-exporting firms2. The data do not subdivide industries between exporters and nonexporters, but they do allow for a division according to the export intensity of a specific industry (or share of exports in industry-level GDP) and a comparison of that intensity against the average hourly compensation that workers receive in that industry. While most sectors export to some degree, the analysis focuses on the goods-producing sectors, reflecting the fact that goods constitute the bulk of Canada’s exports, and the manufacturing sector has been broken down into 20 major subsectors.3
|Export intensity||Exports as a share of GDP (%)||Total hourly compensation ($)|
|Source: Statistics Canada I/O division and author’s calculations|
|Correlation between hourly compensation and export share of GDP - manufacturing||0.68|
|Correlation between hourly compensation and average exports per employee - manufacturing||0.80|
Table 2 shows that, in aggregate, the higher the export share in GDP, the higher the total hourly compensation. Broadly speaking, the most export-intensive goods sectors pay wages5 that are, on average, more than 50 percent higher than the least export-intensive sectors. When wages and export intensity are correlated on a sectorby- sector basis across the 20 manufacturing subsectors, the relation holds up, with a correlation coefficient of 0.68. When wages are correlated with the exports per employee, the correlation jumps to 0.8, implying that wages rise as exports per employee increase.6
Breau, Sébastien and W. Mark Brown (2011), “Global Links: Exporting, Foreign Direct Investment, and Wages: Evidence from the Canadian Manufacturing Sector,” The Canadian Economy in Transition Series, Statistics Canada Catalogue no. 11-622 – No. 021, August.
Cameron, Grant (1999), “Exports, GDP and Jobs,” Perspectives, Statistics Canada Catalogue no. 75-001, Winter 1999: 39-41.
Cross, Philip and Ziad Ghanem (2006), “Multipliers and Outsourcing: How industries interact with each other and affect GDP,” Canadian Economic Observer, Statistics Canada Catalogue no. 11-010, January 2006: 3.1-3.18.
Ghanem, Ziad and Philip Cross (2003), “The Import Intensity of Provincial Exports,” Canadian Economic Observer, Statistics Canada Catalogue no. 11-010, June 2003: 3.1-3.6.
Ghanem, Ziad and Philip Cross (2008), “Tracking valueadded trade: Examining global inputs to exports,” Canadian Economic Observer, Statistics Canada Catalogue no. 11-010, February 2008: 3.1-3.12.
1 In other words, total exports have an overall employment multiplier of 1.9, which means that each job directly associated with exports is associated with 1.9 jobs in the economy (i.e., 1 direct job plus 0.9 indirect jobs). Cross and Ghanem (2006) suggest that such multipliers show the linkages between a change in a factor in one industry and its ripple effect on others.
2 A recent study by Breau and Brown (2011) finds that exports pay a 6-percent wage premium after controlling for manufacturing plant and worker characteristics.
3 In addition, utilities, construction and support services to the extraction and forestry sectors have been removed from the analysis.
4 Sectors that are classified with high export intensity include transportation equipment, petroleum and coal product manufacturing, primary metals manufacturing, and chemicals. These sectors exhibit a degree of export intensity greater than 200 percent of sectoral GDP. Sectors with moderate export intensity include paper manufacturing, computer and electronic products, electrical equipment and appliances, machinery, leather products, textiles, clothing, plastics and rubber, miscellaneous manufacturing, and wood products. These sectors exhibit a degree of export intensity between 100 percent and 200 percent. Finally, those sectors classified as having light export intensity exhibit a degree of export intensity that is less than 100 percent of sectoral GDP. These sectors include furniture, fishing, hunting and trapping, food manufacturing, mining, oil and gas extraction, crop and animal production, fabricated metals, non-metallic minerals, printing products, beverages and tobacco, and forestry and logging.
5 More correctly, this is hourly compensation, but hereafter we will refer to this compensation as wages.
6 This is a simple correlation and as such does not imply causation. The economic literature suggests that other factors such as plant size, capital intensity, foreign control and multi-unit firm status are positively associated with higher wages. See Breau and Brown (2011) for a further elaboration on possible causes of such wage premiums.
While services dominate the GDPs of modern economies, including that of Canada, the lion’s share of Canada’s exports still comes from goods and will do so for years to come. Goods accounted for 85.9 percent of total exports in 2011, up from 85.0 percent the year before. Goods shipments are much more sensitive to economic ups and downs than services, both in terms of volumes and prices, and therefore tend to move more, both during recessions and during recoveries, thus also causing larger movements in total trade than in GDP. It is not surprising then, as Canada’s trade recovery continues, that the dominant part in it is played by goods. Total exports of goods rose 13.0 percent last year, or $52.7 billion, to reach the value of $457.5 billion. This increase accounted for 93.6 percent of the total growth in exports. Overall trade increased by $104.1 billion, with goods responsible for 91.3 percent of that increase. Total goods trade came within 2 percent of the 2008 record level. In 2011, Canada recorded its first goods trade surplus since 2008.
Out of the total $52.7-billion increase in goods exports, $34.0 billion (64.5 percent) was accounted for by exports to the United States, an increase of 11.5 percent for the year. In the meantime, imports from the United States accounted for exactly one half of the total growth in goods imports, which amounted to $42.3 billion in 2011. As imports from the United States grew by only 8.1 percent, the goods trade surplus with Canada’s biggest trading partner widened by $12.8 billion to reach $49.6 billion last year.
Over a fifth of the growth in goods exports (21.1 percent) was accounted for by the rest of the world (ROW) destinations. Exports grew significantly, by 18.0 percent, gaining $11.1 billion in 2011 to reach $73.1 billion. Imports of goods grew almost as fast at 15.9 percent, but gained $16.5 billion due to higher volumes of trade to reach $119.9 billion by the end of the year. These movements further widened the trade deficit in goods between Canada and the ROW by $5.3 billion to reach $46.8 billion.
Canada’s exports of goods to the EU grew 16.3 percent last year, gaining $5.9 billion to total $42.4 billion. Imports grew a little more slowly at 13.5 percent (or $5.4 billion) to reach $45.8 billion, or 10.0 percent of all Canada’s goods imports. The resulting effect was to shrink Canada’s goods trade deficit with the EU by $0.5 billion, from $3.9 billion in 2010 to $3.4 billion last year.
Goods exports to Japan grew solidly at 16.9 percent in 2011, adding $1.6 billion and ending up at $11.4 billion for the year. Meanwhile, imports from Japan retreated 7.6 percent, losing $0.8 billion in value. Goods imports from Japan stood at $9.3 billion for the year 2011. Consequently, the goods trade balance with Japan improved by $2.4 billion, from a deficit of $0.4 billion in 2010, to reach a surplus of $2.1 billion.
Sectoral Performance of Goods Trade
The recovery in the goods trade gathered speed in 2011, with exports in some key sectors exceeding their pre-recession levels. Advances were made in six out of seven major sectors. Most of the double-digit (13.0 percent) increase in goods trade was explained by rising prices, which grew by 8.6 percent overall. Volumes of exports grew only 4.0 percent by comparison. More than three quarters of the overall growth came from increases in exports of energy products and industrial goods and materials. These sectors accounted for nearly one half of Canada’s overall goods exports in 2011.
Industrial goods and materials were the largest export sector for the second year running, growing 21.2 percent in 2011, almost as fast as in the previous year. This added $20.4 billion to the value of exports and propelled exports in this sector to $117.0 billion, above their record pre-recession level. The importance of this sector continued to grow, as it now accounts for 25.5 percent of total Canada’s goods exports. Rising prices for the products in this sector were responsible for over two thirds of the growth. Metals and alloys led the advance, gaining $8.2 billion, or 22.7 percent, to hit $44.3 billion. This category in turn was driven by the sub-category of precious stones and metals, which accounted for $6.4 billion—over three quarters—of the growth in metals and alloys. The general rise in the price of gold and of silver was behind the 28.6-percent price increase in this category, and, combined with the 13.0-percent increase in volumes, yielded a substantial 45.3-percent increase in the value of exports. Among metals and alloys, this growth was only exceeded by the growth in nickel exports at 50.2 percent. Notably, that increase was driven by higher volumes (up 42.8 percent) rather than prices (up 5.1 percent). Metal ores was the fastest-growing sub-category, at 34.4 percent, and accounted for $4.5 billion of the overall increase in exports in 2011. Exports of copper ores and iron ores led the way, with growth of 51.4 percent ($1.3 billion) and 33.1 percent ($1.5 billion), respectively, with the former driven by increased volumes and the latter by higher prices. The 18.8-percent growth in chemicals (up $5.7 billion) was caused by rising prices for organic and inorganic chemicals, higher volumes for exported plastic and synthetic rubber, and a mix of both for fertilizers. The only significant items that experienced declines were asbestos (down 45.3 percent) and primary iron and steel (down 23.4 percent), both due to lower volumes.
Export gains in energy products, the second-biggest sector, were the largest of all sectors at $21.1 billion, up 23.2 percent, to reach $112.1 billion in total exports in 2011. Price increases were the major factor behind this gain. Fully 85.6 percent of the increase was due to the growth in exports of crude oil, which went up 36.3 percent as price increases of 18.5 percent combined with the 13.1-percent growth in volumes. Coal prices grew over 40 percent, electricity prices fell 10 percent, while prices for petroleum and coal products grew more or less in line with the rising price of crude oil (up about 20 percent). Consequently, electricity exports remained practically unchanged for the year as higher volumes mitigated the 10-percent fall in prices. Coal exports increased $2.0 billion (38.4 percent) and exports of petroleum and coal products gained $3.2 billion (17.9 percent). Natural gas prices went down 11.6 percent, driving the $2.2-billion (14.3 percent) decline in the value of natural gas exports.
Machinery and equipment exports finally arrested their three-year decline and posted a gain of $4.5 billion, or 5.9 percent, to reach $80.6 billion in 2011. This was still about 14 percent off the high mark for this sector in 2007. All categories contributed to the increase, with volumes driving the increase as prices in the sector remained unchanged, except for the 10-percent drop in the prices of office machines and equipment exports. Industrial and agricultural machinery exports, which accounted for about a quarter of all exports in this sector, grew the fastest (up 11.9 percent) and added $2.1 billion to the export gain. Aircraft and other transportation equipment, which accounted for another quarter of the exports, grew modestly at 3.3 percent, adding $0.6 billion in value. The rest of this category, other machinery and equipment, grew 4.4 percent on the strength of the increase in other equipment, tools and end products, while the increases in the volume of exports of office machines and equipment made up for the drop in their prices.
Automotive products exports, which were in decline from 2004 to 2009, experienced a second straight year of recovery, albeit with a smaller gain than in 2010, as the U.S. auto consumer market continued to show considerable weakness. The 4.4-percent gain amounted to a $2.5-billion increase in value and brought the total to $59.3 billion, a third below the record 2004 level. Although exports of trucks and other motor vehicles gained a considerable 27.7 percent, this only amounted to $0.6 billion as this category has shrunk during the past decade. Exports of motor vehicle parts grew 3.3 percent and added $0.5 billion to the total growth. Passenger autos, the bulk of the category, overcame the 1.8-percent decline in prices and posted a 3.5-percent overall gain, adding $1.3 billion.
Agricultural and fishing products was the other major sector whose exports exceeded its pre-recession level, gaining 11.1 percent, or $4.1 billion, and thereby reversing the declines of the past two years. Export values ended the year at $41.0 billion, with volumes weakening 2.1 percent while prices increased 13.5 percent. Leading the price increases were wheat, at 40.9 percent, barley, at 31.3 percent, other cereals, at 28.5 percent, and canola at 23.5 percent. Consequently, wheat exports added $1.3 billion, canola exports added $1.2 billion, and the rest of the gains were widely distributed. Live animals was the only item whose exports declined, losing $0.2 billion in exports through a 29.1-percent decline in volumes despite a 20.3-percent price increase.
The ups and downs of the forestry products sector mirrored those in the automotive products sector. Strong growth in 2010 interrupted five years of declines followed by modest growth in 2011. Forestry products exports went up 2.4 percent last year, or $0.5 billion, reaching $22.4 billion. A 3.0-percent growth in volumes offset a 0.6-percent weakening in prices. Lumber gained 6.9 percent ($0.3 billion) and other crude wood products gained 35.3 percent ($0.2 billion), helped by a 10-percent jump in prices.
Other consumer goods was the only major sector to experience a decline in export values, although at 0.5 percent it was only marginal, amounting to a mere $75 million. Nevertheless, 2011 was the fourth year of decline for this sector which includes furniture, sporting equipment and apparel. Volumes fell 1.1 percent while prices inched up 0.6 percent.
A Profile of Canada’s Clean Technology Companies— Playing to Their Niches
The Canadian clean technology sector is often identified as holding great promise. Some of the key characteristics of the sector are that despite its relatively small size in the global context, it is export intensive and, in particular, relies on non-U.S. export destinations for a large share of its revenues. The sector is also R&D intensive, along the lines of the Canadian aerospace industry. These factors suggest that Canada possesses strength in key niches on which future growth could be based.
The clean technology sector incorporates industries that A) produce traditional goods or services, but with a significantly reduced environmental footprint than more traditional production methods; B) produce goods or services that reduce the use of water and/or energy of other sectors or industries; and C) remediate a negative environment impact that has already occurred. A key aspect of the definition of a clean technology company is that it must possess a proprietary technology that distinguishes it from its more traditional counterparts.1
|Biofuels & Bioenergy||9|
|Green Power Generation||11|
|Remediation & Soil Treatment||2|
|Recyling & Recovery||13|
Given the relatively new nature of the sector and that it spans a number of existing industries, it is not covered well by existing definitions at either the product or industry level. To circumvent this problem, this report makes use of data from the 2011 Canadian Clean Technology Industry Report.
Clean technology firms are generally small or medium-sized. Although the sector employs 44,000 Canadians, the average number of employees per firm is estimated to be only 64. In 2010, Canadian clean technology companies generated $9.0 billion in revenues and the sector is estimated to have grown at a compound annual average rate of 19 percent since 2008–all the more impressive given that the global recession occurred during that period. The sector’s revenue is fairly equally distributed between industries other than Energy Infrastructure and Remediation & Soil Treatment, which are relatively small.
The Canadian clean technology sector is relatively small on the global scale, representing only 0.8 percent of the estimated $1.1-trillion global market for clean technology.2 It is notable that this is well below both Canada’s share of global trade (at about 2.6 percent in 2010) and Canada’s share of the global economy (about 2 percent). Canada is a relatively small player in most industries as well with the majority falling below the simple benchmark, i.e. Canada’s 2-percent share of global GDP. Recycling & Recovery as well as Green Transportation stand out as the only two industries exceeding this benchmark by a notable margin, potentially indicating strength in both. However, as is shown later, Recycling & Recovery remains largely a domestically oriented industry.
Given the relatively small size of the Canadian market, to achieve a reasonable scale Canadian clean technology companies must, almost from conception, seek global markets. It is for this reason that these companies tend to be, on average, relatively export intensive. In 2010, 80 percent of clean technology firms exported, with 53 percent of total revenues, on average, being generated from outside of Canada.
It is no surprise that the United States is the prominent market, accounting for nearly one third of industry revenues and 57 percent of export earnings. Somewhat more surprising is that 23 percent of industry revenues and 43 percent of export earnings are from non-U.S. foreign markets, a share that is notably higher than for most Canadian manufacturing industries. Fully 55 percent of clean technology exporters exported to non- U.S. markets in 2010. Europe was by far the largest foreign market outside of the United States, accounting for 11 percent of revenues and almost half of export earnings from non-U.S. destinations.
|Share of Global Market||%|
|Recycling & Recovery||4.7|
|Remediation & Soil Treatment||0.4|
|Green Power Generation||0.4|
|Biofuels & bioenergy||0.9|
A review of export shares of revenues for individual industries shows that Industrial Processes and Energy Infrastructure stand out as being particularly export intensive. These are followed by Green Transportation which, as previously noted, is one of the subsectors where Canada also holds an above-average share of world markets.
It is indeed notable that nearly all industries rely heavily on foreign markets for a large share of their revenues, and non-U.S. foreign markets at that. As of 2010, four of the nine industries relied on international markets for more than fifty percent of their revenues. This is likely a sign that these industries hold strong niches in their respective industries supported by proprietary technologies.
The clean technology sector is also R&D intensive. As a group, the sector invested an estimated $985 million in R&D in 2010, or approximately 11 percent of revenues. The scale of this investment is similar to that of the Aerospace sector.
|Recycling & Recovery||18||2|
|Remediation & Soil Treatment||32||3|
|Green Power Generation||26||32|
|Biofuels & Bioenergy||4||12|
Overall, clean technology is a fastgrowing sector of the Canadian economy. Although currently small by international standards, its strength lies in exploiting niches built on technological advantage and innovation. To do so, growing internationally will be a key dimension of that strategy. This in turn will allow Canadian firms to spread their costs of R&D over international markets, enable them to attract globally competitive levels of capital and allow them to grow to scale.
1 Unlike some definitions used for this sector, clean technology does not include upstream or downstream inputs or support services such as financing.
2 This is according to the 2011 Canadian Clean Technology Industry Report, which uses a definition of the sector that is consistent with other figures cited in this article. There are a number of alternative measures of the size of the industry based on various definitions of the sectors and methodologies.
Total imports of goods grew 10.2 percent last year as the domestic economy continued on its recovery path, with most of the increase accounted for by increased volumes, which went up 8.1 percent. Imports increased by $42.3 billion to reach $456.1 billion in 2011, their highest recorded value. Six out of seven major sectors increased their import values last year.
Machinery and equipment was the largest import category and exceeded its prerecession record level to reach $124.7 billion on the strength of a 9.5-percent increase in 2011 (a gain of $10.8 billion). Prices dropped 4.3 percent overall, but import volumes increased much faster at 14.4 percent. Over half of the increase was accounted for by industrial and agricultural machinery, where imports rose $5.5 billion, or 18.4 percent. That category now accounts for $35.7 billion, or well over a quarter, of Canada’s machinery and equipment imports. Last year, increases were driven by large volumes of drilling and mining equipment purchased abroad—with volumes up 76.9 percent and prices down 8.8 percent, import values grew 61.4 percent and added $1.1 billion to the year’s growth. Imports of excavating machinery also grew strongly, at 30.5 percent, as did other industrial machinery at 17.9 percent (with all gains caused by increased volumes). Other industrial machinery accounted for over half of the category of industrial and agricultural machinery, and added $2.7 billion to its growth. Imports of other transportation equipment grew 20.1 percent on the strength of volumes, adding $1.1 billion to imports in this sector. Prices for office machines and equipment declined 17.2 percent, while import volumes rose 24.9 percent, leading to growth of $0.5 billion. Other machinery and equipment, a wide-ranging category, grew more evenly this year, at 6.2 percent, due to volumes overcoming a slight drop in prices, but the sheer size of this category—nearly half of all Canadian machinery and equipment imports – occasioned a rise of $3.5 billion in imports in 2011.
Industrial goods and materials remained the second-largest import category at $98.0 billion, likewise reaching a recordhigh level. Growth was 12.7 percent on the year, adding $11.1 billion to total goods imports, with prices and volumes contributing almost equally to the gains. Metals and metal ores was the leading category, with growth of $6.9 billion, or 20.7 percent. The precious metals sub-category was the prime mover in this category, growing 34.2 percent (mainly on volumes) to add $3.8 billion to the growth in metals and metal ores. The relatively small 8.7-percent increase in the prices of precious metals imported into Canada, coupled with a much greater rise in export prices (as indicated above), suggests that Canada may have imported more raw metals (e.g. gold and silver) to create added value this year and to take advantage of higher prices of the finished products manufactured from those metals. In other items, metals in ores and concentrates grew 18.6 percent, as did other steel and iron products, adding $2.1 billion to this category’s import values, driven by growth in both prices and volumes. Other categories within industrial goods and materials grew more slowly, with chemicals and plastics gaining 8.8 percent ($2.6 billion) largely due to a 6.4-percent increase in prices. Organic chemicals volumes went down 10.4 percent, but this was compensated for by a 14.3-percent price rise. Import values of other industrial goods and materials increased $1.6 billion (6.5 percent), mostly accounted for by metal fabricated basic products, which grew $1.3 billion (13.5 percent), driven by higher volumes while prices remained stable.
Automotive products imports registered a second consecutive yearly increase in 2011, growing 3.7 percent and gaining $2.6 billion to reach $71.3 billion for the year. A price weakening of 1.8 percent was offset by volumes rising 5.6 percent. Trucks and other motor vehicles imports was the major growth category, increasing by $1.5 billion, or 8.8 percent; volumes grew 12.9 percent, counteracting a 3.6-percent price drop. Motor vehicle parts gained 2.8 percent, increasing by $0.8 billion, while imports of passenger cars did not change significantly.
Other consumer goods remained an important import sector, which declined only slightly during the recession, and grew 3.2 percent in 2011 ($1.9 billion) to reach a record $59.6 billion. Volumes accounted for most of the increase as prices moved very little in 2011. The two main contributors to import growth were apparel, with a gain of 9.2 percent, or $0.9 billion, and miscellaneous end products, with a gain of 5.5 percent, or $1.3 billion.
Imports of energy products grew significantly in 2011 (29.7 percent). That increase of $12.0 billion propelled the total to $52.6 billion, close to the 2008 pre-recession level. With the overall increase in prices in this sector amounting to 23.6 percent, this was primarily a price story, but with important nuances. Petroleum and coal products (refined fuels) contributed $7.0 billion to the increase, with their tremendous 60.7-percent growth fuelled both by rising prices (up 28.2 percent) and greater volumes (up 25.3 percent). Crude petroleum imports added another $4.5 billion to the increase, growing 18.9 percent, but the impact of a 38.0-percent price increase there was cushioned by a 15.5-percent retreat in import volumes. Meanwhile, coal prices dropped 8.9 percent, but import volumes increased 19.4 percent and thus coal imports expanded $0.5 billion overall.
Agricultural and fishing products imports grew for the seventh consecutive year since 2004, an upward trend that carried on throughout the recession. A 10.3-percent increase last year added another $3.0 billion to their value, for the total of $32.6 billion. The overall effect of higher prices (up 2.3 percent) was muted, but volumes expanded 7.8 percent. Gains were widespread among the sectoral categories, with meat (up 17.7 percent), sugar (up 23.7 percent) and crude vegetable products (up 24.2 percent) standing out. Each of those categories contributed $0.4 billion to the sector’s total increase in imports. A price rise of 21.9 percent was behind the increase in imports of crude vegetable products, but meat and sugar grew mostly on volumes. A 56.7-percent increase in the price of corn led to a 39.1-percent contraction in volumes, while cocoa, coffee and tea import volumes grew 25.4 percent as a 9.8-percent decrease in prices took place.
Forestry products sector was the only one where imports declined, losing $130 million (down 4.9 percent). The total value of imports was down to $2.5 billion, amounting to 0.5 percent of Canada’s total goods imports, and it appears likely that most of the economy’s forestry needs were met with domestic products. Import values for both crude wood products and wood fabricated materials decreased, with the former driven by volumes and the latter by prices.
2011 was a year of continued recovery for services trade. The 5.0-percent growth in services exports continued the 2010 trend, adding $3.6 billion to the total to set a new record for Canadian service exports at $74.8 billion. Imports of services also broke previous records, reaching $99.5 billion after a 5.8-percent increase (up $5.5 billion). As a result, Canada’s services trade deficit widened by $1.9 billion to reach $24.6 billion in 2011. The bulk of the increase in the deficit came from a growing deficit in travel services ($15.9 billion last year, largely in the sub-category of personal travel). Elsewhere, an increased deficit in transportation services was offset by an improvement in the commercial services trade balance. Trade in services constituted 16.0 percent of Canada’s total trade in 2011.
|Source: Statistics Canada CANSIM Matrix 376-0035.|
|Total, all services||71,253||74,845||5.0%||94,010||99,466||5.8%||-22,757||-24,621||-1,864|
|Land and other transport||3,262||3,384||3.7%||2,426||2,470||1.8%||836||914||78|
|Other financial services||3,409||3,681||8.0%||3,769||3,458||-8.3%||-360||223||583|
|Computer & information services||5,041||4,982||-1.2%||2,991||3,143||5.1%||2,050||1,839||-211|
|Royalties and licence fees||3,928||3,796||-3.4%||8,926||8,988||0.7%||-4,998||-5,192||-194|
|Research and development||3,900||4,445||14.0%||1,156||1,227||6.1%||2,744||3,218||474|
|Architect., eng., & oth tech. services||4,964||4,809||-3.1%||2,802||3,565||27.2%||2,162||1,244||-918|
|Oth. Misc. services to business||4,666||5,102||9.3%||4,622||5,019||8.6%||44||83||39|
Canada traditionally runs a services trade deficit with its major trading partners. Nominally and proportionally, the largest deficit is with the United States ($17.1 billion, or 69.4 percent of the total), followed by the ROW at $4.9 billion, the EU at $2.4 billion and Japan at $0.3 billion. The bulk of the increase in the services deficit last year could be traced to the growing deficit with the United States, which widened by $1.6 billion in 2011. Deficits with the EU and Japan also increased slightly, while the deficit with the ROW was reduced by $0.2 billion.
Travel and tourism services constituted 28.3 percent of Canada’s total trade in services, but this sector typically drives the overall trade balance since imports of travel services (Canadians traveling abroad) traditionally exceed exports (foreigners traveling to Canada) by a wide margin. The continued and growing strength of the Canadian dollar in 2011 maintained a favorable climate for Canadians vacationing in and visiting foreign countries. Foreign travel expenditures by Canadians went up 7.2 percent, or $2.2 billion, with the bulk of it being personal travel, while spending by foreigners travelling to Canada grew only 3.5 percent, or $0.6 billion. Imports of travel services grew to an unprecedented $32.7 billion, an increase of over 60 percent from 2004. The trade balance for business travel was essentially unchanged for the year, with the increase in the deficit coming almost entirely from personal travel.
Transportation services t rade rebounded strongly in 2011, with imports and exports both exceeding their pre-recession record levels. Exports added $1.2 billion, or 10.4 percent, and imports grew $2.1 billion, or 9.9 percent. Exports of water transport services grew the fastest at 15.3 percent, followed by air transport at 11.5 percent, with land and other transport a distant third at 3.7 percent. Imports of water transport services also expanded the most at 16.2 percent, with air transport growing 6.2 percent and land and other transport up 1.8 percent. The trade balance shifted $0.8 billion toward deficit on the year, primarily due to stronger imports of water transportation services.
The wide array of commercial services produced an unusual trade surplus for Canada for the second year running. Exports gained $2.0 billion, or 4.7 percent, while imports only expanded $1.2 billion, or 2.8 percent. This resulted in a trade surplus of $0.9 billion, up $0.8 billion from the year before. Exports grew robustly in research and development services (up $0.5 billion, or 14.0 percent), communication services (up $0.3 billion, or 10.5 percent), and audiovisual services (up $0.2 billion, or 9.5 percent). Substantial gains also took place in management services and other financial services. Royalties and licence fees as well as architectural and engineering services experienced declines in exports of 3.4 percent and 3.1 percent, respectively. Imports grew in construction services (up $0.2 billion, or 81.7 percent), architectural, engineering, and other technical services (up $0.8 billion, or 27.2 percent) and other miscellaneous services to business (up $0.4 billion, or 8.6 percent). Conversely, imports fell in communication services (down $0.2 billion, or 9.0 percent), other financial services (down $0.3 billion, or 8.3 percent) and management services (down $0.2 billion, or 4.3 percent).
Contributing most to the growth in the services trade surplus were the opposite shifts in exports and imports for management services, other financial services and communication services. These contributed $0.7 billion, $0.6 billion and $0.5 billion, respectively, to the surplus. An opposite effect was produced by an increase in imports and a drop in exports of architectural, engineering, and other technical services, resulting in a reduction of the trade surplus by $0.8 billion in that category, thereby limiting the overall improvement in Canada’s services trade balance.
The Current Account
The current account records the flow of all within-the-year transactions between Canada and its commercial partners. The goods trade is the dominant component of these transactions, with the services trade a distant second. As these two were discussed at length in this chapter, the other two components of the current account will be explained briefly in this section: investment income and current transfers. Receipts on those items can be thought of as exports and payments as imports
Investment income flows consist of receipts and payments on direct investments, portfolio investments and other investments. This has usually been a deficit item for Canada, and 2011 was no exception. Receipts of Canadian investors grew $4.8 billion, with direct investment receipts responsible for this increase; however, payments to foreign investors increased $9.5 billion. This was largely due to direct investment payments, which grew $8.8 billion; portfolio investment payments increased $2.4 billion, while amounts paid to other investors dropped $1.7 billion. The outcome of these movements was a $4.6-billion increase in Canada’s deficit in investment income flows. Overall, direct investment flows typically account for the greatest proportion of short-term financial flows in this category, and are largely evenly balanced between receipts and payments. Nearly all of Canada’s deficit in investment income had its source in the portfolio investments deficit in 2011.
|Total current account||Goods||Services||Investment income and current transfers|
Current transfers are the smallest component of the current account, but the deficit associated with them widened considerably in 2011. The $4.0-billion deficit was nearly 20 times as great as the 2003 level and twice the 2007 level. Receipts were down $1.3 billion, with official transfers accounting for two thirds of the decline and the rest coming from private transfers. Transfer payments to foreigners did not move substantially, and therefore did not contribute significantly to the increase in the trade deficit for this item.
Taken as the sum of all of its components, Canada’s current account deficit shrank by $2.6 billion in 2011, as a result of a strong $10.4-billion improvement in the goods trade balance. The deficit for every other component of the current account widened, although not enough to overcome the strong performance of the goods trade. The services trade deficit widened by $1.9 billion, investment income by $4.6 billion and current transfers by $1.3 billion. The resulting improvement was from a $50.9-billion deficit in 2010 to a $48.3-billion deficit in 2011, which marked the third straight current account deficit for Canada.
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