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Canada: The Sustainable Emerging Market

Making the Case for Maersk’s Investment in Canada

By Saili Chisanga

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“An economic miracle”

The Organization for Economic Co-operation and Development (OECD) calls Canada “an economic miracle”.

The IMF and OECD say that Canada has the best economic outlook among all G7 countries.

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Emerging Markets

Most Emerging markets have high growth potential, but also high risk

Risks include: political, monetary and social

Most emerging countries offer one natural resource

However:

Canada has the growth potential of an emerging market, with the low risks of an advanced mature economy

Canada is resource rich. That is, not one resource, but several

Lack of political, monetary and social risks, combined with plentiful resources, make Canada the most Sustainable Emerging Market

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Natural Resources

Canada is the largest exporter of potash

Canada is the second largest producer of uranium

Canada is third in proven oil reserves

Third largest producer of natural gas.

Fourth largest diamond producer

3rd largest producer of aluminum

4th largest in platinum metals

5th largest nickel producer

There are more than 50 other minerals and metals that Canada produces, such as gold, copper, silver, etc

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Agriculture

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Lumber

USA was our primary market for our lumber exports and our lumber exports declined with US housing market decline. But now, with the Chinese demand increase and US housing market poised to pick up in the coming years; this will be great for the lumber industry in terms of exports and job creation.

Timber and agri-food products are arriving in China in increasing volumes, thanks to the ease of movement made possible by Canada’s Asia-Pacific Gateway.

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Food Industry

Canada is one of only 24 Net Exports of food. The food sector is growing and contributes more jobs than automobile and high-tech manufacturing

The high level of development of Canada's food industry means Canadians will not face questions of food security that will plague billions worldwide in the decades ahead.

World leader in grain and oilseed – Canola is the next “super-food”, and demand is growing exponentially

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Political Stability

Canada is 3rd place in political stability and lack of political risk, right after Norway and Denmark.

Corruption can add up to 10% to the total cost of doing business and 25% to the cost of procurement of contracts.

In Canada, we can focus our resources to getting business and not worrying about political risk.

Stephen Harper now has a majority government, and so, decisions can be made more swiftly. There promises to be less “red tape” and an increase in ease of doing international business.

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2010 Ranking of Political Stability

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… Financial stability

Standard & Poor’s. . . . . . . . . . . . . . . . . AAA 1

Moody’s . . . . . . . . . . . . . . . . . . . . . . . . . Aaa 2

DBRS . . . . . . . . . . . . . . . . . . . . . . . . . . AAA 3

1 Standard & Poor’s Financial Services LLC. Sovereign Ratings 2010. July 2010.2 Moody’s Investor Services Inc. Canadian Ratings List. July 2010.3 DBRS Limited. Sovereign Credit Ratings. July 2010.

AAASovereign Credit Rating

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For three years in a row, the World Economic Forum has named the Canadian banking system the soundest in the world. 1

At a time when numerous financial institutions around the world were collapsing, no Canadian bank or insurer failed. No Canadian bank required a bailout.

Canadian banking system is the soundest

1 The World Economic Forum. The Global Competitiveness Report 2008-2009, 2009–2010, and 2010-2011.

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Free Trade

Canada is the first G20 nation to implement foreign trade zones (FTZ) that are geographically flexible.

Canada provides unsurpassed tariff and Foreign Trade Zone advantages.

Canada, whose prosperity is greatly dependent on trade, understands the importance of open markets for international investors. Canada is eliminating tariffs on imported manufacturing machinery and equipment and related industrial inputs such as chemicals, textiles and base metals.

This attracts foreign investors and strengthens partnerships with foreign countries involved, lowers costs of production and administrative burden.

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Foreign Direct Investment

Canada’s FDI has been increasing steadily for past 5 years.

There is a lot of Foreign Direct investment in specific sectors that are poised for growth.

FDI in Wood, food, manufacturing, mining and renewable energy are the highest

In 2010, Ontario was noted the best Top North American Jurisdiction for FDI Projects Relative to Population in 2010 with 10 Projects Per Million of Population

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Companies are coming to Canada

Canada’s business environment is much less saturated than the US and we are seeing a number of retailers and manufacturers moving to Canada, Target, Whole Foods, Lowe's Home Improvement Centers, and Lord & Taylor etc

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Innovation

Canada has taken an active role in investing in innovation –Innovation Demonstration Fund, investing $715milion in investments from government budget.

Innovation is what will make Canada competitive on a global scale and provide more/better ways of doing business

There is a Ministry of Research and Innovation that facilitates and gives grants and loans for innovating companies and providing an incentive for companies to go above and beyond.

Canada gives tax breaks to companies investing in innovation.

Grants, loans and tax breaks are meant to stimulate and facilitate the development of innovative ideas

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… Innovation powerhouse

1 fDi Benchmarking database, fDi Intelligence.

2 Conference Board of Canada. <http://www.conferenceboard.ca/HCP/Details/Innovation/scientific-articles.aspx>.

Vancouver is #1 in North America for patents filed for fuel cells1

Toronto is #3 in North America for patents filed in the automotive sector1

Montréal, Vancouver and Toronto rank among the Top 10 cities in North America for life sciences patent filings1

Canada ranks #1 in the G7 for the number of scientific articles published per capita2

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Trade Agreements

Trade agreements with EU have solidified partnerships with European countries to eliminate barriers to trade (EU Comprehensive Economic and Trade Agreement).

Trade missions to Germany have enabled agreements between the countries to ship light weight vehicle materials to Canada with no tariffs.

Trade agreements with Chile and Japan have recently occurred to strengthen relations and eliminate trade barriers.

Ontario government has partnered with China for the Ontario-China Research and Innovation Fund.

Trade missions to the Middle East have solidified direct investment in infrastructure in Ontario and have netted millions in a new partnership with the region.

Also there have been trade agreements made with other high growth emerging markets

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Immigration and Small Business

Immigration – Highest immigration rate and most are economic immigrants which translate into higher GDP growth rate (2.3%growth with 100,000 economic immigrants a year)

Small Business: 98% of businesses in Canada have <100 employess. 90% exporter are small businesses (<50) accounting for 21% of GDP.

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Substitution Effect

Recession was an eye opener for Canada.

Canada has realized that in order to minimize risk and to achieve the same success attained from the NAFTA agreement; we must diversify our trade portfolios.

For the past 10 years, Canadian US imports and exports have been reducing (CAGR: -2%) with a rapid increase in other foreign imports and exports.

As globalization occurs and distance becomes less of a variable in trade, international trade has increased, and a substitution effect has ensued.

While some shipping companies may think of Canada’s strong ties with US as a disadvantage to business, the opposite is true, as a substitution effect is in order. New trade lanes have been opened to other countries.

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Sustainability

Growth Sustainability=Potential for Growth (Profitability) + Low Risk+ Infrastructure

Potential for Growth=Sector/Commodity growth, Trade agreements, minerals, substitution from USA to world countries

Low Risk= Substitution from USA to world countries, Canada’s Political Stability, Stable Financial and Fiscal Policies, Trade agreements

Infrastructure= Foreign Direct Investments, Government Investments, Flexible Free Trade Zones, Immigration.

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Why is Canada the best place in the G7 to do business?

The Strongest Economic Growth in the G7 Canada leads the G7 in economic growth. The International Monetary Fund says that this will continue over the next two years1

The Soundest Banking System in the World The World Economic Forum says that Canada has the soundest banking system in the world, followed by New Zealand and Australia2

The Lowest Overall Business Costs in the G7 Canada offers the lowest overall business costs in the G73

1 The International Monetary Fund. World Economic Outlook April 2010.2 The World Economic Forum. The Global Competitiveness Report 2010 - 2011.3 KPMG. Competitive Alternatives 2010.

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Canada is the Best Place to Invest in the G7

The EIU ranks Canada #1 in the G7 and #4 in the world as a country in which to conduct business over the next five years (2010 – 2014)1

According to the IMF, Canada has the

lowest net debt-to-GDP ratio in the G7 2

1 The Economist Intelligence Unit. The Business Environment Ranking, August 2010.2 The International Monetary Fund (IMF). World Economic Outlook April 2010.

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. . . Integrated into North American markets

Mexico City

1000 km

500 km

Los Angeles

Denver

Houston

Atlanta

Seattle

Miami

New YorkBoston

Philadelphia

WashingtonBaltimore

DetroitChicago Cleveland

St. LouisPittsburgh

Milwaukee

San Francisco

St. John's

CalgaryVancouver

ReginaHalifax

TorontoMontréal

WinnipegCharlottetown

Edmonton

VictoriaOttawa

Windsor

QuébecFredericton

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One (1) Procedure

Source: The World Bank Group. Doing Business in 2011.

… Ease of doing business

It takes, on average, only one procedure to start up a company in Canada and the process takes about 5 days. This is the best rating among the G7 countries

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… Highly educated and multicultural workforce

1 OECD. Education at a Glance 20092 International Institute of Management Development. World Competitiveness Yearbook 2010.3 World Economic Forum. Global Competitiveness Report 2010-2011

Canada ranks #1 in the OECD for its college completion rates (23.6% of working-age Canadians have graduated from college)1

Canada ranks #2 in the G7 in terms of the availability of qualified engineers in its workforce, according to the IMD 3

The WEF ranks Canada #1 in the G7 on the quality of management schools 2

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Multilingual Workforce: 20% of Canadians have a Mother tongue other than English or French

Canada’s Workforce By Mother Tongue, Number Of Working Age People

Chinese 772,040Italian 280,610Spanish 270,705Punjabi 253,315German 241,630Arabic 195,735Portuguese 170,400Polish 153,325Korean 99,655Hindi 60,600Japanese 26,965English

12,395,670

French4,786,640

Other Languages 4,407,615

Source: Statistics Canada, Census 2006.

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Canada has the Lowest Cost Structure in the G7

In 14 of 17 sectors analyzed in KPMG’s competitive alternatives

2010, Canada has the lowest overall business costs in the G7

LowestSource: KPMG. Competitive Alternatives 2010.

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Canada offers your company Duty Free Manufacturing

In Budget 2010, the Government of Canada announced that Canada will eliminate all remaining tariffs on manufacturing inputs and machinery and equipment by 2015.

Canada is the first country in the G20 to do so.

0%

Source: Government of Canada. The Federal Budget 2010.

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Questions