Who’s Bucking Canada’s Export Recession?

(Export Development Canada – Peter G. Hall)

Open any Canadian newspaper these days, and you are likely to hear about layoffs, shutdowns, and other gloomy pronouncements among Canada’s exporters. Energy exporters and parts of the agri-food sector are largely exempt from this talk. Most other industries are struggling, thanks to slower demand and a high currency. But some in these stressed sectors are bucking the trend.

Canada’s gloomy export picture reflects our high exposure to the world’s largest economies, which are slowing rapidly. Other markets have yet to experience the brunt of the slowdown, but even when they do, growth rates there will still, in general, be much higher. Exporters targeting the higher-growth markets are already racking up very impressive numbers.

How impressive? While total exports are down 0.5% thus far in 2008, at the same time exports to twenty of Canada’s top fifty export destinations are averaging 34% growth. What is more, this marks an acceleration from average annual growth of 20% in the past four years. True, these markets account for just 6% of total exports, but exporters with a piece of this action are smiling.
Admittedly, energy and agri-food exports are a large part of this success story. Both sectors are benefiting from higher world prices. The agri-food sector is also seeing growth in the volume of shipments, owing in large part to rising wealth in emerging markets. But industries further along the value chain are also prospering. Machinery, aerospace and pharmaceuticals exports, which together sum to more than twice the value of energy exports to these markets, thus far in 2008 have surged by a striking 77%. Growth is strong in each of these sub-sectors, but is led by a quadrupling of aerospace product exports. What is more, much of this is an increase in physical shipments, as global competition has generally minimized price increases in these sectors.

Not surprisingly, the 20-country list includes the BRIC countries – Brazil, Russia, India and China. These countries are strategically important not just because of rapid current growth but because of their immense longer-term potential. While shipping commodities to these markets is important, gaining a foothold further along the value chain is key to securing future export growth as these economies grow wealthier. Current progress is good. So far this year, total exports are up 20%. Further along the chain, growth is triple that pace, at 63%, and the share of total Canadian exports is 12% and rising. Solid performance, all things considered.

Also in the list are key Gulf Cooperation Council countries. These are critical players in the global infrastructure boom, and present great near-term export potential. Exports to Saudi Arabia and the UAE are booming, up 67% so far this year. That’s an acceleration from average growth in the mid-20% range in the last four years. Moreover, Canadian exporters are shipping a broad range of goods to these two countries, with over a quarter of current shipments in higher value-added products. Much more is possible, given prospects for this region in the coming years.

The bottom line? There is gloom to spare in the world economy these days. But there are key growth opportunities now that will extend beyond the slow times. They may take us out of our traditional comfort zone, but the rewards are already proving that it’s worth it.