TORONTO – Failure by business to invest in growth is a major factor hampering productivity in Canada and the ability to compete internationally, according to a new report by the Canadian arm of professional services consultant Deloitte.
The report — The Future of Productivity: Clear choices for a competitive Canada — makes it clear that Canadian companies need to be bolder when it comes to investing in productivity-boosting measures and seeking out growth, both within Canada and internationally.
Among other things, it challenges what it called “decades of speculation that size and sector composition restricts Canada’s productivity performance.”
In fact, “the real drag on our competitiveness is the inability of Canadian companies to sustain growth over the longer term,” Deloitte said.
The report details several reasons for this, including a reluctance by Canadian companies to invest in growing their business.
“Canada’s productivity performance has been declining for many years, in part because Canadians appear to be more concerned about protecting and preserving what they have than creating something new,” said Frank Vettese, managing partner and chief executive of Deloitte Canada.
“Trying to maintain the status quo in an environment of increased global competition will simply leave us falling further behind other countries.”
The Deloitte study said governments must also do their part to provide the right conditions by eliminating barriers to trade. That would include encouraging competition and foreign direct investment and adjusting Canada’s immigration system to deal with an aging population and looming skills shortage.
“Academia can also play an important role in fostering growth by focusing on commercializing research and developing curricula that supports productivity and innovation,” it said.
Last week, Finance Minister Jim Flaherty told a gathering of chief executives that the government has done plenty to ensure the right conditions for businesses to compete, including lowering taxes, encouraging the purchase of new technologies and reducing red tape.
Ultimately, he said, it’s up to the private sector to step up to the plate.
John Manley, who heads the Canadian Council of Chief Executives, took issue with Flaherty’s comments and said rather than sit on corporate profits his members — among Canada’s largest 150 firms — are getting ready to make big investments in the next three years.
And Bank of Canada governor Mark Carney has recently drawn some criticism from business leaders after he chided them for sitting on large cash reserves — estimated at over $500 billion — that he called dead money.
The Deloitte report found that Canada’s productivity lags the United States in virtually every instance, regardless of a company’s size, sector, business type or location.
The gap in competitiveness has widened in mining, oil and gas and financial services, and has been particularly significant in the manufacturing sector where, since 2000, U.S. productivity has grown six times faster than in Canada.
A bright spot is the retail sector, where Canadian productivity has outperformed the U.S., largely due to its exposure to the full force of global competition as foreign retailers have aggressively entered the Canadian market.
“Canadians know how to compete and win globally, but not enough of our business leaders follow this path,” said Bill Currie, Deloitte Canada’s vice-chair and Americas managing director who co-authored the report.
“They need to exploit growth opportunities wherever they occur, and government needs to support them by making growth a business imperative and removing barriers to competition, both inside Canada and with the rest of the world.”
Among the report’s findings:
— Exporting companies outperform their non-exporting peers in terms of productivity growth, but fewer than three per cent of Canadian firms export.
— Canadian businesses spend at only 65.2 per cent of the U.S. rate on machinery and equipment, while investment in information and communication technology are at 66 and 80 per cent of U.S. levels in manufacturing and financial services respectively.
— Canada needs to continue developing new trading partners to lessen reliance on the U.S. market.
— Government should increase the transparency of the foreign direct investment review process to encourage more foreign companies to invest in Canada, which Deloitte said would force Canadian businesses to invest and innovate in order to remain competitive.