SMEs outperform the overall economy

Written by Jim McElgunn

Canada’s small-business sector is growing much faster than the economy as a whole, according to a report by CIBC World Markets. The Toronto-based investment bank’s annual analysis of firms with fewer than 50 employees shows they expanded more quickly last year than the total economy for the fourth straight year.

CIBC World Markets estimates that the small-business sector grew 3.7% in after-inflation dollars in 2005, well above the 2.9% for the overall economy. Small companies have grown by nearly a full percentage point faster than the overall economy in each year since 2002.

Senior economist Benjamin Tal, the report’s author, says small-business activity is highly cyclical and usually outpaces the overall economy during upturns. He says a key reason smaller firms have done so well lately is that they’re less vulnerable than large corporations are to the rising dollar. SMEs are less exposed to foreign markets and are flexible enough to cut expenses and quickly divert production to offset currency-related costs. CIBC World Markets estimates that 75% of small companies operate in sectors with only limited vulnerability to the higher dollar.

Other conclusions from the report include:

  • Vancouver leads the way. It had the fastest rate of small-business startups among major urban areas from 2003 to 2005, followed by St. John’s, Victoria, Calgary and Montreal.
  • Entrepreneurs are getting greyer. There was a 35% jump just from 2001 to 2005 in the number of self-employed Canadians 55 or older, more than three times the increase for all ages. Although two-thirds of these “seniorpreneurs” were sole proprietors with no paid employees, the other third created 270,000 jobs over the four-year period.
  • Fewer small businesses are going bust. The number of bankruptcy filings in the year ending June 2006 was 10.5% lower than a year earlier. The rate crept up 2.5% in Ontario, reflecting tough times in manufacturing. But it fell in every other province, and plummeted 42.2% in ultra-booming Alberta.
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