Canada’s tech sector is just now emerging from a “lost decade”, says ex-Bank of Canada governor David Dodge in a recent Bloomberg article titled “Canadian Dollar’s Worst Rout Ever Raises Petro-State Worries”.
“So we’re going to have to go back, having lost a decade on the technological side,” Dodge says, asserting that the efforts made during the ’80s and ’90s building up the manufacturing and service sectors were effectively orphaned during the last nine years in which government privileged the energy sector while stifling science and innovation.
By 2014, oil’s share of total exports rose to 19% from 6% a decade earlier, while Ontario’s auto industry’s share in exports fell from 22% to 14% during the same time.
Lately, the word “petro-dollar” has been surfacing more and more frequently with respect to the loonie.
For years, any suggestion that the Canadian dollar was a petro-currency was more likely to be met with skepticism than bandied around by credible sources in the media.
But as the correlation between movements in the price of oil and the loonie demonstrates, with Canada’s dollar more sensitive to fluctuating oil prices during 2015 than currencies of countries like Mexico, Norway and Russia, the petro-state label is harder to shake.
Dodge’s Bloomberg comment affirms the petro-state diagnosis, reinforced lately by Stableview Asset Management President and portfolio manager Colin Fisher who said on BNN, “Canada’s loony is essentially a petro-dollar, always has been for quite some many years.”
On March 6, 2013, when oil was trading above 90 cents and Canada was riding high, President and CEO of the Canadian Council for Chief Executives delivered a lecture entitled “First, do no harm: oil, the dollar and the future of Canadian manufacturing”.
His answer to the question “Is the Canadian dollar a ‘petro-currency’?” was a nuanced “Not exactly.”
Since then, oil has plummeted, now trading slightly above $33 and forecast to slide further in the near future.
When the dollar was hovering around parity, hitting a high of $1.0371 in 2012, Canadian manufacturers had to tighten up in order to survive.
Maple Leaf Foods, auto parts manufacturer Linamar, and Clearwater Seafoods are all examples of companies that were forced to concentrate their business during the lean years when they were forced to compete on the strength of their product, rather than leveraging the unfair advantage offered by a weak dollar.
Now that the dollar is low again, the companies that underwent those adaptations just to survive are in a position to thrive.
The same thing cannot particularly be said for Canada’s oil sector, though.
Now that the main selling feature of their product is no longer a high dollar value, oil sector companies are implementing massive layoffs and making noises about embracing technology to improve efficiencies, since that is the only possible way of making the extraction of their product even feasible.
The question now is, too little too late?
“Canada is in the midst of an identity crisis,” said senior economist covering Canada for Bank of America Merrill Lynch in New York Emanuella Enenajor to Bloomberg. “In the 2000s Canada was the commodity producer to the U.S. In the 90s, Canada was the manufacturer to the U.S. Today, Canada’s identity is unclear.”
With oil’s collapse, Canada must now struggle to assert a new economic identity, a fact that is both encouraging and frustrating for anyone who has watched the comparatively neglected tech sector struggle needlessly over the past decade.
The June 2015 publication of BP’s Statistical Review of World Energy announced that the United States had surpassed both Russia and Saudi Arabia as the world’s largest producer of oil.
The difference between the United States and those economies, not to mention Canada’s, is that its economy diverse and robust and set to outpace the rest of them, something that the people who confidently touted the BRIC phenomenon a few years ago must be feeling sheepish about today.
During 2015, the TSX slid 11%, while the Dow fell 2.2%, the S&P less than one percent and the Nasdaq rose 5.7%
The only positive to be taken from the Canadian dollar’s standstill against the strength of United States is that it might provide our exporters enough time to build an economic foundation on something other than an oil slick.