Blame it on Alberta’s oilsands. Last month, Ontario’s premier pickle company, Bick’s Pickles, closed its production facilities in southern Ontario and moved its operations to the U.S. The high value of the Canadian dollar was an important factor in a corporate decision that cost 150 regular jobs here. Bick’s is not alone feeling the impact of what some are calling the “Alberta dollar.”
Over the past five to six years, many manufacturing companies have closed shop in Ontario as the province lost competitiveness due to a dollar trading at approximate parity with the U.S. — companies like Collins & Aikman in Guelph (500 jobs), Interforest in Durham (120 jobs), Crane Valves in Brantford (88 jobs), Sonoco Products in Cambridge (100 jobs), Siemens in Hamilton (550 jobs), FRAM in Stratford (300 jobs) and many more across the province. As companies consolidate operations in North America, Ontario has a tough time making the case to keep operations here.
In other instances Ontario has lost out to the U.S. or Mexico when investment decisions were being made. The tourist industry has suffered as well. A U.S. visitor to Toronto, Stratford, Niagara-on-the-Lake or Muskoka would have paid $127.40 (U.S.) in 2002 for a hotel room that cost 200 Canadian dollars. Last year the American visitor would have paid $202 (U.S.), or almost 60 per cent more.
The high dollar, by hitting manufacturing hard, is eroding Ontario’s tax base and contributing to the deficit and to Ontario’s high unemployment rate.
Why blame the oilsands? The reality is that the Canadian dollar is seen internationally as a resource currency, and rising commodity prices along with increasing export volumes have helped push up the its value — and could send it well above the greenback if the Keystone and Northern Gateway oilsands pipelines go ahead. Oilsands output could roughly double by 2020, according to industry estimates, and most would be exported.
In 2002, the Canadian dollar averaged 63.7 U.S. cents and Ontario manufacturing companies, according to Statistics Canada, had 1,095,400 employees, or 18.2 per cent of all Ontario jobs. In 2011, the Canadian dollar averaged 101.1 U.S. cents and Ontario manufacturers employed 794,000 workers, or 11.8 per cent of all Ontario jobs. Between 2002 and 2011, the Canadian dollar increased 59 per cent in value, while manufacturing employment fell by 300,500 jobs or by almost 30 per cent.
In 2002, manufacturing accounted for 21.7 per cent of Ontario‘s gross provincial product, but as the manufacturing sector faced a growing loss of competitiveness, its share fell to 17 per cent in 2006 and, as the recession hit, to 12.6 per cent in 2009 and 12.8 per cent in 2010.
To be sure, other factors have influenced the exchange rate, including a weak U.S. economy and U.S. reliance on a softer dollar to help the Obama administration achieve its goal of doubling exports, mainly of manufactured products, by 2014.
In 2010, Bank of Canada economists examining the impact of rising commodity prices and exports on boosting the dollar noted that “while the energy and mining industries have benefitted from these movements, the pressure on the manufacturing sector has intensified, since many firms in this sector were already dealing with growing competition from low-cost economies such as China.” This, they said, had changed investment decisions and jobs. Between January 2003 and July 2008 the mining and oil and gas industries added 60,000 new jobs and the manufacturing sector lost 221,000 jobs.
This process is continuing. The Bank of Canada’s January 2012 edition of its Monetary Policy Report acknowledges the impact of Canada’s high dollar on manufacturing. “Competitiveness remains a challenge for Canadian firms,” it says. “Unit labour costs have continued to increase relative to those in the United States over the past year, resulting in a cumulative gap of almost 40 per cent between the beginning of 2005 and the third quarter of 2011.” The appreciation of the Canadian dollar “accounted for most of this deterioration in competitiveness.”
Despite the problems the high exchange rate is creating, the Harper government seems to have made advancing Canada as “an energy superpower” its core economic strategy. It has no manufacturing strategy. To be sure, energy megaprojects do create some business for Canadian manufacturers, but not enough to offset the overall impact of the high dollar.
Ontario manufacturing faces huge pressures to adjust, through innovation, to a higher dollar. In the United States, the Obama administration has made boosting manufacturing its key economic strategy. This is true in Britain as well. Meanwhile, China, India and Mexico are striving to improve their manufacturing strengths.
This is why it is urgent that in forthcoming federal and Ontario budgets, despite pressures to slash deficits, initiatives to help build a stronger and more innovative Ontario manufacturing base on a high-dollar economy is imperative.
David Crane is a commentator on economic affairs. crane@interlog.com.
