OTTAWA (Reuters) – Canada’s low labor productivity level puts the country at risk of losing of billions of dollars of investments to Mexico, as the so-called nearshoring boom spurs companies to move supply chains to North America, economists and lobby groups say.
Mexico is fast becoming a global destination to manufacture products for supply to the U.S., where companies are seeking suppliers closer to home to reduce their dependence on China and shorten their supply chain. Canada, however, has seen little benefit from this trend.
If Prime Minister Justin Trudeau’s government fails to take measures to boost productivity, Canada will miss a historic opportunity to attract funds flowing into the region from the “nearshoring” boom of U.S. companies looking for suppliers close to their homebase, economists warn.
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The annual labor productivity of Canadian businesses declined 1.8% in 2023, its third consecutive year of decline. That prompted the Bank of Canada Senior Deputy Governor Carolyn Rogers to sound the alarm over the country’s productivity declines, which she blamed on Canada’s lagging investment in machinery, equipment and intellectual property.
That is primarily because an influx of cheap, low-skilled immigrant labor offered companies the incentive to substitute that for long-term investment in research, training and innovation. As a result, Canada’s productivity level among G7 economies is now second to last after Italy and below the average of the OECD grouping of rich nations.
Economists say continued low labor productivity dampens profits as well as makes Canadian output expensive and uncompetitive globally.
Mexico, on the other hand, is finding itself in a sweet spot. Foreign companies have long been drawn to Mexico due to its lower labor and other input costs, said Juan José Gómez-Camacho, senior fellow at the SAIS Foreign Policy Institute in Washington D.C. and a former Ambassador of Mexico to Canada.
Now, “Mexico is benefiting the most” from the wave of new investments driven by U.S. efforts to reduce dependence on China, he said.
Mexico last year replaced China to become the biggest trading partner of the United States. Canada lost its status as the biggest U.S. trading partner a decade ago.
Mexico has seen foreign direct investment (FDI) into the country hit a record $36 billion in 2023, a 27% jump from a year earlier, with more than half flowing into manufacturing, according to official data.
Mexico’s President Andrés Manuel López Obrador has doubled down on investments in public projects, which has helped pushed the country’s gross fixed capital formation – a metric to gauge investments in factories and machineries – up 25% in the fourth quarter last year from the first quarter of 2022, according to World Bank data.
In contrast, FDI into Canada dropped 42% to C$52.4 billion ($38.4 billion) in 2023 from a year earlier. Its gross fixed capital formation dropped by 7% between the first quarter of 2022 and last quarter of 2023.
“The US and Mexico have taken this big gamble that by having very large domestic public investment we can get substantial positive return,” said Joseph Politano, a New York-based economist who publishes the Apricitas Economics newsletter.
“Canada is not doing that at a scale like the U.S. or Mexico,” he said.
‘MISSED THE BOAT’
Mexico, whose sprawling landscape of industrial parks in the north boasts almost 100% occupancy, is setting up a trans-country railway corridor and its 18 ports have helped drive record FDI, according to economists and trade data from the government.
In the key autos sector, Mexico is already producing 1.5 times more vehicles than Canada and has already reached its pre-pandemic output level. Canada’s vehicle production is languishing below 2019 levels and the sector finds it tough to compete with Mexico on labor costs due to a unionized workforce.
Mexico is also attracting investments from an array of automotive supply chain players as part of the transition to electric vehicles(EV), including Tesla.
To be sure, Canada has seen some signs of optimism on the investment front – notably a surge in EV-related investment over the past year, thanks to government tax incentives. That includes plans announced last week for a C$15 billion EV plant and battery manufacturing by Japan’s Honda, the company’s biggest investment in North America.
Swedish battery maker Northvolt, Ford Motor Co., Stellantis NV and Volkswagen also last year committed billions of dollars in investment into battery manufacturing in Canada.
“Canada is a world-class destination for foreign direct investment,” said Katherine Cuplinskas, a finance ministry spokesperson. “The recently announced generational investments from Honda, Dow Chemicals, Volkswagen, Stellantis, and Northvolt are concrete proof points of Canada’s attractiveness for global private capital.”
The government has also promised C$2.4 billion to support artificial intelligence-related activities over five years in this month’s budget, to improve productivity.
In the first three quarters of 2023, Canada saw the largest FDI on a per capita basis among G7 countries and attracted the third highest global investments in the world, and Cuplinskas said the stock of total FDI grew by C$52.4 billion last year, with the U.S. accounting for close to half.
However, economists say the government needs more concerted efforts to tap the nearshoring opportunity, and a budget proposal to increase the capital gains tax on wealthy individuals and businesses will further drive capital away.
Ultimately Canada is struggling to keep up while U.S. manufacturing activity is driven by subsidies in its Inflation Reduction Act and Mexico enjoys higher productivity levels and lower labor costs, said Pedro Antunes, chief economist at Conference Board of Canada, an independent think tank.
“We may have missed the boat,” he said.
($1 = 1.3657 Canadian dollars)
(Reporting by Promit Mukherjee, editing by Deepa Babington)
NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.
Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.
“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”
Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.
Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.
Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.
Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.
In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.
The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.
And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.
TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 103.40 points at 24,542.48.
In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.
The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.
The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.
The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.
This report by The Canadian Press was first published Oct. 16, 2024.
TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
