VANCOUVER —
The COVID-19 crisis is exposing the shortcomings of Canada’s economy, particularly when it comes to supply chains and the development of value-added products that would keep the country competitive, innovation experts say.
Dan Breznitz, the co-director of the innovation policy lab at the University of Toronto, said he expects global trade in raw commodities to decline as the novel coronavirus makes it more difficult to move people and goods around the world.
It’s a wake-up call for Canada’s resource-based industries, he said, noting Canada “will have a problem just selling wood and unprocessed oil.”
The country must rebuild its capacity to produce sophisticated goods through innovation in those sectors and beyond, said Breznitz, who is also the chair of innovation studies at the Munk School of Global Affairs.
“We no longer can actually produce the basic things we need in order to survive under (a) pandemic, and we cannot count on global production networks to do that in times of crisis.”
Alan Winter, British Columbia’s former innovation commissioner, agrees, saying COVID-19 has further exposed Canada’s dependence on purchasing goods and technology offshore with profits from primary resource industries.
“The issues that we see today around (personal protection equipment) and getting stuff out of China is all illustrative of the fact that our economy, to some extent, has been totally submerged into other countries in terms of supply chains,” he said.
“Our strategy of selling raw natural resources doesn’t make a lot of sense. We need to have the capability of developing more finished goods ourselves.”
Canada lags behind other members of the Organization for Economic Co-operation and Development for investing in research and development on new products and technology, said Winter.
In his final report to the B.C. government, released last week, Winter pointed out that about 1.4 per cent of the province’s GDP goes towards research and development, while the OECD average is about 2.4 per cent. Several of Canada’s competitors make investments in the 3.5 per cent range, he added.
Breznitz said Canada lacks policies aimed at creating more small- and medium-sized enterprises and then helping them grow, particularly when it comes to access to capital in the early stages before investments from venture capitalists.
“Right now in Canada, it will be almost impossible to get the finance, just the basic finance for you to be able to scale up,” he said, using an example of a family owned, medium-sized business with an idea for a new product or technology.
Canadian entrepreneurs also face regulatory red tape in selling newly developed products in Canada, said Breznitz.
“It expensive and each province has its own little quirks. So, it’s actually easier to sell to the whole United States.”
He said the federal government should provide targeted grants and loans directly to entrepreneurs and companies, rather than funnel money into more innovation “superclusters,” accelerators and incubators.
The “silver lining” is that Canada’s workforce is much more sophisticated than it was 15 years ago, with the proven potential for innovative ideas, Breznitz said.
Others are commercializing those ideas, said Breznitz, pointing to large multinationals that have ramped up operations in Canada including Facebook and Google.
“The question is what kind of policies would allow more Canadian entrepreneurs, small businesses and big businesses, old and new, to do exactly what the multinationals are doing.”
Private companies operating in Canada have also failed to invest in research and development because innovation is costly and risky, he said.
“You can make easy money with less risk by being less sophisticated.”
The need for economic support and opportunities is even more pronounced in rural communities, where Breznitz said the lack of investment has been “catastrophic.”
Ken Coates, Canada Research Chair in Regional Innovation, said many residents lack access to a reliable internet connection, let alone access to start-up capital and training opportunities in science and technology.
“We should be delivering basic services at a national level to all Canadians. And we’re not even close to there right now.”
The pandemic may mobilize rural residents to demand the same essential service standards available in urban areas, said Coates, who also teaches at the graduate school of public policy at the University of Saskatchewan.
He said Canada’s natural resources have made the country rich and complacent.
The irony is that much of Canada’s resource development happens in and around rural and remote communities that should have become prosperous as a result, Coates said.
Economic development in rural and remote areas should capitalize on local strengths, he said.
For example, the capital of Sweden’s northernmost county was well-suited to become the host of Facebook’s European data servers. The city of Lulea has cheap and abundant hydro electricity and cold temperatures for the hot servers, much like parts of B.C., said Coates.
But it takes a lot of nerve, enthusiasm, commitment and support for a rural or remote community to decide to stand up and fight for new jobs, investors and residents, he said.
“There’s no easy solution whatsoever.”
This report by The Canadian Press was first published May 20, 2020.
Demands for government intervention in Air Canada labour talks could negatively affect airline competition in Canada, the CEO of travel company Transat AT Inc. said.
“The extension of such an extraordinary intervention to Air Canada would be an undeniable competitive advantage to the detriment of other Canadian airlines,” Annick Guérard told analysts on an earnings conference call on Thursday.
“The time and urgency is now. It is time to restore healthy competition in Canada,” she added.
Air Canada has asked the federal government to be ready to intervene and request arbitration as early as this weekend to avoid disruptions.
Comments on the potential Air Canada pilot strike or lock out came as Transat reported third-quarter financial results.
Guérard recalled Transat’s labour negotiations with its flight attendants earlier this year, which the company said it handled without asking for government intervention.
The airline’s 2,100 flight attendants voted 99 per cent in favour of a strike mandate and twice rejected tentative deals before approving a new collective agreement in late February.
As the collective agreement for Air Transat pilots ends in June next year, Guérard anticipates similar pressure to increase overall wages as seen in Air Canada’s negotiations, but reckons it will come out “as a win, win, win deal.”
“The pilots are preparing on their side, we are preparing on our side and we’re confident that we’re going to come up with a reasonable deal,” she told analysts when asked about the upcoming negotiations.
The parent company of Air Transat reported it lost $39.9 million or $1.03 per diluted share in its quarter ended July 31. The result compared with a profit of $57.3 million or $1.49 per diluted share a year earlier.
Revenue totalled $736.2 million, down from $746.3 million in the same quarter last year.
On an adjusted basis, Transat says it lost $1.10 per share in its latest quarter compared with an adjusted profit of $1.10 per share a year earlier.
It attributed reduced revenues to lower airline unit revenues, competition, industry-wide overcapacity and economic uncertainty.
Air Transat is also among the airlines facing challenges related to the recall of Pratt & Whitney turbofan jet engines for inspection and repair.
The recall has so far grounded six aircraft, Guérard said on the call.
“We have agreed to financial compensation for grounded aircraft during the 2023-2024 period,” she said. “Alongside this financial compensation, Pratt & Whitney will provide us with two additional spare engines, which we intend to monetize through a sell and lease back transaction.”
Looking ahead, the CEO said she expects consumer demand to remain somewhat uncertain amid high interest rates.
“We are currently seeing ongoing pricing pressure extending into the winter season,” she added. Air Transat is not planning on adding additional aircraft next year but anticipates stability.
“(2025) for us will be much more stable than 2024 in terms of fleet movements and operation, and this will definitely have a positive effect on cost and customer satisfaction as well,” the CEO told analysts.
“We are more and more moving away from all the disruption that we had to go through early in 2024,” she added.
This report by The Canadian Press was first published Sept. 12, 2024.
