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Canada risks relegation to the second tier of the global tech economy if it doesn't act now – TheChronicleHerald.ca

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The head of one of Canada’s most important technology companies said the country is at a crossroads: we have the talent required to be a leader in the digital economy, but a mix of complacency and poor policy means we could easily end up in the remainder bin.

“I’ve seen Canada over the last decade, sadly, turn into a little bit of a low-cost jurisdiction,” said Mark Barrenechea, chief executive of Waterloo, Ont.-based Open Text Corp. “A lot of companies today think of Canada as a lower-cost (country) for entry-level talent; first job or second job is a better way to say it.”

Put another way, we’ve become a development league, “competing more with Southeast Asia than the United States,” Barrenechea said. Open Text used to be able to hire four Indian software engineers for the cost of one worker in Waterloo. That ratio is now two to one. Canada is competitive, but maybe not in the way many of us might have thought.

Followers of Jim Balsillie, the former co-chief executive of the company that created the BlackBerry smartphone,

will be familiar with the argument

that Canada has unwittingly become a staging ground for young coders who eventually take their talents to the real tech centres in the U.S., China and Europe.

But it feels like a good time to stir the fire that Balsillie started. The prospectors of the digital gold rush ignited by the COVID-19 crisis are moving at rapid speed. The big fish will be gorging on the little fish. The winners and losers are being sorted now, not years from now.

Many of Canada’s homegrown technology companies were already upset over the tendency of governments to get excited by the arrival of famous tech behemoths such as Amazon.com Inc. and Google’s parent company Alphabet Inc., which tend to monopolize the best talent before patenting their ideas, thus locking up the wealth for themselves and their home countries.

The race to secure market share in the digital economy

has added a new dimension

: emerging Canadian companies are proving to be attractive targets for larger firms that want to accelerate their adoption of cutting-edge technology.

The ownership of St. John’s, Nfld.-based Verafin Inc. (cybersecurity), Montreal’s Element AI (artificial intelligence) and Calgary’s Benevity Inc. (software) all shifted abroad last year. They were local heroes and now they are branch plants. The jobs are still here, and more may come, so it’s not a dire situation. But it’s objectively the second-best outcome, because control rests elsewhere. It also puts a ceiling on what Canada can achieve since the highest performers at those companies will eventually be called up to corporate headquarters.

“Canada has really got to think through that,” Barrenechea said.

We have some time to think it through. Foreign-direct investment isn’t a one-way street and some Canadian companies are doing their share of the raiding.

For instance, Lightspeed POS Inc., a Montreal-based developer of software that restaurants and smaller retailers use to process sales and manage inventory, on March 11

announced

its intention to buy Vend Ltd., a New Zealand-based rival backed by PayPal Holdings Inc. co-founder Peter Thiel. The US$350-million acquisition would be Lightspeed’s third big purchase since November, a US$1.2-billion shopping spree.

That’s the kind of action it takes to play in what Barrenechea describes as the first tier. You take risks. You raise capital. You deploy that capital, gathering valuable intellectual property, talent and customers. You favour investment over dividends and share buybacks. You go farther afield than the U.S. The Vend acquisition would strengthen Lightspeed’s toehold in Asia, complementing its core operations in Canada, the U.S. and Europe.

Lightspeed, which Dax Dasilva founded in 2005 and took public on the Toronto Stock Exchange in 2019, is one of a few dozen Canadian

technology hotshots

that have been given long leashes by shareholders who are less sensitive about profitability than they used to be. Some will fail or disappoint, which shouldn’t bother anyone. That’s how innovation works.

Open Text, meanwhile, is a survivor, so it probably warrants more attention than it tends to receive. The company is nearing its 30th anniversary and generating cash isn’t an issue. The company

earned

a record US$855 million in its most recent quarter, an 11 per cent increase from the previous year. Its stock price is up about 25 per cent over the past year, pushing its market capitalization to about $12 billion.

Back in 1991, its original mission was to commercialize technology that the University of Waterloo developed to digitize the Oxford English Dictionary. Now, Open Text finds itself in an ideal situation to exploit the shift to cloud computing. Barrenechea this week

unveiled

a streamlined range of software products that will allow companies to gather and protect information generated from employees working from home, manage supply chains and interface with cloud-storage servers, including Open Text’s own private cloud.

The opportunity is huge. Barrenechea predicted the information-management market will grow eight per cent to US$84 billion by 2024. Open Text is already the market’s leader, and its CEO predicts organic growth of two per cent to four per cent in three years, an ambitious jump from the current rate of one per to two per cent. If he pulls it off, he might force people to reassess Open Text’s reputation as a company that is only able to achieve growth through acquisitions, even though it intends to keep buying whenever it spots a good value.

“It is a seminal moment for us,” Barrenechea said, adding that he plans to invest 14 per cent of revenue into research and development, compared with 10 per cent currently. “We’re going to invest

into

modern work and we’re going to invest into our growth rates.”

Open Text is here to stay, but we can’t take for granted that others have the same ambition to stay in the top division or climb their way there.

“IP and engineering is very mobile,” said Barrenechea, who took over as CEO in 2012 after a couple of decades in Silicon Valley. “You can optimize the economics by leaving Canada, but, for us, we haven’t led with that. We’ve led with talent and culture.”

The challenge for policy-makers, then, is working on the economics. We need to make it less optimal for those who don’t care about culture to leave.


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Economy

Canada to go big on budget spending as pandemic lingers, election looms

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By Julie Gordon

OTTAWA (Reuters) – Canada‘s Liberal government will deliver on its promise to spend big when it presents its first budget in two years next week amid a fast-rising third wave of COVID-19 infections and ahead of an election expected in coming months.

Finance Minister Chrystia Freeland has pledged to do “whatever it takes” to support Canadians, and in November promised up to C$100 billion ($79.8 billion) in stimulus over three years to “jump-start” an economic recovery in what is likely to be a crucial year for her party.

Prime Minister Justin Trudeau’s Liberals depend on the support of at least one opposition group to pass laws, and senior party members have said an election is likely within months as it seeks a clear majority and a free hand to legislate.

Furthermore, by September, all Canadians who want to be vaccinated will be, Trudeau has said.

Freeland has said the pandemic created a “window” of opportunity for a national childcare plan, and that will be reflected in next Monday’s budget along with spending to accelerate Canada‘s shift toward a more sustainable economy.

“It will be a green and innovative recovery plan aimed at creating jobs,” said a government source who declined to comment on specific measures. The budget will aim to help those “who have suffered most” the effects of the pandemic, the source said.

Critics say the government would be better to hold off on blockbuster spending because the economy has shown it is poised to bounce back, and to prevent the country from racking up too much debt.

“Clearly a garden-variety stimulus package is the last thing we need. This is pile-on debt,” said Don Drummond, an economist at Ontario’s Queen’s University.

“The risk is that at some point interest rates are going to go up and we’re going to be in trouble,” he said, pointing to the mid-1990s when Canada‘s debt-to-GDP ratio skyrocketed, leading to rating agency downgrades and years of austerity.

The Bank of Canada cut its benchmark interest rate to 0.25% to counter the economic fallout of the COVID-19 crisis and has said rates will not rise until labor market slack is absorbed, currently forecast for into 2023. That may change when it releases new projections on April 21.

EXPANDING ECONOMY

More than 3 million Canadians lost their jobs to the pandemic. As of March, before a third wave forced new lockdowns, only 296,000 remained unemployed because of COVID.

Despite still-high unemployment levels in hard-hit service sectors, the economy has expanded for nine straight months even as provinces have adjusted health restrictions to counter waves of infections.

“Once we see sustained reopening, we do think that the recovery will have quite a bit of momentum on its own,” said Josh Nye, a senior economist at RBC Economics.

“We think Canada‘s economy will be operating pretty close to full capacity by this time next year,” he said.

Economists surveyed by Reuters expect Freeland to project a deficit in the range of C$133 billion to C$175 billion for fiscal 2021/22, up from the C$121.2 billion ($96.7 billion)

deficit forecast in November. https://tmsnrt.rs/3wSJPcm

The deficit for fiscal 2020/21 ended in March is forecast by the government to top a historic C$381.6 billion ($304.5 billion).

Canada announced on Monday a C$5.9 billion ($4.7 billion) aid package for the country’s largest airline carrier, Air Canada, and said talks were ongoing with No. 2 carrier WestJet Airlines Ltd and others.

 

(Reporting by Julie Gordon in Ottawa; Additional reporting by Fergal Smith in Toronto; Editing by Steve Scherer and Peter Cooney)

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Economy

CANADA STOCKS – TSX ends flat at 19,228.03

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* The Toronto Stock Exchange’s TSX falls 0.00 percent to 19,228.03

* Leading the index were Corus Entertainment Inc <CJRb.TO​>, up 7.0%, Methanex Corp​, up 6.4%, and Canaccord Genuity Group Inc​, higher by 5.5%.

* Lagging shares were Denison Mines Corp​​, down 7.0%, Trillium Therapeutics Inc​, down 7.0%, and Nexgen Energy Ltd​, lower by 5.7%.

* On the TSX 93 issues rose and 128 fell as a 0.7-to-1 ratio favored decliners. There were 26 new highs and no new lows, with total volume of 183.7 million shares.

* The most heavily traded shares by volume were Toronto-dominion Bank, Nutrien Ltd and Organigram Holdings Inc.

* The TSX’s energy group fell 1.61 points, or 1.4%, while the financials sector climbed 0.67 points, or 0.2%.

* West Texas Intermediate crude futures fell 0.44%, or $0.26, to $59.34 a barrel. Brent crude  fell 0.24%, or $0.15, to $63.05 [O/R]

* The TSX is up 10.3% for the year.

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Economy

Canadian dollar outshines G10 peers, boosted by jobs surge

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Canadian dollar

By Fergal Smith

TORONTO (Reuters) – The Canadian dollar advanced against its broadly stronger U.S. counterpart on Friday as data showing the economy added far more jobs than expected in March offset lower oil prices, with the loonie also gaining for the week.

Canada added 303,100 jobs in March, triple analyst expectations, driven by the recovery across sectors hit by shutdowns in December and January to curb the new coronavirus.

“The Canadian economy keeps beating expectations,” said Michael Goshko, corporate risk manager at Western Union Business Solutions. “It seems like the economy is adapting to these closures and restrictions.”

Stronger-than-expected economic growth could pull forward the timing of the first interest rate hike by the Bank of Canada, Goshko said.

The central bank has signaled that its benchmark rate will stay at a record low of 0.25% until 2023. It is due to update its economic forecasts on April 21, when some analysts expect it to cut bond purchases.

The Canadian dollar was trading 0.3% higher at 1.2530 to the greenback, or 79.81 U.S. cents, the biggest gain among G10 currencies. For the week, it was also up 0.3%.

Still, speculators have cut their bullish bets on the Canadian dollar to the lowest since December, data from the U.S. Commodity Futures Trading Commission showed. As of April 6, net long positions had fallen to 2,690 contracts from 6,518 in the prior week.

The price of oil, one of Canada‘s major exports, was pressured by rising supplies from major producers. U.S. crude prices settled 0.5% lower at $59.32 a barrel, while the U.S. dollar gained ground against a basket of major currencies, supported by higher U.S. Treasury yields.

Canadian government bond yields also climbed and the curve steepened, with the 10-year up 4.1 basis points at 1.502%.

 

(Reporting by Fergal Smith; Editing by Andrea Ricci)

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