Canadian manufacturing sector spearheads national economic growth; service sector lags.

MONTREAL--(BUSINESS WIRE)--Aug. 20, 1996--

Productivity and Weak Dollar are Major Concerns, According to Deloitte Touche Tohmatsu International

Despite perceptions to the contrary, manufacturing is one of the fastest growing sectors of the Canadian economy; it is, in fact, a key contributor to the country's competitiveness in the world market and critical to Canada's future success, according to research released today by Deloitte Touche Tohmatsu International (DTTI), a leading global consulting firm.

The research lays to rest the rumored demise of Canadian industry, and urges other countries to reassess the purported poor health of their own manufacturing sectors. The findings, which counter the widely-held belief that the Canadian service sector is dominating the New Economy, were released at a roundtable meeting of the firm's Global Manufacturing Sub-Committee.

The DTTI findings, identified by the firm's Institute for Manufacturing Research, place manufacturing among the leaders in both real annual revenue growth and investment. In 1995, the manufacturing sector comprised fully 20.0% of the Canadian economy, up from 18.6% in 1992. More strikingly, manufacturing investment has grown by 6.5% per year, nearly four times the overall economy average of 1.8%.

"Manufacturing has been falsely represented as a dying segment of the economy, depicted to trail both the burgeoning service sector and the public sector in its contributions to Canada," asserted Jean-Pierre Naud, National Director of Manufacturing for Deloitte & Touche Consulting Group/Canada, an operating unit of DTTI.

"While there are many factors contributing to the success of the manufacturing sector, it is clearly outperforming other segments of the economy," Naud continued. "The challenge for Canadian companies is to increase their productivity and investments while diversifying their export base to capitalize on the lucrative growth potential of emerging markets."

"Many Canadian manufacturers have wisely focused on market niches and made investment in research and development a high priority," Naud added. "Biotechnology, telecommunications and transportation equipment are key areas showcasing Canadian success, and other industries are poised to follow suit."

A majority of the success of Canada's current export growth can be attributed to the weakness of the Canadian dollar and its resulting influence on trade. However, this raises a warning flag on the future vulnerability of these export gains to currency fluctuations. Overall, the weak dollar, combined with Canada's relatively small domestic market and liberal trade regime, has spurred the growth of Canada's merchandise trade surplus from C$6 billion in 1992 to C$28 billion in 1995. In addition, 1995 brought Canada a trade surplus for manufactured goods for the first time since 1988.

Despite current successes, productivity remains paramount among concerns for Canadian manufacturers. Among G-7 nations in 1995, only the United Kingdom (0.0%) demonstrated a smaller growth increase than Canada (1.6%) in output per hour. While productivity has clearly lagged, manufacturing has fared better than either the service or public sectors with regard to employment. Since July 1995, employment in the manufacturing sector has remained stable, compared with significant losses in the other sectors.

"The Canadian example demonstrates that the global marketplace clearly has not destroyed manufacturing," added Michael J. Fradette, Chairman of the DTTI Manufacturing Sub-Committee. "In fact, we have found that those countries with strong manufacturing sectors, like Canada, are far better suited to the rigors of international competition. Canada has been very successful in penetrating the U.S. market, however, it can not maintain this relationship at the expense of developing a diversified roster of trade partners."

Also critical to manufacturing activity are foreign ownership and direct investment, both inbound and outbound. Canada's status as a traditional recipient of foreign direct investment is exemplified by the 40% ownership of its manufacturing assets by non-Canadian companies (approximately 27% U.S.). However, Canada has taken recent strides to increase its overseas investments through both joint ventures and acquisitions. Between 1984 and 1994, Canadian investment abroad grew 50% faster than inbound foreign direct investment, setting a positive tone for Canada's capability, and intentions, to supply international markets.

"Canada has begun to increase the pace of economic expansion, and the manufacturing sector is leading that charge," concluded Naud. "Many of the predictions regarding the New Economy focused on the collapse of industry. Instead, manufacturing has set the pace, and it will continue to drive Canadian growth in the international marketplace."

Deloitte Touche Tohmatsu International (DTTI) is one of the world's leading accounting and auditing, management consulting, and tax service firms. DTTI serves multinational and large national enterprises, public institutions, and tens of thousands of fast growing small businesses. DTTI audits over 700 companies with sales or assets in excess of US$1 billion. With 59,000 people in 125 countries, our internationally experienced professionals deliver seamless, consistent services wherever our clients operate.

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