Good evening, my name is Jean Laneville. I am the economist for the Quebec Federation of Chambers of Commerce. I am very pleased to be here to talk to you about the impact that the rising dollar has had on our members, particularly those from the manufacturing sector.
The Quebec Federation of Chambers of Commerce represents 162 chambers of commerce bringing together more than 55,000 members. We claim to be the largest and most representative business network in Quebec. Indeed, we have members in all administrative regions of Quebec and we also have members in all of Quebec's economic sectors.
During the next three or four minutes, I will first of all address the issue of the soaring dollar from a structural perspective. I will also discuss the Dutch disease effect theory. I would be pleased to answer any questions you may have in order to clarify the economic context.
The rise in the price of raw materials has had an impact on the Canadian economy because Canada is a net exporter of natural resources. This increase has had an impact primarily on our currency. Over the past five years, the Canadian dollar has appreciated substantially. On average, it has climbed 10% per year. This situation has proven to be relatively difficult for exporters and manufacturers because the profit margin of exporters has declined whereas most of them are price-takers on foreign markets, particularly the U.S. market.
If we were to divide the Canadian economy into three sectors, we would have the natural resource sector, the domestic and service sector and the manufacturing sector. We can see that the soaring dollar has created a great deal of upheaval. Over the past few years, in Canada and in Quebec, we have noted that the natural resource sector has performed relatively well: very well in the west and not so well in Quebec. This has resulted in a great deal of wealth that has contributed to the service sector, namely to domestic consumption.
Resources have been displaced, they have gone to the natural and service sectors, whereas the manufacturing sector has performed very poorly. With the soaring dollar, this sector has found it increasingly difficult to export, but it also faced the problem of dwindling resources. We are starting to see the situation, in Quebec, where there are shortages for certain types of jobs. This is rather difficult in a situation where competition is fierce. The situation is difficult because of the appreciation of the dollar.
In terms of the GDP, on the manufacturing production side, Quebec has had an average annual decrease of approximately 4% since 2002. This is not huge, but we have observed, on the employment side, an average annual decrease of approximately 4% since 2003. So we are talking about a substantial impact.
There is one fact that is alarming: over the past three years, from 2003 to 2006, we have seen declining investment in the manufacturing sector. However, the government refuses to see this and tells us that, with the higher dollar, it will be easier and less costly to purchase machinery and equipment, which is completely false. Our members are telling us that certain conditions have to be present before investing. One does not invest because the machinery is cheap, but because better performance can be achieved. This is how we have to look at the situation. We can't simply say that the higher dollar will enable us to purchase machinery at a lower cost. The first point that we want to get across is that the higher dollar is making the situation less profitable for Quebec manufacturers.
In Quebec, we have seen production, employment and investment decline. That is very alarming. Everything is pointing to the beginning of deindustrialization. The word may be strong, but there are certain indicators present that lead me to the theory of the Dutch disease effect.
As the name suggests, this theory originated in the Netherlands. At the end of the 1950s, natural gas was discovered in the North Sea. There was a period of prosperity in Holland, which made it very wealthy and increased the value of the currency. In the long term, over 15 years, the manufacturing sector declined. Once the economic prosperity caused by the natural resources disappeared, Holland found it no longer had a manufacturing sector to drive the economy. That is what we fear. That could happen, particularly in Quebec, because we are more dependent on the manufacturing sector than the United States and Canada are as a whole.
There are a number of very appealing solutions that have been put in place in Norway. The first is to be cautious as regards fiscal policy. When there is very high potential growth and consumption, the economy should not be over-stimulated, by reducing the GST, for example, because this results in inflationary pressures.
Quebec manufacturers are suffering because of the fluctuation in the value of the dollar, which is something that cannot be controlled. It would be a good idea to do what Norway did and establish a fund to stabilize the dollar. Natural resources and government revenues should be invested in the fund, and it should then be used on the exchange market to stabilize the dollar.