Thanks very much, Mr. Chairman. My name is Jay Myers. I'm the senior vice-president and chief economist with Canadian Manufacturers and Exporters. I'm delighted to be able to come today and speak about the current status of Canada's manufacturing sector and some of the challenges as we move ahead in a very challenging global economy.
I've brought several pieces of information for you. I'm going to be talking to this presentation, which is an overview of the current economic status of manufacturers. I thought we could maybe start with that to get the discussion rolling today. I've also brought this document, which is the executive summary of our manufacturing 2020 initiative. That initiative was launched about two years ago, and it involved over 3,500 manufacturers and community leaders across the country in 98 meetings, talking about the future of manufacturing in Canada. It summarizes some of the challenges, the changes, going on in the industry and what people told us was necessary to achieve a successful manufacturing sector in the country.
I'm also including this document. It's an inventory that's been prepared by 29 different federal departments, listing all federal programs for manufacturing. It has been prepared over the past year in response to our 2020 initiative, really taking stock of current programs the federal government has for manufacturing. So I want to table that information as we begin our discussion.
First of all, manufacturing is Canada's largest single business sector. It employs 2.1 million people. Two years ago it employed 2.3 million people. It's an industry with shipments of over $610 billion. It's important not only because of the number of people it employs and the direct contribution it makes to the Canadian economy, which is about 18% of the Canadian economy, but for every dollar of manufacturing output there are over three dollars of total economic activity generated as a result in the primary sector, the services sectors, as well as in the public sector.
It accounts for two-thirds of our exports. It accounts for two-thirds of our private sector research and development in this country. It's made tremendous strides in improving productivity. It's made very strong strides in improving energy efficiency, and as a result, the sector has reduced its greenhouse gas emissions by 7.4%, below 1990 levels, as of the year 2003. So it's a sector that is in the midst of change and at the direct forefront of all the competitive pressures in the global economy today. The top priority right now, the top issue, is the appreciation of the Canadian dollar. But that's just the short-term challenge the sector is facing.
We have to look at issues like skill shortages, which is operating as a real production constraint today in the province of Alberta and western Canada. We have to look at the impact of China, of India, and the newly emerging industrial economies, not only as competitors but as very strong market opportunities for Canada as well. And we have to talk about this sector's readiness to adjust to those challenges.
This graph shows the growth of the manufacturing sector over the last 15 years. I began working with the Canadian Manufacturers Association 15 years ago, at a time when everybody said manufacturing was going out of business in Canada. That's what a lot of people are saying right now: who cares about manufacturing? Unfortunately, people were saying that just as manufacturing went into the strongest growth period it had ever witnessed in this country, doubling in size over 10 years.
During the 1990s, manufacturing was the top job creator in Canada. A lot has changed over that period. The low Canadian dollar accounted for about a third of that growth, but much of that growth came about as a result of the restructuring that took place in manufacturing. Companies were exporting more. In 1990 we exported one-quarter of what was manufactured in Canada. Today we export over 60% of what's produced in this country, and 50% of it is exported into the United States. The Canadian dollar is climbing against the U.S. currency. It has a big impact because it's a price cut; it's gone up by 50% and it's a price cut on export sales. If 50% of your sales are exports to the United States, it has a big bottom-line impact.
As a result of free trade, Canadian manufacturers couldn't compete on low cost and high volume; they had to compete on something different. They competed on specialization. They became much more specialized, much more customized, much more high value, much more service-oriented, and much more flexible in the way they were able to produce products and services in response to changing customer demands. I think that's given Canadian manufacturers an edge over their U.S. counterparts. Ninety percent of Canadian companies, Canadian establishments, are small to mid-size companies with fewer than 500 employees. In large companies, too, we're seeing change across the manufacturing sector. It's a very dynamic sector, but one that's faced with a lot of challenges, primarily today as a result of the climbing dollar.
For your information, the next three graphs just show the growth trends by province and by sector and manufacturer. This is from March to March. Overall we saw 3% growth in total shipments. The strength is in western Canada. The main challenge in western Canada is the lack of people. The lack of people today means that manufacturers cannot continue to grow as they have been over the past couple of years. Unless we correct that problem, and very rapidly, we'll see more product being contracted out, if we're lucky, to other parts of the country, but if we're not lucky, to the United States and China.
The real weakness in manufacturing is in Ontario. Right now, a large part of it is due to weakness in the automotive sector, where there is an over-capacity of product for some companies. But it's also weakness in a lot of the supply chain. Of course, if you're looking at automotive-aerospace, you're looking at some of the largest supply chains you can imagine. For every dollar of manufacturing output we're looking at nine dollars in extra economic activity.
You can see here, on the first page, sector by sector, the weakness in the textile sector, the weakness in the paper and wood products sectors, and on the second page you can see the transportation equipment sector. This masks weakness in the automotive sector, where production was falling. The transportation numbers are up because of stronger aerospace production. These sector-by-sector growth rates I think right now—and it does differ across the country—are a mirror of what's happening in almost every manufacturing sector of the country.
I want to draw your attention to this other graph, though. It's one thing to get product out the door; it's another thing to make money on what you're producing. This graph shows the difference between prices and costs over a six-year period, from the beginning of 2000 to the end of last year. It shows that on average, prices are pretty much stable. The closer you are to your customer, the less likely you are to be able to pass costs along to your customer, simply because if you raise your prices, your competition is going to take your business away.
The fact is, when you get to the consumer products, the machinery equipment sector, prices in those sectors are falling. As I said, the rapid appreciation of the dollar is like a price cut on your export sales. A 50% appreciation is a pretty rapid price cut to adjust to. The problem is that there aren't very many costs of doing business that are falling. Labour rates are just keeping pace with inflation, but they're up by over 18%. The cost of raw materials, the cost of energy, and the cost of transportation are all rising, and very rapidly.
The only way companies can offset those rising costs at a time when their prices are falling is by becoming more productive or by going out of business. And companies right now are doing both. They are focusing on the bottom line, on improving efficiency, on cutting costs. That's why we're seeing the number of layoffs we're seeing. We're at record levels of manufacturing production in this country, but we're seeing approximately 150,000 job losses in the sector. A large part of that is because of the need to improve productivity.
I'm not going to take you through any more of these slides, but if you look through them, you will see the relationship between productivity and the rising dollar. Productivity has increased by about 5.5% over the last year. That makes manufacturers, on average in this country, competitive at approximately an 82-cent dollar. It's not necessarily the level of the dollar that hurts; it's how fast it has risen. Companies are really struggling to keep up to that rapid rate of appreciation.
I think we're going to see about 100,000 job losses in manufacturing this year. I think we'll see more production closures. We're already going to see a number of job losses as a result of companies deciding to close product lines simply because they're not economically viable in Canada.
But that's the short term, and as we go on here—I've provided an analysis and we can talk about it later—the long-term question is how we respond to the competitive challenges of China and India and Brazil and Mexico. How do we take advantage of this great investment opportunity in western Canada? How do we make sure we have people and organizations that can respond in an innovative way to make sure they are improving their productivity and innovation to drive higher-value business? Finally, how do we make sure we have the investment in technology, in innovation, in assets that's necessary to drive those productivity improvements? That's the challenge we're facing today.