Thank you, Mr. Chair.
When we were called here to discuss the performance of the SME segment for the past year, we thought long and hard about how to put it into perspective. It's really difficult, but I think the best way to describe it is as a game of survival of the fittest.
It's no secret that over recent years the SME segment, specifically in the manufacturing sector, has been weathering what we've called a perfect storm, but I don't think any company or any economist or anyone out there was prepared for the fallout of what is being called the great economic recession. It is the biggest economic downturn in the past 70 years and what has transformed this storm into an economic tsunami.
Let's consider the facts for a second. Since the financial meltdown south of the border, we've seen a 30% evaporation of customer demand in Canada's largest export market. We've seen 200,000 job losses in Canada's largest business sector, manufacturing, 5% of which came in one month, January 2009; a 3.9% shrinkage in overall GDP; currency volatility that knows no boundaries; increased protectionism in our largest export market, the U.S.; ongoing credit issues; a number of consolidations and plant closures; and the list goes on.
Now, I don't want to paint a picture that is complete doom and gloom; it's not, but I want to reinforce that at no other time in recent history have Canada's main wealth creation sectors been under such extreme pressure. The SME segment is on the front lines. It has been hit exceptionally hard. It's no secret that by their very nature, smaller companies are caught in somewhat of a catch-22 position. They can be more agile in adapting to changing conditions; however, they often don't have the resources at their disposal to effect the needed change.
Last December, CME began its own monthly business conditions survey to obtain a real-time understanding of the economic health of the nation's manufacturers and exporters, particularly in the SME segment. Since then, we've been tracking the performance of companies from all sectors as they have tried to navigate their way through these troubled waters.
What story do the most recent results tell? Well, it's both good and bad news. The good news is that as we hear in the media, there are green shoots budding in the economy. The bad news is that there are many threats on the horizon that could delay and even jeopardize a full-grown recovery.
In the preliminary results of our November survey of 727 companies, which will be released later this week, we are finding businesses beginning to pick up. Markets are stabilizing, but the outlook is for a slow and faltering recovery. Manufacturers are working inventories down, job recovery will be slow, and securing credit remains an insurmountable challenge. Nationally, about 71% of companies report difficulties in accessing financing for various purposes. Although this amount is slightly higher than the 66% reported in October, the percentage has consistently remained around the 70% mark since we began this survey a year ago. As in past months, companies looking for financing found the greatest difficulties in securing credit for working capital purposes, operating a line of credit, and capital investment. The main reasons manufacturers and exporters were refused access to credit include the following: the company's overall debt load was too high, the industry sector in question was too risky, and assets given as security did not meet the requirements.
We have also been tracking the impact of the recession on the SME segment in manufacturing and exporting. It's important to point out that the following results underestimate the overall impact of the recession on the Canadian economy as a whole because they do not take into account those firms that have gone out of business or closed operations in Canada as a result of consolidation. According to the most recent figures, 68% of SME manufacturers and exporters have cut employment levels over the past year, and 16% of that group have reduced their workforce by more than 30%. Only 10% of companies have increased the size of their workforce, while 22% are employing around the same number of people today as at the beginning of the recession.
What is interesting in this new data is that 42% of companies have reduced capital investments in machinery and equipment and 20% have cut investment by 30% or more. On the other hand, 22% have increased investments in new technology, while 36% have held their capital spending budgets at about the same level as last year.
Additionally, 20% of companies have reduced spending on new product research and development, but 23% of firms have increased R and D spending. And half have been able to hold their product innovation budget steady. This is reporting from companies that are still in business, and that means that they've been finding ways to remain competitive. The main point is that companies still in business today have seen the proverbial writing on the wall and realize that the way forward is innovation, improved productivity, and differentiation.
There are many threats to the recovery, which has not yet taken root. We may have moved from a deep slide into a more stable era, but many SMEs are being handcuffed by significant challenges: the rapid appreciation of the dollar; increasing costs for energy and raw materials; the cost and availability of financing; increased protectionism in the U.S.; over-capacity in global and industrial markets; consolidation on the part of many multinational companies; increasing regulatory complexity and unnecessary costs of regulatory compliance; and navigating through government assistance programs that members report are inflexible and time-consuming. This prompts the question: where do we go from here?
We at CME believe that one of the major impacts of this recession is the change in the very nature of manufacturing and exporting in Canada. While we don't yet know the situation in its entirety, we do know that the way forward does not include the ways of the past. Simply put, business as usual is no longer an option.
The responsibility to adapt to this new reality lies first and foremost with each company. In order to compete and grow their businesses, SMEs must improve cash flow; improve internal business and production processes; invest in and adopt new technologies; develop and commercialize new, more specialized, and more customized products and services; develop new markets and connect to new customers and supply chains; respond more rapidly to changing customer requirements; and mobilize and train their workforces to achieve new and more profitable business results. Most important, they must do all of this with the limited resources and expertise characteristic of the SME segment.
I believe that we have to consider the current situation facing our industries from both a short- and long-term perspective. In the short term, government can assist by providing up to a 25% federal government guarantee for bank loans undertaken by companies to finance new orders, by providing a holiday period under the work-sharing program that will allow companies the flexibility they need to return to the program if new orders cannot be sustained, and by doing what it must to keep markets around the world open, specifically in the U.S.
As the recovery takes hold, the challenge of change will be the new norm. We need to be thinking about the future now. In the long term, we need a debate followed by a strategy for the future of Canadian industry. What are our strengths, our weaknesses, and what do we need to do in order to take on the globe and win? We are not alone. Economies around the western industrialized world are facing the same challenges. But the barometer of success is going to be how we transform these challenges into opportunities and how we create the conditions that will enable Canadian companies to compete and win, not only in Canada, not only in North America, but throughout the world.