My name is Michael Burt. I'm with the Conference Board of Canada. For anyone who is unaware, we're a non-profit, non-partisan research institute based here in Ottawa. We do research in a variety of areas, including public policy and economic forecasting and analysis.
You invited me here today to talk about manufacturing.
Manufacturing is still a very important part of the Canadian economy. It accounts for about 10% of GDP, 10% of employment and, even more importantly, for about half of our exports and half of the R and D activity that takes place here in Canada.
However, its role in the economy has been shrinking. I'm sure you're already well aware of that. If you look back at the turn of the century, for example, instead of being 10% of GDP, it was about 16% of GDP. So we've had a pretty big shift in a fairly short period of time. Some of that has been absolute. If you look at employment, we have 500,000 fewer people employed in manufacturing today than we did 15 years ago.
On the production story, things a little bit more positive. Production is not much different today than it was 15 years ago and a lot of that is due to what's happened during the dip, during the recession. We've had a pretty healthy recovery from the dip that occurred in 2008-09.
The other thing I want to say is that it's very important to note that the decline in manufacturing that we're seeing in Canada is not unusual. In every single developed country around the world, we're seeing manufacturing shrinking as a share of production and as a share of employment. Canada has probably seen a larger than average decline over the last few years, but this is not unique to Canada. In fact, even in China, employment in manufacturing is flat. It's not rising, but because the rest of the economy is growing, manufacturing is shrinking as part of China's economy, believe it or not.
What I'm trying to say is that this is a normal thing that's going on.
I will say, just because one the questions you asked in the invitation letter to me was about the strategic importance of manufacturing, that we as a country likely put too much emphasis on it. Services are 80% of our economy. They account for a lot of the growth in jobs, GDP, and trade in the last decade or so. We probably need to look a little more at that, but, of course, you've asked me to talk about manufacturing today, so that's where I'll focus my comments.
What caused this big drop in manufacturing activity in Canada, or at least its share of GDP in Canada?
There are a few key things. First, a lot of it has been due to declining demand for some of the key products that we make here in Canada. The paper industry is a very clear example of this. The industry is 30% smaller today than it was 10 to 15 years ago, and that's just tied to the fact that demand for paper products has shrunk dramatically over that period of time, due to what's been going on with the digitization of media. That's one thing that's been happening.
Another big thing is that the competitive environment internationally has fundamentally changed. China came onto the world stage in the early 2000s. It has dramatically changed the manufacturing world. We've seen a big change in the North American supply chains, in North American expertise and strengths. To list just a few things in which we've lost very large market share, both domestically and in the U.S., these include apparel, furniture, and electronics, all of which are tied up with what's been going on with China. Mexico is also a part of this story. It's not just China, but there are other emerging markets. For example, Mexico has been a big competitor for Canadian auto manufacturers and parts manufacturers in the United States, and so we've lost market share, as well.
Therefore, it's first partly about what we make and, second, it's about the competitive environment we're facing.
Then, finally, another big factor is that for most products we have a very narrow focus on the U.S., which means that the impacts of the strong Canadian dollar during much of the 2000s were amplified. We really had a limited ability to take advantage of opportunities outside of the U.S. market because we were so geared to that north-south trade relationship.
I will echo what you said: this is not necessarily all a bad news story. There are many success stories in our manufacturing sector, and I think it's really important to start learning from those success stories in trying to see how we can grow other parts of the manufacturing sector.
Food manufacturing is one that I often talk about. It's actually the biggest part of our manufacturing sector. Many people don't realize that it's bigger than autos and parts. It has been a stellar growth engine over the last 10-15 years. It's been slow but steady growth, and it's expanded tremendously. It's been led by a variety of products, things like red meat, canola oil, snack foods, ready-to-eat products. This is an industry that has been very successful in Canada over the years.
Another more micro example is things like cosmetics and beauty products. Most people don't realize that. We are quite successful. We have a very large market share relative to our size in those products, and it's really down to a few key companies. Some of them target basically private label brands, in things like retailers and hotel chains, those sorts of things. They have developed very strong relationships with partners for marketing their products, selling their products.
The other group falls into things like companies that have targeted emerging markets, key markets. They have a specialty product that has certain features that are very desirable in key emerging markets, and they've said they are going after that emerging market. Those are examples of success.
Beyond that, if you look at other areas of growth in manufacturing, prior to the drop in oil prices, we had very strong growth in things like—