Canada

1
Think Dynamic
Think
Competitive
Think
Bottom Line
Think
Canada!
Canada
2
Canada a Dynamic, Competitive Economy Open for
Global Business
Canada's economic fundamentals and relative cost
advantages provide a first-rate business
environment.
Report Card
Canada provides
Canada
3
Canada Provides
Excellent economic fundamentals
Easy access to markets
A cost-competitive business environment
An excellent place to live and work
4
Canadas strong fiscal situation

• Canada's fiscal situation has turned around
  dramatically
• In 1994, Canadas deficit (as a percentage of
  GDP) was 6.7, the third highest in the G-7.
• However, by 1997, Canada became the first G-7
  country to post a surplus in the 1990s, and is
  the only G-7 nation expected by the OECD to post
  two straight financial surpluses from 2002 to
  2003.
• Federal government spending (as a of GDP)
  reached a 50-year low in the 2000-01 fiscal year,
  the key source of the Canadian fiscal turnaround.

Federal Budgetary Balance Public Accounts Basis
C
Federal Program Spending Public Accounts Basis
of GDP
Projected
10
Total Government Surplus
16
8
6
4
2
14
of GDP
0
-2
-4
12
-6
-8
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
10

Includes federal, provincial/state and local
Projections Source OECD Economic Outlook,
June 2002
1993-94
1995-96
2002-03
2003-04
1994-95
1997-98
1998-89
2000-01
2001-02

1999-00

1996-97

Canada




5
A Strong Fiscal Surplus
Total G-7 Government Fiscal Balance ( of
GDP) 2001-2003
4
2

• Canada had the highest general government surplus
  as a percentage of GDP in the G-7 in 2001. The
  OECD expects Canada to be the only G-7 country
  with fiscal surpluses in 2002 and 2003.

0
-2
2003
-4
2002
2001
-6
-8


-10
Italy
U.K.
U.S.
Japan
France
Canada
Germany
Source OECD Economic Outlook, June 2002
6
Low Inflation and Low Interest Rates
Inflation
4

• Canadas targeted inflation rate is locked
  between 1 to 3.
• Over the past five years, Canadian inflation
  averaged 1.9

3
2
Year-Over-Year Change
1
0




1994
1995
1997
1999
1996
1998
2000
2001
Sources Statistics Canada and the Federal
Reserve Bank of St. Louis


Long-Term Interest Rates
10

• Canada's excellent fiscal situation and low
  inflation are reflected in low domestic interest
  rates.

8
5
3
1994
1995
1996
1997
1998
1999
2000
2001
2002
Last data points plotted Canada August 2,
2002 U.S. August 12, 2002
Source Bank of Canada, Government long-term
bond.
U.S. Treasury, Constant Maturity long-term bond.
7
A Growing Domestic Economy
Real GDP Growth Projections 2002-2003 ()
4
3.6
3.4
3.0
2.9
2.8
2.7
2.5
2.3
2.0

• Canadas GDP grew at an annual rate of 6.0 in
  the first quarter, similar to U.S. growth but
  much stronger than growth in other G-7 countries.
• The OECD and IMF both forecast Canada to lead the
  G-7 in economic growth in 2002 and 2003.

2
1.4
1.4
0.9
0.8
0
2003
2002
Canada
France
Italy
-1.0
Germany

U.S.
U.K.
Japan
Source International Monetary Fund, May 2002
4.0
4
3.5
3.2
3.0
2.8
2.8
2.5
2.5
1.9
2
1.5
1.4


0.7
0.3
0
2003
2002
-0.7
Italy
Canada
France
U.S.
Germany

U.K.
Japan

Source OECD Economic Outlook, June 2002
8
Canada Provides
Excellent economic fundamentals
Excellent economic fundamentals
Easy access to markets
A cost-competitive business environment
An excellent place to live
9
Streamlined Border Flows

• Since the enactment of the North American Free
  Trade Agreement (NAFTA) in 1994, Canada provides
  long-term assured access to the North American
  market nearly 400 million people with a
  combined GDP of over 9.4 trillion (U.S.).
• In addition to eliminating tariffs, NAFTA
  provides procedures for
• border facilitation
• movement of personnel
• investment and intellectual property protection
  and
• product certification.
• The North American market is serviced through a
  well integrated transportation system which is
  among worlds best.
• - Automated permit ports, transponder
  identification systems and joint processing
  centres are being tested and deployed.

Annual Transborder Crossings -
Total Number of Trucks and Canada-US Air
Passengers
Entering Canada
20
Air
15
10
Truck
5
0
80
82
84
86
88
90
92
94
96
98
2000
Source Transport Canada and Statistics Canada,
2001
10
Smarter Borders

• Efficient border crossing was restored within a
  week of the tragic events of Sept 11th
• today, border wait times average less than 10
  minutes
• In December, Canada and the USA signed a
  declaration to build a Smart Border for the 21st
  Century to accommodate the growth in trade and
  commerce
• initiatives focus on improving existing border
  processes through the use of new technologies and
  infrastructure
• The December Budget also allocated 1.6 billion
  over the next five years for border initiatives

11
and Short Distances to Markets

• Almost half of the U.S. population lives within a
  10 hour drive of Toronto, and over 60 percent
  within a two hour flight.
• Business travel between Canada and the U.S. has
  increased considerably since the inception of the
  Open Skies Agreement (February, 1995)
• Direct air service between major cities in Canada
  and the U.S. has nearly doubled in 6 years.
• Under Open Skies Canadian Air Carriers gained
  unlimited rights to establish routes from any
  point in Canada to any point in the United
  States. Similarly, U.S. carriers also gained
  unlimited access to the Canadian market (with a
  phase in period for up to three years)

12
Canada Is by Far the Largest U.S. Trading Partner

• Canada and the U.S. have the worlds largest
  trade partnership, with two-way trade amounting
  to 700 billion in 2000. In fact, this averages
  to more than 1.3 million dollars a minute in
  trade.
• Between 1995 and 2000, trade between Canada and
  the U.S. grew at a compound average annual rate
  of 10.4.
• The U.S. trades more with Canada than with any
  other country - the U.S. trades more with Canada
  than with all of the countries of the E.U.
  combined!

Canada - U.S. Trade
Billions
800
700 Billion
700
600
500
400
300
200
100
0
1995
1996
1997
1998
1999
2000
Source Statistics Canada
Distribution of U.S. Trade 2000
Mexico
12.4
Japan
Canada
10.6
20.3
China
5.8
Germany
4.4
All Others
46.5
Merchandise trade Source World Trade Atlas
13
Canada Welcomes Foreign Investment
Distribution of Foreign Direct Investment

• Foreign direct investment in Canada has more than
  doubled since 1990.
• Increasingly more investment goes to
  knowledge-based industries in high-tech
  manufacturing and services sectors.
• The U.S. is the dominant source of foreign
  capital.
• - In 2001, the U.S. share of foreign direct
  investment (FDI) in Canada was 67.

by Industry
2001
1990
Machinery Transportation
131 Billion
321 Billion
Source Statistics Canada
2001
Distribution of Foreign Direct Investment
by Region/Country
Source Statistics Canada
14
The United States is Canadas Largest Source of
FDI
Canada - U.S. Direct Investment Stock

• Canada and the U.S. have one of the worlds
  largest direct investment partnerships, with the
  stock of investment between the two countries
  totaling 340 billion in 2000.
• Between 1990 and 2000, U.S. foreign direct
  investment in Canada grew at an average annual
  rate of 6.9.
• Over this period, Canadian direct investment
  abroad grew at an average annual rate of 8.2.

Billions
350
300
250
200
150
100
50
0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
Source Statistics Canada
Distribution of Canadian Total Direct Investment
Stock
7.5
U.K.
France
5.5
United States
Netherlands
3.5
57.4
3.3
Barbados
2.4
Japan
20.4
All Others
Source Statistics Canada
15
Canada Provides
Excellent economic fundamentals
Excellent economic fundamentals
Easy access to markets
A cost-competitive business environment
An excellent place to live and work
16
Superior Quality Workforce

• The overall skill level of Canada's workforce
  ranks high among competing countries.
• According to the World Competitiveness Yearbook,
  Canada has the highest percentage of individuals
  achieving at least college or university
  education.

Percentage of the population that has attained
at least tertiary education among 49 countries
considered in the World Competitiveness Yearbook,
2002.
17
An Excellent Post Secondary System
RANKING OF ELECTRICAL ENGINEERING UNIVERSITY
PROGRAMS
Institution Score U.S. Cdn.
Rank Rank

• 1998 U.S. Gourman report scored 10 Canadian
  electrical engineering programs in the top 22,
  and 18 in the top 40
• Canadas 67 universities and colleges produce
  more than 25,000 graduates per year in math,
  engineering and pure and applied sciences

M.I.T. 4.92 1 Stanford 4.91 2 Berkeley 4.88
3 Illinois 4.86 4 Toronto 4.86
1 UCLA 4.82 5 McGill 4.82 2 Cornell 4.81
6 U.B.C. 4.81 3 McMaster 4.80
4 Purdue 4.79 7 Southern California 4.77
8 Princeton 4.76 9 Michigan 4.75 10 Carnegie
Mellon 4.74 11 Polytechnic-Brooklyn 4.73 12 Queen
s 4.72 5 Alberta 4.72 6 Calgary 4.71
7 Polytechnique, Mtl. 4.70 8 Saskatchewan 4.70
9 Manitoba 4.70 10
18
Skilled Management
Management Education World Rank
1st
2nd

• Canada ranks third among the G-7 and fourth
  overall in a 75-country study of locally
  available Management education in first-class
  business schools.
• - Eight Canadian business schools are ranked
  among the top 100 Management Schools in the world
  according to a January 2001 survey by the
  Financial Times (UK).

4th
6th
21st
31st
49th
Index
U.K
U.S.
Italy
Japan
France
Canada
Germany
19
Low Labour Costs
U.S.100

• According to the U.S. Bureau of Labor Statistics,
  labour costs in Canadian manufacturing (wage and
  non-wage) are the lowest in the G-7.
• Occupational wages are also lower in Canada for
  knowledge workers.

Figures are for 1999. Source U.S. Bureau of
Labor Statistics
Occupational Wages Knowledge Workers, 1999
Canadian data have been converted to full-year
assuming a 52-week work year. Purchasing
power parity for 1999 date for computer
programmers based on average for 1997, 1998,
1999 Source IC calculations based on Statistics
Canada Labour Force Survey and U.S. Bureau of
Labour Statistics Occupational Employment and
Wage Estimates
20
Plenty of Natural Resources
Natural Resource Endowments World Rank

• Canada is extremely well endowed with natural
  resources.
• Canada ranks 3rd in the world in natural resource
  endowments, well ahead of other G-7 countries.

Measured in terms of thousands U.S. per
capita. Standing among 92 countries. Source
World Bank, 1997

• Canada is the only G-7 country with a per capita
  trade surplus in non-energy raw materials.

Includes crude fertilizers and crude minerals
metalliferous ores and metal scrap iron and
steel and non-ferrous metals. Source World
Competitiveness Yearbook, 2002.
21
A Tax Advantage for Firms to Expand in Canada

• Canadian locations compare well internationally
  in terms of statutory corporate income tax rates.
• The federal government and some provinces have
  announced sharp cuts in corporate taxes, to take
  effect over a five-year period.
• The Economic Statement and Budget Update
  accelerated the pace of this tax relief.
• By 2005, firms in Canada will have a 5.0
  corporate income tax rate advantage over U.S.
  firms (including capital tax).

Corporate Income Tax Rates including capital
tax equivalents
46.6
44.9
41.5
40.0
38.6
35.6
34.6
2002
2005
2001
2003
2004
2000
Source Finance Canada, December 2001
22
Low Employee Benefits
Employee Benefits as a of wages

• Among the G-7, Canada has the lowest overall
  labour costs, including benefits.
• Lower medical insurance premiums are an important
  reason for this.

G-7 Comparison,
80
60
40
20
0
Italy
Japan
U.K
U.S.A
Canada
Germany
France
Other Benefits
Statutory

• Average for 12 operations
• Source KPMG Management Consulting, 2002

23
Quality Health Care at Low Cost
Employer-Sponsored Health Benefits
Canada and the U.S.

• Canada's health care system is among the best and
  the cheapest in the industrialized countries
• Employer-paid health benefits as a percentage of
  workers' gross pay in Canada are about 22 percent
  of that in the U.S.
• (2.1 compared with 9.6).

2.1
Total
9.6
of Gross Annual Payroll
U.S. value includes payments for retired
employees

Source Employee Benefits, 1995, prepared by the
Research Centre, Economic Policy Division , The
U.S. Chamber of Commerce and KMPG, Employee
Benefits Cost Survey, 1996. Adapted from KPMG
report on Corporate Taxation and Employee Benefit
Cost Guide for Large Service Firms, prepared for
the ICT Branch, Industry Canada, March 2000
24
Low RD Costs
Relative Competitiveness of RD Tax System

• Canada offers the most favorable tax treatment
  for RD among the G-7
• Canadas combined federal and provincial tax
  credits reduce the after-tax cost of 100 of RD
  expenditures to as low as 44.
• In Canada, eligible costs include capital
  equipment, overhead, process RD, salaries, and
  materials.
• These tax-based incentives permit firms to
  significantly reduce RD costs through direct
  investment or sub-contracting in Canada.

0.70
Canada
0.88
U.S.
0.89
Australia
0.91
France
0.92
Korea
0.97
Mexico
1.00
U.-K.
1.01
Japan
1.02
Sweden
1.03
Italy
1.05
Germany
The B-index represents a ratio of the after-tax
cost of a 1 expenditure on RD divided by 1 less
the corporate tax rate. A lower B-index
indicates a more competitive RD tax system
Source Conference Board of Canada, November
1999.
25
Low Energy Costs and Rates
Average Electricity Costs

• Canada has abundant oil, gas, coal and
  hydro-electric resources.
• Electricity costs for industrial users are
  significantly lower in Canada.

G-7 Comparison
Canada
France
U.K.
Germany
U.S.
Italy
Japan
0
50
100
150
200
250
300
350
400
US (12 operations)
Average Electricity Rates
G-7 Comparison
Canada
France
U.K.
Germany
U.S.
Italy
Japan
0
2
4
6
8
10
12
14
US cents per kWh (12 operations)
Source KPMG Management Consulting, 2002
26
Low Costs for Construction, Land, Office Lease
Construction Costs
G-7 Comparison,
Index U.S. 100
Italy
Canada

• Canadian office lease costs are highly
  attractive. Lease costs include office space plus
  operating, utility, tax and insurance costs.

France
U.S.
U.K.
Germany
Japan
0
50
100
150
200
250
300
350
G-7 Comparison,
Land Costs
Index U.S. 100
France
U.S.
Canada
Italy
U.K.
Germany
Japan
1828
0
100
200
300
400
500
G-7 Comparison,
Office Lease Costs
Index U.S. 100
Italy
France
U.K.
Germany
Canada
U.S.
Japan
0
50
100
150
200
Source KPMG Management Consulting, 2002
27
First-Class Technological Infrastructure
Technological Infrastructure World Rank
1st

• Canada's technological infrastructure is second
  only to the U.S. among the G-7 we rank above or
  very close to the U.S. in terms of
• internet users and internet hosts
• computers per capita
• Building a universal, competitive, leading edge
  "Information Highway" is a government priority.

5th
12th
17th
22nd
25th
Index
32nd
U.K.
Germany
Canada
U.S.
Japan
Italy
France
Standing among 49 countries. Index based on 20
characteristics including investment in
telecommunications, computers in use, computer
power, internet connections, number of telephone
lines, cost of telephone calls and use of
robotics. Source World Competitiveness
Yearbook, 2002
28
First in Internet and Wireless Affordability
Internet Access Charges 2000
U.S.
93.10
59.83
56.16
49.22
Based on PPPs Peak Rate 40 hrs.
Online/Month
41.72
35.83
35.40

• Canada ranks first among the G-7 in terms of
  wireless communications costs and second in terms
  of internet access charges.

U.K.
U.S.
Canada
Italy
Germany
France
Japan
PSTN fixed charges include monthly rental fee
and additional monthly charges related to
discount plans, if applicable. Includes 40
one-hour calls. In France, ISP and PSTN usage
charges are bundled and included under the
ISP. Source OECD, http//www.oecd.org/dsti/sti/it
/com/
Wireless Communication Costs
Price per minute, 1999 in U.S. PPP
0.36
0.36
0.32
0.31
0.29
0.18
0.09
Toronto
London
Tokyo
Rome
Paris
Berlin
Boston
Source Yankee Group, Wireless/Mobile
Communications Global Report, Volume 3, No. 16,
May 1999
29
First in Telephone Affordability
Annual Business Telephone Charges U.S. PPP
745
Canada
U.K.
1067
1076
France
1177
Germany
U.S.
1215
1443
Italy

• Business telephone charges are lower in Canada
  than in any other G-7 country.

1566
Japan
Source OECD Communications Outlook 2001
Annual Residential Telephone Charges U.S. PPP
286
U.K.
349
Canada
355
France
360
Germany
433
Japan
440
Italy
466
U.S.
Source OECD Communications Outlook 2001
30
Sound Financial Institutions
Average Bank Financial-Strength Rating
E
E
D
D
C
C
B
Canada
U.S.

• According to Moodys Financial Strength ratings,
  Canadian Banks rank 1st among the G-7 in terms of
  their intrinsic credit worthiness.

U.K.
Germany
Italy
France
Japan
B strong intrinsic financial strength C good D
adequate E very weak
Source The Economist, March 2000
31
Positive Business Climate

• Canada understands the importance of its business
  community and has created an environment to
  encourage its success.

Source The Economist (EIU), August 24th, 2001
32
Solid Microeconomic Policies

• According to The Economist, Canada ranks 2nd
  among 21 countries in a Lehman Brothers study
  pertaining to the effectiveness of microeconomic
  or structural policies.
• These rankings are based on three micro-policy
  categories
• policies that increase an economys long-term
  potential growth rate. For example, spending on
  education and RD.
• policies that affect labour market performance or
  reduce the lowest rate of unemployment at which
  inflation is stable (NAIRU).
• policies that increase product market
  competition.

Economic Health
Index of structural policies, 0worst, 10best
Source The Economist, March 17th, 2001 Based on
a study of 21 countries.
33
Less Paperwork for New Businesses
Total Number of Business Start-up Procedures

• Canada makes it easier to set up a new business,
  with less paperwork than any other country.
• Canada is the most efficient place to pull
  together worldwide research or production teams.

Source The World Bank and Harvard
University, taken from The Globe and Mail,
November 14, 2000 Procedures divided into five
major categories Safety Health, Environment,
Taxes, Labour, and Screening.
34
Forward-Looking Framework Policies

• The economic policies of the government of Canada
  are focused on making Canada a world leader in
  the global knowledge-based economy of the 21st
  century. Commitments include
• Making Canada the most connected Government to
  its citizens by 2004.
• Making high-speed broadband access available to
  Canadians in all communities by 2005.
• Becoming one of the top five countries for
  research and development by 2010.
• Shaping a "National System of Innovation and
• Providing marketplace frameworks/services
  benchmarked against the best in the world.

Government Policies/Programs Aimed at
Building the Knowledge Infrastructure

• 21st Century Chairs for Research Excellence
• Networks of Centres of Excellence
• Canadian Foundation for Innovation
• Canadian Institute for Health Research
• Telecommunications Policy
• Technology Partnerships Canada
• Granting councils (NSERC, MRC, SSHRC)
• Communications Research Centre
• Industrial Research Assistance Programme (NRC)
• Co-operative sectoral research programs
  (PAPRICAN)

35
Canada Provides
Excellent economic fundamentals
Excellent economic fundamentals
Easy access to markets
A cost-competitive business environment
36
and a Safe and Just Society

• Canada tops the G-7 as a safe place to live and
  conduct business.
• Canada also ranks well in providing equal
  opportunities for individuals.

Confidence that person and property is
protected. Rank among 49 countries considered in
the 2002 World Competitiveness Yearbook.
Source IMD
Race, gender, family background does not pose a
handicap for competitiveness. Rank among 49
countries considered in the 2002 World
Competitiveness Yearbook Source IMD
37
Canada Offers Much

• Canada's economic fundamentals are excellent
  government policies are geared toward
  competitiveness.
• Canada provides assured access to the world's
  richest economy, in addition to having a large
  and growing domestic market of its own.
• Canada provides a cost-competitive and
  future-oriented environment for business
• quality, productive workers
• a competitive tax system
• prime locations for RD activities
• abundant energy at low prices and
• an excellent infrastructure.
• Canada is an outstanding place to live, invest
  and do business.