FEBRUARY 1996 Economic Digest - Importing and Exporting

FEBRUARY 1996 Edition

ISRAEL

            Negotiators have reached a tentative agreement on a free-trade deal between Canada and Israel. The deal, which must be reviewed by both governments, would eliminate tariffs on all manufactured goods and  many agricultural and fish products. The agreement will enable Canadian companies pursuing business opportunities in Israel to compete on an equal footing with international competitors. Israel has such agreements already with the U.S. and the European Union.

COFFEE

            Americans are drinking half as much coffee as in the early 1960s. It has been estimated that U.S. per capita consumption fell 10 per cent last year after an 8 per cent decline in 1994. Americans drank an average of 1.7 cups of coffee a day last winter against an average of more than three cups in the early 1960s. Industry watchers link the downturn to dramatic fluctuations in retail prices after two bad frosts in Brazil over an 18 month period. Others cite changes in taste preferences towards colder and sweeter drinks. One sector that has bucked the trend is the specialty coffee bar. There were about 200 coffee bars in 1989 and more than 10,000 in 1995.

CROSS-BORDER SHOPPING

            According to Statistics Canada, Canadians making shopping trips to the U.S. fell 2.8 per cent in November from October continuing a three year trend as the Canadian dollar lost value against its U.S. counterpart. About 2.926 million Canadians made same-day trips in November, down from 3.01 in October.

TECHNOLOGY VISITS PROGRAM

            This innovative program is run by the Canadian Manufacturers' Association and the National Research Council. Manufacturing executives can take advantage of this government-industry program which allows them to visit other plants and exchange information. The aim of the Technology Visits is to demonstrate new technology and production methods at work in a real plant and allow executives to gain insight on how they can improve and enhance their own operations. In the last 18 months, more than 1800 executives have toured plants across Canada. About 50 visits a year are conducted. More information may be obtained in B.C. from: Geoff Grover at 685-8131 or nationally from: John Fenwick at 1-800-798-0201, Ext 294.

WORTH

            If employees were aware of the day-to-day worth of doing their jobs, they would feel more motivated to help their companies succeed, according to a U.S. study by Ernst & Young. Almost 60 per cent of workers and 77 per cent of managers in a poll of 1,000 large companies said they would work harder if they knew how their jobs help the company make money. Only 15 per cent of workers surveyed knew how much it cost either to make a product or to provide a service for their company. A growing number of companies are practising "open book management" in which they give financial information to employees.

SHUTDOWN

            According to the Financial Post, the three week U.S. government shutdown has cost American taxpayers US$400 million in penalties and lost revenues. This was made up of penalties the government was forced to pay to hundreds of independent contractors and revenues lost from park fees and other services which were shut down. The total $1.4 billion tab was accumulated during a six day period in November that idled about 800,000 workers--and cost $700 million--and a second two-week hiatus for 260,000 that ran up another $700 million. Ironically, the shutdown delayed plans to lay off several thousand workers as part of a 10 per cent reduction in the federal payroll which have now been delayed until February.

AUTOMATION

            It stocks shelves, fills prescriptions and even bills patients automatically. The "Pharmacy Robot"--a new, high-tech computer system that can stock and retrieve drugs flawlessly in record time is finding its way into U.S. hospitals. Twenty-five facilities have already installed it and others are jumping at the chance. The system was developed around 1990 to ensure accuracy and reduce the possibility of human error. Out of 30 million prescriptions the robots have filled so far, there have been zero errors.

AUTOS

            Despite a slowdown in the North American automobile market, the Canadian auto industry built a record 2.38 million vehicles in 1995, a 4.2 per cent increase over the 2.28 million built in 1994. General Motors led the pack, up 25 per cent to 907,833 thanks largely to strong production of the Lumina and Monte Carlo. Chrysler was No 2, down 23 per cent to 538,097, due to an eight-week shutdown. Ford was third, up 8 per cent producing 533,433 cars and light trucks. Honda produced 106,133 Civics and Toyota, 90,492 Corollas. CAMI Automotive, a joint venture between GM Canada and Suzuki, saw production up 15 per cent to 196,630 vehicles.

TECHNOLOGY

            In 1991 a farmer cut a fibre-optic cable when burying a dead cow. He closed four of the Federal Aviation Administration's 30 main air-traffic control centres for over five hours. A year earlier, a bug in some AT&T software brought the company's long distance network to a halt for nine hours. When the Defence Department's cyber-security team attacked 3,000 of the Pentagon's own computers, only 5 per cent of the people operating the target systems detected the intrusion.

COLDS

            The cold remedy-market was worth $724 million in Canada in 1995. (Headache remedies $210 million, cold and sinus remedies $257 million, antihistamines $135 million, non-prescription cough syrups $80 million, nasal decongestants $16 million and throat lozenges $26 million). This market has remained stagnant over the past few years as recession-weary consumers reach more for cheaper private label products such as the Life label at Shoppers Drug Mart which have swallowed at least 35 per cent of the market. A U.S. Food and Drug Administration study of over-the-counter cold medications reported that chicken soup was "as good as anything else in relieving the symptoms of colds."

CHILE

            Chile's entry into the NAFTA is frozen because the U.S. President lacks "fast-track' approval from Congress to negotiate an agreement. However, Canada and Chile have agreed to pursue an interim bilateral free-trade agreement without waiting for participation from Washington. This could give Canadian companies the jump over U.S. competitors in the fast-growing Chilean market. Canadian exports to Chile in the first nine months of 1995 were $265 million and imports were worth $233 million. Planned and current Canadian investment in Chile totals $7 billion in mining, telecommunications and other sectors.

JOBS

            Human Resources Canada says the place to look for work in B.C. in 1996 is in community, business and personal services which are forecast to add 21,000 jobs this year, for a total of 716,000. Another job-growth area is vaguely called "other-manufacturing' which involves primarily the high-tech sector which is projected to gain 3,000 jobs for a total of 125,000. Forestry, wood products and paper, and allied industries will remain relatively constant with about 105,000 jobs. Public administration which took a big drop in 1995 will shrink again to about 102,000 jobs. The retail and wholesale trade will remain flat at about 325,000 jobs.

WHEAT

            Despite a temporary transportation shutdown last year, Canadian wheat exports to China soared to 5.3 million tonnes, the highest level in three years. This represents an increase of 1.4 million tonnes, or more than 35 per cent, over 1994 levels. Canadian shipments now account for 40 per cent of all wheat imported by China, making the Chinese the largest single foreign buyer of Canadian wheat.

Severe drought and widespread flooding in different parts of China affected 38 per cent of the country's farmland last year. Despite this, Chinese authorities reported a 1995 grain harvest of 455 million tonnes, up 10 million from the previous year

LUMBER

            The bad news is that due to a large unsold inventory, residential construction had its worst year in three decades with approximately 111,000 housing starts. This is causing everybody from lumber suppliers to kitchen cabinet makers to review what to do with their excess capacity. The good news is that some new export markets such as Florida and Texas are being developed by some suppliers. Also, the Japanese lumber market has made a sharp turnaround--prices are up 5 to 10 per cent from late 1995 having dropped 20 to 30 per cent earlier in the year which means that B.C. coastal mills can refocus their attention on that market.

CHARITY

            Fewer Canadians gave to charity in 1994 but those that did gave more. A total of 5.3 million tax filers reported donations to charity, a figure that has been declining since the mid-eighties. But the total amount of money given increased to $3.39 billion, $40.4 million more than in 1993 and up 9 per cent  over 1991. Newfoundlanders, who have the lowest median income at $27,000, had the highest median donation at $250. Nationally, the median donation was $150 on a median income of $34,100. British Columbians and Albertans were the second lowest givers to charity after Quebec. Donors over age 65 gave an average $890, 40 per cent higher than the Canadian average.

McGROWTH    

            McDonald's Corp. ended 1995 with record international growth having opened 1,300 restaurants outside the U.S. with 60,000 new jobs. 751 non-US outlets were opened in 1994. 20 per cent of the openings were in countries McDonald's were not even in five years ago. 10 more countries were added in 1995 including Qatar, Honduras and St. Maarten. The others are Estonia, Romania, Malta, Colombia, Jamaica, Slovakia and South Africa. McDonald's now has more than 17,400 restaurants in 89 countries worldwide.

MOVIES

            Last month we reported that Disney is opening two studios in Canada. A Toronto production company has now announced that it will build a $200 million state-of-the-art feature film studio in Charlotte, N.C. largely because the federal government dithered over the site it really wanted, on an armed forces base in Toronto which will close this summer. Image Factory Entertainment is planning to build a 162,000 square-metre studio with 22 sound stages, four of them the world's biggest and the studio will employ 3,000 people. It is estimated that the annual value of production at the studio will be $1.5 billion which exceeds the total film and television production revenue in Canada. The Charlotte facility will surpass Toronto as the third-largest film and TV production centre in North America.

BABY WATCHERS

            Two mothers in San Francisco have created what's believed to be the world's first video for infants, reports The Examiner. "What do babies most like to watch on TV? Other babies, of course." Babymugs features a background of upbeat music and 85 infants doing such varied things as drooling, lying inert, staring at the screen and falling out of the picture. Local stores are reportedly selling out of copies.

CORDON BLEU?

* Titles of three new cookbooks: Butterflies in My Stomach, Unmentionable Cuisine and Entertaining with Insects.

TRIVIA

*   In 1995, the most popular colour in Canada and the U.S. for most new cars and trucks was white. Dark green ranked No.1 among sport and compact cars.

*   In 6,000 BC, at the end of the New Stone Age, the population of the world was roughly equal to the present-day population of Canada.

JANUARY 1996 Economic Digest - Importing and Exporting

JANUARY 1996 Edition

THE 1996 ECONOMY

            The Conference Board estimates that only Ontario and British Columbia will grow faster than the national average in 1996. B.C.'s strength will come from a recovery in North America's housing industry and higher demand for paper which will fuel the province's forest industry, while Ontario will be helped by a stronger U.S. economy. The Board estimates the economy as a whole will expand 2.8 per cent in 1996, up from 2.1 per cent in 1995. Although goods-producing industries in B.C. had a tough time in 1995, strong population growth, continued export strength and vigorous tourism activities boosted the service sector giving the province a strong year. In 1996, B.C.'s GDP will expand 4.1 per cent, up from 3.2 per cent in 1995.

HIGH-TECH CRIME

            Chubb Corp. of Warren N.J., probably the largest insurer of technology companies worldwide, estimates that $8 billion worth of computer components--microprocessors, memory chips and modems--are stolen each year. Chubb estimates that this will balloon to $200 billion a year as crooks realize the advantages of stealing expensive, easily transportable, highly resellable pieces of technology. The average U.S. high-tech theft is $500,000. In California's Silicon Valley, more than $1 million worth of high-tech goods are stolen each week which can add $150 to the cost of every computer, whether in a personal computer, car, plane, fridge or microwave.

SAVINGS

            Canadians' contributions to registered retirement savings plans rose 86 per cent between 1990 and 1994 according to Statistics Canada, despite a recession and steep erosion in family income. In 1994, 5.3 million Canadians made a record $20.9 billion in contributions to RRSPs, a 9 per cent jump over the previous year. In 1982, 2.1 million Canadians made RRSP contributions. In 1994, the average RRSP contributor was 43 years old with a median employment income of $34,200.

PRESCRIPTIONS

            According to a University of Toronto study, half of Canadians who are prescribed drugs either fail to take their medicine or take it improperly. This leads to up to $9 billion in extra cost to the health-care system and the economy each year.

BORROWING

            Weak consumer confidence and better government balance sheets led to a sharp drop in new borrowing in the first half of 1995. The amount borrowed by non-financial institutions  fell to $47 billion in this period, a decline of more than a third from $71 billion a year earlier. A steep rise in interest rates in early 1995, stagnating employment and low confidence among consumers led households to cut back on big-ticket items. Borrowing for mortgages was $2.9 billion against $11.6 billion in the same period the previous year. New consumer borrowing totalled $1.6 billion, a drop from $3.7 billion and the total public sector borrowing fell to $22.5 billion from $32.9 billion. Borrowing by corporations remained high while their operating profit margins were at the highest level since 1989.

  

GATEWAY

            Starting next July, Cathay Pacific Airways' Hong Kong to New York flight will stop at the new international terminal at

Vancouver Airport five times a week. This is known as the "gateway" concept and the core of the new terminal will be a "sterile' zone--passengers arriving from Asia will be able to leave their aircraft, go through Canada and U.S. Customs, and then shop at duty-free stores, buy snacks and gifts before reboarding their flights to the U.S. Pre-clearing U.S. Customs here will gain the added bonus of avoiding line-ups in the Chicago, New York, Los Angeles and Miami airports, all notorious for customs delays. The biggest bonus of gateway flights will be the dollars left behind for aircraft refuelling, cleaning, maintenance and in-flight catering, which will add an estimated $10 million a year to the local economy. The Vancouver Airport Authority is also working on Air China, Philippine Airlines and Korean Air to use Vancouver as a gateway.

WILDLIFE

            The Canadian Museum of Nature reports that the value of insect pollination of crops and orchards in Canada surpasses $1.2 billion. Also, benefits associated with the recreational use of wildlife are estimated at more than $6 billion annually.

DISNEY

            The Walt Disney Co. plans to open animation studios in Toronto and Vancouver in order to get first crack at Canada's internationally recognized talent pool. The multi-million dollar project will generate about 200 jobs, mainly for animators, and the two studios will collaborate on up to three productions a year. According to a Disney spokesman, "There are a number of very creative people who don't want to leave Canada, so we are coming to them." The prospect of more jobs for animators is welcome news for the Vancouver Film School which graduates 15 students every three months.

LUMBER

            The Canadian government is proposing new concessions to head off yet another U.S. trade case against Canadian softwood lumber. In return, Canada wants guarantees that the U.S. lumber industry will stop filing complaints under U.S. trade law claiming that Canadian two-by-fours are unfairly subsidized. The concessions could include boosting the amount provinces charge lumber companies to cut trees on Crown land, raising export prices or simply limiting lumber exports to the U.S.

FAIR SHARE

            B.C. is being short-changed by Ottawa when it comes to doling out billions of dollars worth of work for federal government departments and agencies. A study by KPMG Management estimates B.C. has been short changed by about $$1.3 billion  a year in the early 1990s, if one accepts that federal procurement contracts should be handed out according to the relative economic clout of all the provinces. In 1992-93, B.C. would have received $4.3 billion instead of the $2.9 billion it actually received. This shortfall represents about 1.3 per cent of the province's GDP. B.C. fared worst followed by Alberta, Quebec and Ontario.

MOVIES

            U.S. movie theatres had record ticket sales during the five-day Thanksgiving holiday, with estimates that sales were up as much as 11 per cent from the year-earlier record. It is estimated that the total box-office grosses for the holiday were as much as $155 million (U.S.). A year earlier, ticket sales totalled $140 million. The big winner was Toy Story, a full-length computer-animated feature film which sold $38 million in tickets, followed by GoldenEye with $27 million in sales. Studios roughly split box-office grosses 50-50 with theatres.

CONSTRUCTION

            Vancouver has already posted another $1-billion-plus construction year. With two months left to year-end, the city had issued permits worth $1.002 billion, compared to $846 million for the same period last year. Residential construction totalled $663 million compared with $463 million a year ago.

CRUISING

            According to the Vancouver Port Corporation, congestion in Alaska, not competition from Seattle, is the biggest threat to Vancouver's $130 million cruise ship business with 13 consecutive years of growth straining the Alaska infrastructure. A dozen international lines sell Vancouver to Alaska cruises and 20 luxury ships are based in Vancouver during the summer. Next year's fleet will include the newly-built 77,000-ton Sun Princess, the world's largest cruise ship which carries 1,900 passengers. 83 per cent of cruise customers are Americans.

U.S. INVESTMENT

            Canada dropped from being the most popular foreign location for U.S. manufacturing investments in 1991 to seventh place last year according to Ernst & Young. Britain was the first choice for U.S. manufacturers opening new plants, making acquisitions or expanding. China was second in line for U.S. investment, doubling its projects from the previous year with France and Germany taking third and forth places. In 1994, U.S. manufacturers made 25 investments in Canada, down from 47 in 1993. Eighteen of those were acquisitions. However, U.S. firms looking to expand--or consolidate--under free trade would have made most of their moves in the early 1990s under the Canada-U.S. agreement. Once NAFTA came along, they were more likely to consider Mexico.

INTER-PROVINCIAL TRADE

            Provincial trade ministers are still sharply divided over how to widen free trade within Canada. An internal free-trade agreement was struck by the provinces in 1994, but many of the provisions have yet to be approved. Several provinces, including British Columbia, are still refusing to add in two key elements, energy and non-government procurement. The provinces cannot agree on rules that would allow power companies to sell their power to any other province and use a neighbouring province's transmission lines to get it there. Also, Ontario, Saskatchewan and B.C. are resisting removing barriers which would allow out-of-province suppliers to sell to public sector agencies such as  municipalities,  universities, schools and hospitals.

CHINA

            China has unveiled its biggest trade liberalization package in more than a decade by pledging to slash import tariffs by 30 per cent. It will also lift about 170 tariff quotas, give permission for the creation of Sino-foreign trading companies and push through a currency reform that might make business a little cheaper for foreigners in the world's most populous market. Tariff cuts will be applied to more than 4,000 of the 6,000 items China imports and the average tariff will drop to about 22 per cent from 35.9 per cent. The package of liberalizations is aimed at winning support from the United States and other nations for China's troubled attempts to join the World Trade Organization.

B.C. EXPORTS

            B.C. exported $20.1 billion worth of products for the first nine months of 1995, up 21 per cent over the same period the previous year. Exports to China increased by 89 per cent, representing just two per cent of overall exports. Japan exports increased to $5.3 billion and accounted for 26 per cent of all exports, while exports to Korea increased by 59 per cent.    

FEDERAL CONTRACTS

            More federal contracts are being awarded without competitive tendering. In 1993-94, the government awarded 183,000 contracts worth $10.7 billion for everything from toilet paper to tanks. Of that number, 155,000 were worth less than $30,000 each and therefore did not require competitive bidding but taken together, those contracts totalled $1.2 billion. In 1991-92, 102,000 contracts valued at $600 million were awarded

without competition. These trends in contracting practices seem to defy Treasury Board efforts too promote lower prices through competition. It has been suggested that some officials responsible for federal purchases are dividing a large contract into chunks worth less than $30,000 to escape the bidding process.

TRIVIA

*           Canada has twice as many restaurants per capita as the United States according to the Canadian Restaurant Association.

*           Worldwide, half the books being published are in English.

EXPERTS!

            "Computers in the future will weigh no more than 1.5 tons." Popular Mechanics, 1949.

            "There is no reason why anyone would want to have a computer in their home." Ken Olson, founder of Digital Equipment Corp, 1977.

            "640K ought to be enough for anybody." Bill Gates of Microsoft, 1981.