JUNE 1993 Edition
NAFTA
NAFTA legislation has now passed the Commons and is
expected to be approved by the Senate shortly. It will then sit awaiting Royal
Assent until it has also been passed in the U.S. and Mexico.
President Clinton has stated that there are not the votes
to pass the legislation through Congress at this time and that negotiations on
the side deals are at an impasse.
Trade Minister Wilson indicated that Canada was not
opposed to including sanctions in the side accords on the environment and
labour conditions so long as the penalties are not trade related. Fines would
target offending companies and would not disrupt trade. It is generally
accepted that the legislation contains sufficient protection against import
surges.
Since Mexico opened up its economy, purchases from the
U.S. have climbed to $40 billion a year from $20 billion and it was recently
announced that the Reichmanns, of Olympia & York fame, will shortly
finalize a $400 million U.S. development deal in Mexico City.
CROSS-BORDER SHOPPING
The decline in trips over the border by Canadians
continues. Same-day car trips totalled 3.9 million in March 1993, a drop of
19.3 per cent compared with March 1992. For the first quarter of this year,
day-trips were down by 21.8 per cent, the biggest year-to-year quarterly
decline since statisticians began tracking the movement in 1972. It was also
the sixth consecutive month that the numbers have fallen by more than 10 per
cent. Ironically, this has resulted in employment consequences for Canada
Customs which is reported to have had to lay off 20 inspectors in Windsor,
Ontario.
INVESTMENT
Prior to the referendum on the Charlottetown Accord, the
Royal Bank of Canada issued a controversial report on the consequences of a
"No" vote and the problems that would result from the implied breakup
of Canada. Included in their gloom and doom forecast was the allegation that
without political unity to inspire confidence in the currency, foreign and
domestic investors would not hold Canadian dollars or securities.
Six months later we are able to assess the validity of
this assertion. According to Statistics Canada, foreigners gobbled up an
unprecedented $12.1 billion worth of Canadian securities in March 1993
including a record $9.6 billion in bonds. This surpassed by $2.7 billion the
record for Canadian bonds set the previous month. Foreign trading in Canadian
stocks hit its highest levels since the stock-market crash of October 1987.
Seventy per cent of bond investment came from the U.S., 20 per cent from Europe
and 10 per cent from Asia. This was a shift from February when the investment
was roughly split between the U.S. and Europe. Moody's, the New York bond
rating agency has just re-confirmed Canada's coveted triple-A rating.
SALES TO THE U.S.
Although the Canadian consumer has yet to be convinced
that the recession is over, export sales are booming, particularly to the
United States. In 1990 and 1991, total exports were around $12 billion a month.
Since the beginning of 1992 they have been soaring, reaching an average of
$14.5 billion a month for the first quarter of 1993. Sales to the U.S. were up
by almost 30 per cent in the first quarter of 1993 while sales to the rest of
the world had dropped by 5 per cent. More than 80 per cent of Canada's exports
now go to the U.S. compared to 75 per cent in 1990.
The boom is broadly based. Canadians are selling more of
everything except wheat and metal ores. Natural gas exports are up 38 per cent
and lumber up 50 per cent. Exports of auto parts, cars and consumer goods were
up 27 per cent and machinery and equipment saw gains of 17 per cent. The
strength of these exports is the main reason why factory shipments increased by
more than 11 per cent between March 1992 and March 1993. This year, factory
shipments are up 13 per cent.
MINING
Lengthy environmental approvals for mining and high taxes
relative to competing countries are common complaints by mining companies.
Mines Minister Anne Edwards conceded that most B.C. mines could close in ten
years. Many companies have left town. So far, Canadian companies have invested
a total of $2 billion in Chile, about $1.7 billion of that in the mining
sector. The Chilean forest industry is also expected to double in the next
decade.
Falconbridge, Cominco Resources, Teck, Placer Dome and
Bema Gold are all active in Chile and it is estimated that Chilean mining
companies will purchase $400 million in equipment in the next five years, much
of it imported. Now, Finning, the worlds largest Caterpillar dealer, is
negotiating to purchase the Cat dealership in Chile, and hopes that a move into
this market will boost revenue by about $200 million a year.
SMART MARKETING
The advertisement in the Boston Herald offered a one-way
airfare from Boston to Los Angeles for $48 US. Too good to be true? Thousands
of bargain hunters showed up at Boston's Continental Airlines ticket office to
take advantage of the fare.
The ad was a misprint and should have read $148 US. To
their credit, Continental honoured the low price for the day. Anyone bringing
the ad to the ticket office got the cheap fare. Even Continental employees took
advantage of the error.
The latest in the
Hoover marketing fiasco saw an irate buyer, who claimed he was cheated out of a
free trip, seize a Hoover repair van in revenge when a serviceman arrived at
his home.
MANUFACTURING
Last year, according to the Canadian Manufacturers
Association, Canadian manufacturers earned on average profits of just 1.5 per
cent of sales. That means that out of every eight-hour production shift, the
first seven hours and 50 minutes are spent covering costs. That leaves just 10
minutes a day to earn the profits needed for reinvestment, and that's before
taxes. Just one failure of supply, one machinery breakdown, one work stoppage,
one management error, one problem of any kind--and the whole day's effort goes
for nothing.
GOVERNMENT CONTRACTS
One of the biggest markets around, and often overlooked
by small business, is the federal government. Supply and Services Canada buys
$8 billion worth of goods and services on behalf of various government
departments each year. Contracts are open to companies of all sizes but in the
past, entrepreneurs often felt unable to compete and win against large
companies.
A few months ago, Supply and Services Canada announced a
program to give small companies a boost. Under the new rules, contracts valued
at less than $1 million will be reserved for small companies--those with 99
employees or less. Doing business with Ottawa has also changed dramatically.
The government now advertises its contracts on a computerized service.
Essentially an electronic bulletin board, the system is called the Open Bidding
Service and all contracts worth more than $25,000 must be posted. The OBS has
been operating for about a year and about 1,000 new contracts are advertised on
it each day and so far, more than 10,000 companies have signed up for the
service.
Patience is required. There is often a lot of time spent
communicating back and forth on specifications, for instance. Also, the sales
cycle with the government can be so long that many suppliers simply give up.
However, for those with a quality product or service at a competitive price,
there is business to be had.
ETHICS
Suppliers and former employees of Woodwards, some of whom
had worked 40 years for the 100-year old Western Canada department store, are
supposed to be grateful for the 37 cents on the dollar from the money owing
them.
Nine executives, some with as little as two years
experience with Woodwards, will share $5 million in termination payments,
settlements and bonuses. The argument is that such a package was necessary to
attract top-flight executives.
While this may be completely legal, these same executives
were responsible for the eventual demise of Woodwards and it seems questionable
to say the least that they should walk away with such a handsome reward.
PHARMACEUTICALS
Passage of Bill C-91 earlier this year extends the time a
company can sell a new drug without competition from generic copies. The
industry claimed it would provide an improved environment for pharmaceutical
research in Canada. Critics say that by extending the monopoly on brand-name
drugs, Ottawa is forcing Canadians to pay hundreds of millions of dollars a
year in higher drug prices.
Whichever, Canada's brand name drug makers recently
announced they will contribute $200 million over five years to medical research
and training, the money to go towards projects selected by a federal research
funding agency. This will be in addition to the $400 million a year drug
companies spend on their own research.
TRUCKING
Pacific Press, publisher of the Vancouver Sun and
Province, continues to work on its deficit. It recently announced that it is
selling its trucks, laying off drivers and abandoning the newspaper bulk
delivery business. The move will eliminate 117 jobs and save $3 million a year
over the next five years. The top rate for Pacific Press drivers was $31 an
hour, about double the rate of the union company which is taking over the
delivery operation.
TOURISM
Thanks to Tourism Vancouver, we now know that last year
each of the cruise-ship passengers spent $395 while in the city. The
expenditure was broken down as follows:- $97 on shopping, $91 on accommodation,
$77 on meals, $17 for air transportation, $29 for other transportation, $29 on
attractions and recreation, $11 on groceries, $15 on other entertainment and
$29 for other expenses. 16 per cent of visitors have an annual household income
of $125,000 a year and 69 per cent exceed $50,000 a year.
UNDERGROUND ECONOMY
The ratio of cash in circulation to total spending
declined steadily from 1953 to 1990 but has increased dramatically since the
introduction of the GST. Governments from one end of the country to the other
raise taxes in an effort to reduce deficits but the revenue growth fails to
materialize. All this is a sure sign that Canadians are retreating into an
underground economy. The explosive growth of tobacco smuggling is just one
example of dealings that have moved underground. A McGill University economist
estimates that the underground economy is worth about 15 per cent--or more than
$100 billion--of the economy's reported output of $700-billion a year. If this
is so, then consumer spending last year was really about $5.7 billion, or 1.4
per cent higher than Statscan estimated, enough to have raised the value of all
Canadian output--the gross domestic product-- by 0.8 per cent.
THE COST OF TAXES
Handling both provincial sales tax and the federal GST is
costing Quebec business $1.3 billion a year according to the Canadian
Federation of Independent Business which says the problem was compounded when
Quebec harmonized its tax with the federal one. The Federation is calling for a
single tax.
The taxes have different rules and are so complex for
many small businesses that many do not bother to be reimbursed. The daily work
to collect the taxes, remit the payments and deal with the paperwork costs an
average of $192 per month for every company in Quebec. It is estimated that 86
per cent of the total $1.3 billion is borne by companies with less than 20
employees.
TRIVIA
* The recession has at last caught up with Air Tanzania
which has had to lay off 184 employees. This leaves a staff of just 768 to
operate the two plane carrier.
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