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.

DECEMBER 1995 Economic Digest - Importing and Exporting

DECEMBER 1995 Edition

EXPORT DATA

            The Department of Foreign Affairs and International Trade (DFAIT) has created a directory of electronically available international business data sources to help Canadian firms seeking to obtain business data on foreign markets. Persons can now obtain a wealth of information that is useful in developing an export plan or implementing an export strategy. The directory can be accessed through menu M22 of the InfoCentre BBS from which it can be downloaded. To access the InfoCentre BBS, dial (613) 994-1581 from your computer modem, or 1-800-628-1581 (line parameters set at 8-N-1, baud speed up to 14,400, terminal emulation set for ANSI/ASCII standards). The directory is organized by geographic region--Canada, United States, Europe and Asia-Pacific.

CHINA

            China has suddenly exploded into a global export power. It now produces half the world's toys and two-thirds of its shoes. Most of the world's bicycles, lamps, power tools and sweaters also come from China. More worrisome to export giants like Japan and the United States, China's export surge is now being powered by coveted, high-tech products. Exports of machinery and electronics--from alarm clocks to video camcorders--have jumped 60 per cent so far this year Chinese statistics show, becoming its top export category for the first time. If China's current trade trajectory holds, it will export $38 billion more than it imports from the U.S. Next year, U.S. officials estimate the surplus could reach $50 billion putting it close to Japan whose bilateral trade advantage with the U.S. is $66 billion.

LICENSING

            The Vatican Library has given its blessing to a lucrative licensing project that could put its official seal on everything from luggage to bed linens. You can already buy Vatican costume jewellery and will probably soon find Vatican watches, greeting cards and T-shirts at the mall. Over the first five years, licensing revenue is projected to average about $5 million (U.S.) annually jumping to $10 to $20 million annually after that. When Pope John Paul II visited Denver in 1993, roughly $400 million of Pope-related material was sold in a 30-day period. The Vatican joins Queen Elizabeth II who approved the sale of goods under the House of Windsor name including furniture and Scottish throw rugs. The Mormon church has also begun expanding its licensing activities.

RESTAURANTS

            An analysis of the financial results of 1,151 restaurants by Dun & Bradstreet Canada has pinpointed the restaurant industry as the most unstable field of all the businesses it studies, with low profit margins and high failure rates. The average restaurant had an after-tax return on sales of just 2.1 per cent last year, while return on assets was a dismal 4.77 per cent. Costs of food and beverages increased to 34.9 per cent of total sales in 1994, up from 32.7 per cent in 1992 while other operating expenses, such as salaries and rents, accounted for 55.2 per cent of sales in 1994, up from 53.4 per cent. Introducing the GST in 1991 caused sales to drop 10 per cent that year alone and they have never recovered to prior levels. Restaurants are most stable in Quebec and the Maritimes and least stable in Ontario. The average restaurant faces a 3.66 per cent risk it will close in the next six months and business failures are surprisingly high in the eighth and ninth years of operations.

GLOBAL ECONOMY

            According to the World Trade Organization, world trade in goods, spurred by the integration of the global economy, is expected to grow 8 per cent in volume in 1995. The WTO says that the strong global trade figures indicate protectionism is losing out to liberalization. Though the 8 per cent figure is down from the 9.5 per cent increase in 1994, it will still keep trade expansion at nearly three times that of overall world economic growth which is projected to be 3 per cent. In 1994, the value of world merchandise trade rose to $4.09 trillion.

EUROCOWS

            As far as European Community cows are concerned, 1996 will not be a leap year. Rather than recalculate production formulas based on 365 days, Brussels bureaucrats have decided that any milk the animals produce on February 29th will be credited to the two months before or after that date.

RETAIL

            Zellers Inc., with more than 300 stores, used to be the undisputed king of discount retailing in Canada. For more than a year now, Zellers and Wal-Mart Canada, with its 129 Canadian stores, have been trading punches with one retailer dropping its prices only to be matched or outdone by the other. While the consumer has benefitted, the impact on both companies' earnings is noticeable. Wal-Mart absorbed a loss last year and in the first quarter of 1995 while Zellers operating profits have been sliding. Zellers is about to open its biggest store yet, about 147,000 square feet, close to a Wal-Mart store in Montreal. The store will serve as a laboratory of sorts as it tests various strategies for boosting sales across its entire chain. Wal-Mart claims to have boosted its share of the discount market to 40 per cent from the 22 per cent when it bought the Woolco chain.

NAFTA

            The Canadian government has acknowledged for the first time that it won't achieve a comprehensive deal with the U.S. and Mexico by year-end on getting rid of arbitrary trade laws within the North American free-trade agreement. Instead, the partners are expected to issue an interim report that will include recommendations for some technical and administrative changes to anti-dumping and countervailing duty rules. The Canadian government has long argued that absence of clear rules and arbitrary U.S. trade remedy measures are to blame for a deluge of cross-border disputes in recent years, including those involving steel and softwood lumber.

COMMUNICATIONS

            Telephone users in Regina, Saskatchewan, can now call a business by dialling a three-digit code and speaking the company's name into a computer. Sask'Tel, is the first phone company in North America to begin testing the new application of voice-recognition developed by Bell-Northern, a division of Northern Telecom. After the first month of the trial, the 325 businesses that have agreed to participate will pay a monthly fee to have their name stored on the computerized system which has an almost limitless vocabulary and does not have to be trained to recognize speakers. If successful, the system will go into service across the country.

COMPETITION

            The inefficiency of Japan's offices contrasts sharply with the legendary productivity of its factories. Last year, only 25 per cent of white-collar workers had personal computers. When Compaq and Dell Computers invaded Japan's market three years ago with personal computers selling at half the price of Japanese products, Japan's computer makers braced for declining market share and falling profits. But instead of killing Japan's PC market, the U.S. invasion has liberated it. Japanese manufacturers have become fierce competitors, cutting prices dramatically, and the results have been a boom in sales for both Japanese and U.S. manufacturers with sales climbing by a third in 1994. Sales in 1995 are expected to jump by 50 per cent. Leading the U.S. companies was Apple Computer Inc. which has now become the No 2 personal computer vendor behind NEC Corp. with a 15 per cent market share.

EDUCATION

            Officials at some of Canada's major banks are discussing a loyalty credit card that would allow users to put a percentage of their purchases into a fund for their children's post secondary education. The Student Co-operative Canada Project--Scoop for short--would award card users points for up to five per cent of purchases from designated companies.. The points would be transferable to a post-secondary education savings plan that would be managed by mutual funds for individual students. The card proposal is being designed to include accumulating points for debit card purchases and even cash purchases. It would also allow card users to convert points from Air Miles and other existing loyalty programs.

BIOTECHNOLOGY

            According to Ernst & Young, Canadian biotechnology companies are continuing to use strategic alliances with bigger, better capitalized partners to replace other sources of capital. Biotechnology product sales rose to $9.3 billion (U.S.) as of June 1995, an 18 per cent rise over the previous year. Market capitalization of companies in this business rose 27 per cent to $52 billion. The Canadian industry now has about 200 biotech companies and about 30 publicly listed biotech companies. They are also capitalizing on the need of large pharmaceutical companies to buy research from outside sources to attract funds.

WORK

            By overwhelming majorities, Canadian and U.S. employees say they are fulfilled by their work, but many express dissatisfaction with their pay, opportunities to advance and employers' concern for their needs. Canadian employees (77 per cent), more so than Americans (72 per cent) say their job "provides a sense of personal accomplishment" even though fewer Canadians (41 per cent) than Americans (45 per cent) believe they have a chance to advance. Employees of both countries say they can "have a direct impact" in helping their firms succeed through their day-to-day-efforts, including "high-quality" customer service.

MEXICO

            Mexican exports to Canada increased 24 per cent in the first eight months of the year, while imports from Canada fell 8.5 per cent. Their exports have been helped by a weaker peso which was devalued last December and has fallen 54 per cent against the U.S. dollar in the past 11 months. This has also put a brake on Mexican imports but those from Canada have fallen at a lower rate than those from Japan and Europe. 51.8 per cent of Mexican exports to Canada were consumer goods, 31 per cent were raw materials and 10.7 per cent capital goods.

GENERIC DRUGS

            According to a study by IMS Canada, growth in sales of generic drugs outpaced that of brand-name pharmaceuticals by more than five times in the 12 months ended September 1995. Generic drug producers saw their sales rise 13.8 per cent compared to a 2.7 increase reported by brand-name manufacturers. Generic drugs now represent 14 per cent of retail drug store sales, up from 11 per cent in 1991 and it is projected that this figure will reach 16 per cent of retail sales by the year 2000.

LOANS

            Loans of up to $250,000 are to be made available to asset-poor, idea-rich, knowledge-based businesses in Western Canada under a $25 million program announced by the federal government and its Business Development Bank of Canada. One appealing feature is that repayments of both principal and interest can be deferred for up to three years. The bank will charge a base interest rate plus a royalty on a borrower's sales. Major banks have traditionally turned down knowledge-based businesses, even when they have signed contracts in hand, because they don't have buildings, machinery or inventory to assign as security on loans.

INCENTIVES

            "Stop smoking for three years and save enough money to buy an ox."--The slogan of China's new anti-smoking campaign.

DUST TO DUST

            A devotee of the Real Betis soccer team in Spain who died last year asked his son to take his ashes to every game. The son went one better by renewing his father's club membership entitling the ashes to a seat. Security officials balked when he carried the ashes in a glass jar which they considered to be a dangerous object. So now he takes his father in a one-litre milk carton.