Post-Covid Prospects: Canada

2020 was the worst year on record for the Canadian economy, with GDP shrinking by 5.3% following the shutdown of large parts of the economy since the first wave of the Covid-19 pandemic in March/April last year.

Since bottoming out in spring and early summer, the Canadian economy has shown strong signs of economic recovery entering 2021, thanks largely to the country’s C$100 billion (US$79 billion) stimulus plan (4% of 2019 GDP) and an inoculation drive which began on 14 December 2020. By early October 2021, Canada has administered more than 56 million vaccine doses, about 29 million people (76% of the total population or 87% of those aged 12 or above) has received at least one dose, with some 27 million (71% of the total population or 81% of those aged 12 or above) fully immunised.

Chan: What is the near-to-medium-term outlook for Canada’s major industries and trade, especially in the wake of the largest economic relief package since World War 2? How is the vaccine-boosted recovery kicking in, given these stimuli?

Elliott: Canada, as with other developed countries, saw its largest economic contraction since 1945 in the first year of coronavirus, with GDP tumbling 5.3% in 2020. But on the back of the successful vaccination rollout, buoyancy has been seen, especially across the resource, manufacturing and construction sectors, setting the Canadian economy on a firm footing to recover and thrive again post-pandemic. So far, we have already recovered nearly 80% of the jobs lost since the onset of the global pandemic.

The Government of Canada has made significant commitments to support Canadian households and businesses throughout the pandemic. Just on 30 July we announced the extension of crucial support measures for Canadians and Canadian businesses, which will continue until at least 23 October 2021, including programmes such as the Canada Emergency Wage Subsidy (CEWS) to cover up to 75% of eligible remuneration, paid by an eligible employer to each eligible employee, the Canada Recovery Benefit (CRB) to give income support to employed and self-employed individuals who are directly affected by Covid-19 but are not entitled to Employment Insurance (EI) benefits, and the Canada Emergency Rent Subsidy (CERS) to cover part of the commercial rent or property expenses of ailing Canadian businesses, non-profit organisations or charities.

As of early August, the CEWS has helped more than 451,000 unique applicants with approved claims of over C$88 billion, while the CRB has aided more than 2 million unique applicants with over C$23 billion, and the CERS has supported more than 200,000 organisations in terms of rent, mortgage and other expenses with more than C$5.5 billion.

Of course, economic growth is dependent upon the ongoing trajectory of the global pandemic; however, as Canada’s vaccination rate continues to increase and restrictions are being relaxed or lifted in many parts of Canada, it is expected that economic growth will continue in the months ahead, largely offsetting the losses of 2020.

Going forward, while each province and territory in Canada might walk a different path to economic recovery, depending on how hard they have been hit by Covid, the IMF, the OECD and the Conference Board of Canada are all projecting a 6%-plus output growth for Canada in 2021 and another 4% gain in the coming year.

Chan: The Covid‑19 outbreak has seen struggling businesses obliged to embrace e‑commerce, work, study, play, exercise from home or telecommuting. Are there any good indicators to show how the digital transformation has done so far, since the onset of the virus outbreak in Canada? How do you think that these behavioural changes are going to overhaul the consumer and industry landscape in Canada post-pandemic?

Elliott: Digitalisation has always been one of Canada’s key strategies. The vast majority of Canadians (94%) had household internet access in 2020, with recent increases seen among those Canadians aged 65 and older. Having said that, the global pandemic has still had significantly impacts on the behaviour of e-ready Canadians.

In recent months, the Canadian economy has shown strong signs of economic recovery. One key reason for this is that many households and businesses have adapted themselves to the pandemic through digital transformation. Many Canadians worked remotely, turned to schools online, shopped online and supported restaurants through contactless delivery. In 2020, retail e-commerce sales surged by 74% to top C$38 billion, with the share of total retail trade jumping from 3.6% to 6.3%.

As many Canadian organisations consider the post-pandemic workplace, it appears that many are re-thinking their approach and it’s quite likely we’ll see some virtual innovations continue long after the pandemic is over. Many leading Canadian organisations have harnessed digital technology to improve their operations and have grown online platforms.

We’ve also seen the changes in our day-to-day work at the Consulate. The Canadian Trade Commissioner Service in Hong Kong, located at the Consulate General of Canada, for example, has been actively supporting numerous Canadian companies in their Hong Kong business endeavours throughout the pandemic. In fact, the pandemic has presented an opportunity for Hong Kong to engage with Canadian companies that have not previously considered the city due to travel or time considerations. Many Canadian SMEs have been able to leverage a virtual approach to business meetings to explore new markets, including Hong Kong.

Virtual trade shows, events, conferences and business meetings using online platforms have also made business connection possible in a much easier way. We believe that is something we will continue to see in a post-pandemic world, when companies will be more open to adopt a hybrid approach when it comes to business travel and meetings.

Chan: International logistics have been upended during the pandemic, hampering both air and sea transportation. How has it affected the Canadian logistics sector?

Elliott: Canada is a trading nation with preferred market access to 51 foreign countries and nearly 1.5 billion consumers. Thanks to our more than 165,000 importers and 45,000 exporters, trade in goods and services combined accounted from nearly two-thirds of Canada’s GDP – imports 33% and exports 32%. As such, the transport and logistics sector boasting 24 international airports, 17 seaports and 117 border crossings to the US has always been crucial to the Canadian economy.

The imposition of public health measures and travel restrictions internationally, as well as across Canada, to tame the spread of Covid-19 has resulted in dramatic disruption of economic activities, with GDP dropping 11.3% in Q2 2020 – the largest quarterly decline since record keeping began in 1961. Worldwide border and travel restrictions have affected Canada’s main supply chains, with exports falling 29.7% to C$32.7 billion in April 2020, the lowest level in more than 10 years, and imports down 25.1% to C$35.9 billion, a value not seen since February 2011.

In spring 2020, the re-opening of the Chinese mainland economy from the initial lockdown, as well as the steep increase in its consumer demand for durable goods and medical supplies, led to a surge in outbound container volumes, specifically through western ports in Canada. This led to a global container imbalance in a period of high demand for containers. Canadian exporters faced challenges obtaining empty containers for cargo, such as forest products and grain. This situation continued throughout 2020, with freight rates increasing to a point where some ocean carriers opted to export the containers empty just to speed up the returns of containers back to Asia.

Despite these challenges, our logistics infrastructure and systems were proven to be resilient and able to recover and adjust to the spike in demand amid a slew of new safety protocols and operational procedures. By the end of 2020, freight traffic was already back to 2019 levels in some regions of the country and for some modes, when the Port of Vancouver, for example, recorded a 2% increase in total container volumes and the Port of Prince Rupert saw a 9% gain.

When it comes to air freight, last year airports in Canada handled 1.18 million tonnes of cargo loaded and unloaded from domestic and foreign carriers, a 17.4% decrease from 2019. While the sector saw an overall decline in the first year of coronavirus, the imports of textiles (including masks) witnessed a staggering increase of 6,604% and pharmaceuticals (including vaccines) saw an increase of 4.9%.

Chan: Global trade and investment were weakened by the pandemic, with many travel and business plans shelved or postponed last year. Looking forward to 2021 and beyond, what do you see as the most promising sectors or areas for Canada-HK collaboration?

Elliott: Like many jurisdictions globally, Canada’s trade and investment figures took a hit in 2020 [see above]. However, there are promising signs of recovery so far in 2021.

Canada’s FDI performance over past crises has demonstrated the country’s resilience and stability in comparison to its G7 peers. Based on United Nations Conference on Trade and Development (UNCTAD) data, Canada was the only G7 country to demonstrate nine years of consecutive growth in FDI inflows following the recession in the early 1990s and four years of consecutive growth in FDI inflows following the 2007-2008 Global Financial Crisis.

When it comes to Hong Kong and Canada, we share strong people-to-people and business-to-business ties, with major bilateral investment in diverse sectors from finance and technology to consumer goods and agribusiness.

The total stock of Hong Kong’s FDI in Canada was valued at C$22.2 billion in 2020, making Hong Kong the eighth largest investor by immediate investing country (IIC) in Canada or 13th largest if measured by the ultimate investing country (UIC) [1]. Asia, as our principal investors, led by Japan, mainland China and Hong Kong, accounted for one tenth of the total inward FDI in the same year.

The total stock of Canada’s FDI in Hong Kong was valued at C$18 billion in 2020. Last year, Canadian direct investment flows to Hong Kong more than tripled to C$4.6 billion, making the city the second-largest destination worldwide for Canadian direct investment abroad, behind only the US.

Looking beyond the pandemic, we see a lot of potential for continued Canada-Hong Kong collaboration in financial services, transportation, education, food and beverages (F&B), and arts and culture. In terms of technology, we see ongoing interest in areas such as biotech, cleantech, fintech or edtech. To prepare for this, we have dedicated Trade Commissioners covering these fields at our Consulate in Hong Kong.

Despite the pandemic-induced disruptions, our team has continued to create business links across sectors, running projects and leading virtual missions since the onset of the virus outbreak in various sectors such as cleantech, infrastructure, aerospace, transportation, ICT, life sciences, education or agri-food.

For example, we virtually brought companies to Cloud Expo Asia and the Asia Financial Forum(AFF). Our agri-food team delivered 14 initiatives ranging from seafood to pet food with a focus on e-commerce, and our life sciences team coordinated online B2B meetings from various events. We also participated in EduCanada Virtual Fair and organised a training session for local education agents.

In future, we’ll continue to create links with our many upcoming initiatives by recruiting Canadian companies to participate in trade events such as Hong Kong International Medical and Healthcare Fair, International ICT Expo, Eco Expo Asia and the Hong Kong Fintech Week. We are also planning Canadian food promotions with outlets like Organic Plus, City Super or JouSun.com, to name a few, bringing quality Canadian F&B products to Hongkongers.

Despite all the challenges that the global pandemic has created, Canada’s economic fundamentals remain strong and will continue to propel faster and greener recovery and growth faster in post-Covid future.

With our well-educated workforce – over half of Canadians aged 25-64 attained post-secondary education – Canada ranked top on the Qualified Engineers Availability in Top G20 Countries 2020 and fourth in the world in availability of scientists and engineers. Between 2015 and 2019, Toronto alone added 66,900 tech jobs, ranking second in North American cities, after only the San Francisco Bay Area.

As the world is tilting towards a more sustainable path to recovery, transition to a cleaner future is a key priority for the Canadian government and represents a massive economic opportunity. Bold action on climate change is expected to spur economic growth and create jobs. For example, approximately 195,000 Canadians were employed in clean technology in 2018, which contributed C$2.6 billion to the economy. In a market expected to exceed C$2.5 trillion globally by 2022, Canada is widely recognised for its leadership in water and wastewater management, renewable energy, and sustainable resources management.

To best coordinate the country’s efforts, the Canadian government has created superclusters or areas of intense business activity to encourage industry leaders, small and medium-sized companies, post-secondary institutions, accelerators and incubators to collaborate on large-scale projects. These superclusters aim to speed up growth in some of our most promising industries such as digital technologies, plant proteins, advanced manufacturing, artificial intelligence-powered supply chains and oceans. As a made-in-Canada approach, the existing clusters have already been supercharged with up to C$950 million in federal government funding, matched dollar-for-dollar by industry.

Chan: How about the Greater Bay Area (GBA)? Are Canadian companies – start-ups and scale-ups – keen to make inroads into the GBA projects?

Elliott: Thanks to its geographical location and pro-business environment, Hong Kong has always been an important trade and investment partner for Canada. The city, as an international financial centre, remains one of the best cities for Canadian companies of all sizes to land in Asia and home to the largest Canadian business association of its kind outside of Canada – Canadian Chamber of Commerce in Hong Kong (Cancham).

There are currently more than 100 Canadian companies in Hong Kong; some of them have been here for over a century. Many of them use Hong Kong as a base for their regional expansion into ASEAN, along with mainland China. Partnering with Hong Kong firms notably provides access to well-developed Hong Kong sales and retail networks that have been established throughout the mainland and the rest of Asia. This advantage has been further strengthened by the additional assurance under the Investment Promotion and Protection Agreement (IPPA), effective since 6 September 2016.

Many Canadian technologies companies – start-ups as well as scale-ups – are keen to make inroads in the Asian market and are working with the Canadian Technology Accelerator (CTA) located in the Consulate. The CTA is an enhanced market access programme that offers high-potential Canadian tech companies the opportunity to access the Hong Kong market with bespoke support including webinars, business matching with potential customers, partners and investors, mentorship with industry experts, in-market events and networking opportunities, as well as a dedicated Trade Commissioner.

Of the biggest interest to Canadian businesses, the CTA is notably working with sectors key to Hong Kong’s economy, such as fintech, insurtech and property technology (proptech), which are also developing quickly in the GBA.

[1] The ultimate investor is identified by proceeding up the ownership chain of the immediate investor until an enterprise is reached that is not controlled by another enterprise. The location of the ultimate investor is referred to as the ultimate investing country (UIC).