Poor investment, slow growth the real drags on Canadian productivity: Deloitte

The inability of Canadian companies to sustain growth over the long term is a primary factor restricting their performance, according to a new report from Deloitte.

Disputing decades of speculation that size and sector composition act as restrictions on performance, the consulting firm’s report, The Future of Productivity: Clear choices for a competitive Canada, identifies the real drag as being the reluctance of Canadian companies to invest in growth, and government policies that encourage companies to remain small.

Among the key findings, exporting firms’ productivity growth outperforms non-exporters, but fewer than 3% of Canadian firms export. Also, Canadian businesses spend at only 65.2% the U.S. rate on machinery and equipment, while investment in information and communication technology (ICT) is at 66% in manufacturing and 80% in financial services.

The report found that Canada’s productivity lags behind the U.S. in all areas, regardless of a company’s size, sector, business type or location. And the competitiveness gap is growing particularly wide in manufacturing; since 2000, it has grown six times faster than in Canada.

Deloitte notes productivity growth in Canadian manufacturing averaged 0.88% between 2000 and 2008, well below the 3.3% rate of growth in the US. And a survey of US firms from 1998 to 2008 showed that rapidly growing firms are more productive. In Canada, for instance, 4.9% of firms account for 43% of all job growth.

The report advocates bolder investment in measures that boost productivity and seek out growth domestically and internationally.

It also calls on governments to create the right conditions for growth by eliminating barriers to trade, encouraging competition and foreign direct investment; and adjusting Canada’s immigration system to deal with an aging population and looming skills shortage.

The report also notes Canada needs to develop new trading partners to lessen dependence on the U.S., and increase the transparency of the foreign direct investment review process. This would encourage more foreign companies to invest in Canada, which would force Canadian businesses to invest and innovate to remain competitive.

To access the report, click on this link.