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Market update: Canada

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Market update: Canada article image

Since the global financial crisis, Canada has been one of the world's most resilient economies, so how can Australian exporters make the most of our existing links to seek out new opportunities? Canada has long been considered the younger sibling of the USA, adapting some of its ways and relying heavily on bilateral trade. However, Canada’s star as a destination investment market is on the rise, and there has never been a better time for Australia to strengthen its strong relationship with its first cousin. Both large, geographically dispersed countries with Commonwealth roots, a Westminster system of government, and a comparable standard of living, Australian-Canadian trade has been quite straightforward, thanks to the similarities. Australia and Canada have an extensive trading history, and grant each other preferential tariff rates on a limited range of products agreed under the Canada-Australia Trade Agreement (CANATA), established in 1960 and amended in 1973. As CANATA pre-dates the multilateral trading system, most of its provisions have been superseded by World Trade Organisation tariff reductions. With merchandise trade at $3.81 billion, Canada is Australia's 22nd-largest trading partner. Around 3,000 Australian businesses either export to, or operate in, Canada every year, with top performing exports in wine, medicaments (including veterinary) and passenger motor vehicles. Companies exporting to Canada include food processors and retailers, consumer product retailers, packaging, software, tourism, financial services, and mining technology and services.

Eyes on investment

In contrast to the USA, their closest neighbour and ally, Canada has been a closer mirror of Australia in terms of weathering the global financial crisis, only briefly slipping into recession before bouncing back to experience strong growth. Austrade’s senior trade commissioner and consular general, Stefan Trofimovs, predicts that Canada will "get back to three percent growth levels, or even higher, by the end of the year". Australia’s investment in Canada, which was $3 billion in 2005, increased dramatically to hit $27 billion in 2009, thanks to our strong economy and Canada’s diversification of opportunities for foreign entities. Canadian investment in Australia has increased from $9 billion to $10 billion during the same period. Throughout this period, the USA has slipped into a deep recession, affecting trade relations between the North American nations and forcing Canada to seek out new trading partners. "The focus is now on forging new partnerships with the more resilient economies of South America, especially Brazil, while continuing to use Australia as a launching pad into the Asian markets," Trofimovs explains.

Back to the mine

The enormous Australian investment increase in Canadian interests is in part due to Rio Tinto Canada’s friendly takeover of Canadian company Alcan, resulting in Rio Tinto Alcan, of which Australia has a sizeable share because of parent company Rio Tinto’s Anglo-Australian origins. Since then, the Montreal-based mining giant has acted as a magnet for drawing new businesses and services into the country. Mining has become a dominant import sector for Canada. Sydney-based WorleyParsons acquired the privately held Colt Companies based in Calgary, Alberta for $1.13 billion, to gain increased access to Canada's oil sands industry. Transfield Services is another mining services organisation making waves in Canada. An Australian company providing operations, maintenance and asset management services in the mining, transport and utility sectors; clients include major national and international companies, as well as all levels of government, creating opportunities for new mining services exporters who may be looking to capitalise on the groundwork already done by these larger firms. In a similar vein to mining, engineering has become a dominant industry that Australian exporters are keen to invest in. Local engineering firms Coffey Geotechnics and GHD have both set up substantial presences in Canada; Coffey Geotechnics with an office in Alberta and three across Ontario and GHD setting up office just north of Toronto. Trofimovs believes the key to enduring international success is relationships. "Many companies from across all sectors are realising the importance of establishing a presence in the country they are exporting goods and services to, giving weight to nurturing long-term relationships between manufacturer, exporter and consumer," he says.

Environmental exports

Green energy, having been a focus in Canada for some time, is becoming a booming export sector for Australia. The biggest environmental trade show in the world, Globe 2010, will have representation from 10 Australian green energy companies. Speakers will present on Australian green energy, environmentally friendly building techniques, water management policy, and water recycling. Trofimovs believes there is only room for expansion in this increasingly important industry. Water management is an area where Australia is particularly well versed. "Surprisingly, given the terrain, Canada faces a water shortage problem," says Trofimovs. "The prairies experience severe drought and water management is only now being looked at closely for increased regulation. Alberta, in particular, experiences water shortage issues because of the heavy usage of the oil sand systems of the mining sector. Australia has water expertise they can impart to Canada thanks to their extensive history of surviving drought and minimal rainfall in rural areas."

Focus on finance

As ranked by the WTO, Canada is one of the world’s top 10 leading traders, so it’s no wonder that its ‘big five’ banks remain in the top 15 worldwide in market value, according to Trofimovs. Impressively, both Toronto-Dominion and Royal Bank of Canada are among only seven such institutions that still carry a Moody’s AAA rating, an index of the performance of the institution’s bonds. Macquarie Group, owner of Macquarie Bank Limited, has also extended its operations in Canada, making it one of the largest branches of the Australian-based financial services group. Growing exponentially from 300 to more than 1,000 employees, the blue-chip financial institution has become one of Australia’s primary exports to the country.

Eat, drink, and export

Local food and wine has also been a huge hit in the Australian-Canadian export market, Trofimovs reveals. "Austrade are diversifying their efforts in the marketing of export food, especially the traditional export market of wine. It’s the third-largest market in terms of straight volume, but it’s definitely the most valuable in terms of consumption per capita. The Australian Wine and Brandy Corporation program is focused on wine regionality and geographical branding, and also the new generation of younger drinkers and how best to market to them." He says that because Canadians habitually buy quality wines, "Australian price point-favourable wines will definitely find success in this consistently high-selling market" and notes that the French-speaking province of Quebec will be the next big push: "Wines aimed at this area of the market will find they have quite a lot of groundwork already covered." Of course, exporters to Canada must be aware of the opportunities available from it position as a gateway market into the USA and further afield, Mexico. Exporters setting up office or trade relations in the eastern cities of Quebec, Montreal or Ottawa have quick and easy travel to New York, while those in Toronto and the central prairies have direct access to Chicago and Detroit. Those in the western cities of Vancouver and Calgary have a west coast connection to California via Washington State and Oregon. However, Trofimovs believes that, while Canada is "a learning market for the US", it’s becoming more and more of a destination market in its own right, gaining steady ground in the international financial arena. Canada, it appears, is ready to step out on its own.

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