Predicting which way the loonie is going these days is a fool’s game, but one thing seems certain: B.C.’s low-currency advantage is gone forever
The B.C. economy, like that of the rest of Canada, enjoyed a security blanket back when the loonie was worth less than 70 cents U.S. It helped keep export figures high and workers employed. Now, like a hit of cold morning air, our blanket is gone. And looking at B.C.’s economy today reveals something many of us see when we peer into the mirror each morning: we’re not in as good shape as we should be.
By giving Canadian companies a price advantage overseas, the low Canadian currency has historically allowed us to grow a bit soft around the sides. Too many of our systems are old-fashioned; too much equipment out of date. The output Canada gets per hour worked trails that of most of the developed world, with B.C. trailing further still. And so a discussion about currency naturally evolves into a far-ranging examination of B.C.’s strengths and weaknesses, be it in our business hardware, our leadership or in our distinctive West Coast culture.
Sharing their insight are Daniel Muzyka, dean of UBC’s Sauder School of Business; Jock Finlayson, executive vice-president of policy for the Business Council of B.C.; and Craig Williams, vice-president of B.C. for Canadian Manufacturers & Exporters (CME).
We can’t predict exactly what the loonie will do in the future, but how likely is it that being near parity will have a serious effect on businesses in B.C. in the long term?
MUZYKA: It is going to have an impact. We lived through a long period in Canada when we were down to 63 cents to the U.S. dollar; it made a very depressed currency. That’s a great way to boost your exports, and it’s a great way to create the illusion of progress in wages and salaries, but over the long term it’s not sustainable. We didn’t need to be as productive, we didn’t need to appear as competitive, and now with this change in the currency – likely a sustained currency change – we find ourselves at an interesting juncture, where we are having to deal more with productivity issues that have been lingering in the economy. And we’ll have to deal with dislocation in the economy in terms of which industries are more viable.
FINLAYSON: I’ve been surprised that business has not been as affected as I might have thought. I don’t think very many Canadian companies have business strategies that are going to rely on a lower dollar to survive. I think that’s been beaten out of them by the steady appreciation we’ve seen. I don’t hear as many businesspeople complaining the currency is too high or urging the central bank to do something about it, and I think our companies have realized that this isn’t something we’re going to be able to control and they do need to compete.
All of the export-oriented industries will face some kind of a hit certainly, but it’s not as simple as it used to be. The rise of the global supply chain means there’s a lot more import content in what we produce, so you’re getting squeezed on your selling margins but you’re actually benefiting on the cost of your inputs. The impact of the currency on business is a more complicated story than it was 20 years ago.