Manufacturing is one of Canada’s key economic drivers. The country’s 90,000 manufacturers directly generate almost 10 cent of Canada’s GDP and more than 60 per cent of our merchandise exports. Including indirect and induced impacts, the sector’s footprint amounts to one-quarter of Canada’s total economic activity. As well, the sector directly employs 1.7 million Canadians and supports 3.4 million more Canadian workers through supply chain activity and employee spending.
Although its presence is still large, Canada’s manufacturing sector has struggled for most of this century, with output and merchandise exports growing at a much slower pace than that in other advanced economies, a consequence of very sluggish investment. Several factors explain the reluctance of firms to invest in Canada: labour and skills shortages, a relatively high tax burden, a sub-optimal regulatory environment, and the absence of a national advanced manufacturing strategy.
The erosion of our industrial competitiveness has left Canada in a vulnerable position. This became all too evident when the COVID-19 pandemic erupted in March 2020, and governments were forced to scramble to find masks, ventilators, and later vaccines. Thankfully, despite the challenging environment, many Canadian manufacturers stepped up and shifted production to make PPE and other supplies needed to protect front line workers and to help patients dealing with the deadly virus. If anything, the pandemic has been a wake-up call for Canada, reminding us of the vital need to rebuild our industrial capacity.
Much work is left to be done. Canada’s competitiveness challenges, especially a lack of workers, have hampered the ability of the manufacturing sector to recover from the COVID crisis. They also threaten the sector’s ability to attract future investment from reshoring and foreign companies. Indeed, while numerous trends and disruptions like the pandemic, the Russian-Ukraine war, growing unease with China, and the emerging opportunities associated with clean technology may have kickstarted talk of reshoring manufacturing production to Canada, the reality so far tells a different story. Surveys indicate that, as of today, manufacturing investment has only achieved a partial rebound.
Fortunately, the solution is at our fingertips. Canadian Manufacturers & Exporters (CME) fully supports Finance Minister Chrystia Freeland’s recent pronouncement that Canada needs “a real muscular industrial policy.” It is also fully behind the government’s commitment in the 2022 Fall Economic Statement to invest in “Canada’s advanced manufacturing competitiveness.” But these words need to be quickly put into action, especially since the US passed the Inflation Reduction Act (IRA), a landmark clean energy and industrial policy bill. The Government of Canada must respond by making a comprehensive advanced manufacturing strategy a key focus of the 2023 federal budget, and it must be underpinned by the following four pillars:
- Get the workers we need.
- Stimulate innovation, investment and the adoption of advanced technologies.
- Increase domestic production and exports.
- Support manufacturers to help them adapt to and advance Canada’s climate change plan.