by Mary Scianna, Editor
Growth in the manufacturing industry in Canada occurs in two ways—through domestic companies and foreign direct investments.
Both avenues of growth require the right economic conditions. Companies are more willing to invest when they know they will get a return on their investments. During poor economic periods, investments slow down.
One way countries spur manufacturing growth is with Foreign Direct Investment (FDI) incentives. In 2003, the Organization for Economic Co-operation and Development (OECD)— Canada is a member—published a checklist for foreign direct investment policies. The document lists the tools and strategies countries used to entice foreign investors—financial and regulatory incentives, infrastructure and job training subsidies, temporary wage subsidies, relocation support and administrative assistance. It also outlines the challenges and pitfalls countries face when implementing such incentives.
Looking at Mexico, one might say these incentives are working. The Mexican government has set up an aerospace supplier park to accommodate the growing influx of suppliers who want to move closer to the OEMs that have set up manufacturing operations in the country (Canadian aerospace manufacturer Bombardier announced in 2005 it would invest US $200 million over seven years to set up in the park). It offers free multi-year land leases and pays the infrastructure cost for roads, lighting, sewer, natural gas, telecommunications and electric power.
Look at Canada though, and you start to wonder: are incentives the way to go to secure foreign investments and the future of the manufacturing industry? In March, Spanish appliance manufacturer Mabe announced the closure of its manufacturing plant in Montreal. “There is no path to profitability for the plant, not even with significant government subsidies coupled with wage concessions from the union—the gap is simply far too large,” said Michael McCrea, VP of operations for Mabe Canada.
Mexico, even without incentives, attracts foreign companies because it’s a fast-growing market with a low-cost labour force and with better geographic access to the even faster growing economy of Brazil. So how does Canada compete against this growing competitive tide that continues to push manufacturing out of the country?
Striking the right balance with incentives is important; Canada needs to choose and implement policies that encourage manufacturers to invest here, but those policies can’t be the sole reason businesses invest here. Canada needs to rethink its policies to ensure that incentives encourage sustainable growth in the manufacturing sector.