Home' Trinidad and Tobago Guardian : May 24th 2015 Contents SBG16 FINANCE
SUNDAY BUSINESS GUARDIAN www.guardian.co.tt MAY 24 • 2015
North of the world's
largest economy sits
Canada, a wealthy,
peaceful, nation that
is often overlooked in
discussions of the
global economy and
It's a country that policymakers and
investors ignore at their peril.
Contrary to popular belief, Canada is far
more than its relationship with the US. In
many ways, the nation runs counter to many
global trends --what Canada enjoys in abun-
dance, much of the world lacks.
Here's why everyone in the world should
be paying more attention to Canada.
1. A pulse for the global economy
The Canadian economy and financial mar-
kets are one of the most underutilised barom-
eters of global economic activity.
When global growth exceeds four per cent,
Canada's benchmark equity index, the
S&P/TSX Composite, has tended to outper-
form the S&P 500.
And over the past ten years, the TSX/S&P
Composite has moved in near-lockstep with
the MSCI Emerging Markets index (in Cana-
Canadian equities, one can infer, are similar
to those in emerging markets --but without
worries over political upheaval or accounting
irregularities that cause investors to be wary
over investing in those locales.
Given the Canadian equity index is heavily
skewed towards commodity-producing com-
panies, this relationship may not be all that
surprising. However, Canada's connection to
global economic trends is also manifested in
far more subtle ways. Vancouver, for instance,
is hailed as the "most Asian city outside of
Asia," and continues to attract hundreds of
thousands of immigrants from the continent
As such, luxury real estate valuations in
this metropolitan area have come to be viewed
as a proxy for Chinese capital flight.
2. Burgeoning Silicon North?
Tyler Cowen, professor of economics at
George Mason University, caused much con-
sternation in Canada by recently quipping
that the nation probably would not be a big
player in the knowledge economy.
Nortel's bankruptcy and BlackBerry's fall
from grace are scarred into the Canadian
public consciousness, overshadowing a num-
ber of technology success stories.
Software and services provider Open Text
Corporation, for instance, has increased
adjusted revenues to $1.6-billion in 2014 from
$152.5-million in 2002 to become the third-
largest information technology company in
Canada by market capitalisation.
Meanwhile, Shopify, which has developed
a widely-used e-commerce platform, is slated
to go public on the New York Stock Exchange
Sam Altman, chief executive officer of Y
Combinator, paid tribute to the quality of
the Canadian tech scene in a recent interview
with the New York Times.
Altman, an alumnus of Stanford University,
highlighted the University of Waterloo, located
in Ontario, as a school whose students and
graduates produced stand-out ideas.
Canadian-born Chad Rigetti is at the helm
of one of those Y Combinator-backed firms.
The founder and chief executive officer of
Rigetti Computing attended the University
of Regina before getting his PhD at Yale. He's
currently developing quantum computing
hardware in Berkeley, California, competing
against the likes of Google, Microsoft, and
"In quantum computing, Waterloo has
done great," said Rigetti. "Whether that will
lead to the development of significant enter-
prises is an open question."
The venture capital network in Canada is
nowhere near as robust as that of its neigh-
bour to the south, so much so that OMERS
Ventures, a branch of a pension fund, the
Ontario Municipal Employees Retirement
System, has become a key partner and source
of funding for Canadian technology start-
While Canadians might bemoan the recent
loss of some promising tech firms, the basket
of potentially viable projects under develop-
ment in Canada, particularly Waterloo, pro-
vides an opportunity for deep-pocketed for-
eign venture capital firms to fill the funding
3. A cutting-edge central bank
Though it typically fails to capture the
world's attention, Canada's central bank has
been an innovator in monetary policy since
the early 1990s. The Bank of Canada was
among the first in the world to adopt a formal
inflation target, and has generally enjoyed
success in achieving this goal.
During the financial crisis, then-Governor
Mark Carney also pioneered the use of cal-
endar-based forward guidance in April 2009
by stating that the policy rate would remain
at 0.25 per cent through the second quarter
of 2010, which helped depress yields across
The bank has also been at the forefront of
how central banks are attempting to condition
markets for policy normalisation. In October
2014, Governor Stephen Poloz published a
discussion paper revealing that the Bank
would be abandoning forward guidance after
a period of moving towards increasingly vague
descriptions of the economic variables that
would influence monetary policymakers.
These moves have served as a template of
sorts for later communication shifts by the
Federal Reserve and the Bank of England.
Known for his folksy, off-the-cuff style,
Poloz has managed to inject volatility not
only into foreign exchange and fixed income
markets, but also into Canadian socioeco-
nomic debates when he suggested that unem-
ployed youths should seek unpaid work.
The Bank of Canada shocked markets by
cutting its policy rate to 0.75 per cent on Jan-
uary 21, and this won't be the last time the
institution is front-and-center in monetary
In preparation for the renewal of its infla-
tion-control agreement in 2016, the Bank
will be investigating, among other matters,
whether a two per cent inflation is still the
most appropriate target and how much mon-
etary policymakers should take financial sta-
bility concerns into their decision-making
Though both Governor Stephen Poloz and
Deputy Governor Agathe Côté have stressed
that the "bar for change is high," the Bank
is poised to inform an important debate: how
monetary policy should be altered in light of
the financial crisis and the increased odds of
revisiting the zero lower bound for interest
rates once the next global economic shock
4. The struggles of a would-be
natural resources superpower
The path to North American energy inde-
pendence runs through a pipeline that begins
However, progress along that path has met
many roadblocks, as balancing the interests
of citizens, governments (federal, provincial,
and foreign) and corporations, is a prerequisite
for resource development.
Because of a failure to adequately address
the concerns of all these parties, access to
markets has been a persistent challenge, result-
ing in a deficiency of transport infrastruc-
The collapse in oil prices is the latest chal-
lenge that threatens to dampen Canada's quest
to become a global energy superpower.
Peter Tertzakian, chief energy economist
at Calgary-based ARC Financial Corporation,
highlighted 24 oil "megaprojects" have been
delayed or cancelled as of mid-2014; 18 of
these in Canada.
Amid the boom times for oil, investors have
pushed companies to invest in smaller devel-
opments with more visible returns on invest-
ment and shorter payback periods.
If the demand for oil sufficiently outstrips
supply over the medium term---the opposite
of the current situation---as global growth
picks up steam, the lack of Canadian megapro-
jects will be a key contributor to that deficit.
As such, the stories of resource market
dynamics of today and tomorrow will have
an essential Canadian component --and that's
not just for oil.
Water shortages, already a severe problem
in California (a state with a population roughly
equivalent to Canada's), will become more
acute as time passes.
Canada, which possesses about 20 per cent
of the world's freshwater resources, will be
well-positioned to alleviate some global short-
falls in supply.
5. Peak uncertainty
Lack of reliable foresight into the future
course of events is one of the few constants
in the human experience.
But in the case of Canada, the range of
opinion on how the economy will fare over
the next two quarters has arguably never
Standard Chartered Bank, for instance, is
forecasting a technical recession for Canada,
calling for the economy to contract by 2.4
per cent in the second and third quarters.
Deutsche Bank, on the other hand, sees strong
growth of three per cent in the second quarter
followed by a 2.3 per cent expansion in the
This uncertainty is amplified by the upcom-
ing federal election, scheduled to take place
on October 19. At present, the daylight
between the three major political parties on
economic issues is not immense. However,
the eventual winners will end up shaping the
pace of infrastructure development, access
to markets, and climate policy in Canada over
the next five years, with their actions likely
to outlive their time in power.
Why you should
Links Archive May 23rd 2015 May 25th 2015 Navigation Previous Page Next Page