Download - Kevin Lynch oneNS Oct 2 2014
GLOBALIZATION, TECHNOLOGY AND DEMOGRAPHICS ARE RESHAPING THE GLOBAL GROWTH EQUATIONKevin G. Lynch
Vice-Chair BMO Financial Group,and
Former Clerk of the Privy Council and Secretary to Cabinet, Government of Canada
“One Nova Scotia” RoundtableHalifax, Nova Scotia
October 2, 2014
1One Nova Scotia Roundtable, Halifax, Oct 2, 2014
Observation 1: The context facing Canada and Nova Scotia is changing
The core question facing us in Nova Scotia is: how well and how quickly are we adapting to this change?
The demographic imperative - we’re aging,
with profound impacts
Globalization 2.0 -the hyper-
connected world
Global financial crisis - with endless
consequences
Technology revolution - changing
everything
The competitiveness paradigm shift - need an innovation engine
Observation 1: The context facing Canada and Nova Scotia is changing. The reality today is a world that is changing, profoundly. Structural trends are reshaping economies, societies, politics, expectations, and are redefining the “drivers of success”, for everyone. Change is the new constant.
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2One Nova Scotia Roundtable, Halifax, Oct 2, 2014
Observation 2: The new global economic reality is a “two-speed world”
2-speed World: By the Numbers
2012 2013 2014 2015Avg growth
2012-15
Emerging Economies 5.1 4.7 4.6 5.2 4.9
Emerging Asia 6.7 6.6 6.4 6.7 6.6
China 7.7 7.7 7.4 7.1 7.5
Advanced Economies 1.4 1.3 1.8 2.4 1.7
US 2.8 1.9 1.7 3.0 2.4
EU -0.7 -0.4 1.1 1.5 0.4
Canada 1.7 2.0 2.2 2.4 2.1
Source: IMF World Economic Outlook Update, July 2014
2-Speed World: The Visual
1-2%growth
6-7%growth
5%growth
Observation 2: The new global economic reality is a “two‐speed world” ‐‐‐ with advanced economies in the slow lane and emerging markets leading global growth. With 90% of Canada’s trade with “slow growth economies”, this creates a trade and investment diversification imperative towards emerging markets for Canadian business.
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3One Nova Scotia Roundtable, Halifax, Oct 2, 2014
Observation 3: Trade diversification drives growth
RankTop Canadian
Export Markets, 2013
% of all 2013 Exports of Goods and Services
Size of Economy (2013 USD Billion, GDP)
4-year Average Growth: 2013-2016
1 United States 75.9% 16,800 2.7%
2 China 4.3% 9,181 7.4%
3 United Kingdom 3.0% 2,536 2.4%
4 Japan 2.3% 4,902 1.1%
5 Mexico 1.1% 1,259 2.8%
6 Hong Kong 1.0% 274 3.6%
7 Netherlands 0.8% 800 0.8%
8 South Korea 0.7% 1,222 3.5%
9 Germany 0.7% 3,636 1.3%
10 France 0.7% 2,737 1.1%
11 India 0.6% 1,871 5.7%
12 Belgium 0.5% 507 1.0%
13 Brazil 0.5% 2,243 2.4%
14 Norway 0.4% 511 1.6%
15 Italy 0.4% 2,072 0.3%
Sources: IMF World Economic Outlook, Oct 2013, Stats Canada
Observation 3: Trade diversification drives growth ‐‐‐ but Canada’s current export markets do not align well with the distribution of current global economic activity, and align even less well with where future export demands will originate. Canada’s exports are greatly underweighted in Asian economies, and emerging markets in general.
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4One Nova Scotia Roundtable, Halifax, Oct 2, 2014
Observation 4: Lack of trade diversification has costs
Export Values comparing actual Canadian activity weighting with China and Emerging Market Economies to what it
would be with US weighting
Exports to Emerging Market Economies
% Share of total exports
Note: Bank of Canada foreign activity measures calculated based on 2012 share of Canada and US exports to China and select EMEs. The numbers displayed represent the gap between 2013Q2 exports and the level of exports implied by the recalculated foreign activity measures.Values expressed in 2007 chained dollars.Sources, IMF, Statistics Canada, Bank of Canada calculations. Las Observance 2013Q2
Canada UK Germany US Japan Australia0
10
20
30
40
50
Source: IMF Last observation: 2012
%
Observation 4: Lack of trade diversification has costs ‐‐‐ Canada’s trade exposure to emerging markets is smaller proportionally than other G7 countries. If Canada had the same proportion of exposure to emerging markets as the US, the demand for Canadian exports would be $60 billion higher, and that is a lot of lost growth, incomes, and jobs.
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5One Nova Scotia Roundtable, Halifax, Oct 2, 2014
Observation 5: Asia is a market for Canada’s natural resources, and much more
Sources: OECD, The Emerging Middle Class in Developing Countries , http://www.oecd.org/dev/44457738.pdf; McKinsey. Global Insight, February 2009; MGI China Model, February 2009; MGI
Numbers (millions) and Share (percent) of the Global Middle Class
2009 2020North America 338 18% 333 10%
Europe 664 36% 703 22%
Central and South America
181 10% 251 8%
Asia Pacific 525 28% 1740 54%
Sub-Saharan Africa
32 2% 57 2%
Middle East and North Africa
105 6% 165 5%
World 1845 100% 3249 100%
Private Domestic Consumption2020 (Forecast)
CAGR2007-2020(%)
2.2
1.5
6.3
1.9
2.3
3.8
1.2
1.5
8.3
1.3
Observation 5: Asia is a market for Canada’s natural resources, and much more. There are 800‐900 million middle class consumers in Asia today, and their number will double by 2020. Private domestic consumption in China is just 36% of GDP today, compared to 72% in the US, will surpass all countries except the US and Japan by 2020 ‐‐‐ and this is a largely untapped export market for Canadian firms.
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6One Nova Scotia Roundtable, Halifax, Oct 2, 2014
Observation 6: There are many untapped export opportunities in Asia for Nova Scotia firms
Consumers - $22 T consumption in emerging markets in 2025 and almost 2B middle class consumers -wanting better foodstuffs, better housing, better financial services, better education, etc.
Natural Resources - A 30% increase in global energy demand, of which China and India alone will account for 60% by 2035.
Infrastructure - $27 T expected infrastructure spend in emerging Asia, creating opportunities in engineering services, consulting, financing , specialty services, as well as basic materials.
Agriculture and Food - Middle class wants variety in agriculture and foodstuff as well as increased food safety.
Tourism - approximately 80 million outbound Chinese travelers in 2012, growing to over 110 million in 2015 - fastest growing segment in the world.
Education - 1 B Asian youth to educate in any given year, and Canada/Nova Scotia have high quality, reasonably priced product offerings.
Health Care - Spending expected to triple across Asia by 2020 but public systems are rudimentary-to-mediocre, and private systems are mixed.
Observation 6: There are many untapped export opportunities in Asia for Nova Scotia firms. Energy can be a beach‐head to a broader trade relationship with Asia. But we need to build a “brand” ‐‐‐ presently the only Canadian brand in Asia is Canada itself, and it is positive but opaque. Seven specific opportunities in Asia to which the strengths of Canada and Nova Scotia are well‐aligned include:
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7One Nova Scotia Roundtable, Halifax, Oct 2, 2014
Observation 7: Consider the energy opportunities, and risks
CANADA’S ENERGY SECURITY CONUNDRUM
US Hydrocarbon Supply
US Hydrocarbon Demand
+100% reliance on US market for gas, oil and electricity exports
+Increasing Canadian
unconventional supply capacity: oil sands + shale gas
=Declining Canadian security of
energy demand
CANADA’S ENERGY SECURITY CONUNDRUM
US Hydrocarbon Supply
US Hydrocarbon Demand
+100% reliance on US market for gas, oil and electricity exports
+Increasing Canadian
unconventional supply capacity: oil sands + shale gas
=Declining Canadian security of
energy demand
Global energy demand:
• >33% growth by 2035• <5% growth in OECD• China demand > U.S.
Global energy supply:
• Shale oil, oil sands • Shale gas • Renewables
Energytechnology:
• Fracking, oil sands• Renewables• Water remediation; CO2
Globalrisk/uncertainty:
• Geopolitical: Iraq, Syria, Nigeria, Russia, South China Sea
Global energy equation:
• Shifts in security of global demand/supply
• U.S. energy self-sufficiency
• Global gas market?
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Observation 7: Consider the energy opportunities, and risks ‐‐‐ we need to diversify our energy export markets away from one single energy buyer, and the “rewards” to doing so are huge ‐‐‐ LNG exports would raise gas prices; oil exports would reduce oil price “discounts” in US markets and absorb volume increases. And consider the energy risks if we do not diversify ‐‐‐ Canada’s “energy security conundrum.”
8One Nova Scotia Roundtable, Halifax, Oct 2, 2014
Observation 8: Consider the food and agriculture opportunities, what we’re capable of and what we’re missing
100% =
ROW
China
Dairy
383
Beef
260
Poultry
173
Pork
400
Sources: McKinsey. USDA, NBS, Food and agriculture organization of the United Nations (FAOSTAT)
China’s share of consumption%, 100% = $B Total
Agricultural Resources
Ranking
Lentils 1st
Linseed 1st
Mustard Seed 1st
Dry Peas 1st
Forest 2nd
Barley 2nd
Canola 2nd
Blueberries 2nd
Cranberries 2nd
Mixed Grain 2nd
Wheat 8th
Canada’s global production rankings for agricultural resources
50
15 10 6
Observation 8: Consider the food and agriculture opportunities ‐‐‐ Asian, particularly Chinese, growing demand for better quality, higher nutritional foodstuffs. China is now the world’s largest market for meat (at $300 Billion) and there is substantial room for it to grow further, as well as expand poultry, dairy products and seafood. But, Canada is not yet a major player.
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9One Nova Scotia Roundtable, Halifax, Oct 2, 2014
Observation 9: Consider the education opportunities, with Australia the best example of what is possible
SOURCE: McKinsey “International Education: A Key Driver of Canada’s Future Prosperity,” Advisory Panel on Canada’s International Education Strategy, August 2012; Government of Quebec
International student market share (est.)
Percent
InternationalstudentsNumber
UnitedKingdom
UnitedStates
Canada
Australia
10
18
5
13
428,000
723,000
240,000
557,000
Observation 9: Consider the education opportunities. There is a great scope to grow education as a major export to Asia…the fact that Australia, which is smaller than Canada, has a share of the international student market that is 2½ times Canada’s shows both today’s deficit and tomorrow’s potential for Canada to grow education as a major export to Asia. Australia is the exemplar, and our competitor.
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10One Nova Scotia Roundtable, Halifax, Oct 2, 2014
Observation 10: Consider the value added tourism opportunities, and what it will take to capture them
Mongolia 0.3
Canada
0.3
0.3Germany0.40.4
Indonesia 0.6UK
1.1
Cambodia
Thailand
Australia
Singapore
1.5
1.2
1.0
USA
Russia
0.70.8
Vietnam
1.4
France
1.6
1.7
Taiwan
Japan
Malaysia
China international travelers by destination Millions, 2011
1.8
2.4South Korea
SOURCE: McKinsey. CEIC, China tourism yearbook, Euromonitor (2011) Ctrip survey 2/2013; China Tourism Academy “China outbound travel satisfaction survey”
Singapore 79.5
Germany 80.0
South Africa 80.2
Brazil 80.3
Agentina 81.0
France 82.3
New Zealand
82.5Spain
82.6
Italy 82.7
Canada 84.5
Chinese tourist satisfaction rate
Observation 10: Consider the value added tourism opportunities ‐‐‐ the fastest growing global tourism segment is Chinese travelers‐‐‐but, despite having received “approved destination status” for Chinese tour operators, we rank 14th in attracting high spending Chinese tourists. There is great potential to capture a much higher share of Chinese travelers, provided we customize the product, the marketing and the branding.
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11One Nova Scotia Roundtable, Halifax, Oct 2, 2014
Observation 11: How well positioned are Canada and Nova Scotia for success in today’s global economy?
In today’s hyper-competitive world, the question for Nova Scotians is: is being “pretty good”, good enough?
Rankings Global Competitive-ness Index (WEF)
Innovation Capacity (WEF)
ProductivityGDP per employed worker, current prices, USD (OECD)
Soundness of Financial Systems (WEF)
Net Debt to GDP, 2013(IMF)(lowest to highest)
Tertiary Education, % of Population (OECD)
K-12 Pisa Results: Math (OECD)
Number of Universities in Top 100 (Times Higher Education)
Ranking of Cities – EIU Global Liveability(# of cities in top 10; ties settled based on rankings)
Institutional Strength and Resilience, OECD Countries (World Bank)
Norway
Finland
Sweden
Estonia
Denmark
12th
18th
Canada
New Zealand
South Africa
Hong Kong
Singapore
1st
58th
United States
United Kingdom
Germany
Australia
Canada
5th
1st
Switzerland
Singapore
Finland
Germany
United States
14th
5th
#1
#2
#3
#4
#5
Canada
UnitedStates
Canada
Japan
United States
New Zealand
Finland
1st
3rd
China (Shanghai)
Singapore
Hong Kong
Taipei
Korea
13th
36th
Australia
Canada
Austria
Finland
New Zealand
2nd
n/a
Switzerland
Finland
Germany
Israel
United States
27th
5th
Luxembourg
Norway
US
Ireland
Belgium
17th
3rd
Finland
New Zealand
Sweden
Switzerland
Norway
9th
17th
Observation 11: How well positioned are Canada and Nova Scotia for success? High wage, high income, lower scale economies cannot compete on standard products produced with common technologies at low input costs ‐‐‐ they have to be innovation intensive. While innovation‐driven competitiveness is complex, the core drivers include: innovation, quality of human capital, entrepreneurship and frameworks. And, while Canada does reasonably well at present (and noting that Nova Scotia ranks lower in all categories), the question is: is being “pretty good”, good enough in today’s hyper‐competitive world?
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12One Nova Scotia Roundtable, Halifax, Oct 2, 2014
GLOBAL 54UAE 79China 79Singapore 73Indonesia 72India 69Malaysia 65Canada 60Netherlands 60Mexico 59Hong Kong 59Australia 58Brazil 57Germany 57Argentina 53U.K. 52Sweden 51S. Korea 51S. Africa 50U.S. 49France 46Japan 44Italy 43Turkey 41Spain 39Ireland 39Russia 37Poland 35
Global Trust Index, 2014
50%
51%
51%
55%
59%
59%
60%
63%
64%
65%
65%
66%
70%
75%
79%
Financial services
Media
Banks
Chemicals
Energy
Pharmaceuticals
Consumer healthcompanies
Telecommunications
Brewing and spirits
Consumer packagedgoods
Entertainment
Food and beverage
Automotive
Consumerelectronics
Technology
Global Trust in Sectors, 2014
Observation 12: Trust matters for leading change
Observation 12: Trust matters for leading change. The Edelman Global Trust Barometer shows a decline in the public’s trust in many countries and many sectors over the last decade. And this matters when introducing new products, new policies, new innovations and new markets. Canada has more trust in business and government than the global norm, and all other G‐7 countries, and technology is the new sectoral gold standard for trust.
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Trust Index is an average of a country’s trust in the four institutions of government, business, media and NGOs. 20‐country global total (does not include Argentina, Hong Kong, Malaysia, Singapore, South Africa, Turkey, UAE).
Source: 2014 Edelman Trust Barometer Global Energy Industry Results
13One Nova Scotia Roundtable, Halifax, Oct 2, 2014
Observation 13: Culture and attitudes matter to success for Nova Scotia in this profoundly changing world
• We need to avoid “short term-ism” --- it is hard to build for our long term future with a quarterly mindset. A focused, long term Strategic Plan, with clear implementation milestones and accountabilities, is a good place to start.
• We need to avoid “status quo-ism” --- it cannot be a strategy for long term success in a profoundly changing world. Re-orienting the economy towards more innovation-intensive firms, particularly start ups, is key.
• We need to avoid “parochial-ism” --- everyone needs clear “going global” strategies today. Job #1 for Canada and Nova Scotia is focussed, export market diversification.
• We need to avoid “risk aversion” in policy and operations. Consider a number of immediate innovations: reverse trade missions; foreign student strategy; incubator(s); pervasive co-op; and Chinese tourism as possible places.
Observation 12: Culture and attitudes matter to success for Nova Scotia in this profoundly changing world. To realize our full potential in Nova Scotia, we need to better embrace entrepreneurship and innovation, be less risk averse, be more ambitious about seizing new global trade opportunities, and, be clearer about our collective interests as well as our private goals. Complacency is a risk best avoided.
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