The oft-touted problem whenever the loonie begins to rise against the US dollar is that it will hurt Canada’s exports to the U.S.. If the rise is too quick or too much, the Finance Minister – currenty Jim Flaherty – has been known to step in and threaten “intervention” to ensure that the rise will be tempered.
The solution to this problem of not getting fair value for the loonie is for Canada to move away from being so trade-dependent on the U.S. Among other materials and resources – like the organic tomatoes I buy at my market on the weekends in the U.S. – Canada supplies oil to the U.S. – in fact, Canada supplies most of the U.S.’ oil needs. At an obvious level, this is all understandable owing to reasons of proximity and, perhaps more importantly, being connected on the same landmass which allows for inter-highway, rail and inter-state continuous ground transportation of goods. Additionally, the U.S. market is still the largest in the world in terms of consumption.
Recently, three developments provide positive, suggestive signs of a growing diversification away from the U.S. economy and an increase in trade with other countries.
SNC-Lavalin Buys 48% Stake In Russian Oil Refinery
One of Canada’s premier engineering firms, Montreal-based SNC-Lavalin (TSE: SNC), this past week bought a 48% stake in Moscow-based OAO VNIPIneft, a Russian engineering firm that SNC has done business with over the past 30 years. OAO VNIPIneft is involved in oil refining, gas processing, and petrochemicals.
Among SNC’s many contracts is one to build and upgrade roads and other construction in advance of the 2014 Winter Olympics in Sochi, Russia.
Canadian Banks and LifeCos Increase Presence in China, Ireland
The big news last week was talk of a Canadian bank stake in AIB (Allied Irish Banks), one of Ireland’s top banking institutions. AIB shares jumped on the news, of course, while there were reports coming in about both Royal Bank as well as CIBC as the possible stakeholder candidates. This is good news if it goes through because Canada’s banks have been slightly too conservative in the past and are well-overfunded. Some have expanded a bit into American markets but as the recent recession has shown, it’s a good idea to not put all your eggs in one basket.
Additionally, Bank of Canada Governor Mark Carney, Finance Minister Jim Flaherty and other chief economists from Canadian banks all met this last week in China to discuss service expansion and other matters in Chinese markets. While some like the Bank of Nova Scotia have had a presence in China since 1982, the banks as well as Manulife and SunLife are looking to step up consumer lending – which is only just beginning in China – and local services to add to their existence corporate client portfolios. They are also looking to increase their presence and services for other Canadian companies wishing to expand into China.
First Canadian Law Firm Opens Local Offices In Saudi Arabia
Blake, Cassels & Graydon has become the first Canadian law firm to expand locally into Saudi Arabia, where Canadians have long been doing business. The law firm will work with Saud Al-Ammari, a former executive at Saudi Arabia’s largest oil company and the largest single world producder (Saudi Aramco), and will be “focused on Islamic banking, infrastructure, and mergers and acquisitions.”
Mr. Al-Ammari, who is now a managing partner at Blake, will be responsible for overseeing Blake’s development in Saudi Arabia and the rest of the Gulf region.
While moves such as these are not the only ones going on in Canadian companies and do not represent the extent of Canadian foreign trade (ex-U.S.), Americans used to the presence of U.S. multinationals might not be able to see the value or import of such moves. Traditionally, 80% of Canada’s foreign trade has been with the U.S. for some of the reasons stated above. The more trade (of any country!) is linked to the United States, the more that country’s own wealth is obviously dependent upon U.S. industrial and consumer activity. As we’ve learned through 2008, this is a dangerous move due to domestic U.S. economic policies and the culture of consumption and borrowing beyond earnings levels.
No country should put all of its trade eggs in one basket. The more that foreign countries can diversify their trading strategies, especially ones that still have sound economies (as Canada does), they will have more room to allow their own currencies to appreciate to fair market value.
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