SYCAB Luncheon18/2/2009

Presentation to Syrian-Canadian Business Association
Damascus, 18 February 2009

This opportunity is very timely. I returned on Monday from a business trip to Lattakia, I was in Aleppo and Hama two weeks ago to meet business leaders and see the industries there, and I leave on Friday for Canada where I will attend the annual Canada-Arab business council meeting together with our annual meeting of Canadian ambassadors from the region.

I intend to offer you some brief thoughts in 3 areas:

- Canada’s perspective on the global economic situation
- a few words on trade and business between Canada and Syria, and
- a word or two on SYCAB itself and the way ahead.

I will do this in 15 minutes and then welcome a more general discussion.

I Canada and the global economic situation

I am not going to go into the background of the current situation or how the financial crisis has become an economic crisis, but let me begin by offering a couple of thoughts to put things in perspective

 - the first is just to stress that this is an extremely serious situation.  There is a general consensus that this is already the deepest recession since WWII and the worst financial crisis since the Great Depression in the 1930s.  The new US Director of National Intelligence, Dennis Blair last Friday (13 Feb) publicly stated that instability arising from the global economic situation has outpaced terrorism as the most urgent threat to the US
 - the second is that we are only 4-5 months into this, and things may well get worse before they get better
 - thirdly, no nation which trades is going to be unaffected. That includes Syria, where there are already signs of slowdown.

So what does this mean for Canada? For those who have not seen it, I recommend the latest edition of NEWSWEEK magazine which carries a one page article by Fareed Zakaria entitled ‘Worthwhile Canadian Initiative’. The article says in essence that the US should pay attention to how Canada is managing its finances, and that the US fares badly by comparison. It’s a good article… we could have written it ourselves.

Overall, I can advise you very frankly and honestly that Canada is weathering the financial storm very well. We have strong macroeconomic policies, very solid financial regulatory and supervisory structures, and a conservative investment culture. The main investment firms in Canada fall under the same general regulatory structure as the banks. Our financial institutions are better capitalized and more strictly regulated than most in the US or Europe. Canadian banks are required to have an asset to capital ratio or leverage of less than 20 to 1 (18 to 1), compared with some US and European banks which operate at much higher levels (US at 26 to 1 and some European banks at twice this level or more).

The strength of Canada’s major banks is remarkable by global standards. In the past 4 months the ‘big 5’ Canadian banks have raised some $9B in common equity and preferred shares and their dividends are intact.

No Canadian banks have failed, and the Canadian government has not had to bail out any financial institutions, although the Bank of Canada’s authority has been strengthened and legislation is now in place to intervene decisively if required.

The government has provided guarantees to ensure that credit remains available and business can operate. The Bank of Canada has also coordinated action with other central banks to cut interest rates. Canada’s Prime Rate was set at 1% on Jan 20, the lowest in 50 years.

The Canadian banking system was rated the soundest in the world by the World Economic Forum in 2008. At the G7 meeting of finance ministers in Rome last weekend, Ministers spoke in favour of a coordinated regulatory overhaul of the financial system, the need for a rules based strategy, greater access to capital, and greater supervision…. All of which are well established in Canada. I simply state a fact when I say that the goal for most nations must be to get to where Canada already is in terms of financial stability and oversight.

The bottom line is that the Government of Canada will not allow Canada’s financial system to be put at risk by global events.

Let me be very clear that Canada is nonetheless very much affected by the international economic situation.

We are a major trading nation and the sharp slump in the global economy is taking a heavy toll. In December alone, our total two way trade was about $70B, $50B of which was with the US. This was relatively balanced, with about $35B in both imports and exports. However, in December, for the first time since 1976, we showed a trade deficit. The deficit was about $500M, and came as something of a shock, as economic forecasts had called for a trade surplus of about $500M for the same period (A difference of $1B in trade in one month). This just to illustrate the scale and speed of change, and perhaps why economists are aging so rapidly

Many of you know very well that Canada is the largest trading partner of the US (over $600B two way trade in 2008 or $1M every minute, $1.7B every day). Canada is the largest provider of energy to the US, and the largest trading partner of 37 of the 50 states. We have whole sectors of the economy which are closely integrated with the US industries, the automotive sector being a prime example. When the US economy declines, Canada is immediately affected. We are watching the GM/Chrysler crisis very closely

We are particularly feeling the effects of the dramatic fall in commodity prices. We have seen a short term drop in about 9% of our export values, and a sharp slow down in the manufacturing sector across Canada. In January, we estimate that we lost 129,000 jobs (forecasts was 40,000) a total of 213,000 jobs lost since Oct.

As I said at the outset, it is very unclear how long this is all going to last, however analysts in Canada are predicting that the recession will last only into 2010, and that we will return to positive GDP growth in that year as well. We hope they are right.

The longer it goes on, the more serious it becomes. Our main risk areas are obviously:
- further turmoil in the global financial market
- prolonged and deeper US recession
- ongoing low commodity prices (oil forecast at $70 now at $36)

While much of this is out of our direct control, the government of Canada has taken a number of important measures to stimulate the economy:

 - starting in 2006, well before the current crisis, a stimulation package had already been launched. This included federal tax cuts amounting to nearly 2% of GDP; and a C$33 billion, 7-year, investment in infrastructure, to double the previous level of infrastructure spending.
Canada’s nominal GDP is expected to fall by 1.2 per cent for 2009. The Government is however basing its estimates on a more severe contraction, so that the tax base and budget planning err on the conservative side
After 11 consecutive years of budgetary surpluses, the government is well positioned to invest significantly in further economic stimulation. A new budget was announced on 27 January that puts us about $34B into deficit, and sustains deficit spending at smaller levels through to 2013 when we return to a balanced budget.
The budget provides
 - some additional tax relief, especially for lower and middle income Canadians.
 - extra assistance to Canadians who lose their jobs 
 - some support to Canadian industries in difficulty, including forestry,  manufacturing, tourism, agriculture, fisheries and the automotive industry
 - ensured access to financing for businesses
 - a further major increase in funding for Canada’s infrastructure: we will see construction of roads, bridges, public transit, broadband Internet access, schools and social housing, in every region of the country.

The Cdn govt has indicated that it will spend what is necessary to stimulate the economy, and will invest what is necessary to protect our future prosperity.
The stimulus provided in this Economic Action Plan represents 1.9 per cent of our economy for the next fiscal year; and 1.4 per cent for the following year. It exceeds the target recommended by the IMF in term of economic stimulus (2 + 1.9 = 3.9% total).
In spite of these temporary deficits, by the end of this program, Canada’s total government net debt as a share of the economy (at under 38%) will still be the lowest in the G7. (Should point out that we have reduced this by 30% from 95-96 level, when we began to put our financial house in order)
So, tough times, but we are in good financial shape, we have a plan and we are getting on with business. Which brings me to my second theme:

II Trade and business between Canada and Syria.
Trade development is a core part of my business as Ambassador. 

It is fair to say that trade between Canada and Syria is on the right track, but equally fair to say that it is a pretty modest track. Our bilateral trade in merchandise, which was only $39M 10 years ago, reached $123 million in 2008. Our two way trade is reasonably balanced, but the total is still only about half of the value of the coffee which Syria buys from Brazil every year. This past year the figures show that Syrian exports to Canada, mostly crude oil and food products, were worth about $56M. Canada sold to Syria some $66M worth of forestry and steel products, machinery and food commodities. I must say that I have some doubt about these figures, as I think the total may actually be higher. Even if it is, the total is very modest.

A number of  Canadian oil and gas companies are active in Syria, notably Petro Canada, which has major investments in the Ebla gas treatment plant and two main fields in Eastern Syria. The first gas is to be delivered in 2010. Petro-Canada is amongst the leading foreign investors in Syria, if not the top investor.

There has been modest progress in other areas, including Canadian-made grain storage facilities (which have been built throughout Syria), newsprint, paper and other wood products sourced from Canada, oil & gas equipment and technology developed in Canada, and the opening of a number of fashion outlets franchised from Canada. I attended the official opening of the first Second Cup Café in Syria three weeks ago at the Damascino Mall, with a second one being opened  in Aleppo at the Chahba Mall, and of course, the leading Canadian hotel management firm The Four Seasons and its Syrian partners operate a splendid hotel here in central Damascus.

There is much more that we can do. When I travel around the country, and go to Aleppo or Hama or Lattakia, and here in Damascus, I hear and see interesting comments from Syrians about opportunities and barriers to trade

- shipping routes, shipping times, and insurance rates between Canada and Syria are problem areas… it takes too long. Why do some goods have to route through Dubai?
- there are markets in Syria for specific categories of Canadian products which we should investigate in the future (communications and information technology, aviation)
- there is a huge potential for international tourism in Syria,
- there is ongoing interest in further trade delegations from Syria to Canada, building on the last successful visit
- business people want to come to Canada, but some have trouble with visas (should see a new business visa introduced in a few months)
- how do we stimulate and attract more Canadian business interest in Syria? (Saskatchewan minister of entrepreneurship and innovation Mr Stewart leading a delegation to Damascus and Hama in late April…  let’s build on that)

I would welcome your ideas on where there are more opportunities for future Canadian investment, and where Syrian companies may wish to increase their trade with Canada

Let me be very frank. Opening up and attracting Western/Canadian investment here is not necessarily an easy process. Syria has to want it to happen and has to continue to help make it easier to do business here. There have been good initiatives recently in terms of reform and change in Syria’s financial and banking system, reductions in state subsidies, changes in the taxation and customs duties structures.

It is still really challenging to partner with Syrian industry and to work through the complexities of legislation, property ownership and so on. To get foreign companies to invest they must continue to see that Syria is ready to help them do business.

In the annual world ranking of economic ‘freedoms’, which rates the climate for business against 10 assessment categories, ranging from govt size to fiscal policy to property rights to the labour market, Canada is # 7. Syria is # 141. I mention this just to say that potential business partners look at this data, and it needs to be used positively to shape strategy. 

It may go without saying, but it bears repeating that when business opportunities are identified, the local workforce has to be able to support it. There are bright, wonderful  young people here in Syria, but they need to be able to support new industries including a growing tourism sector.

This means more technical and language training. It means a real emphasis on education of the workforce, and education of managers so that Syria can compete in today’s world, and tomorrow’s. This is an area which needs the support and engagement of the business leadership.

 
Finally, and very briefly,

III What about SYCAB?

I am still relatively new, but I think SYCAB is a great institution with a wonderful potential. I would like very much to work closely with SYCAB and to help it grow and prosper to the benefit of both our countries and our business communities. Let me offer my full support to SYCAB.

How can we do more with SYCAB?
 Can it reach out more beyond Damascus to engage those in other cities who have business interests with Canada?
 Can it help us build a more accurate data base of the real level of trade between Canada and Syria?
 Can it help identify problem areas or obstacles to trade, which we can work to resolve?
 Can it do more to arrange and attract trade delegations to and from Canada?
 Can it play a greater role in promoting education requirements and ensuring the workforce of the future is here and ready to go?

 Let me stop there. Thank you for your attention. I hope this was useful, and has provided some food for thought, and I look forward to discussing these and other areas with you.

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