Canada is already a global leader in advanced manufacturing & aerospace, and the sector’s potential for growth is virtually unlimited thanks to heavy investment in research and development, world leading tax rates, a growing roster of trade agreements, and impressive infrastructure.
Manufacturing is critical to the economy, directly and indirectly accounting for 30 per cent of Canada’s economic output and directly employing about 1.7 million people in 2016. Manufacturing accounts for 3 million more jobs through indirect and induced effects. That means 27 per cent of all Canadian employment depends on manufacturing, making it the third largest source of jobs.
The roughly 91,000 companies in the manufacturing sector pay $114 billion yearly in salaries to Canadian workers, more than any other sector in the Canadian economy. The Canadian aerospace industry contributed close to $28 billion in GDP and 208,000 jobs to the Canadian economy.
Unlike the factories of old, today’s manufacturing facilities are built on innovation, employing a skilled and knowledge-based workforce of engineers, technicians, tradespeople, designers, researchers and programmers.
Canadian aerospace manufacturing demonstrated innovation leadership by increasing its employment of skilled workers significantly more than the manufacturing average to introduce innovation. The aerospace industry generated $27 billion in revenues and employed over 87,000 Canadians in 2016.
Manufacturing is critical right across the country. One in five workers in more than 360 communities across Canada are employed in manufacturing, with the concentration often heaviest in small towns and cities. But even the big city of Toronto, manufacturing is second largest industry (after finance), and accounts for about 13 per cent of total economic output.
The sector is directly responsible for $650 billion in output and exports $348 billion worth of goods a year, about 61 per cent of all merchandise exports. Canada has particular strength in automotive, aerospace, food processing, petroleum and coal products, medical device, and machinery and equipment manufacturing clusters. Economic clusters allow for economies of scale, talent attraction and research intensity and become magnets for investment.
There is enormous potential in manufacturing. Canadian Manufacturers and Exporters has set a target to double value-added manufacturing output by 2030 to overcome a growing trade deficit, boost economic growth and create jobs.
Canada’s federal government has supported and leveraged the manufacturing sector by: lowering taxes, seeking out trade agreements, enhancing skills training and promoting research and innovation.
Lower taxes
Canada reduced its corporate income tax rate from 22 per cent to 15 per cent and removed the federal capital tax, while expanding the accelerated capital cost allowance for manufacturers investing in new equipment. The government also eliminated more than 1,800 tariffs, bringing more than $450 million in annual tariff relief to Canadian manufacturers.
As well, Canada is the first country in the G20 to offer a tariff-free zone that will allow foreign investors to import advanced machinery and equipment into Canada from their parent companies free of import duties.
Taken altogether, KPMG reported in 2014 that total business tax costs in Canada were the lowest in the G7 — 46 per cent lower than those in the United States. That only amplifies the business cost advantage in labour, facility leases and utilities Canada offers to manufacturers.
The government also recognizes the critical role small- and medium-sized manufacturers play in the sector, which account for more than 60 per cent of jobs. Beginning in 2015, the government reduced the small business tax rate from 11 per cent to 9 per cent over four years, mandated the six regional economic development agencies to support small and medium-sized manufacturers, and directly funded programs aimed at helping SMEs create new export markets.
Taken altogether, tax reductions mean a manufacturer earning $500,000 will pay 46Â percent less federal corporate income tax in 2019 than it did in 2006.
Trade deals
Access to new markets and global supply chains is critical to the continuing success and growth of Canada’s manufacturing sector.
In 2006, Canada had free trade agreements with only five countries but has deals with 44
nations today. Those include the historic Canada–European Union Comprehensive Economic and Trade Agreement (CETA) and the Canada– Korea Free Trade Agreement, Canada’s first in Asia. Those two agreements alone will give Canadian manufacturers access to more than 558 million people in nations with a total GDP of almost $20 trillion.
It’s estimated that CETA alone could bring 80,000 new jobs to Canada and inject $12 billion into the Canadian economy.
Canada is also a signatory to the Trans-Pacific Partnership and is in negotiations or exploratory free trade talks with a wide range of nations, including China, India, Japan, and the Caribbean.
Canada has also invested $631 million in a crucial piece of trade infrastructure – the Gordie Howe International Bridge between Windsor and Detroit. That trade corridor is the busiest commercial land border crossing, handling 31 per cent of Canada–U.S. trade carried by truck.
Skills training
Canada has a strong education sector and a long history of manufacturing expertise. The talent pool is deep and reliable. Canadian manufacturing workers are known for low turnover, staying with an employer an average of 10 years.
A looming skills shortage is being tackled by governments and industry through job retraining grants, a wide range of apprenticeship programs, and partnerships with post-secondary institutions to match curricula with the needs of employers.
Research
Canada’s manufacturing sector is a leader in investing in research, commercializing new products and capitalizing on innovation in materials, production processes, additive manufacturing, automation, nanotechnology and biotechnology.
Manufacturers accounted for 46 per cent of all business R&D spending in 2014, spending $7.1 billion. The federal government has leveraged that investment with $13 billion in research spending over the last decade.
The Canadian Scientific Research and Experimental Development (SR&ED) program is the largest single source of federal government support for industrial R&D. It provides $3 billion in tax incentives to more than 20,000 claimants annually.
