Building Business Between Canada and the UK"
President & Chief Executive Officer
Royal Bank of Canada
Canada United Kingdom Chamber of Commerce
April 4, 2006
Thank you, and good afternoon.
RBC is proud to be a charter member of the Canada-United
Kingdom Chamber of Commerce and I very much appreciate this
opportunity to join you today.
When Victor Dahdaleh asked if I would speak today, he thought
he could persuade me by listing some of the guests the Chamber
has hosted in the past, including President Bill Clinton,
Prime Minister Chrétien, and even my own predecessor,
John Cleghorn. Frankly, I dont know if this was the
best tactic, because these are all tough acts to follow.
But nevertheless, I am delighted to take this opportunity
to share with you some of my perspectives on Canada and our
place in the global economy and would then be happy to entertain
any questions you may have.
As Canadas largest company and bank, we do have a good
perspective on the mood and momentum of the country and on
both those accounts I would have to say it is very positive.
While as a banker, I am by nature cautious, I do believe that
Canada is currently well positioned as a place to invest and
Whether a result of our improving fiscal situation, a strong
commodities sector, the diversity of our business community
or our significant trade surplus, Canada finds itself in an
enviable position compared to most of the industrialized world.
As you likely know, we have a brand new Conservative minority
government. In fact Her Excellency the Governor General will
open the first session of the 39th Parliament with a speech
from the throne today.
None of us knows how long this government will last. But
I think that Canadians are suffering from election fatigue,
so the general hope and belief is that this government will
be more stable than its predecessor. The Liberal party has
found itself in a leadership vacuum at the moment in any case,
and it is widely felt that the party needs all the time it
can get so that it can rebuild in fact it wont
choose a new leader until December. So, if all goes well,
we will not need to suffer through another federal election
for at least next 18-24 months.
Given Canadas history and geography Canadians like
to believe we inherited the best of British bureaucracy, French
culture and American ingenuity. Skeptics might say French
bureaucracy, British ingenuity and American culture. But for
certain we have inherited the British Parliamentary System
which like every system has strengths weaknesses one
of which is the challenge of governing without a majority.
The result is that we have had three years of political inaction
and although we still have a minority government, we at least
now have a new government which has committed itself to a
platform of change. The priorities of our new government have
relatively broad support and therefore they do have some political
Prime Minister Harpers campaigned on five promises:
increasing government accountability, lowering personal taxes,
strengthening the justice system, supporting child care, and
determining the appropriate waiting times for patients to
receive healthcare services. While the government is focused
on these priorities, ultimately they will be forced to address
broader economic issues particularly around our areas of challenge
such as productivity, competitiveness and human capital.
This new government is taking over the reins of power at
a critical time for Canada. Canada has tremendous potential
waiting to be unleashed. This fact has been recognized by
a host of experts who are far more objective than I:
- The IMF named Canada the G7 economic growth leader during
the period 1998-04 and 05/06 are no exception;
- KPMG named Canada the most cost-effective place to do
business in the world;
- Harvard University says Canada is the least costly and
easiest place to start a small business;
- The Economic Intelligence Unit says Canada has the second
most business-friendly environment in the world;
- The World Bank ranks Canada first among the G7 in terms
of ease of business start-ups;
- The IMD called Canada is one of the most wired nations
in the world, second only to the United States for IT infrastructure;
- And according to the IMF, Canada has the lowest ratio
of net debt-to-GDP among the G7, and the strongest government
budget position among large industrial countriesa
surplus in fact.
I feel like Im waving the flag when I read the list
of accolades Canada has received, but as Canadians we should
be proud of our accomplishments.
I would like to spend a few minutes drilling down on some
more specific examples, giving you RBCs outlook for
the Canadian economy, and conclude with some comments about
the potential for business between Canada and the UK.
Canada is adjusting to some of the same challenges seen elsewhere
in the world how to create and compete in a knowledge-based
economy, but we have the added benefit of a strong commodity
base and strong fiscal position. We are forecasting that Canada
will reclaim the number one spot within the G7 this year in
terms of economic growth.
Our foreign debt has dropped sharply over the last decade,
from almost 50 per cent of GDP to slightly over 10 per cent
today we continue to have a significant budgetary surplus
and growing trade surplus.
The rise of manufacturing in China and other emerging market
is a challenge for the Canadian market as it is for markets
around the world, but notwithstanding a decline in certain
industry sectors, we expect healthy overall economic growth
for 2006 to come in at approximately 3 ½ per cent,
up from just under 3 per cent in 2005.
The 42 per cent appreciation in the Canadian dollar during
the recent period of U.S. dollar weakness has also contributed
to a weakening on the external side of the economy but, again,
we have been pleasantly surprised at the ability of our export
sectors to adjust.
If any of us were asked what the impact of a 42% currency
appreciation would have on our manufacturing export sector
a few years ago most would have predicated Armageddon but
our exporting companies have adjusted.
One reason is that Canada is also a large importing nationand
we import almost 75 per cent of our machinery and equipment
from the U.S. Our currency appreciation has caused a lift
in investment spending over the short-term. And on the cost
side, our industries have been able to adjust to the strength
of our currency by enhancing their productivity. The good
news continues, with a corporate sector as strong as it has
ever been with high liquidity levels, low leverage and interest
coverage rates among the best on record.
Much of our growth in the years ahead will depend on activity
at home. Our prospects are also solid here, particularly for
investment, and we have a bullish view of large investment
projects. Unlike the U.S., Canadas saving rates, while
historically low, are well within normalized debt service
bands. Canada also has a significant infrastructure deficit
that will have to be invested in over the next few years and
we are starting to see significant dollars committed to infrastructure
development projects. Significant investment in the energy
and commodities sector should also continue as we expect the
continuation of a of a strong commodities cycle.
One fact that many are not aware of is that Alberta holds
the largest oil reserves in the western hemisphere, second
in the world only to Saudi Arabia.
The Governor of the Bank of England even recently suggested
that the Canadian oil sands were a potential source of energy
for the UK and Canada is the largest exporter of energy products
to the U.S. While there may be some production challenges
ahead, the outlook is positive, with some $120 billion already
committed to developing this area over the next ten years.
Four other Canadian provinces are also energy rich. We are
seeing significant oil and gas activity in Saskatchewan, new
gas developments in British Columbia and growing offshore
activity on the East Coast. The Mackenzie pipeline will likely
proceed over the next few years and will ultimately connect
northern onshore gas fields with North American markets.
But Canadas investment opportunities arent limited
to just energy.
If you were asked to list the nations that produce diamonds,
you might not include Canada as one of them. But diamond mining
is literally transforming the economy of Canadas North.
The industry is now worth more than $2.0 billion, and all
indicators point to excellent potential for future growth,
with three more diamond mines opening up by 2008. This will
make Canada the number three diamond producer in the world.
In Saskatchewan, youll find potash investment keeping
pace with global demand and in Newfoundland, nickel production
In addition, a number of our provinces are carving out their
reputations as centres of science and technology.
We are seeing the emergence of nanotechnology in Alberta,
fuel cell and biotech in British Columbia, and public health
research in Manitoba. Ontario has the continents third
largest information technology and telecom equipment clusters,
and is home to Research in Motion, the company you will all
know as inventor of the Blackberry.
Ontario also boasts major investments in the automotive sector
and Toronto is home to Canadas healthy financial services
All this is to say that were no longer just hewers
of wood and drawers of water. Our economy is well balanced,
our fiscal position is strong and relative to most mature
economies, I believe Canada is in an extremely good position.
This is not to say we are not without our challenges. We
have failed to keep pace with leading countries, including
the U.S., in terms of productivity. Our regulatory and tax
regime are in need of reform and the political and economic
imbalances across the country create a strain that makes reforms
I am on the executive of the Canadian Council of Chief Executives.
In February, we released a research paper, called From
Bronze to Gold, a blueprint of recommendations that
we believe will help Canada make the most of its formidable
strengths and addresses a number of its challenges.
Canadas relationship with the United States has sometimes
been described as that of a mouse to an elephant. Certainly,
it can be a challenge to step out from under the shadow of
an economic behemoth. This is why Canada must offer compelling
reasons to attract investorsfor both our resource and
new industry sectors. Canadas federal and provincial
governments must work together to reduce Canadas effective
marginal tax rate on business investment.
Corporate income tax rates in Canada have come down considerably
in recent years, but we can and will be doing more.
The federal corporate income tax rate has dropped by 7 percentage
points since 2000, and last year, the former Liberal government
announced an additional 2-point cut, as well as eliminating
the corporate surtax. Since the Conservatives supported these
cuts while they were in opposition, we expect to see these
measures enacted in our next federal budget.
We continue to recommend further cuts in the corporate income
tax rate and the elimination of all remaining federal and
provincial taxes on capital. For those provinces that have
not yet converted their retail sales taxes to value-added
taxes, we encourage them to do so without delay. This would
remove a significant tax burden on business inputs and new
In addition, we have made other recommendations around education,
immigration, commercialization and infrastructure to address
productivity and structural reform.
I encourage those of you who are interested to read it but
for now, Id like to conclude with some thoughts on some
of the current opportunities for business between Canada and
the UK, because, clearly, they are plentiful.
While the UK accounts for less than 2 per cent of our exports,
and less than 3 per cent of our imports, Canadian exports
to the UK have doubled in the past ten years and imports have
risen by 75%. Our trade deficit with the UK has improved sharply
in recent years, and stands at $2.2 billion.
The UK has been described as Canadas launch pad
for Europe, and Canada as the UKs soft landing
into the North American market.
More than 500 companies are active here, and Canadian businesses
continue to choose the UK as their preferred European investment
In 2004-2005, only one country was a lead investor in more
UK projects than Canada, and that was the United States.
RBC recently added to our own portfolio through the acquisition
of Abacus in the Channel Islands, bringing the number of people
we employ in the British Isles to more than 2000.
Canadian companies now amount to 13 per cent of companies
listed on the London Alternative Investment Market (by market
cap.) Canadian companies account for a full 40 per cent of
the mining companies on that exchange and one-quarter of the
oil and gas sector as well.
I can tell you that AIM is proving to be a very important
exchange for Canadian companies to attract investment from
UK and European institutions and represents a good source
of business for law firms and banks that help Canadian companies
get listed on the exchange.
On the other side, there are about 650 British companies
operating in Canada, and Britain is a leading source of foreign
direct investment, behind the United States and France, with
a focus on the finance and insurance sectors.
Outside of the opportunities provided by direct investment,
we also see tremendous potential in the transfer of intellectual
capital between our two nations.
Take public/private partnerships, for example. The UK has
been a global pioneer in this area, with some six hundred
deals over the last ten years, resulting in substantial improvements
to hospitals, schools, roads and other facilities, coming
in on time and on budget.
By challenging traditional ways of working, public/private
partnerships have modernized essential public services, and
have allowed government to contain expenditures and taxes,
while at the same time providing the public with improved
access to essential services.
As I said earlier, Canada faces a significant infrastructure
deficit which cannot be addressed with government funding
alone and I am keen to see this model exported to Canada,
and to build on the management knowledge and financing expertise
We will have to adapt the model to Canadian culture and politics,
but the underlying motive is the same: better value for the
In fact, a few public/private projects in transportation
and healthcare are already underway in Canada, using the techniques
pioneered here. I hope this process will be accelerated to
bridge the infrastructure deficit that we face.
In London, RBC has about fifty people working in the area
of public-private partnerships significantly more than we
do in North America. There is much opportunity for transatlantic
exchange, to the mutual benefit of both countries.
The connections between Canada and the UK will only continue
to grow and strengthen. As you may know, until last year,
many Canadian investors were severely restricted in their
ability to buy bonds issued by US and European investors.
Now with the removal of the foreign investment limit on Canadian
pension and retirement savings funds, large pools of Canadian
funds can look offshore for investment opportunities. Were
already seeing signs that, more and more, issuers are looking
to Canada to get international bond deals done.
Ladies and gentlemen, Canada has a good story to tell and
we have enjoyed that strength.
The hard choices were made in the 1990s have produced real
dividends: we have a clear sense of the challenges ahead,
and are determined not to rest on our laurels.
We will continue working to become even more competitive
and productive, and I hope you will see and capitalize on
the great investment opportunities.