Province Failing to Tap Into Emerging Economic Giant
TORONTO, June 24, 2011 /CNW/ - Ontario companies quickly need to shift
their export focus to booming economies like India or risk falling
further behind other jurisdictions that have already established solid
trade relations, finds a new report from CIBC World Markets Inc.
Currently, Ontario companies export a meager $400 million a year to
India. This is despite the fact that the province produces many of the
goods and services India has been consuming while seeing GDP growth
average 6.5 per cent a year over the past two decades. India exports
about $1.2 billion a year worth of goods and services to Ontario.
"The rapidly changing global economy is dictating the need for Ontario
to broaden its trade perspectives," said Benjamin Tal, Deputy Chief
Economist at CIBC. "India should obviously be a top priority in this
shift given the size and rapid growth of the Indian economy and the
many cultural and other links between the two jurisdictions."
Mr. Tal, who released his report today at a global business forum on
Ontario-India trade relations, told the delegates "it's clearly in the
interests of both to see trade and investment climb from current
levels". The forum, held in conjunction with Saturday's International
Indian Film Academy Awards in Toronto, was attended by business and
government leaders from Ontario and India.
He believes that India would benefit from Ontario's world-recognized
capabilities in many of its highest need areas -- from developing its
infrastructure by expanding its power, road and rail grids, to
improving the safety of the food supply chain, to expanding educational
opportunities for its young population.
Mr. Tal noted that, until recently, the province's success in supplying
the U.S. meant that it largely ignored other markets and opportunities.
But with the fatigue of consumers in that market likely to persist for
a while he believes Ontario firms "need to take a more aggressive
approach in order to compete with other jurisdictions that have
established deeper trade linkages with India".
"Distance between India and Ontario is an obvious impediment to trade,
but controlling for that in a gravity model of trade - one using
distance between trade partners and GDP of trade partners - to gauge
India's trade potential with the rest of the world, we observe that
trade with Ontario has underperformed not just relative to potential
but also relative to most of India's trade partners."
This means Ontario is not capitalizing on the rapid development in India
that is expected to see its middle class grow by some 300 million
people by 2025. Mr. Tal says this will quadruple consumer spending in
the country in the next two decades.
In addition to limited exports to India, Canadian direct investment in
the world's largest democracy has lagged other parts of the world. "The
share of Canadian direct investment going to India was only 0.1 per
cent last year, unchanged over the past two decades," noted Mr. Tal.
"While Canadian corporations were looking elsewhere to invest their
dollars, others were looking at India as a land of opportunity, pumping
in US$ 37.9 billion last year, up from US$22.7 billion or 67 per cent
in just the last five years."
Mr. Tal noted that it is not just the world heading to India, but
increasingly India itself is reaching out to the world. "Indian green
field and M&A investments into Canada have already outstripped Canadian
investments into India. Not only does Ontario provide a gateway to the
American market, but its ever expanding service sector provides a
natural expansion base for Indian companies in sectors such as film and
information technology and communication (ICT). Indian software
developers will increasingly look for "near shoring" opportunities to
service the North American market by taking advantage of Ontario's low
cost environment and favorable tax-based incentives for research and
He added that Canadian and Indian businesses can go even further. The
relative strength of India in fields such as management, IT support,
ICT technology and specialized equipment naturally complements Canada's
strength and expertise in engineering, equipment technology and
environmental sciences - synergism that can be easily translated into
joint ventures in projects in developing countries.
"The recent efforts of the Ontario government to accelerate ties between
the two jurisdictions should help increase Ontario's economic
participation in India. However, in the end growth is dependent upon
Ontario companies broadening their horizons and adopting a more
aggressive approach to doing business in the world's largest
The complete CIBC World Markets report is available at: http://research.cibcwm.com/economic_public/download/canada-india.pdf
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SOURCE CIBC World Markets
For further information:
Benjamin Tal, Deputy Chief Economist, CIBC World Markets Inc. at (416) 956-3698, email@example.com; or Kevin Dove, Communications and Public Affairs at 416-980-8835, firstname.lastname@example.org