Services exports are a cure for the ‘declining oil’ blues

The Canadian public, media and business have been focused on the sharp decline in oil prices, and rightly so—Canada is a large oil exporter and is greatly affected by continued price volatility.

But the fixation on oil and other natural resources shouldn’t obscure our view of the other, perhaps less visible things Canada has to offer the world. In particular, there is a mostly “hidden” set of exports that account for some of Canada’s strongest trade growth: Services.

You can’t drop services on your foot or send them through a pipeline, and it’s hard to count them as they cross a border.They also cause less environmental damage. And prices don’t fluctuate wildly as they do for commodities. As a result, they get much less attention than more visible resources or goods.

Services are quietly accounting for some of Canada’s strongest trade growth, and by extension growing their contribution to Canadian living standards. Three out of the five fastest-growing Canadian exports over the last decade were services.

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Services used to be considered “untradeable” in global markets. While true for some services (e.g., haircuts), the ability to digitize information and communicate globally has made it easier to sell services in global markets. Companies can also set up offices abroad to sell their services. Moreover, services and goods can be intertwined. For example, after-sales service contracts can cement a company’s reputation and lead to future product sales. While services represent just 15 per cent of Canada’s official exports, they represent more than 40 per cent when full supply chains are taken into account.

Services exports are an area of strength for Canada in the U.S. market, due to similarities in culture, language, intellectual property rights, and other factors. This gives Canadian services a competitive edge in the U.S. market compared to Canada’s manufactured goods. In Europe, the Canada-EU Comprehensive  Economic and Trade Agreement (CETA) puts in place measures that should help businesses move people more freely and reduce the impact of various trade barriers.

Emerging markets also offer vast potential to sell Canadian services, particularly as their middle classes grow and wealth rises. For example, Canadian companies have deep strength in telecommunications, an exploding sector in India. In Asia, Canada’s exports have largely consisted of raw and semi-processed natural resources. While Canada has struggled to maintain its market share in Asia, many of our peer countries have fared better in part by shifting to services exports to replace their lost market share for manufactures.

Many questions remain: Where are the best opportunities for Canadian services? Do Canadian companies have the capacity and right people to be able to seize these opportunities? What policy and business tools do our leaders need to employ to grow the value of our traded services? The Conference Board is undertaking a series of research and events to address some of these questions and raise the profile of this invisible trade.

Canada’s natural resources products are not the only things the world needs. Canada has ridden the commodity supercycle wave with gusto, but we are now at the dawn of a new era. Our world-class services have been steadily building up and are now reaching new shores. Canada has world-class services to offer the world, with relatively stable prices and lower environmental footprints than many of our resource exports. It is time to harness the strength of our services and seize that opportunity.

Danielle Goldfarb is associate director and Jacqueline Palladini is senior economist at the Conference Board of Canada’s global commerce centre.