Richard E. Waugh Speech - January 28, 2013

Canada’s Priority: The urgent case for pursuing global markets

Address by Richard E. Waugh
Chief Executive Officer
Scotiabank

To the 125th Annual Toronto Region Board of Trade Dinner

Toronto, Ontario

January 28, 2013

“We need to understand that we have tremendous strengths that have great value in the current global marketplace. But to unlock that value, we’ve got to be in the global marketplace. Let’s push back against the growing threats of protectionism in others, and resist falling into the same trap ourselves. We need to reach out to new markets, strengthen ties abroad and find new customers and partners beyond our borders.”

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It’s a thrill to address the Toronto Region Board of Trade at its annual dinner, particularly on the 125th anniversary of this event.

I’ve lived in Toronto for most of my career aside from my eight years in New York. And much of my career I spent deeply involved with Scotiabank’s international operations.

I would have to renew my passport every other year because the pages were full – but travelling has given me the unique opportunity to see Canada from the outside in.

I’ve had a ring-side seat not only for the financial crisis, but also for the rise of emerging markets, as Scotiabank has expanded our international operations.

I’ve been able to see first-hand what countries do well, and not so well. It’s helped me better understand the challenges Canada faces, but it’s also given me a clear picture of the many advantages that we enjoy in today’s world, compared to Europe and the U.S.

Canadians and many of our industries have, for a long time, done a lot of things very well. But our performance in the recent financial crisis made others sit up and really take notice. Around the world, the Canada brand and those of many of our institutions have never been better in my 40 years of experience.

There’s no better proof of that than our strong Canadian dollar. When I was in the U.S. in the late 80s and early 90s, the Canadian dollar was at 60 to 70 cents. It was extremely difficult to make a case for the great advantages of Canada. In fact, it was nearly impossible.

Today, we can make that case – and back it up with hard facts, demonstrated performance, and a strong currency. Unfortunately, we Canadians haven’t sat up and taken notice ourselves – of how good we already are, and particularly how much better we can be.

Many of us are stuck in an old way of thinking, based on our traditional reliance on a weak Canadian dollar, a resource-based economy, and a world model dominated by an exclusive club of developed countries – a model that has changed, and will continue to change, dramatically.

Canada has a window of opportunity to achieve great heights in the coming century, particularly in light of the challenges facing many other developed countries.

But to be successful, we can’t continue with business as usual. Being average is not an option, nor something I’d rather be a part of. Success – growing our economy and creating new jobs and wealth – is going to require a new collective mindset and new priorities. Remember, windows have a habit of closing.

In my remarks tonight, I would like to address what Canada needs to do to seize this window of opportunity.

I will share what I believe are Canada’s greatest strengths – what we do well, and what we bring to the world.

I will take an honest look at what is holding us back and where we need to improve.

I will tell you why I believe that seizing this window of opportunity is critical for Canada, and particularly for our cities.

And I will finish with the way forward – how we make the most of the opportunities in front of us.

Let me begin with our strengths.

Canada's strengths

First and foremost, Canada has a strong and stable fiscal and monetary position in absolute terms but, importantly, relative to many other developed countries. We’re not perfect, but we have a level of fundamental strength that others do not. We’re among a select few safe havens for investors, and because of that we are able to attract capital far easier than many of our competitors. That’s underpinning our strong dollar.

Our government policies of working toward balanced budgets and keeping our debt manageable means we can go without the kind of increased taxes facing our international competitors. Our governments, for the most part, are focusing on expanding trade to external markets and encouraging two-way investment to grow our economy. And if they aren’t, they should be.

Our governments, for the most part, are focusing on expanding trade to external markets and encouraging two-way investment to grow our economy. And if they aren’t, they should be.

In just the past few years, Canada has concluded six trade agreements with nine countries, with negotiations underway for agreements with several more fast growing markets. These initiatives deserve our support.

We have a large, G7-sized economy with great potential to succeed in a G20+ world. I like to say we have a foot firmly placed in both. There will continue to be great demand for what we have to offer – not only commodities and energy – but our leading expertise in banking, insurance, accounting, legal services, aerospace and technology, including expertise in the digital world.

All of these are a result of our democratic, open society based on good governance, free markets, and strong personal and civic values. The world holds our society and values in high esteem. There is a great deal of respect not only for our government, but also for our institutions and of course most importantly, our people.

This is very much a part of Canada’s brand, and now it has become an essential part of something we’ve struggled to define for years: a Canadian culture.

We have a highly skilled, diverse and multicultural workforce with global connections to attract even more of the right people we need to succeed in the 21st century economy. Toronto alone is home to more than 200 distinct ethnic groups who speak more than 180 languages – a built-in global network and a gateway to the world.

Canada’s excellent education system, with world-class universities and colleges, helps build and maintain our highly educated workforce and supply our key sectors with science, medicine, engineering and management talent.

We have great cities right across the country – prosperous, diverse and routinely rated as among the most liveable places in the world.

Toronto, like several other cities, is booming, with cranes dotting the skyline and neighbourhoods being transformed. And it’s not just condos; demand for office and commercial space is at multi-year highs, particularly in the downtown core.

Playing an essential role in Canada’s economic performance is our financial system, which remains strong, healthy and growing and continues to be rated among the soundest in the world. Canadians can rely on their financial system to enable growth over the long term.

Toronto is the 3rd largest financial centre in North America and among the top 10 in the world. Measured by market capitalization, four of the top 30 insurance companies in the world are Canadian, and three of the top 20 banks.

Having banks and insurance companies strong enough to lend, process payments safely and effectively, and provide financial services and advice to customers is an essential condition for job growth and economic prosperity. Many countries don’t have that advantage.

Canada now sets the standard with all of the requirements for a healthy financial system: safety, trust and profitability. In banking, at least, Made in America is not the standard.

To take Scotiabank as an example, we are routinely ranked among the safest banks in the world, and in 2012, Global Finance magazine put us in the top 12, and number two in North America in regards to safety and trust.

We’ve been able to use our strength to take advantage of opportunities to grow. Since the financial crisis, we’ve made about 30 acquisitions worth more than $14 billion, split between Canada and emerging markets.

It was for these reasons that in 2012 we were named Global Bank of the Year by The Banker Magazine, which is a Financial Times publication. We are the first Canadian bank to receive this prestigious award.

So, as Canadians, we need to recognize that we have many important strengths. But we also have some big challenges ahead of us that threaten our current strong position and our potential for achieving long term success.

It’s important that we recognize these challenges, and do something about them.

Confronting our challenges

As we are used to hearing by now, Canada has ongoing and often-debated struggles with our economic productivity and competitiveness.

In particular, the Bank of Canada has raised concerns with Canada’s poor export performance, which is the second worst in the G20 and estimated to cost our economy more than $120 billion a year in lost GDP.

Mark Carney, Prime Minister Harper, the federal government and a number of Canadian businesspeople – myself included – have called upon Canadian businesses to do more to address this issue.

It takes three things, working together, to improve productivity: innovation, efficiency and, in many cases, economies of scale. Taking our products and services to high growth emerging markets can help us reach each of these goals.

We need to understand that a global shift is well underway. Our traditional trading partners in the developed world are facing prolonged slow growth and serious structural issues that are likely to hinder them for many years.

Make no mistake – the best of them will adapt – but we are in a stronger position right now. If we want to remain among the best, we must adopt a true sense of urgency and exploit this advantage

There are many great opportunities in emerging markets, and I often use Colombia as an example. It’s not a country that most people think of, but it’s where, in 2012, Scotiabank made our largest ever international acquisition.

Colombia’s GDP growth has been well above the world average for the past decade, and GDP per capita has doubled in the last six years. It has free trade agreements with 47 countries including Canada, with access to over 1.5 billion consumers. It has a population of 47 million – growing fast – and more than half of Colombians are younger than 30 years old. It will be an important country in the coming years.

Canada has a special advantage with Colombia. We signed a free trade agreement with them ahead of the Americans. Canadian companies have made many of the major new energy discoveries in Colombia, helping to increase their reserves. And of course, a Canadian bank now owns a majority of a leading Colombian bank.

By mid-century, emerging markets will be responsible for 70% of global trade. Unfortunately, less than 8% of Canada’s exports and 4% of our outward investment go to these countries.

Our historical near-total reliance on the U.S. may have been enough in the last century, but it hasn’t prepared many of us for the next century.

It has made us complacent – too comfortable to sit back and be happy trading with ourselves or with the big market in our back yard rather than sharpening our skills to take on the bigger world. Even today, nearly three-quarters of our exports go to the U.S. That’s too concentrated, especially given its issues.

Sheltering our economy and relying on too few markets has contributed to our lack of a world view. There’s no excuse for this, when in fact Canada is one of the most diverse and successful multicultural societies anywhere, and the world is very receptive to doing more business with us.

We are part of an increasingly competitive global marketplace. We are not only competing against companies in surging big economies like India and China. We are also up against many smaller competitors who because of technology are now able to access knowledge and markets at a lower cost and with fewer barriers to entry.

Unfortunately, some of these countries adopt protectionist policies through tight regulations, punitive tariffs and complex approvals processes.

Even more unfortunately, Canada has had, historically, a tendency to fall into the same trap, and also to hide behind the external threat of others’ protectionism. All of this creates an uneven playing field and inhibits competitiveness and productivity. It’s a significant threat that should be avoided at all costs.

We also still rely too much on the residual legacy of a weak Canadian dollar that artificially supported inefficiency in several industries. We need to move ahead with a new strategy and start looking forward, not backward. As Tiff Macklem, Senior Deputy Governor of the Bank of Canada, said in a recent speech: “Hoping for a weaker Canadian dollar is not a business plan.”

The last issue I’ll mention – one that’s important to all of us in this room – is Canada’s under-investment in infrastructure, particularly cities. They are the engines of innovation and economic growth, and in Canada, over 80% of us live in them. We have great cities, but in order to power our economy, they need to work well. People need to get where they are going quickly and reliably, and services need to be delivered efficiently. We need to invest in our infrastructure and streamline regulations if we want to compete.

Solving these issues is critical for Canada’s future, and particularly for the health and prosperity of our cities.

Why this is important for Toronto

The Toronto Region Board of Trade pointed out a troubling trend in its 2012 Scorecard on Prosperity: while Toronto ranks well against other global cities in labour attractiveness, it lags behind in economic performance.

It is successful Canadian industries and growing companies that fuel our urban centres, economically and culturally.

Economically, there is a direct impact from the highly paid head office jobs that come to the city, as well as the indirect but significant impact of accompanying law, accounting and other management professionals. All of them are buying goods and services, renovating their homes, going to restaurants and shows, and supporting the local economy in countless other ways. They also contribute to our culture and civil society.

Toronto’s financial sector, for example, employs more than 220,000 people, directly contributing more than 13% of Toronto region’s GDP, and many times that in indirect contributions.

All of these great benefits start with the headquarters of the banks, insurance companies and fund managers.

Scotiabank’s head offices here in Toronto contain key business and support functions for our team of 81,000 employees and our operations in more than 55 countries. When we grow, in Canada or abroad, so does our team in Toronto. We have professionals in a wide range of fields from Canada and abroad, all living here, working here and contributing to the local economy.

Head offices impact the culture of urban centres by bringing a critical mass of people and financial resources to support hospitals and charities, cultural institutions and even professional sports teams.

Ethical, responsible businesses understand the correlation between successful corporations and healthy, vibrant communities. It’s important to give back. It makes a difference, as well as being the right thing to do.

I’ve been involved with the United Way for a number of years. Many people don’t know that Toronto’s United Way is the most successful in the world, largely because of Bay Street. A majority of their financial support and many volunteers come from Bay Street. We raise more money than most, and many times more than what’s raised in any city in America.

So, in conclusion, what do we need to do?

Conclusion – the way forward

It begins as easily as realizing this is our window of opportunity, and that we must make use of it while it’s open.

We need to understand that we have tremendous strengths that have great value in the current global marketplace. But to unlock that value, we’ve got to be in the global marketplace.

Let’s push back against the growing threats of protectionism in others, and resist falling into the same trap ourselves. We need to reach out to new markets, strengthen ties abroad and find new customers and partners beyond our borders.

It’s more than just a call for action – it’s making it a top Canadian priority.

We need to invest in the necessary infrastructure, and support the urban centres that are home to the people, companies and industries that will propel us forward.

We need to nurture and grow important economic clusters where we can build a competitive advantage to take on the global marketplace no matter the level of our currency. This is something the Toronto Region Board of Trade is working hard to facilitate.

We need to continue Canada’s push to deepen trade links, and provide the resources and policies to support these and future initiatives at all levels of government.

But ultimately it’s up to us in the private sector. Sometimes you have to just get on a plane and go look for new markets and customers. It will accomplish a lot more than staying at home and hoping that things will get better.

This will help us innovate, become more efficient, build scale and be more productive. It’s always about searching for new customers and giving them value for the products and services you provide.

I ask you to join me in working to make this Canada’s priority – by making it your priority.

We’ve earned our strong position, but now it’s up to us to shape our future: one that will provide us and our children with the rewarding jobs and high quality of life we all seek.

Thank you.