Manufacturing giant’s trek north opens doors
GE announced a Canadian expansion to secure a crucial source of funding that dried up in the U.S. Others may follow
Canadian manufacturing could be on the brink of a much-needed investment boost from an unlikely source: the U.S. government.
U.S. political gridlock has sent exporters searching for new sources of dried-up financing they say is required to compete for contracts overseas.
Export Development Canada’s ability to step into that void has already resulted in a $265-million (U.S.) investment from the eighth-largest company in the U.S.
Industry watchers are cautiously optimistic that other manufacturers may be enticed to ramp up their presence north of the border in exchange for Canadian government-backed financing.
General Electric Co. announced this week that it will close a Wisconsin gas engine factory and shift production to a new Canadian plant that will create at least 350 jobs. It cited EDC financing as the primary reason for the move.
A similar export financing program in the U.S. lapsed July 1 after Congress conservatives blocked a bill to renew the lending authority of the Export-Import Bank (EXIM), claiming the bank was a form of corporate welfare.
GE, however, says the financing goes to customers in emerging markets to pay for expensive infrastructure projects and is a precondition for many of its bids.
Canada beat out more than 60 other countries with export credit agencies that GE said “rolled out the red carpet” to attract the rare investment amid a global trade slump.
The opportunity comes at a crucial time for Canada’s manufacturing industry.
A weak Canadian dollar was believed to be the jolt the sector needed to spur exports and help the economy rebound from a mild recession in the first half of the year. But the latest signs are troubling. The September RBC purchasing manager’s index showed business activity in the sector at its lowest level in the survey’s five-year history.
“Given that our dollar is weak, the timing is such that, if we are ready, we can take advantage absolutely,” said Saibal Ray, associate dean at McGill University’s Desautels Faculty of Management.
But the decimation of the manufacturing sector during a decade of an overvalued Canadian dollar could limit the number of multinationals considering a move, Ray said.
Some of EXIM’s biggest corporate clients, such as Caterpillar, which shuttered its London, Ont., ElectroMotive plant in 2012, have pulled out of Canada. The start-up costs in a new country means any investments are likely to come from companies with a Canadian presence, Ray said. An agreement between EDC and GE, which has about 6,500 employees and two plants in Canada, was easy to reach because the company has a line of credit with the agency, said a trade expert familiar with the process.
The company was able to adhere to the agency’s loan criteria, which can include commitments to grow operations in Canada, details on the amount of sales that come from Canadian operations and a commitment to bring Canadian companies into the applicant’s supply chain, the expert said.
GE’s search for a location has not yet begun, but it expects to announce one in the coming months, said Jeff Connelly, vice-president of global supply chain at GE’s power and water division.
He says the company is committed to its investment in Canada, even if Congress votes to reinstate funding to the export bank.
“We are actually planning for a world without a U.S. EXIM bank,” he said.
An EXIM-less world could also give Canadian-backed companies a competitive advantage over U.S. rivals, said Mike Moffat, an economics professor at the Ivey Business School at Western University.
The U.S. bank’s biggest clients include Boeing Co., which has operations in Winnipeg and satellite company Space Systems/Loral, the parent of which is Canada’s MacDonald, Dettwiler and Associates.
Boeing has publicly blamed the lack of export financing for the loss of two large bids in the past few months. Chairman Jim McNerney said in July the company was looking to move operations outside the U.S., but it has yet to announce any specifics.
An executive at Orbital ATK told a Washington Space Business panel last month that it lost an Azerbaijani satellite contract because it lacked export financing. He said he believes the customer turned to rival SSL because it has EDC-backing through parent company MDA.
Moffat doesn’t believe Canada’s new-found export financing advantage is enough to turn around the manufacturing sector, but welcomes the rare industry good news.
“I think there is some hope that, if this General Electric thing is true and they are actually moving to Canada, that this could spur other companies to do so,” he said.
“Given that our dollar is weak, the timing is such that, if we are ready, we can take advantage absolutely.” SAIBAL RAY MCGILL UNIVERSITY’S DESAUTELS FACULTY OF MANAGEMENT