Weak loonie a boon for Canada’s competitiveness

The lower loonie is helping to make Canada a more competitive place to do business, ranking second behind Mexico and well ahead of ninth-place United States, according to a new survey.

Canada's position is up from third place in the last set of rankings done in 2012 by consulting firm KPMG.

Its 2014 Competitive Alternatives report says Canada is more attractive than two years ago due to lower costs for sea freight and natural gas and only a moderate increase in labour expenses.

The drop in the Canadian dollar over the past two years ­ from par to around 90 cents (US) today - was also behind Canada's improved competitive status.

The results are expected to add fuel to the ongoing arguments that the falling loonie can be good for the nation's economy, which is seeing sluggish growth since the last recession.

A combination of currency exchange rates and cost fundamentals helped move Canada ahead of the Netherlands and the United Kingdom, re-establishing a competitive advantage over these countries, said the report released Wednesday.

It says total business costs, based on a sample of companies, increased by just 0.7 per cent over the past two years, which is the third lowest increase among the 10 countries studied.

This small total increase is despite Canada seeing some noticeable increases in specific cost factors such as electricity, air freight and property tax costs, the report says.

It also compared the cost of doing business in each country against the U.S., the world¹s largest economy. The results showed Canada's business costs were 7.2 per cent lower than its neighbour to the south. First-ranked Mexico's costs were 18.7 per cent below the U.S, while the Netherlands and the United Kingdom were both around 5.5 per cent lower.

By sector, Canada was strongest in digital services, with a cost advantage of 17.8 per cent compared to the U.S., due largely to incentives some provinces offer in the industry.

From a tax perspective, some may be surprised to hear that Canada is among a handful of European countries that offer the lowest effective rates of corporate income tax across a range of business sectors. Tax incentives designed to support the high tech sector are a big reason.

KPMG's biannual survey looks at 26 significant business cost elements, such as currency, labour, facilities, transportation, utilities, and taxes. It also looked at 107 cities around the world, 15 of which were in Canada.

Of those, Atlantic Canada had four of the top five most cost competitive cities in Canada, with Moncton placing first for the second time in a row.

"Businesses may look to set up shop in larger cities, but this year's study shows that many regional cities remain attractive options and offer great value for organizations focused on keeping costs low while responding to market and customer needs," stated KPMG partner Benjie Thomas.

Among the larger cities, Montreal ranked 8^th, Toronto 11^th and Vancouver in 15^th spot. KPMG says Montreal had the lowest business cost among the 34 largest North American cities. Toronto ranked ahead of similar-sized U.S. cities, while Vancouver was more competitive than many U.S. West Coast cities.

Ranking by country

• Mexico

• Canada

• Netherlands

• United Kingdom

• France

• Italy

• Japan

• Australia

• United States

• Germany

Top 10 Canadian cities

• Moncton

• Charlottetown

• Quebec City

• Fredericton

• Halifax

• Niagara Region

• Winnipeg

• Montreal

• Saskatoon

• Sudbury