To escape a slow-growth future, Canada must urgently transition to an economy that’s focused on advanced skills, high-value products and innovation, says Victor Dodig, chief executive officer of Canadian Imperial Bank of Commerce.
With the energy sector “in the dumps” and real estate slowing, it’s time for Canada to get serious about reshaping the economy, Mr. Dodig told The Globe and Mail.
“We wring our hands about where is energy going, where is real estate going,” Mr. Dodig said Tuesday, prior to delivering a speech to the Canadian Club in Ottawa. “We need to start thinking broadly and in a big way about all of our sectors, every one of them.”
Low interest rates and a cheaper dollar alone aren’t sufficient to maintain Canadians’ current standard of living, and to keep pace with other successful advanced economies, such as the United States and Germany, he said.
“We are now pivoting from the post-financial crisis world, where manufacturing capacity has shrunk, monetary policy has been stimulative. We need to create a more robust, diverse economy that’s focused on innovation, across all our sectors.”
CIBC, Canada’s fifth-largest bank, has previously estimated that it could suffer cumulative loan losses of up to $650-million if the price of crude oil sinks to $30 (U.S.) a barrel and remains that way for three years. It and the other banks are poised to release their fourth-quarter results in the next few weeks and analysts will be watching closely to see how profits may be hit by slow growth and low commodity prices.
Mr. Dodig pointed out that Canada has lost more than 10,000 factories and 17 per cent of its manufacturing capacity since the recession.
“The old manufacturing plant that produced goods, where [unskilled] labour was a major input, that’s gone; that’s moving on,” he said.
Mr. Dodig urged the new Liberal government to help address key economic “gaps,” including the need for churning out more science and technology graduates, better matching graduates to available jobs, creating pools of patient capital for entrepreneurs and fostering innovative ecosystems.
“The world needs more of Canada, but what kind of Canada does the world need? Innovative goods, innovative services,” he said. “Let’s create the conditions for that kind of success.”
Unless the country responds, he said Canadians will have to get used to much slower economic growth in the future.
“When I do my planning for CIBC, I assume it will be a low-interest-rate, low economic [growth] environment,” he said in an interview. “That same thinking applies to the country.”
The economic winners will be countries that produce “value-added stuff that the world is willing to pay for,” he added.
Mr. Dodig acknowledged that CIBC is facing challenges from new financial technologies, known as fintechs, that are threatening banks’ traditional business model. These include virtual currencies, such as Bitcoin, and new mobile payment options, such as Apple Pay.
CIBC will embrace some of these new technologies if they make it a “better bank,” Mr. Dodig explained.
“I see [fintech companies] largely as interrupters, not as disruptors, because we will respond to protect our franchise,” he insisted. “If there is technology out there that will result in a better banking experience for our clients, we will adopt that and integrate that into our system.”
So far this year, CIBC has partnered with Thinking Capital, an online provider of loans to small businesses, and has begun offering free global money transfers to customers through another tech startup.