Canada must invest in adding value to exports, EDC report says

Canada needs to focus on turning commodities into higher-value products and linking companies into global supply chains if the push to diversify trade is going to lead to significant economic growth, according to Export Development Canada.

In a report published Thursday, the country’s export credit agency argues that trade diversification is about more than signing new trade agreements or moving more commodities to the coasts, then on to Asian and European markets.

The real opportunity, according to EDC, lies in helping Canadian companies capture more of the value of their exports by doing more processing at home.

“The difference in outcomes for Canadian companies is staggering. By exporting raw commodities rather than more complex, processed products, companies leave significant profits on the table,” Alison Nankivell, EDC’s chief executive, said in the report.

“If we scaled these capabilities to produce unique, complex products that give Canada a competitive advantage, we could make a tangible difference for the economy – a nearly $100-billion addition to gross domestic product in today’s dollars in the next decade, along with increased capabilities and higher productivity.”

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The starting place isn’t promising. The “economic complexity” of a country measures the degree to which products are transformed before export, and Canada has been steadily slipping down the rankings, according to EDC.

In 1995, it was ranked as the 17th most economically complex country in the world. By 2024, it had fallen to 35th place.

It was possible to overlook this slide when Canada had guaranteed access to the voracious American market, Ms. Nankivell said in an interview. But the trade war with the United States is forcing companies to think much more strategically about which of their products can compete on the global stage, she said.

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In some industries, moving up the value chain is a question of replacing a lost market. Some lumber companies, for example, are investing in cross-laminated timber production with the hope of selling in Asia or Europe after U.S. tariffs effectively shut off their traditional market for two-by-fours.

For other industries, it’s more about pursuing new opportunities. The report uses the example of yellow peas. In their raw form, the peas might fetch $30 per tonne. Grinding them into flour could bring in $300 per tonne, and turning that flour into snacks or pasta could yield $3,000 per tonne.

Of course, this kind of upgrading requires significant capital. And increasing economic complexity at a national scale will require major shifts in Canada’s financing ecosystem, transportation infrastructure and approach to industrial policy, according to EDC.

As it stands, mid-sized companies wanting to make transformative investments in machinery, equipment and product development often find it hard to access funding, Ms. Nankivell said. Canada doesn’t have a deep well of private equity investors like the United States, and the country’s commercial banks tend to be more conservative in their business lending.

“Canada has been a little bit more hamstrung because our banks are largely domestic, fairly risk-averse, and we have a very strict regulatory OSFI oversight,” Ms. Nankivell said, referring to the country’s banking regulator, the Office of the Superintendent of Financial Institutions.

EDC and its fellow Crown corporation, the Business Development Bank of Canada, have helped fill the gap for riskier mid-market lending. But commercial banks and other types of investors will need to step up, Ms. Nankivell said. “It can’t be just the Crowns. There’s just too much to be done.”

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The report outlines other pieces of the puzzle. Shipping more highly processed products will require changes to transportation and warehousing infrastructure, as well as significant expansion of container ports on both coasts.

And companies themselves will need to get more comfortable with what EDC calls “integrative trade” – establishing on-the-ground footprints in key foreign markets and trying to become essential suppliers to important global firms.

Any path to diversification is going to involve significant commodity exports, and EDC isn’t suggesting Canada abandon its traditional strengths in mining, energy and agriculture. Rather, it means supporting companies in those industries that are innovating and producing globally differentiated products.

“We always spend all the time talking about upstream producers, but the most interesting people in the oil and gas industry are the midstream guys, and the equipment producers and the technology guys who you find in Africa – Canadians in Africa, Canadians in Asia, Canadians in Europe,” Ms. Nankivell said.

The stakes are high, but the moment is fortuitous, she said. Global supply chains for things such as critical minerals and defence are being rewired by U.S. protectionism and concerns about Chinese industrial might. Other supply chains, for artificial intelligence and quantum computing, are still being developed.

“It kind of gives you an open field as a company to think about some of these trends and act more intentionally. So it’s kind of a perfect moment,” she said.