Remarks by: Eric Siegel
President and Chief Executive Officer
Toronto - November 26, 2009 

Good afternoon and welcome.  It’s my pleasure to be here with you today, to share some reflections on the events of the last year. 

Before I get started though, I should mention that this week marks a very special occasion for Export Development Canada (EDC): we celebrated our 65th anniversary.  A lot has changed during that time.  EDC’s first office, created in 1944 to help the Canadian economy bounce back from the Second World War, had just four employees – and let me tell you, they had their hands full. 

The rapid expansion in trade since then has provided plenty of opportunities for EDC to help Canadian companies grow their export business.  Now EDC has more than a thousand employees, with offices across the country and around the world.  And we still have our hands full!

As of the end of October, we had provided financing and insurance services to more than 7,700 Canadian exporters.  Our services support a significant portion of the Canadian economy – this year, we expect that the overall volume of business we will have supported to be around $80 billion, about five per cent lower than last year. But when you take into account that Canadian exports fell by 24 per cent this year, you can see that we’ve been working pretty hard. 

When we think back to a year ago, to the Wall Street crash, there was a lot of pessimism concerning how we would fare.  Popular wisdom indicates that when the American economy catches a cold, the Canadian economy gets pneumonia.  Well, this time, the American economy caught something a lot more serious – the economic equivalent of pandemic influenza.  Comparatively, Canada has had a case of the sniffles.

And while the viruses responsible for pandemics have never respected man-made borders, economic crises used to be relatively contained.  The worst of the recession would be felt in the country where the bubble originated – like Japan in the late 1990s – and mild to severe symptoms would be felt among the country’s closest trading partners, which were generally close neighbours. 

But in the last year, the world faced its first truly global financial crisis. 

We have also witnessed the world’s first truly global response: globalization has tied our economies together – shocks travel farther and faster – but it has also provided us a means to respond through better-coordinated monetary and fiscal policy.

And the degree of government response is unprecedented.  We’ve seen bailouts, nationalizations and enormous government stimulus packages, adding up to tens of trillions of dollars.

While these drastic measures have mitigated the impacts, it will take time to reach a ‘new normal.’  The dust is still settling, but one thing we can be sure of is that we can’t go back to the way we were.

The fact is one of the fundamentals of world trade – the easy flow of capital – can no longer be taken for granted.  I can tell you, the global financial sector will be more risk averse in the foreseeable future.

The degree will, of course, vary from country to country – Canadian banks are in the enviable position of being well-capitalized, but around the world, financial institutions will need to rebuild their balance sheets and the confidence of their investors.  They will also have to re-evaluate the way they determine acceptable risks. 

What this means is, even though the economy is beginning to show signs of recovery, there are still significant gaps in the global credit market.  Some of these gaps are strictly a capacity problem – banks are re-capitalizing and lack the capacity to take on new financing.  Some are sector-specific – as financial institutions are re-assessing their appetite for risk, they are backing away from certain sectors that are capital-intensive, or that have been facing troubled times: forestry, aerospace and manufacturing are prime examples.  

These gaps will necessitate continued involvement from governments – what we are waiting to see is how that will take shape. Governments around the world are facing a dilemma: they can’t keep spending at their current rate, but they need to wean the economy off stimulus funding in a way that doesn’t precipitate a prolonged recession. 

Through our unique financial system, Canada has largely avoided this dilemma, and that’s what I really want to talk to you about today.

A year ago it seemed like the global economy was on the verge of collapse.  But Canada is now on the road to recovery, after a recession that some would say was surprisingly mild.  This is not to gloss over the reality of the recession: we can’t lose sight of the jobs lost, the businesses that have had to close their doors, the families who have lost their homes. 

But all in all, Canada was comparatively unscathed.  For example, the Canadian government hasn’t nationalized any banks.  It hasn’t even provided a “bailout” in the sense that the U.S. government has had to. 

So what’s the difference?  Why did we do so well?

The first major difference is the regulation of Canada’s banking system.  There’s no question, our private-sector financial institutions, once regarded as too conservative and over-cautious, are among the strongest and most respected in the world. 

There’s another key difference – Canada has well-structured public-sector lenders and insurers.  These organizations include:

• First, my own organization, Export Development Canada, which plays a key role in expanding international trade by providing financing and risk management services to assist Canadian companies in their international business. To help our customers weather the economic storm, EDC was given an expanded mandate allowing us to provide these solutions domestically, as well as additional capital to bolster our core business of encouraging trade and investment. 
• Second, the Business Development Bank of Canada, which is working in partnership with EDC and private financial institutions to increase Canadian businesses’ access to credit through the Business Credit Availability Program (or BCAP). BDC has also created a new credit facility to purchase up to $12 billion in asset-backed securities, reflecting the sharp decline in this market.
• Third, the Canada Mortgage and Housing Corporation, which helped prevent a mortgage crisis in Canada and has been instrumental in helping the government to free up credit capacity in the private sector by buying $65 billion in mortgages from Canadian banks.
• And finally, Farm Credit Canada, which is continuing to provide financing, venture capital and insurance to agri-businesses across Canada.

This network of public-sector financial institutions meant that Canada had a critical back-stop to its financial system.  The key here was we did not work in isolation. We worked together.

The bottom line is this:  Canada has a unique model of public and private sector cooperation, which lessened the credit crunch and subsequent recession and is now playing a major role in positioning Canadian companies for recovery. 

As a result of this model, we fared better than those countries that did not have this infrastructure in place. It’s that simple.

I, for one, am immensely proud, at this moment in history, to be the president of a Canadian public financial institution, because I believe that Canada has shown the world a clear path to a more stable and secure financial sector through our Crowns. 

I realize it’s a bit “un-Canadian” of me to make such a boastful statement in a public forum, but I think there’s a lesson to be learned here.

And whether you look at it from Bay Street or Main Street, it’s one of which we should all be proud.

It’s not that Canada’s hybrid financial model hasn’t seen its share of criticism.   When economic times were sunnier, some raised concerns that Canada’s public-sector institutions could crowd out private credit activity.

But this credit crisis has shown us that if we let these institutions atrophy as the private sector takes over the market during times of strong growth, it’s awfully difficult – if not impossible – to get them back when we need them again. 

One example of this that really stands out for me is EDC’s involvement with the auto sector over the past few years. 

Now, as anyone in Southern Ontario knows only too well, the Big Three – Ford, GM and Chrysler – have seen their share of hard times lately.  But they still have a major role to play in the North American economy and, as a Crown corporation, EDC has a public-policy interest in keeping auto sector jobs in Canada.

The Big Three were struggling even before the credit crisis hit, and private-sector financiers and insurers had already begun to withdraw their support from these companies and their suppliers.  As the private sector withdrew, EDC stepped up to support the Canadian auto sector in a number of ways. 

One of the least-understood ways was that we met the higher demand for credit insurance.  Simply put, as dealing with the Big Three was looking riskier, it became critical for auto parts suppliers to insure their receivables, and EDC was there to provide that service.  EDC’s products and services provided an important bridge to survival for nearly 600 Canadian companies in the auto sector, most of them small- and medium-sized enterprises. 

What having accounts receivable insurance means, in real terms, is that if you are a small company supplying auto parts to the Big Three, you can still get paid, even when your biggest customers are teetering on the edge of bankruptcy.  You can go to your bank for a loan, and they will be more likely to approve it, because you have taken steps to ensure you can pay it back.  It can make the difference between being able to keep your doors open – being able to make payroll and meet your order books – and going under.

In contrast, the U.S. was scrambling to find a way to put a solution in place similar to EDC’s insurance programs.  In short, to find a way of doing what we were already doing. 

What they found was that when a financial crisis hits, it’s already too late for governments to try to create new capacity to provide credit support. 

The fact that EDC had established programs, strong relationships with our customers and their banks, gave Canadian businesses a competitive advantage, because they were able to access these solutions quickly and cheaply.  And those of you in business know how important that is!

Now, critics of public involvement in the credit market might ask about the risk that EDC is taking on through these transactions. 

Well, our transactions are all conducted on commercial terms, so as to minimize the risk to the taxpayer. In total, as of the end of June, EDC had nearly a billion dollars in insurance exposure against the Big Three – that has now fallen to $575 million.  To date, we have paid out about $2 million in claims, of which $1.6 million has been recovered.  That leaves about $400,000 outstanding – an amount well within our planning margins and the premiums we take in to cover these costs, so the cost to the Canadian taxpayer is zero.  

And I ask you – what would have been the cost in failed businesses and lost jobs without this support? 

This is just one example, but there are others. In the hard-hit forestry sector, EDC has worked with more than 80 per cent of Canadian exporters, and insured nearly $12 billion in business so far this year.  And in the aerospace sector we provided more than $1 billion in credit insurance across the sector.

We’ve made the most of a crisis.  We’ve strengthened our relationships with our partners in the financial sector, who now look to us as a source of additional capacity. And we’ve raised our profile among the Canadian businesses that can use our services – so far this year, more than 1,500 new customers came to EDC from every sector of the Canadian economy.

And it’s not just EDC.

As I mentioned earlier, Canada has a whole network of Crown corporations that are filling gaps in the private sector, working to supplement it without supplanting it.

So why did this work so well?  Why did it make such a difference, when compared to the after-the-fact approach of many other countries?

• First, just like EDC, these agencies were already in place.  In the case of CMHC, their activities helped prevent the irresponsible sub-prime mortgage market that wreaked havoc on the American credit markets.  And in the case of the other Crown financial agencies – EDC, BDC and FCC – we had already built up a full suite of services, as well as relationships with a wide cross-section of Canadian businesses and their banks.
• Second, because these agencies were already in place, they had developed the internal competencies to be able to take on a broadened mandate efficiently and effectively.
• Third, these agencies operate on commercial terms, allowing us to share risks with the private sector.  There is no subsidy in what we do, so we don’t drive the private market out.
• And finally, we were able to set limits on our role, to see how our exit would occur.  In EDC’s case, our broadened mandate was set out for a period of two years, after which the domestic credit market will resume much of its previous capacity, but with strengthened partnerships in place.

I like to call this “intelligent stimulus”: it takes advantage of existing capacity, it’s designed to work with the market and it has a built-in exit strategy.  It’s not a crutch for a limping market, it’s physiotherapy – not only will we overcome the injury, we’ll be stronger than ever.

So what does that mean for the future?  Well, if we accept that the global financial market has been irrevocably altered by the events of the past 18 months, we must also accept that public-sector financial institutions will have a more profound role in the market of the future.

What we are likely to see is a global financial system that looks a lot more like Canada: more cooperation between the public and private sectors – because neither one can do it alone.

That is really the essence of what I have to say – we can’t do it alone. 

You only have to look south of the border to realize that the private sector couldn’t do it alone.  And had we not had the support and expertise of our private sector partners, the efforts of our Crowns would not have been as effective.  We couldn’t have done it alone.

It is this model – the Canadian model – of a partnership between a strong public sector and a vibrant private sector that has made the difference in weathering the credit crunch and the current recession.

Let me give you another example of how this works.

Earlier, I mentioned the Business Credit Availability Program – a partnership between EDC, BDC and private-sector financial institutions, put in place to help Canadian businesses through the credit crunch. 

This enhanced public-private partnership came into effect in March 2009, with a two-year target of supporting $5 billion in business.  By the end of August – after just six months – the program supported about $2.7 billion in business, assisting almost 6,000 Canadian companies.

I believe there are a few bankers in the room today, and I suspect they would all agree with me when I say that’s $2.7 billion in business – $2.7 billion – that wouldn’t have been possible without this partnership in place.

And it’s not just about dollars – we’re talking about saving existing businesses and jobs, and creating new ones.  That’s what we can accomplish by working together.

This is the case, not just in Canada, but on the world stage.   In response to a global financial crisis, we saw a response that went beyond the G-7 to include the governments of emerging economies. 

Following the financial crises of the 1990s, Canada was instrumental in establishing the G-20; we recognized that, as the engines of global economic growth, emerging markets needed to have a role in global economic governance.

And that vision has really taken form: in April, the G-20 governments put forward a comprehensive plan to address the credit crunch and economic recession.  This included a role for export credit agencies like EDC and multi-lateral financial institutions like the World Bank to take an expanded role in filling gaps in the credit market; specifically, these agencies were asked to make $250 billion in trade finance available over the next two years.

That’s on top of the business that ECAs support each year.  The Berne Union has found that its ECA members underwrite a combined total of half a trillion dollars worth of risks yearly – and combined with the business volume of private insurer members, the Berne Union covers approximately 10 per cent of world trade volume.

But a word of caution: even as we act quickly to address the effects of the credit crunch, we must be measured in how we expand the capacity of public financial institutions.  We must make sure that we are taking advantage of their strengths without creating additional bureaucracy and duplication of roles between the multi-laterals and export credit agencies.

We would do well to adhere to the principles that supported Canada’s “intelligent stimulus”: work with existing players, on commercial terms and set a clear exit strategy.   We need to ensure that public-sector financial institutions are able to make the most of this crisis, coming away with strengthened partnerships.

Part of this is that export credit agencies, such as EDC, should be – and are – developing on-the-ground expertise and relationships with financial institutions in emerging markets.  It’s just good business sense, given that these economies are expected to outperform the G7 for the foreseeable future. 

At the government level, globalization paved the way for a better-coordinated response to the financial crisis, but it will also provide the key to recovery for individual companies:  those with diversified markets will be able to tap into the recovery, no matter where it starts.

To stay ahead of the curve, more Canadian companies need to build or buy into global supply chains, set up shop in their customers’ countries, take on joint ventures with foreign partners and find their niches in globalizing businesses.

I said earlier that we made the most of the crisis – we strengthened partnerships and formed new relationships with Canadian companies.  These companies have discovered new services that will become part of their financial strategies from now on.  This is a positive development for Canadian trade, as these services can help our companies to be a little bolder in taking their products and expertise to the world. 

And that’s good news – we need to be bold. We’ve been through a lot in the last year or so and we’ve made a strong showing.  Now is not the time to settle back into old habits, to pack up and go back home.

The fact is, the strides we’ve made over the last year have positioned us to be able to make up for lost ground.  Because even before the recession hit, Canada’s trade penetration was lagging. 

We need to do better.  Trade is the life-blood of the Canadian economy: one in three jobs in this country depends on it.   Last year, Canada exported more than $500 billion worth of goods and services – that’s more than $1 billion a day for Canada’s economy, as Canadian companies met the needs of the world.

EDC is doing its part:

• We are encouraging Canadian investment abroad, helping investment vehicles like pension funds look for opportunities in new markets;
• We are expanding foreign representations so that we can strengthen our relationships with foreign buyers and their banks: we recently opened a new office in Lima, Peru, and are looking forward to further expansions over the next several months; and
• We’re developing new strategies to leverage our relationships with key foreign buyers, allowing us to play a match-making role by introducing these buyers to Canadian suppliers.

We believe that our approach will help Canadian businesses to catch the wave of recovery in the places where it will begin: places like Brazil, India and China.  And we believe that this approach will help Canadian businesses to thrive beyond the recovery and into the future. 

I mentioned when I first stepped up here that this week marks the 65th anniversary of EDC.  I first joined the organization 30 years ago, so I think I can speak with some authority about what has made EDC a success.  It’s the same formula that has worked for thousands of Canadian businesses in every sector of our economy: set clear goals, work hard, and take care of your customers.  And do it together!

Our goals might be a little more complex than in the past, our customers a little further afield, but if we work together and work hard, I believe that we are in a position not just to ride the coat-tails of recovery, but to lead it.