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Strong dollar benefits high-tech industry: Report
April 27, 2005
Toronto Star

The strong dollar is good for Canada's information technology and communications industry, according to a report from the Conference Board of Canada.

"We tend to look at the rising Canadian dollar as a negative for the Canadian economy as a whole, but this is an interesting industry in that a lot of the inputs are imported," said Michael Burt, senior economist for the Conference Board of Canada.

Burt is the author of Canada's Information Technology and Communications Industry, Industrial Outlook, a board report released yesterday that seeks to shed some light on the future of the sector.

The report divides the information technology and communications, or ITC, industry into three segments: computer and electronics product manufacturing, telecommunications services and computer systems design and related services. Telecommunication services made up the bulk of the sector last year, accounting for 57 per cent of the industry. All three segments collectively accounted for about 4 per cent of total gross domestic product.

Burt admits that a strong Canadian dollar does slow growth for export-dependent information technology companies, but he believes those losses are offset by gains made by firms which, for example, import components.

"On net, the strong dollar is actually a positive for the industry because it is reducing costs," he said.

Moreover, the Canadian dollar has strengthened against the U.S. dollar but it has fallen in comparison to currencies such as the euro.

This has encouraged many companies in computer and electronic-products manufacturing to diversify over the last couple of years and Burt expects that trend will continue.

Exporters might have lost some cost competitiveness in the United States, Burt said, but that country wouldn't see as much growth as other regions.

Diversification makes sense, he said, because China and India will see double-digit growth in information technology investment over the next few years.

Those nations are still developing their infrastructure, whereas the expansion in the U.S. has slowed.

"The (ITC) industry is going to keep growing," Burt said, adding that growth right now sits at about 4 per cent. "Businesses have the money to spend on IT goods and services and if they want to grow, they need to undertake that spending."

The wireless business is also driving growth.

"About one out of every two people in Canada has a mobile phone now. We're starting to see growth decelerate, but it will still be very strong compared to most of the segments of the industry," he said.

The forecast isn't entirely rosy, however.

Growth in the wireless sector is compensating for a downturn in the wire-line market as many Canadians abandon the second phone lines they got for dial-up Internet access as they switch over to high speed.

While information technology production is currently above the pre-millennium peak, this hasn't translated into profits and revenues.

Long-distance competition and pressure from new technologies such as voice-over-Internet-protocol are pushing down prices, Burt said.

That trend will likely continue until 2008 or 2009 when pressure from new technologies will lessen and prices are expected to stabilize.

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