Kevin Lynch oneNS Oct 2 2014

1. GLOBALIZATION, TECHNOLOGY AND
DEMOGRAPHICS ARE RESHAPING
THE GLOBAL GROWTH EQUATION
Kevin G. Lynch
Vice-Chair BMO Financial Group,
and
Former Clerk of the Privy Council and Secretary to Cabinet,
Government of Canada
“One Nova Scotia” Roundtable
Halifax, Nova Scotia
October 2, 2014

2. Observation 1: The context facing Canada and Nova Scotia is changing. The reality today is a world that is
changing, profoundly. Structural trends are reshaping economies, societies, politics, expectations, and are
redefining the “drivers of success”, for everyone. Change is the new constant.
Observation 1: The context facing Canada and Nova Scotia is
changing
The demographic
imperative - we’re aging,
with profound impacts
Globalization 2.0 -
the hyper-connected
world
The core question facing us in Nova Scotia is: how well and how quickly are we adapting to this change?
One Nova Scotia Roundtable, Halifax, Oct 2, 2014 1
Global financial
crisis - with endless
consequences
Technology
revolution - changing
everything
The competitiveness
paradigm shift - need
an innovation engine
1

3. Observation 2: The new global economic reality is a “two‐speed world” ‐‐‐ with advanced economies in the slow
lane and emerging markets leading global growth. With 90% of Canada’s trade with “slow growth economies”, this
creates a trade and investment diversification imperative towards emerging markets for Canadian business.
Observation 2: The new global economic reality is a “two-speed
One Nova Scotia Roundtable, Halifax, Oct 2, 2014 2
world”
2-speed World: By the Numbers
2012 2013 2014 2015
Avg growth
2012-15
Emerging
Economies 5.1 4.7 4.6 5.2 4.9
Emerging Asia 6.7 6.6 6.4 6.7 6.6
China 7.7 7.7 7.4 7.1 7.5
Advanced
Economies 1.4 1.3 1.8 2.4 1.7
US 2.8 1.9 1.7 3.0 2.4
EU -0.7 -0.4 1.1 1.5 0.4
Canada 1.7 2.0 2.2 2.4 2.1
Source: IMF World Economic Outlook Update, July 2014
2-Speed World: The Visual
1-2%
growth
6-7%
growth
5%
growth
2

4. Observation 3: Trade diversification drives growth ‐‐‐ but Canada’s current export markets do not align well with
the distribution of current global economic activity, and align even less well with where future export demands will
originate. Canada’s exports are greatly underweighted in Asian economies, and emerging markets in general.
Observation 3: Trade diversification drives growth
One Nova Scotia Roundtable, Halifax, Oct 2, 2014 3
Rank
Top Canadian
Export Markets,
2013
% of all 2013
Exports of
Goods and
Services
Size of Economy
(2013 USD Billion, GDP)
4-year Average
Growth: 2013-2016
1 United States 75.9% 16,800 2.7%
2 China 4.3% 9,181 7.4%
3 United Kingdom 3.0% 2,536 2.4%
4 Japan 2.3% 4,902 1.1%
5 Mexico 1.1% 1,259 2.8%
6 Hong Kong 1.0% 274 3.6%
7 Netherlands 0.8% 800 0.8%
8 South Korea 0.7% 1,222 3.5%
9 Germany 0.7% 3,636 1.3%
10 France 0.7% 2,737 1.1%
11 India 0.6% 1,871 5.7%
12 Belgium 0.5% 507 1.0%
13 Brazil 0.5% 2,243 2.4%
14 Norway 0.4% 511 1.6%
15 Italy 0.4% 2,072 0.3%
Sources: IMF World Economic Outlook, Oct 2013, Stats Canada
3

5. Observation 4: Lack of trade diversification has costs ‐‐‐ Canada’s trade exposure to emerging markets is smaller
proportionally than other G7 countries. If Canada had the same proportion of exposure to emerging markets as the
US, the demand for Canadian exports would be $60 billion higher, and that is a lot of lost growth, incomes, and
jobs.
Observation 4: Lack of trade diversification has costs
Export Values
comparing actual Canadian activity weighting with
China and Emerging Market Economies to what it
would be with US weighting
One Nova Scotia Roundtable, Halifax, Oct 2, 2014 4
Exports to Emerging Market Economies
% Share of total exports
Canada UK Germany US Japan Australia
%
50
40
30
20
10
0
Source: IMF Last observation: 2012
Note: Bank of Canada foreign activity measures calculated based on 2012 share of Canada and US exports to China and select EMEs. The numbers displayed represent the gap
between 2013Q2 exports and the level of exports implied by the recalculated foreign activity measures.
Values expressed in 2007 chained dollars.
Sources, IMF, Statistics Canada, Bank of Canada calculations. Las Observance 2013Q2
4

6. Observation 5: Asia is a market for Canada’s natural resources, and much more. There are 800‐900 million middle
class consumers in Asia today, and their number will double by 2020. Private domestic consumption in China is just
36% of GDP today, compared to 72% in the US, will surpass all countries except the US and Japan by 2020 ‐‐‐ and
this is a largely untapped export market for Canadian firms.
Observation 5: Asia is a market for Canada’s natural
resources, and much more
1.3
8.3
1.5
1.2
3.8
2.3
One Nova Scotia Roundtable, Halifax, Oct 2, 2014 5
Numbers (millions) and Share (percent) of
the Global Middle Class
2009 2020
North America 338 18% 333 10%
Europe 664 36% 703 22%
Central and
181 10% 251 8%
South America
Asia Pacific 525 28% 1740 54%
Sub-Saharan
32 2% 57 2%
Africa
Middle East and
North Africa
105 6% 165 5%
World 1845 100% 3249 100%
Sources: OECD, The Emerging Middle Class in Developing Countries ,
http://www.oecd.org/dev/44457738.pdf; McKinsey. Global Insight,
February 2009; MGI China Model, February 2009; MGI
Private Domestic Consumption
2020 (Forecast)
CAGR
2007-2020
(%)
2.2
1.5
6.3
1.9
5

7. Observation 6: There are many untapped export opportunities in Asia for Nova Scotia firms. Energy can be a
beach‐head to a broader trade relationship with Asia. But we need to build a “brand” ‐‐‐ presently the only
Canadian brand in Asia is Canada itself, and it is positive but opaque. Seven specific opportunities in Asia to which
the strengths of Canada and Nova Scotia are well‐aligned include:
Observation 6: There are many untapped export opportunities
in Asia for Nova Scotia firms
Consumers - $22 T consumption in emerging markets in 2025 and almost 2B middle class consumers -
wanting better foodstuffs, better housing, better financial services, better education, etc.
Natural Resources - A 30% increase in global energy demand, of which China and India alone will
account for 60% by 2035.
Infrastructure - $27 T expected infrastructure spend in emerging Asia, creating opportunities in
engineering services, consulting, financing , specialty services, as well as basic materials.
Agriculture and Food - Middle class wants variety in agriculture and foodstuff as well as increased
food safety.
Tourism - approximately 80 million outbound Chinese travelers in 2012, growing to over 110 million in
2015 - fastest growing segment in the world.
Education - 1 B Asian youth to educate in any given year, and Canada/Nova Scotia have high quality,
reasonably priced product offerings.
Health Care - Spending expected to triple across Asia by 2020 but public systems are rudimentary-to-mediocre,
One Nova Scotia Roundtable, Halifax, Oct 2, 2014 6
and private systems are mixed.
6

8. Observation 7: Consider the energy opportunities, and risks
CANADA’S ENERGY SECURITY
CONUNDRUM
US Hydrocarbon Supply 
US Hydrocarbon Demand 
+


100% reliance on US market for
gas, oil and electricity exports
+
Increasing Canadian
unconventional supply capacity:
oil sands + shale gas
=
Declining Canadian security of
energy demand
One Nova Scotia Roundtable, Halifax, Oct 2, 2014 7
 
Global energy
demand:
• >33% growth by 2035
• <5% growth in OECD
• China demand > U.S.
Global energy
supply:
• Shale oil, oil sands 
• Shale gas 
• Renewables 
Energy
technology:
 
• Fracking, oil sands
• Renewables
• Water remediation; CO2
Global
risk/uncertainty:
• Geopolitical: Iraq, Syria,
Nigeria, Russia, South
China Sea
Global energy
equation:

• Shifts in security of
global demand/supply
• U.S. energy self-sufficiency
• Global gas market?
7
Observation 7: Consider the energy opportunities, and risks ‐‐‐ we need to diversify our energy export markets
away from one single energy buyer, and the “rewards” to doing so are huge ‐‐‐ LNG exports would raise gas prices;
oil exports would reduce oil price “discounts” in US markets and absorb volume increases. And consider the
energy risks if we do not diversify ‐‐‐ Canada’s “energy security conundrum.”

9. Observation 8: Consider the food and agriculture opportunities ‐‐‐ Asian, particularly Chinese, growing demand
for better quality, higher nutritional foodstuffs. China is now the world’s largest market for meat (at $300 Billion)
and there is substantial room for it to grow further, as well as expand poultry, dairy products and seafood. But,
Canada is not yet a major player.
Observation 8: Consider the food and agriculture opportunities,
what we’re capable of and what we’re missing
Canada’s global production rankings
for agricultural resources
One Nova Scotia Roundtable, Halifax, Oct 2, 2014 8
China’s share of consumption
100% =
China
ROW
383
Dairy
%, 100% = $B Total
260
Beef
173
Poultry
400
Pork
Sources: McKinsey. USDA, NBS, Food and agriculture organization of the United Nations (FAOSTAT)
Agricultural
Resources
Ranking
Lentils 1st
Linseed 1st
Mustard Seed 1st
Dry Peas 1st
Forest 2nd
Barley 2nd
Canola 2nd
Blueberries 2nd
Cranberries 2nd
Mixed Grain 2nd
Wheat 8th
50
15 10 6
8

10. Observation 9: Consider the education opportunities. There is a great scope to grow education as a major export
to Asia…the fact that Australia, which is smaller than Canada, has a share of the international student market that
is 2½ times Canada’s shows both today’s deficit and tomorrow’s potential for Canada to grow education as a major
export to Asia. Australia is the exemplar, and our competitor.
Observation 9: Consider the education opportunities, with
Australia the best example of what is possible
United
States
Australia
18
13
723,000
557,000
SOURCE: McKinsey “International Education: A Key Driver of Canada’s Future Prosperity,” Advisory Panel on Canada’s International Education Strategy, August 2012; Government of Quebec
One Nova Scotia Roundtable, Halifax, Oct 2, 2014 9
International student
market share (est.)
Percent
International
students
Number
United
Kingdom
Canada
10
5
428,000
240,000
9

11. Observation 10: Consider the value added tourism opportunities ‐‐‐ the fastest growing global tourism segment is
Chinese travelers‐‐‐but, despite having received “approved destination status” for Chinese tour operators, we rank
14th in attracting high spending Chinese tourists. There is great potential to capture a much higher share of
Chinese travelers, provided we customize the product, the marketing and the branding.
Observation 10: Consider the value added tourism opportunities,
and what it will take to capture them
Chinese tourist satisfaction rate
Canada 84.5
Italy 82.7
New Zealand
Spain 82.5
France 82.3
Agentina 81.0
Brazil 80.3
South Africa 80.2
Germany 80.0
Singapore 79.5
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China international travelers by destination
South Korea 2.4
Malaysia
Thailand
Singapore
Indonesia 0.6
Canada
0.4
0.4
Germany 0.3
Mongolia 0.3
0.3
UK
1.1
Cambodia
Australia
1.5
1.2
1.0
USA
Russia
0.8
0.7
Vietnam
1.4
France
1.7
1.6
Taiwan
Japan
Millions, 2011
1.8
SOURCE: McKinsey. CEIC, China tourism yearbook, Euromonitor (2011) Ctrip survey 2/2013; China Tourism Academy “China outbound travel satisfaction survey”
82.6
10

12. Observation 11: How well positioned are Canada and Nova Scotia for success? High wage, high income, lower scale economies
cannot compete on standard products produced with common technologies at low input costs ‐‐‐ they have to be innovation
intensive. While innovation‐driven competitiveness is complex, the core drivers include: innovation, quality of human capital,
entrepreneurship and frameworks. And, while Canada does reasonably well at present (and noting that Nova Scotia ranks lower in
all categories), the question is: is being “pretty good”, good enough in today’s hyper‐competitive world?
Observation 11: How well positioned are Canada and Nova
Scotia for success in today’s global economy?
In today’s hyper-competitive world, the question for Nova Scotians is: is
One Nova Scotia Roundtable, Halifax, Oct 2, 2014 11
being “pretty good”, good enough?
Rankings Global
Competitive-ness
Index
(WEF)
Innovation
Capacity
(WEF)
Productivity
GDP per
employed
worker,
current
prices, USD
(OECD)
Soundness
of Financial
Systems
(WEF)
Net Debt
to GDP,
2013
(IMF)
(lowest to
highest)
Tertiary
Education,
% of
Population
(OECD)
K-12 Pisa
Results:
Math
(OECD)
Number of
Universities
in Top 100
(Times
Higher
Education)
Ranking of
Cities – EIU
Global
Liveability
(# of cities in
top 10; ties
settled based
on rankings)
Institutional
Strength and
Resilience,
OECD
Countries
(World Bank)
Norway
Finland
Sweden
Estonia
Denmark
12th
18th
Canada
New
Zealand
South
Africa
Hong Kong
Singapore
1st
58th
United
States
United
Kingdom
Germany
Australia
Canada
5th
1st
Switzerland
Singapore
Finland
Germany
United
States
14th
5th
#1
#2
#3
#4
#5
Canada
United
States
Canada
Japan
United
States
New
Zealand
Finland
1st
3rd
China
(Shanghai)
Singapore
Hong Kong
Taipei
Korea
13th
36th
Australia
Canada
Austria
Finland
New Zealand
2nd
n/a
Switzerland
Finland
Germany
Israel
United
States
27th
5th
Luxembourg
Norway
US
Ireland
Belgium
17th
3rd
Finland
New Zealand
Sweden
Switzerland
Norway
9th
17th
11

13. Observation 12: Trust matters for leading change. The Edelman Global Trust Barometer shows a decline in the
public’s trust in many countries and many sectors over the last decade. And this matters when introducing new
products, new policies, new innovations and new markets. Canada has more trust in business and government
than the global norm, and all other G‐7 countries, and technology is the new sectoral gold standard for trust.
Observation 12: Trust matters for leading change
Global Trust in Sectors, 2014
75%
70%
66%
65%
64%
63%
60%
59%
59%
55%
51%
51%
Technology
Consumer
electronics
Automotive
Food and beverage
Entertainment
Consumer packaged
goods
Brewing and spirits
Telecommunications
Consumer health
companies
Pharmaceuticals
Energy
Chemicals
Banks
Media
One Nova Scotia Roundtable, Halifax, Oct 2, 2014 12
Global Trust Index, 2014
GLOBAL 54
UAE 79
China 79
Singapore 73
Indonesia 72
India 69
Malaysia 65
Canada 60
Netherlands 60
Mexico 59
Hong Kong 59
Australia 58
Brazil 57
Germany 57
Argentina 53
U.K. 52
Sweden 51
S. Korea 51
S. Africa 50
U.S. 49
France 46
Japan 44
Italy 43
Turkey 41
Spain 39
Ireland 39
Russia 37
Poland 35
50%
65%
79%
Financial services
12
Trust Index is an average
of a country’s trust in the
four institutions of
government, business,
media and NGOs. 20‐
country global total
(does not include
Argentina, Hong Kong,
Malaysia, Singapore,
South Africa, Turkey,
UAE).
Source: 2014 Edelman
Trust Barometer Global
Energy Industry Results

14. Observation 12: Culture and attitudes matter to success for Nova Scotia in this profoundly changing world. To
realize our full potential in Nova Scotia, we need to better embrace entrepreneurship and innovation, be less risk
averse, be more ambitious about seizing new global trade opportunities, and, be clearer about our collective
interests as well as our private goals. Complacency is a risk best avoided.
Observation 13: Culture and attitudes matter to success for
Nova Scotia in this profoundly changing world
One Nova Scotia Roundtable, Halifax, Oct 2, 2014 13
• We need to avoid “short term-ism” --- it is hard to
build for our long term future with a quarterly mindset.
A focused, long term Strategic Plan, with clear
implementation milestones and accountabilities, is a
good place to start.
• We need to avoid “status quo-ism” --- it cannot be a
strategy for long term success in a profoundly changing
world. Re-orienting the economy towards more innovation-intensive
firms, particularly start ups, is key.
• We need to avoid “parochial-ism” --- everyone needs
clear “going global” strategies today. Job #1 for
Canada and Nova Scotia is focussed, export market
diversification.
• We need to avoid “risk aversion” in policy and operations.
Consider a number of immediate innovations: reverse trade
missions; foreign student strategy; incubator(s); pervasive
co-op; and Chinese tourism as possible places.
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