Canada is still the cheapest place to do business among G7 countries, even though the rising dollar has eroded some of its advantage over the United States, a KPMG study has found.
In 2006, the cost of setting up and running a business in Canada for 10 years is 5.5-per-cent lower than in the U.S., the report says, thanks to lower wages, electricity and facility costs. In 2004, Canada's business costs were estimated to be 9 per cent below the U.S. while in 2002, Canada enjoyed a 14.5 per cent advantage.
The meteoric ascent of the Canadian dollar — which recently topped 88 cents (U.S.), its highest level in more than 14 years — has sparked concern that Canada's cost advantage is gone. Last month, a General Motors of Canada Ltd. spokesman said costs in Canada and the U.S. will be essentially the same by next year. Not so, says KMPG , which based its results on a loonie valued at 85.2 cents.
"The Canadian dollar would have to rise in value by approximately 13 per cent, almost to par with the U.S., to bring Canadian cities to a breakeven position with the U.S. in terms of overall business costs," the report said.
KPMG's bi-annual study measures 27 cost components, such as labour, taxes, utilities and real estate. In 2006, the study examined business operations in the G7 (Canada, France, Germany, Italy, Japan, the United Kingdom and the U.S.) and the Netherlands and Singapore.
Among those nine countries, Singapore — the first newly industrialized country to be included in the study — is by far the cheapest place to conduct business, with a 22.3-per-cent cost advantage over the U.S., KPMG found.
Excluding Singapore, business cost differentials have narrowed since 2004, the study said, and most are within 8 per cent of the U.S., which is used as a benchmark. In 2004, Canada ranked first in cost-effectiveness among the Group of Seven industrialized countries.
France and the Netherlands are the most cost-efficient European countries, while the U.S. ranked seventh among the nine countries, the study said. Germany edged out Japan as the costliest place to conduct businesses.
The KPMH study also measured the cost-efficiency of international cities with populations of more than two million, with Singapore coming out on top. Among G7 cities, Montreal, Atlanta, Toronto, Tampa, and Amsterdam were among the cheapest.
The city with the highest business costs is New York, followed by Frankfurt, London and San Jose.
Among large cities in Canada, Montreal and Edmonton top the cost-effective list, the study found. Toronto and Vancouver are the priciest — on par with low-cost U.S. cities Atlanta and Tampa — but they still offer significant cost savings over many large U.S. cities in the KMPG study.
The study found that Canada has the lowest electricity costs among all of the countries studied, as well as the lowest land purchased and factory construction costs. Canada is one of three countries that offers the greatest research-and-development tax incentives, and has competitive combined salary, wage and benefit costs.
The advantage Canada enjoys stems from a "combination of lower labour costs, including lower employer costs for private medical coverage, lower real estate costs, and lower electricity costs...than in the United States, where deregulation has seen electric costs soar in many regions," said Mark MacDonald, a director at KPMG.
Various "federal and provincial tax cuts over the last decade have also made Canada's tax system more competitive with the U.S.," he added.
Posted by at March 21, 2006 03:56 PM