SME Sector – Turbulence is the new norm

The Hon. Lisa Raitt: Hello, everyone. I’m Lisa Raitt, Vice-Chair of Global Investment Banking here at CIBC Capital Markets. I’m your host today as we take a look at the small and medium sized enterprise sector in Canada and how it’s faring in these economically volatile times. The Government of Canada estimates that there were 1.1 million employer businesses in Canada, with SMEs employing over 8 million individuals. As a major engine of the Canadian economy, small and medium sized businesses are often the first to feel the fallout from economic uncertainty. How are they reacting and what will stakeholders such as the government and industry do to support them?

To help us make sense of some of how these issues may play out, I have with me today, Blair Cowan, Executive Vice-President and Head, Commercial Banking. And David Coletto, Founder and CEO of Abacus Data, which is one of the leading pollsters in Canada.

Blair and David, thank you very much for joining me today. There’s a lot to cover, but let’s start with some of the broader themes that we’re hearing a lot about in the election, the US trade tariffs and the Canadian economy. So, David, I’m going to start with you. We are two weeks away from the federal election. Trust? Change uncertainty? What is it that’s really shaping the Canadian vote right now?

David Coletto: Well, I think the word is ‘uncertainty’. And I think Canadians, regardless of their political stripe, are certainly wondering, “What does all this mean for me?” I think small and medium sized business owners and leaders are also thinking the exact same thing, because it does feel like that one week to the next, we don’t know what’s going to happen, and we don’t know the effect and how long it’s going to last. And you’ve got somebody in the White House who seems to change his mind on a dime. And so, I think Canadians are really living that rollercoaster. But I think politically, the result is that most people right now are seeking safety and security, right? It wasn’t long ago where I would say most Canadians were wanting a change in government. They were clearly unhappy with, the state of the world. I think if you were a small business owner like I am, you were worried that inflation and the cost of doing business was just running out of control. You saw the cost of borrowing go up. All of these things that were making it harder for you to do what you needed to do. The same was true in households. And so, you know, we’re now in a world though, where those business conditions haven’t improved. But I think increasingly both the public and those businesses are wondering, “Will it get worse?” And, “Who can help me… almost, protect me from that environment and just stop, stop the pain a little bit?” And I think that’s where most Canadians and most business, small and medium sized businesses are in the country at the moment. Do they have any idea of what kind of policy supports that they need?

The Hon. Lisa Raitt: Do they know what they need? Are they communicating it to the elected officials?

David Coletto: I think they have a sense of what they need, but maybe they can’t articulate it clearly. I think we’ve had a federal government and this is maybe more at my, my opinion, but also I think the view of most business is that there wasn’t a lot of clarity or sense that the government’s decisions at the federal level in particular, were really looking out for the interests of businesses and weren’t looking out for the interests of a particularly small or medium sized businesses. And as a result, I think there was a lot of hope that that change was coming. And I do think there’s a sense that this conversation we’ve had since Trump sparked this uncertainty about how do we as a country, create the business conditions for our business to thrive for more competition? You know, eliminating trade barriers between provinces, all of these things, are widely supported. But I’m not convinced. There’s one answer that that businesses are saying, we need this. I think what they really want, which I don’t know if government can deliver right now, is certainty. And that’s, you know, that’s something that’s a currency that’s hard to find these days.

The Hon. Lisa Raitt: Yeah. So, Blair, you are hearing directly from the commercial business sector, what are they coming to you about? What’s the main issues that you’re hearing?

Blair Cowan: Yeah. Thanks, Lisa. David’s touched on it. The biggest thing is, is the uncertain environment. The fact of the matter is, conditions were improving, through the fall, interest rates started to come down. Business owners were starting to regain their confidence. And lo and behold, you know, the tariff rhetoric, starts to become amplified. And we’ve really seen, a lot of indecision, by business owners at this point in time. And so, you know, they’re coming to us, they’re coming to elected officials. They’re really trying to get information, information on what sectors the tariffs, are impacting. What goods are impacted, whether they’re goods, they’re either exporting or importing directly or whether it’s their suppliers, that are, feeling the effects. And also, this the general comments on the economy, people don’t know where the economy is right now. And frankly, where it’s going in the next few months. And that backdrop makes it very, very difficult to plan, for capital allocation decisions, doing acquisitions, hiring employees.

The Hon. Lisa Raitt: Yeah. We also have Chinese tariffs. And we have a concern about economic recession. When clients come to you, what kind of advice are we able to provide?

Blair Cowan: What we’re focusing on right now, Lisa, is trying to get information because we believe business owners, as they always are, resilient. And if they know the rules, and they know the direction, that the economy is going, how partners are going to behave in trade, then they can make decisions. And so, we’re we’ve chosen to focus is on making sure they have as much information as possible. We’ve worked with some of the government agencies, to try to bring clarification, to also bring support or at least promote flexibility. And so, as the world changes next week or the week after, that, we’re at least more responsive, you know, some of those either informational needs or actual dollar needs, whether that be for working capital to pay for tariffs or the impact or the higher cost of goods, either on an export basis or on an import basis.

The Hon. Lisa Raitt: So, if you’re uncertain, a good first call is to your CIBC banker.

Blair Cowan: Absolutely makes a lot of sense.

The Hon. Lisa Raitt: Do you see a difference, by the way, in how this is panning out in geography or in sectors? Yeah, we do we do see some differences.

Blair Cowan: The most obvious, are the sectors that are directly impacted by the tariffs today. So, we have tariffs on steel and aluminum. And of course some of the auto sector is being impacted. The latest announcements, are such that some of the auto parts are less impacted today. But what we’re also seeing is the demand for cars, and other products is drying up quite quickly. And so, that’s really the, the biggest impact on those industries, any downstream impact of the steel and aluminum. So, you think about all the businesses, you know, that are doing something with that steel and the construction industry and the goods manufacturing, industries. So those are the most directly impacted. Those tend to, impact the provinces of Quebec and Ontario, the most. So we’re seeing a little more optimism, out west, some of the agricultural industries as a result of the Chinese tariffs, that, that you mentioned, you know, they’re right in the heart of their season planting fields. And so, based on where they can sell those goods, you know, they’re going to make those decisions.

The Hon. Lisa Raitt: Yeah. And one last thing before I turn to both you and David, with respect to what’s happening in the national election right now, that kind of adds another level of uncertainty.

Blair Cowan: Yeah, absolutely. I’ll let, I’ll let David, jump in. But, you know, again, there’s various promises, being made by the different parties, you know, depending on where some of those promises, play out, you know, that’s, that’s another element of uncertainty for our business owners. Another reason to delay, capital expenditure or an expansion of a plan.

The Hon. Lisa Raitt: Yeah, and especially since right now we can’t really negotiate anything to do with our free trade agreements in the midst of an election.

Blair Cowan: Correct.

The Hon. Lisa Raitt: That makes a lot of sense. Hey, David. Listening to what Blair had to say and knowing what, you know, with respect to small and medium sized businesses and how they’re feeling. Any advice for our clients who are watching? Things are changing almost on a daily basis. They’re getting a lot of information. What’s your thoughts on what they should be thinking right now or what they can be thinking?

David Coletto: Well, the first thing I always think about as a market researchers like, you know, listen to your customers, whether they’re consumers, whether they’re other businesses, really try to understand what they’re going through. How do you serve them, at a time..? Because if you’re anxious and uncertain, I bet they are, too. And there’s a role that you can play in helping make their lives a little bit easier. And maybe there’s an upside, in all of this to how you can how you can compete and serve them. But I also think that we have to recognize, you know, and this is maybe Lisa, my optimism kind of sticking through in a world that doesn’t feel like there’s much of it is looking for those opportunities, right, that these are moments where, I think they, you know, like, remember, it wasn’t long ago we were in a pandemic and we were having the same kind of conversation. How do we get through it? How do businesses find resilience at a time when some of them couldn’t even operate because they were shut down and their customers couldn’t even step foot or come close to them? It was finding new ways of doing the work that they needed to do. And so, I don’t think like in my view, this is a personal view. I don’t think this uncertainty is going away. I think we are in a moment where we’re in the uncertainty era, at least for probably four years. And so, I think we all have to, as a business owner myself, figure out how do we do our businesses more efficiently, certainly? But also, in ways that, again, come back to serving our end users, using serving our customers and providing value. So, that’s I think at the end of the day, just good business practice. But it’s particularly true at difficult times like this.

The Hon. Lisa Raitt: And is that optimism that you have, are you seeing that reflected in your speaking with other small and medium sized enterprises?

David Coletto: Well, I think it depends on the sector. I think as Blair, you know, rightly noted, it depends. But I think right now that optimism isn’t fully there because it’s just we’re not sure how long this is going to go on. And we don’t know what normal looks like. We don’t know how to adjust and make plans because from one week to the next, the US president is just literally throwing us curveballs. So, until we have a little bit more certainty, I think that’s going to be hard for people to find. Now that being said, I also think that at this moment, like, like all Canadians, has at least caused us to reflect on ourselves a little bit. So whether, again, business conditions have improved or not, they haven’t really. Fundamentally, they’re no different than they were a few weeks ago. But that sense of purpose that I think we now has as a country, and I don’t think it’s going to depend on who wins the election. I still think this, this new found patriotism is something to lean into a little bit and to ask ourselves, “Okay, what do we make of it?” And we’ve got a lot of what the world wants and whether Donald Trump wants it or someone else does, I think we need to work together to figure out how we serve those markets better.

The Hon. Lisa Raitt: Yeah. And, Blair, we talk about purpose all the time here at CIBC. It’s one of our values. What advice would you give to customers right now and clients on what to do in this time of uncertainty?

Blair Cowan: Yeah, I would add on to, what David said, and, you know, build as much resiliency into your business as you can. And, you have to be more flexible in today’s world. So, you know, do you have fallbacks? Do you have enough, financing? Do you have enough working capital, to, to deal with, you know, announcements as they roll out, in the coming weeks? Have you looked at how foreign exchange is going to impact your business? Have you looked at how some of these policies are going to impact demand? And just make sure that you have contingencies, in place. Make sure you’re reaching out to, experts and professionals, whether those are your partners at the bank or whether those are partners at some of the governmental agencies or local politicians, and make sure they’re thinking about things in terms of being as flexible as possible, making sure any programs they roll out aren’t, so specific that they, they only help a few instead of the many.

The Hon. Lisa Raitt: Yeah. Well, I want to thank you both for joining me today, but I would not be me if I didn’t ask David the most important question. David, who’s going to win the election on April 28th?

David Coletto: Well, when we’re, when we’re chatting here today, I think Mark Carney and the Liberals are the favourites. As much as, some will be surprised to hear that because it wasn’t long ago where I was in the room saying, get ready for a Poilievre government because it’s coming. But the world’s changed very quickly. And so, unless something fundamentally changes this week, we’ve got debates, we’ve got Easter weekend. It looks like, the Liberals have found a way to, to pull this one off. But there’s still lots of time left and 4 in 10 Canadians still say they haven’t made up their mind. So, they’re watching carefully, I think.

The Hon. Lisa Raitt: Well, I want to thank you both, Blair and David, for your insights on this rapidly changing economic and political environment. And to our clients watching we know that these are turbulent times, but we have here a team of experts, and they want to provide you with the guidance and the support that you need. So please reach out to your relationship manager if you’d like to speak about any of the issues in today’s webinar in more detail, and we will continue to produce regular content in order to provide timely insights on the issues that matter to you. Thank you for joining us today.

CIBC PERSPECTIVES:

SME Sector – Turbulence is the new normal

Hosted by:

The Hon. Lisa Raitt, Vice-Chair, Global Investment Banking, CIBC Capital Markets

With:

Blair Cowan, Executive Vice-President and Head, Commercial Banking, CIBC

David Coletto, Founder, Chair & CEO, Abacus Data

All opinions and estimates expressed in this video are as of the date of publication unless otherwise indicated, and are subject to change.

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