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Capital spending may hit record
Non-residential construction and machinery and equipment (M&E) capital expenditures are projected to hit a record $275.5 billion in 2020, according to Statistics Canada, from $268 billion in 2019, and surpassing the previous peak of $272.1 billion registered in 2014.
The 2020 capital investment intentions data, encompassed in the Capital and Repair Expenditures Survey, also marks four consecutive years of growth.
The total capital outlays are expected to rise 2.8 percent in 2020, following a 1.7 percent increase in 2019, but off the torrid 9.8 percent increase in 2018.
The $7.5 billion anticipated increase is expected to come from growth in capital construction (+4.5 percent to $178.6 billion). But this strong result will be partially offset by a projected small decline in M&E spending (0.2% to $96.9 billion). Capital spending by public sector organizations will be high, with an anticipated increase of 6.5 percent, following a modest increase of 0.8 percent in 2019. More modest growth in capital expenditures on privately held non-residential tangible assets of 0.9 percent is expected in 2020, compared with 2.2 percent in 2019.
ransportation and warehousing lead Driving the overall capital spending is a record expected $44.3 billion outlay for the transportation and warehousing sector: 9.3 percent higher than that in 2019.
For the first time it will become the leading sector for capital investment, surpassing mining, quarrying, and oil and gas extraction, which had been at the top of the rank since 2001. There are projected gains in capital construction (+10.1 percent) and capital M&E (+7.7 percent). Both private and public entities have been and plan to make investments. The largest contributor to growth is a 25.7 percent (+$2.4 billion to $11.8 billion) anticipated increase in transit and ground passenger transportation investment. Significant increases are also anticipated in air transportation (+$1.2 billion to $4.5 billion) and support activities for transportation industries (+$1.2 billion to $10.5 billion).
The expected increases are largely concentrated in Quebec (+39.8 percent to $7.6 billion), British Columbia (+16.4 percent to $13.2 billion) and Ontario (+14.4 percent to $11.9 billion). Partially offsetting growth is reduced spending across the Prairie provinces as major investment projects come to an end.
tilities, public admin to increase Spending in the utilities sector is expected to increase by 9.1 percent to $33 billion in 2020, driven by increases in the water, sewage and other systems subsector (+30.5 percent to $7.6 billion) as major projects in British Columbia and Ontario get underway. Furthermore, increased investment in electric power generation, transmission and distribution in Alberta and Ontario will more than offset the completion of major projects in Newfoundland and Labrador and in Manitoba.
Similarly, capital spending in the public administration sector is expected to grow by 2.3 percent (+$783 million to $34.4 billion): a turnaround from a drop of 0.6 percent in 2019. Spending increases in local, municipal and regional public administration (+$2.3 billion to $18.3 billion) are expected to more than offset declines in federal government public administration spending (-$1.5 billion to $4 billion).
on-renewable resource extraction outlays to drop Capital outlays in the mining, quarrying, and oil and gas extraction sector are anticipated to continue their decrease, albeit at a slower rate. Statistics Canada reports that it expects to see 1.4 percent decline (-$636 million to $43.7 billion) in 2020, after reporting drops of 8.3 percent (-$4 billion) in 2019 and 4.3 percent (-$2.2 billion) in 2018.
The anticipated decline in 2020 is
largely attributed to lower spending intentions in the metal ore mining subsector (-$1.1 billion). In contrast, the oil and gas extraction subsector, which represents about 77 percent of the anticipated spending in 2020 for the sector, reported an expected increase of 1.3 percent. Within this subsector, the non-conventional oil extraction industry anticipates gains of $1.1 billion in capital spending, which is partially offset by the expected decrease of $633 million in the conventional oil and gas extraction industry.
Manufacturing outlays to increase Manufacturers anticipate a 1.2 percent increase in capital spending in 2020 to $22.4 billion, due to a 3.1 percent increase in spending on capital M&E. Non-residential capital construction is anticipated to decline 3.6 percent in 2020, following increases of 14.5 percent in 2019 and 47 percent in 2018.
Out of 21 manufacturing subsectors, 11 reported an expected increase in total capital outlays for 2020, compared with 12 in 2019 and 17 in 2018. Quebec is expected to increase its spending by $474 million (+9.8 percent) in 2020, offsetting anticipated declines in Alberta, Manitoba and Ontario.
B.C. to lead, ewfoundland and Labrador to fall British Columbia is among the provincial leaders contributing to the national increase anticipated in 2020. New capital spending is expected to increase $3 billion (+7.8 percent) for a total of $41.8 billion. Notable advances in investment also took place in 2019 (+21.1 percent) and 2018 (+10.5 percent).
Increased spending is nothing new for British Columbia, said Statistics Canada;
Capital spending on non-residential tangible assets, industrial sectors
2017 millions of dollars
2018 millions of dollars
2019 millions of dollars
2020 millions of dollars
2019 to 2020 % change
otal, non-residential construction and machinery and equipment 239,906.4 263,396.9 267,973.3 275,499.9 2.8
otal, private capital expenditures 156,106.7 172,203.8 176,009.8 177,574.3 0.9
otal, public capital expenditures 83,799.7 91,193.1 91,963.5 97,925.7 6.5
Industrial sectors
griculture, forestry, fishing and hunting 7,733.2 8,942.6 8,826.8 7,894.8 -10.6 Mining, quarrying and oil and gas extraction 50,565.6 48,399.5 44,376.4 43,740.6 -1.4 tilities 31,525.2 28,923.0 30,197.4 32,955.9 9.1 Construction 6,244.8 6,987.1 7,605.3 8,121.5 6.8 Manufacturing 15,366.8 21,219.0 22,147.8 22,420.3 1.2 Wholesale trade 3,600.5 4,629.6 4,892.7 4,762.5 -2.7 etail trade 6,607.9 6,544.5 5,993.0 5,983.0 -0.2 ransportation and warehousing 28,953.8 35,588.6 40,500.7 44,260.9 9.3 nformation and cultural industries 12,496.7 13,423.1 13,688.4 13,847.4 1.2 Finance and insurance 3,617.9 3,167.5 3,635.1 3,508.2 -3.5 eal estate and rental and leasing 13,387.8 16,519.1 17,508.5 17,122.5 -2.2 Professional, scientific and technical services 2,448.1 2,901.6 2,907.9 3,090.3 6.3 Management of companies and enterprises 548.9 1,014.1 1,119.3 1,186.8 6.0 dministration, support waste management and remediation services 1,681.8 2,052.4 2,072.5 2,400.9 15.8 ducational services 10,582.9 11,950.1 11,413.8 11,204.4 -1.8 Health care and social assistance 8,114.8 8,664.6 9,453.1 10,311.2 9.1 rts, entertainment and recreation 2,610.7 2,876.1 3,096.4 2,902.4 -6.3 ccommodation and food services 3,610.9 4,188.7 3,732.2 4,192.0 12.3 ther services (except public administration) 1,073.5 1,635.4 1,236.7 1,242.2 0.4 Public administration 29,134.3 33,770.2 33,569.2 34,352.0 2.3
E use with caution. Note(s): Data may not add up to totals as a result of rounding. Source(s): Statistics Canada, Tables 34-10-0035-01 and 34-10-0037-01.
Capital spending on non-residential construction and machinery and equipment, provinces and territories 2020 (millions of dollars) plus 2019 to 2020 % change
ukon 540.8 -13.3%
British Columbia 41,822.8 12.9% orthwest erritories 843.1 15.3%
unavut 1,099.9 -35.6%
Manitoba 9,000.6 -7.3% askatchewan 15,043.4 0.4% Alberta 59,563.2 7.8%
ntario 86,146.8 4.1%
Note(s): Data may not add up to totals as a result of rounding. Source(s): Statistics Canada Table 34-10-0035-01.
Canada 275,499.9 2.8%
ewfoundland and Labrador 6,436.5210.9 -11.8%
Quebec 46,442.2 7.3%
rince dward Island 737.9 -2.3%
ova cotia 4,202.2 1.4% ew Brunswick 3,846.1 -2.2%
2020 marks the fifth consecutive year spending is set to increase.
Gains in the transportation and warehousing sector (+$1.9 billion) and the utilities sector (+$861 million) will easily offset, it said, reduced spending in the agriculture, forestry, fishing and hunting sector (-$185 million) and the mining, quarrying, and oil and gas extraction sector (-$109 million).
Meanwhile capital investment in Quebec has been growing since 2014 and shows no signs of slowing down, with a planned spending increase of 7.3 percent to $46.4 billion in 2020. Spending in the province is anticipated to increase by $3.1 billion in 2020, with $2.2 billion coming from the transit and ground transportation subsector. The manufacturing, utilities and accommodation and food services sectors are also expecting increases in 2020.
In Ontario, capital spending is expected to increase by 4.1 percent to $86.1 billion, following an increase of 1 percent in 2019 and an increase of 18.6 percent in 2018.
Spending is anticipated to increase in several sectors, namely transportation and warehousing (+14.4 percent to $11.9 billion), utilities (+10.1 percent to $11.8 billion) and public administration (+6.7 percent to $12.7 billion). But the manufacturing sector is expected to decline to $102 million (-1.2 percent) in 2020, after a decrease of $489 million (-5.3 percent) in 2019.
In sharp contrast, Newfoundland and Labrador is anticipating the largest provincial decline in spending in 2020 (-$834 million to $6.2 billion), following an increase in 2019 (+$396 million to $7 billion). Utilities (-$475 million) and the mining and quarrying, except the oil and gas subsector (-$389 million) represent the majority of the decrease expected for 2020.
How to achieve corporate sustainability
By Patricia Voorhees
Corporate sustainability is broadly defined as how an entity has a positive impact on the environment and society in which it operates.
In an era of climate change and changing investor expectations, corporations are concerned with sustainability and assess their impact through environmental, social and governance (ESG) reports communicating progress in each of these critical areas.
Corporate sustainability and associated ESG related risks are beginning to be considered by rating agencies when assessing corporate risk. What’s more, new generations of investors are demanding that their investment dollars are in companies and funds considered to be socially responsible investments (SRIs). The quest for corporate sustainability has become a national and international imperative, as well, with initiatives underway that are of interest to the equipment finance industry.
ustainability actions The United Nations Global Compact — the largest corporate sustainability initiative in the world — has established 17 sustainable development goals (SDGs) for 2030.
A few of them speak specifically to matters relevant to industrial equipment. Goal 9 is to build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation. Goal 11 is to make cities and human settlements inclusive, safe, resilient and sustainable. And Goal 12 aims to ensure sustainable consumption and production patterns.
In Canada, the federal government’s Expert Panel on Sustainable Finance has issued 15 recommendations [see box] designed to spur market activities, behaviours and structures needed to bring sustainable finance into the mainstream.
As part of that effort, the Institute for Sustainable Finance had unveiled the establishment of the Canadian Sustainable Finance Network (CSFN), which is an independent and diverse alliance of academics, researchers and educators.
“The Institute for Sustainable Finance aims to create the most credible and robust body of sustainable finance knowledge in the country. Establishing the CSFN as a critical resource for Canadian leaders is one way we can help guide the massive transition to a sustainable economy,” the announcement noted.
ustainability and equipment finance What exactly characterizes a sustainable equipment finance offering that might contribute to achieving the UN’s SDGs and Canada’s goals?
Certainly, a winning argument can be waged that equipment leasing and finance has, in fact, been offering sustainable solutions for decades. Concerns about asset efficiency and total cost of ownership have been at the forefront of conversations between equipment lessees and lessors across asset types. Asset valuation, end of lease refurbishment and remarketing remain the life blood of lessors, offering fair market value (FMV) lease products in order to drive returns and cascade assets for another use in the secondary market. For an industry already steeped in asset efficiency and reuse what then might the next generation of sustainability look like?
Assets are getting smarter with embedded Internet of Things (IoT) technology, coupled with machine learning and artificial intelligence (AI), while end user demand for asset usagebased finance options and sustainable solutions continues to build. As a result, new models are emerging across industries that leverage these smarter assets and deliver usage-based offerings promoting sustainability.
Improved utilization models Someone who works in a hospital is likely familiar with the sight of unused equipment lining hallways and storage areas, such that average 30 - 40 percent utilization rates for surgical equipment comes as no surprise. Those in the construction industry know idle equipment (and their theft) at job sites is commonplace.
In both cases this underutilization may not be novel, but it is costly and detrimental to sustainable use and consumption. In response, and as examples, Cohealo in the healthcare space and EquipmentShare in construction are among companies delivering solutions for asset underutilization. Each leverage technology for usage-based asset sharing. EquipmentShare empowers construction equipment owners to efficiently manage their equipment and/
Expert Panel sustainability recommendations
n pril 2018 the federal government announced the creation of the xpert Panel on Sustainable Finance, charged with developing a set of recommendations to scale and align sustainable finance with Canada’s climate and economic goals. fter extensive consultations the xpert Panel sent an interim report to the federal government in ctober 2018, which accepted the panel’s final report in June 2019.
here are 15 recommendations in the final report, grouped into three mutually reinforcing pillars, as outlined in its executive summary.
Pillar : he pportunity Canada should put forward a renewed long-term vision for its transition, with focused policies to help businesses and investors of all sizes effectively respond to the economic opportunity. Mapping Canada’s climate goals into clear industry competitiveness visions and capital plans would spell out the size and horizon of the investment opportunity. Meanwhile, an incentive for Canadians to make climate-smart investments would drive demand for financial products and services that promote sustainable outcomes.
ecommendation 1: Map Canada’s long-term path to a lowemissions, climate-smart economy, sector by sector, with an associated capital plan. ecommendation 2: Provide Canadians the opportunity and incentive to connect their savings to climate objectives. ecommendation 3: stablish a standing Canadian Sustainable Finance ction Council (SF C), with a cross-departmental secretariat, to advise and assist the federal government in implementing the Panel’s recommendations.
Pillar : Foundations for Market Scale Canada’s public and private sectors should invest in the essential building blocks needed to scale the Canadian market for sustainable finance to mainstream status.
hese foundations include authoritative and decisionuseful climate information, effective climate-related financial disclosures from businesses and investors, legal clarity around the obligations of investment fiduciaries, financial regulation that addresses climate risk and a supportive and climateinformed ecosystem of professional services providers.
ecommendation 4: stablish the Canadian Centre for Climate nformation and nalytics (C3 ) as an authoritative source of climate information and decision analysis. ecommendation 5: Define and pursue a Canadian approach to implementing the recommendations of the ask Force on Climate- elated Financial Disclosures ( CFD). ecommendation 6: Clarify the scope of fiduciary duty in the context of climate change. ecommendation 7: Promote a knowledgeable financial support ecosystem. ecommendation 8: mbed climate-related risk into monitoring, regulation and supervision of Canada’s financial system.
Pillar : Financial Products and Markets for Sustainable rowth ecognizing Canada’s unique economic make-up, the Panel has identified several opportunities to develop and scale up market structures and financial products that would have particular impact in facilitating Canada’s transition and adaptation.
hese opportunities align closely with Canada’s PCF [PanCanadian Framework on Clean rowth and Climate Change] and support the financing needs of critical segments of the Canadian economy such as clean technology, oil and natural gas, infrastructure, buildings, and electricity generation and transmission.
ecommendation 9: xpand Canada’s green fixed income market and set a global standard for transition-oriented financing.
ecommendation 10: Promote sustainable investment as ‘business as usual’ within Canada’s asset management community.
ecommendation 11: Define Canada’s clean technology market advantage and financing strategy. ecommendation 12: Support Canada’s oil and natural gas industry in building a low-emissions, globally competitive future.
ecommendation 13: ccelerate the development of a vibrant private building retrofit market. ecommendation 14: lign Canada’s infrastructure strategy with its long-term sustainable growth objectives and leverage private capital in its delivery. ecommendation 15: ngage institutional investors in the financing of Canada’s electricity grid of the future.
“We encourage governments at all levels, regulators, businesses and investors to consider these recommendations in charting Canada’s course toward a sustainable, prosperous, and resilient future,” concluded the report’s executive summary.
or offer it for rental during idle periods.
The company’s Track platform technology connects every piece of equipment on the job site, regardless of the original equipment manufacturer. Tracking and monitoring elements note where equipment is, their utilization and they perform diagnostics for maintenance or repair. Track also promises to combat theft and unauthorized use of equipment through geofencing features that disable equipment and send alerts when equipment leaves its designated site.
Cohealo saves health systems money by sharing equipment between facilities, increasing equipment
Equipment finance is in a position on the future of sustainability because of the focus on efficiency.
availability, eliminating rentals and reducing capital expenses.
Health systems typically purchase or finance surgical equipment that is dedicated to an operating room suite or floor. Often smaller hospitals or hospital groups delay the purchase of the latest
technology, such as a surgical robot, because it is simply too expensive (even if financed), for their capital budgets. One facility might request a laser while one lies idle at another. Cohealo’s solution tracks where equipment is, its utilization, and provides scheduling and logistics to support intra-health system sharing.
Cohealo CEO Dr. Todd Rothenhaus noted, “We are helping clients including DHL in the U.K., Thomas Health Systems and Kaiser Permanente increase equipment utilization and drive significant cost savings.”
ubscription-based models There are many names for subscription based “as a service” models used for finance products across industries and equipment types. A couple of examples of offerings deemed equipment subscriptions are Sparkfund in the energy space and LiftForward in technology. Sparkfund offers energy subscriptions for a fixed monthly amount with a functional guarantee at predetermined power or service levels, covering systems such as lighting, heating/ventilation/air conditioning (HVAC), monitors and controls, electric vehicles and charging and energy storage. Its technology platform monitors equipment operations to reduce energy costs and carbon emissions. The company has over 500 installations and claims 469,204,503 total lbs. of CO2e (carbon dioxide equivalent) reduction and over $70 million in energy savings. LiftForward is working to reimagine ownership by offering technology subscriptions with partners such Intel and Microsoft. Surface All Access is a fixed monthly subscription including hardware and software service. After two years customers are refreshed with the newest technology. LiftForward actively supports circular economy equipment reuse. CEO Jeffrey Rogers explained that “after secure data wipes, returned devices are repurposed for use in under-served, techchallenged schools.”
Building momentum for solutions Equipment finance is in a unique position as we move to the future of sustainability because of our history of focusing on equipment efficiency. As user demand for sustainable solutions increases alongside the pace of technology, more solutions and scale are sure to come. The question will be how to both measure and improve the true impact these solutions have toward achieving international and Canadian sustainable finance goals.
Patricia Voorhees is a director of The Alta Group in the strategy & competitive alignment and merger and acquisition advisory practices.
Yellow signs for U.S. investment
U.S. equipment and software investment is projected to expand by just 1.1 percent in 2020 while the country’s economic growth is expected to slow to 1.7 percent according to the 2020 Equipment Leasing & Finance U.S. Economic Outlook, published by the Equipment Leasing & Finance Foundation.
After decelerating over the course of 2019, the U.S. economy is poised to soften further in 2020. Equipment and software investment is likely to post its weakest year of growth since 2016, the report said, weighed down by the first annualized contraction in over three years in Q3 2019.
Several headwinds highlighted in the 2019 Economic Outlook began to stunt growth in the second half of 2019 and are expected to continue dragging on business confidence and investment in early 2020.
Here are several key expectations from the 2020 Economic Outlook. Uneven growth. The U.S. economy saw uneven growth over the course of 2019 but ultimately decelerated from its 2018 pace. Consumers supported the economy throughout the year, buoyed by the strongest labour market in a generation and faster wage growth. However, political uncertainty, tariffs, and a slowdown in growth in several key trading partners have weighed on U.S. exports and business investment. These headwinds show few signs of abating, which should lead to another year of decelerating economic growth in 2020. Muted capital investment. Capital investment contracted for two consecutive quarters in 2019 and is expected to remain muted in early 2020, in large part due to the ongoing trade war with China and other slowing economies around the world. Despite weak or negative investment growth and faltering business confidence, credit market conditions remain broadly healthy. Financial stress, while up slightly, remains subdued by historical standards and credit supply, while slightly tighter, is still not cause for concern. However, demand for credit — especially by businesses — has weakened notably, which may portend a further slowdown in business investment in 2020.
Federal Reserve rate cutting. After adopting a wait-and-see approach to monetary policy in the first half of 2019, the Federal Reserve cut its benchmark policy rate three times in the second half of the year in an effort to insulate the U.S. economy from the effects of trade headwinds, industrial sector weakness, and a global economic slowdown. Given the Fed’s demonstrated willingness to cut rates proactively in the face of economic weakness and the expectation of weaker macroeconomic fundamentals, the Outlook expects the Fed to cut the federal funds rate twice in 2020. The Foundation-Keybridge U.S. Equipment & Software Investment Momentum Monitor, which is included in the report, tracks 12 equipment and software investment verticals. In addition, the Momentum Monitor Sector Matrix provides a customized data visualization of current values of each of the 12 verticals based on recent momentum and historical strength. Several equipment verticals should expect their growth outlook to remain steady in the first half of 2020. Over the next three to six months:
Agriculture machinery investment ◉
growth is likely to improve; Construction machinery investment ◉
growth should increase moderately; and Materials handling equipment ◉
investment may expand.
All other industrial equipment investment growth should remain moderate. In other sectors:
Medical equipment investment growth ◉
is expected to improve; Mining and oilfield machinery ◉
investment growth could improve modestly; Aircraft investment is likely to remain ◉
in negative territory; Ships and boats investment growth are ◉
expected to remain weak; Railroad equipment investment ◉
growth is likely to soften; Trucks investment growth is expected ◉
to weaken; Computers investment growth will ◉
likely remain weak; and Software investment growth should ◉
remain solid.
The Foundation produces the Equipment Leasing & Finance U.S. Economic Outlook report in partnership with economic and public policy consulting firm Keybridge Research. The annual economic forecast provides a threeto-six-month outlook for industry investment with data, including a summary of investment trends in key equipment markets, credit market conditions, the U.S. macroeconomic outlook and key economic indicators. The report will be updated quarterly throughout 2020.
“After robust growth in 2018, equipment and software investment slowed markedly throughout 2019 and contracted in the third quarter as the effects of unresolved trade tensions and a slowing global economy took hold,” said Scott Thacker, Foundation chair and CEO of Ivory Consulting Corporation. “However, a strong labour market and a still-confident U.S. consumer base should keep the broader economy above water, even as investment in several key equipment verticals slows or remains weak.” Scott Thacker, Foundation chair and CEO of Ivory Consulting Corporation.
