by Daniel Kucharsky QUEBEC C a n a d a

Quebec in 1996 remains an economic stalwart -- a province with huge business and investment opportunity that will persist despite its political future. After all, the reality is that Quebec's huge markets and physical location will stand unchanged, even if separatists finally succeed in their quest for independence from Canada.

So while some in the business community believe that the potential for yet another referendum stifles development in Quebec, Montreal continues to be ranked among the most affordable cities in North America in which to do business, by virtue of its excellent leasing deals and low-cost housing.

New Premier Lucien Bouchard has vowed to concentrate on improving the economy and on reforming government spending.

In recent years, Quebec has evolved from an economy dependent on resource harvesting and primary processing to an exporter of processed and semi-processed goods. In 15 years, the share of high-technology products in Quebec exports grew from 12.6 percent to 27 percent.

While Quebec's exports are dominated by big producers, an increasingly important role is being played by small and medium-sized companies. Quebec sells more than 40 percent of its goods and services outside its borders and its international exports account for about 20 percent of its GDP. The Paris-based OECD (Organization for Economic Cooperation and Development) classes Quebec among the world's 20 leading importers and exporters.

The United States is Quebec's eighth most important trading partner, buying more than US$21.8 billion worth of goods. Quebec's main exports are telecommunications equipment, newsprint, aluminum, automobiles, airplanes, lumber, wood pulp and copper. Half of Canada's $5.8 billion aerospace industry is located in Quebec, mainly in the Montreal region. There are companies such as Pratt & Whitney, Spar Aerospace, Bell Helicopter and Canadair, which manufactures the Challenger Regional Jet, a 50-seat jet aircraft for regional transportation.

One of Quebec's most vibrant economic sectors is the pharmaceuticals industry. One-quarter of Canada's high-tech R&D spending takes place in Montreal, where researchers' salaries are lower than in the rest of North America. (Photo courtesy of Gouvernement du Quebec)

Some other highlights of Quebec's business environment include:

• The pharmaceuticals industry, which is supported by a research infrastructure unparalleled in Canada, enabling it to grow into one of Quebec's most vibrant sectors.
• Quebec ranks 17th among OECD countries in terms of economic performance and 13th in terms of per-capita income. Its GDP exceeds $116.8 billion and represents close to 23 percent of Canadian production.
• More than half the work force has post-secondary or university training (the service sector accounts for 74 percent of all employees, while the manufacturing industry accounts for 22 percent).
• Buoyed by tax incentives that slash R&D costs by half, Quebec has been investing in R&D at a rate eight times greater than the growth of its GDP in recent years, and three times that of the rest of Canada. A quarter of Canada's high-tech R&D spending activity takes place in Montreal, and the province channels 1.68 percent of its GDP into research. Quebec's ratio of patent applications to labor force grew by 47.4 percent between 1989 and 1993. In addition, a comparative study has found that researchers' salaries are lower than those paid elsewhere in North America.

Quebec is ideal for firms that are export-oriented, conduct R&D or are seeking a highly-educated work force and space rental savings, says Arthur Hiess, business consultant in Montreal and Vancouver. "If they can look beyond the ups and downs of Quebec's political situation, the long-term prognosis for setting up here is great," he says. "It's a very competitive place to begin a business," with substantial government assistance in export development, training grants, R&D tax grants and credits.

Montreal at night: Known as Canada's "most European city," Montreal is culturally diverse and economically active. (Photo courtesy of Gouvernement du Quebec)

Knowledge-based companies that are global players seem to worry less about the prospect of political uncertainty than traditional manufacturers. For them, the bottom line is Quebec's R&D tax incentives -- still the best in the country. Foreign researchers who carry out R&D for a Quebec corporation get a two-year tax holiday from Quebec's personal income tax. As well, unlike other Canadian provinces, Quebec administers and collects its own taxes on the income of individuals and corporations. And, while individual taxes are high, companies that set up in Quebec enjoy one of North America's lowest taxation rates on profits.

Daniel Kucharsky is a freelance writer based in Montreal.

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