Cybersecurity—More important than you think!
The Internet gives us unprecedented access to information and ability to reach customers are all over the world, but using it comes with risks, including cybercrime and its associated costs.
We know that cybercrime is a serious threat. It can result in damage to your IT assets, business disruptions and potentially devastating damage to your company’s reputation if client data or other confidential information is stolen or otherwise compromised.
Globally, cybersecurity tops the list of concerns of more than 12,000 executives surveyed by the World Economic Forum. However, less than half of Canadian small and medium-sized businesses consider data security an important issue, according to research by AON.
Cybercrime risks are expanding
Worldwide cybercrime costs are estimated at US$600 billion in 2018, up 20% from 4 years ago according to a report by security provider McAfee and the Center for Strategic and International Studies.
Businesses are increasingly connected to the Internet via their websites, social media accounts, cloud storage and computing, and other services and applications. These connections expose businesses to cybercrime and their proliferation means the risk has risen considerably in the last few years.
Furthermore, as companies go digital and shift toward the Industrial Internet of Things—connecting operational technology to information technology and the Internet—the risks and costs of cybercrime will only increase.
How are companies managing the risks?
Most businesses (76%) use anti-malware software, and a growing number are using spam filters to secure emails and firewalls to protect their network.
Still, about 1 in 5 businesses had their operations affected by cybersecurity incidents in 2017, according to Statistics Canada’s survey of over 10,000 Canadian businesses.
And many security professionals believe this number is much higher. Scalar Decisions’ research argues the number is 3 in 5 businesses, while Carbon Black found 4 in 5 businesses suffered a security breach last year.
Cyber pirates’ entry points
Email scams are still the most prevalent form of attack, responsible for 20% of security breaches. Only about half of businesses are training staff to recognize and avoid email scams, create complex passwords and safely browse the web.
StatsCan found the highest cybercrime costs are related to cloud storage and the use of personal devices to conduct business.
Using the cloud for computing and data storage can improve your bottom line, but you must be mindful that your cloud provider is protecting your data. Less than half of the businesses that used cloud storage for confidential information about their inventory, financial statements, customers, suppliers or partners used their own data protection and control security measures, such as encryption or rights management.
Using personal devices can make your business more agile, however, it also comes with a risk. Roughly two-thirds of businesses allowed the use of personal devices for business purposes, and over half of small and medium-sized businesses didn’t have any security measures in place regarding this kind of use.
What should you do?
To improve your protection against cybersecurity threats at your company, here are some steps Forrester Research suggests you can take to protect your data.
- Start by identifying and classifying your data assets into at least three categories such as highly confidential, for internal use only and public.
- Determine whether you need to archive data or you can delete it.
- Control who has access to it, including data in the cloud.
- Defend it from attack or privacy abuse by encrypting it or using tokenization, which is the process of turning sensitive information, like social insurance numbers, into a random string of numbers called a token. This makes it useless to the cybercriminals who want to sell it and prevents privacy violations if it gets shared with third parties.
The Canadian Centre for Cyber Security’s latest report is a valuable resource to help you protect your company from cybercrime. It is specifically written for small and medium-sized organizations.
For tips specifically on protecting your website, check out BDC’s blogs here.
Since November 2018, the Canadian government has required that businesses report privacy breaches. This means you need to be able to track your cybersecurity risks and incidents.
Your business relies on data, and your customers, employees and business partners expect you to protect it. Lose their data, you may lose your reputation and even your business.
Canadian economy at a glance
Uncertainty weighing on Canada’s growth, but labour market shows resilience
The Bank of Canada recently lowered its forecast for Canada’s growth to 1.2% for 2019 down from an anticipated 1.7% at the beginning of the year. The main reason? Uncertainty related to international trade and business investment and sluggish residential investment.
But the labour market remains resilient, hopefully shaking off some of this uncertainty.
The global economy is slowing
Global economic growth grew 3.6% in 2018 but is expected to slow to 3.3% this year, according to the International Monetary Fund, as U.S.-China trade tensions, interest rate increases in the U.S., tighter credit policies in China, as well as Brexit weigh on growth prospects.
Global trade has contracted 3.5% since October 2018, according the Netherlands Bureau of Economic Policy Analysis. And Canadian goods exports are underforming in this environment. In particular, exports of minerals and metals products, and motor vehicles have contracted, while forestry goods exports have slowed this year.
Meanwhile, our energy exports have declined significantly in the last quarter, largely due to a lack of enough pipeline capacity, which forced the Alberta government to impose a production curtailment to reduce inventories and re-set prices.
As an open economy, Canada’s growth relies on trade, and exports make up 30% of our gross domestic product. A downturn in global economic growth can have a significant impact on Canada’s growth. And our exchange rate is also affected because if there is less demand for the products that Canada is selling internationally, then there is less demand for the loonie in global markets, putting downward pressure on the exchange rate.
Uncertainty has hurt business investment
Globally, businesses have been facing uncertainty regarding demand for their products and services as global growth slowed relative to 2017. Many investment decisions were likely postponed. In Canada, business investment contracted in the latter part of the year.
However, according to the Bank of Canada’s Business Outlook Survey, investment intentions remain healthy outside of the Prairies. Firms in the services sector, especially information technology and transportation, are the most likely to increase capital spending as they have a positive outlook for sales growth.
Indeed, the services sectors have been showing the strongest growth of late. The professional, business and technical sector has grown 2.4% (annualized) in 2019 compared to last year.
Residential investment likely to be a drag on growth, again
With the housing market continuing to adjust to interest rate increases and regulations both federally and in certain provinces (Ontario and British Columbia), the Bank of Canada anticipates that residential investment will continue to slow in 2019.
The 2.8% contraction in residential investment last year may repeat again this year given that the impact of interest rate increases often take a few years to be fully realized. Builders may be reluctant to invest significantly until prices stabilize in certain markets.
Interest rates to remain stable
Given this uncertainty, the Bank of Canada is likely to keep its policy rate at 1.75% for the rest of the year to evaluate how the economy evolves in reaction to higher rates. The evolution of trade will also play an important role in the Bank’s evaluation.
Labour market impresses
The good news is that the labour market remains strong. Unemployment was near a historic low of 5.7% in April as the economy created over 100,000 new jobs, largely full-time and in the private sector. Wage growth picked up to a pace of 2.5% compared to a year ago. Gains were widespread across provinces and in most sectors of the economy.
As businesses fill their vacant positions with the right people, they will be better able to take on the capital investment projects to grow their capacity. This may be a turning point for business investment.
What does it mean for entrepreneurs?
- The loonie is likely to remain under pressure—in the US$0.74-0.75 range—given the importance of trade to the Canadian economy.
- While the housing market adjusts to various policy changes, including higher interest rates, sectors such as construction as well as wholesale and retail building supplies will be affected.
- With the Bank of Canada likely to keep its policy rate stable, and commercial banks lowering the effective business rate over the past few months, it remains a good time to invest.
U.S. economy at a glance
U.S. economy grows strongly in first quarter, but consumers pull back
The U.S. economy grew by a strong 3.2% in the first quarter, surprising many observers who’d expected a larger impact from a partial shutdown of the federal government.
While the headline is positive, over half of the growth in the quarter came from businesses stockpiling inventories and from trade, as exports rose, and imports shrank.
Inventories rose last year and into the first quarter because businesses expected tariffs on many Chinese goods—a significant portion of which are used in global supply chains—to rise from 10% to 25%.
Meanwhile, the government shutdown created uncertainty in many households—nearly five million people (government workers and contractors) were out of work for most of January. This contributed to a slowdown in consumer spending to a pace of just 1.2% in the quarter.
Lower consumer spending also explains why imports shrank. The Bureau of Economic Analysis notes that motor vehicles and consumer goods were the leading contributors to the downturn in imports.
A signal that growth will likely become more robust in coming months was a 9% increase in business investments in intellectual property products, largely software and some research and development, which should help businesses become more productive.
Interest rates stay put
As widely expected, the Federal Reserve maintained its policy interest rate at 2.5% earlier this month, given that inflation remains below its target of 2% and the labour market is strong, creating over 260,000 new jobs in April.
The national unemployment rate fell to a 49-year low of 3.6% in April. Wages grew at a pace of 3.2% in April, compared to a year ago.
With low inflation, employees have seen real wages grow at a pace of 1.5% since December, compared to a pace of less than 1% over the previous three years. However, for businesses, the increase in employment costs remains moderate at just under 3%, which is supportive of continued employment gains.
Will consumer spending pick up?
Given the importance of the U.S. consumer to the economy—accounting for 70% of GDP—consumer spending is being closely watched. Spending on big-ticket items slowed sharply in the first quarter, with motor vehicles sales down 18%. While income uncertainty may have played a role in this decline, the impact of over 2% in interest rate hikes since the end of 2016 no doubt also had an effect.
Overall domestic final sales—the sum of consumer spending and private business investment—grew at its slowest quarterly pace since 2013. Some observers—including President Trump—are questioning whether interest rates have risen too much and could be slowing domestic spending.
The good news is that given stable interest rates and the positive effect of rising real wages, household spending should improve over the coming months, supporting overall growth in the economy.
What does it mean for entrepreneurs?
- Canadian businesses exporting consumer goods to the U.S. should see an improvement in coming months.
- Given both the pause in interest rate hikes by the Federal Reserve and the Bank of Canada (see Canada story), interest rates should remain stable in both countries. Canadian entrepreneurs can take advantage of this by investing today at better rates.
- As American businesses invest more in software as well as research and development, their productivity should grow. Canadian entrepreneurs should follow suit if they don’t want to fall behind.
Oil market update
Global oil prices likely to stabilize as major suppliers take up market slack
Oversupply in the global oil market at the end of 2018 sent prices plunging by over 40% between October and December.
In response, the Organization of Petroleum Exporting Countries (OPEC) and ten other oil exporters, including Russia, committed to cutting supply by 1.2 million barrels a day beginning in January. That pushed prices higher (Brent at US$70 a barrel and WTI at US$64 a barrel) and the market is coming into balance and stabilizing.
Iran and Venezuela being pressured by U.S. sanctions
Iran—Last autumn the oil market anticipated a shortage of oil as U.S. sanctions on Iran were set to come into effect on November 4. At the time, Iran was producing close to 4 million barrels a day (Mb/d), of which it exported about 2.5 Mb/d. Analysts predicted that between 500,000 barrels a day to 2 Mb/d could be knocked out of the market by the sanctions.
Then, the Americans unexpectedly provided waivers to eight countries, including China, India and South Korea, to continue importing oil from Iran. Before the waivers were widely known, Saudi Arabia pumped more oil creating oversupply towards the end of 2018.
The waivers ended on May 2 and the U.S. appears intent on driving Iranian exports to zero. With waivers removed, any country or company that continues to buy from Iran will be blocked from using the U.S. banking system.
Iran could, however, sell to partners outside the U.S. banking system. For example, India could pay for oil with rupees, according to The Times of India. Another option could be for Iran to ship its oil via Iraq clandestinely (forging the paperwork to say it is Iraqi oil), according to a report by Reuters.
Venezuela—Venezuela’s oil production continues its dramatic descent, falling to just 870,000 barrels a day in March, down 400,000 barrels a day from February’s level. The drop is due to massive mismanagement and corruption issues in the country.
Now, new U.S. sanctions, effective April 28, mean that any company using the U.S. financial system must cease transactions with Venezuela’s state oil producer, PdVSA. Furthermore, by the end of July, any American company involved in the oil sector must cease operations in Venezuela.
Because both Venezuela and Iran produce heavy crude oil, the decline in these countries’ product availability on the global market is putting upward pressure on the price of heavy crude oil around the world, including Western Canadian Select, which has rebounded from a low of US$17 a barrel in November to US$53 a barrel in April.
As supply from Iran and Venezuela drops, Russia, Saudi Arabia and the U.S. will plug the gap
Although Saudi Arabia has been resolute in lowering production—to 9.8 Mb/d in March, significantly below its OPEC+ commitment of 10.3 Mb/d—as global prices improve, the incentives to pump more oil are rising. The decline in Iranian and Venezuelan production will give the country the opportunity to fill the global market gap, and benefit its economy meaningfully given that 87% of government revenues come from hydrocarbon revenues.
Similarly, Russia, with 30% of GDP and 42% of the government budget coming from hydrocarbon revenues, is likely to want to increase production. Whether the OPEC+ agreement will be abandoned remains to be seen. The next meeting of the OPEC+ group is in June.
As prices continue to move higher, U.S. producers will also increase production. According to the Federal Reserve Bank of Dallas’s Energy Survey, the marginal cost of drilling a new barrel of oil is between US$48 and US$54.
Prices are likely to be unstable over the next few quarters. While the equilibrium price for WTI and Brent is likely around US$60 and $65 a barrel, it may bounce around. Prices may initially rise as some supply is removed from the global market due to U.S. sanctions against Iran and Venezuela. Then as Saudi Arabia and Russia fill the gap, prices may decline.