Analysts at the Bank of Canada have classified 25% of Canada’s publicly traded companies as zombie firms. These enterprises persistently do not earn enough revenue to cover interest payments on their outstanding debts. Two-thirds of these firms are exposed to fluctuations in commodity prices, directly or indirectly, in their business dealings. The majority of these operate in the metal, coal, mineral mining, and oil and gas industries.
Figure 1 shows the Bank of Canada’s Commodity Price Index, which measures movements in energy, metal and minerals, forestry, agriculture, and fisheries commodity prices. The large decline in the index after 2008 is due partly to the drop in global demand for oil following the Great Recession and partly to its oversupply, especially in 2014-15. It was during these latter years that the share of zombie firms increased most significantly, rising from 15% to 25% of all publicly listed companies.
While the study’s last observation was in 2018, there is good reason to believe the share of zombie firms has grown in recent years, owing to the ongoing weakness of commodities prices, the global lockdown following the outbreak of the coronavirus, and state supports keeping otherwise unviable firms on life support. While these firms hold only 3% of all debt, these developments add to the abundance of problems Canadian capitalism already faces. Whether the state can manage the juggling act remains to be seen.