Toronto may be the powerhouse of the Canadian economy, but it has three inherent weaknesses holding back its full potential, the Organization for Economic Co-operation and Development says.

In its case-study report on Canada's largest city, the Geneva-based OECD says Toronto has a poorly integrated transportation system, suffers from a lack of productivity due to a shortfall in capital investment and is not taking full advantage of its cultural diversity.

The OECD estimates that Toronto generates 17 per cent of Canada's gross domestic product and 45 per cent of Ontario's GDP.

Angel Gurra, the secretary-general of OECD, holds a copy of "OECD Territorial Reviews" for Toronto that highlights the trends in the city's population and economy. (Christine Peloquin/CBC)

"Toronto is the powerhouse of Canada's economy," says Mario Pezzini, head of territorial reviews and governance division of the OECD. But while Toronto provides almost a fifth of Canada's GDP, according to the OECD it displays a mixed economic performance.

On the productivity front, the Toronto region's GDP per capita and economic growth rate consistently fell below the Canadian average from 1995 to 2005. Its labour productivity has also lagged when compared with other cities studied by the OECD.

One of its advantages is that of all the OECD's 30 participating countries, Toronto has the largest proportion of foreign-born residents (46 per cent).

But Canada is not using its skilled immigrants fully, many of whom are unemployed. Eleven per cent of recent immigrants aged 25 to 54 are unemployed, compared with four per cent of Canadian-born Torontonians, or they are working in jobs below their educational background, says the OECD.

Urban sprawl — caused by Toronto's increasing population — has increased the number of commuters. But the Toronto region's transit services and transportation networks are poorly integrated, according to the OECD.

People commuting on buses, trains or subways from suburbs need different public fares. "It's a serious handicap," says Olaf Merk, an economist for the regional competitiveness and governance division at OECD.

At the same time, about 70 per cent of the region's population is dependent on the automobile for commuting. Traffic congestion, according to the OECD, accounts for a loss of $3.3 billion in lost productivity annually.

To support public transit, the OECD recommends reducing highway traffic and congestion by adding charges to commuters. Options include congestion charges, high-occupancy toll lanes, local fuel taxes and parking taxes.

Long-term view needed

Angel Gurría, secretary general of the OECD, says governments need to look at the bigger picture by budgeting and planning 10 or 20 years ahead, beyond short political cycles, to ensure major cities — which account for most of Canada's GDP — strengthen the country's economy.

The OECD recommends that Toronto:

• Boost innovation by stimulating research and development in the private sector. One of the examples in the OECD report is a better relationship between firms and universities.
• Address obstacles to the recognition of foreign skills. That could include advancing applications for credential assessment of prospective immigrants before they arrive in Canada.
• Make more use of bridging education programs and internships to facilitate immigrants' transition.
• Increase the amount of affordable housing.

"Cities are where the future economic strength is going to be," says Toronto Mayor David Miller, "and that's really what the OECD report is saying. If Canada really wants to succeed it needs to significantly invest in our cities [and] it needs to encourage innovation."