Canada's Economy on a Growth Track
Traditional and innovative industries are driving economic growth across Canada.
Mark Crawford, Staff Editor, Area Development (Fall 2012)
{{RELATEDLINKS}}Canada continues to show the world why the Economist Intelligence Unit (EIU) ranked it the best country in the G-7 in which to do business over the next five years. According to the Royal Bank of Canada's (RBC) economic forecasting division, Canada's GDP will record a 2.6 percent gain in 2012 and 2013 - down slightly from the higher 3.1 percent growth rate earlier in the year (due largely to European debt issues, which also slowed the growth of emerging markets). Even so, Canada was ranked as the best country in the world for business in Forbes' October 2011 study of 134 countries. Also, for the fourth straight year, the World Economic Forum rated Canada's banking system as the world's most stable.

Canada has posted the fastest employment growth in the G-7 over the last two years, recovering all the jobs that were lost during the recession. The RBC expects that job growth will continue at a steady pace over the next two years, dropping the unemployment rate to 6.9 percent by the end of 2013.

Economists and investors are optimistic about Canada's strong fundamentals: "We're relatively bullish," says Craig Wright, RBC's chief economist. "Overall, conditions for growth are positive, supported by a continuation of a low interest rate environment and a Canadian financial sector that is healthy and ready to provide credit."

One of Canada's greatest strengths is the diversity of its key economic regions. Each one has its core resource-based industries that are still vitally important to its economic performance, as well as robust clusters of innovation-based industries like aerospace, information and communications technology (ICT), life sciences, alternative energy, electronics, and advanced manufacturing that continue to expand and provide high-paying jobs.

Western Canada
The provinces of western Canada - British Columbia, Alberta, Saskatchewan, and Manitoba - are rich in oil, gas, and metals, which are driving economic growth at record rates. By most reports, Alberta is leading the country in economic performance indicators.

"With mega capital spending in its energy sector continuing to be a catalyst for activity across industrial sectors, Alberta should lead all other provinces in real GDP growth this year with a rate of 4 percent," states RBC. "Massive investment in the energy sector - slated to reach new heights in 2012 - will make it another banner year for Alberta's oil production."

Saskatchewan is another strong energy player with a similar growth rate. Key resources are oil, mining, and agriculture. In fact, 2011 was Saskatchewan's second-best year for drilling oil wells. It also set a record for horizontal oil wells - 1,992 wells were drilled in 2011, a 30 percent increase over 2010.

"Our oil industry continues to be one of Saskatchewan's economic drivers," says Saskatchewan Energy and Resources Minister Bill Boyd. Saskatchewan's oil and gas industry recorded an estimated $11.7 billion in sales last year and invested roughly $4.2 billion in exploration and development activity.

To further enhance production, the governments of Canada and Saskatchewan are investing $800,000 in the Petroleum Technology Research Centre (PTRC) at the University of Regina to develop innovative recovery methods for oil and gas production, including reclamation of drilling fluids.

British Columbia continues to be a leader in innovative technology and manufacturing. A federal investment of about $10 million will establish a Composites Research Network (CRN) to provide western Canadian manufacturers with the resources they need to stay competitive in the global marketplace. Led by the University of British Columbia (UBC), CRN branches will be established in each western province.

"The Composites Research Network advances important collaborative research between researchers and businesses," indicates John Hepburn, vice president of Research & International at UBC. "These partnerships drive innovation faster and more efficiently than would otherwise be possible," he notes.

The CRN plans to develop strong relationships with Manitoba's thriving aerospace cluster, which continues to promote aerospace R&D initiatives. For example, Western Economic Diversification recently provided $5 million to help West Canitest R&D (WestCaRD), a nonprofit organization established by GE Canada and StandardAero, undertake advanced aircraft engine research and testing at facilities at the Winnipeg James Armstrong Richardson International Airport.

Real GDP growth in Ontario will be about 2.5 percent in 2012, up from 1.9 percent in 2011. This stronger pace is largely the result of an improved automotive industry, which contributes about $20 billion annually to the provincial economy.

Ontario is home to 11 assembly plants operated by five of the world's top automakers, as well as more than 300 parts manufacturers, which together produced over 2.1 million vehicles in 2011 - more than any other region in North America. The University of Ontario Institute of Technology includes the Automotive Centre of Excellence, the first commercial automotive research, development, and innovation center of its kind in the world.

Toyota Motor Manufacturing Canada (TMMC) has a three-million-square-foot facility in Cambridge - a strategic location at the gateway to Canada's Technology Triangle in southwestern Ontario. This is the first manufacturing operation outside Japan where the company produces the Lexus model and its location selection was based on the significant access to the skilled work force and proximity to U.S. borders. There's also a new Boxwood Business Park, adjacent to highway 401 (Canada's busiest highway) and right across from the Cambridge Business Park where TMMC is located. Infrastructure for the new park is expected to be completed by the end of 2012, and the design and amenities will be "green-friendly" within a park-like setting to attract and retain knowledge workers.

General Motors of Canada is on track in its commitment to invest $850 million in research and development activities in Canada between 2009 and 2016. "GM has long been an innovation leader and these additional investments will build our expertise in strategic technologies even further," says Kevin W. Williams, managing director for GM Canada. Since 2009 the company's Canadian Engineering Center has generated nearly 100 records of invention.

Ontario's information and communications technology (ICT) industry is recognized globally for its expertise in software and systems, wireless and telecommunications, mobile applications, microelectronics, photonics, digital media, and green IT. The industry generated about $28.4 billion to the provincial economy last year. There were approximately 18,000 ICT firms in Ontario in 2011, up 3.1 percent from 2010. Major players include Siemens, Intel, Google, IBM, and Cisco.

Texas-based GENBAND, a developer of IP infrastructure and application solutions, recently announced plans for an R&D Center of Excellence in Ottawa, Ontario. The new facility, which includes more than 70,000 square feet of lab, office, and customer support, will be home to some of GENBAND's core IP (Internet Protocol) switching and multimedia development teams.

"The Ottawa R&D Centre of Excellence is focused on our GENiUS platform, which is the heart and soul of GENBAND's value proposition," says Charlie Vogt, GENBAND's president and CEO. "Our industry is quickly evolving from a hardware-based infrastructure environment to one that is software-centric - our platform combines multiple software solutions on a common, flexible IP platform."

Next: Economic Outlook for Quebec and Atlantic Canada

Improving job numbers this year have boosted Quebec's economic performance, which is growing at a modest 1.6 percent in 2012 and projected by RBC to increase to 1.9 percent in 2013. Key industries include aerospace, life sciences, ICT, microelectronics, environmental technologies, and agriculture.

The provincial government has made several life sciences investments this year, including $2.6 million to Pfizer Canada for a $31.7 million expansion of its plant in the borough of Saint-Laurent in Montreal to increase production of multivitamins. About $15 million was also provided to Medtronic to assist with its $50 million facility expansion in Kirkland, where it manufactures cryoablation products for the treatment of atrial fibrillation. Medtronic will also establish a medical research and training center on cryoablation in Pointe-Claire.

"This project offers extremely promising development prospects for the Montreal area and Quebec as a whole," states Sam Hamad, Minister of Economic Development for Quebec. "The life sciences sector is a cornerstone of Quebec's economic development, and the financial support granted to Medtronic shows the government's determination to promote the development of leading-edge medical equipment in Quebec."

Quebec is also home to a globally recognized aerospace sector, including major companies like Bombardier Aerospace, Bell Helicopter Textron, Pratt & Whitney Canada, Rolls-Royce Canada, and Lockheed Martin. The vitality of this cluster was a major reason Aerolia Canada, a subsidiary of French firm Aerolia SAS, decided to establish its headquarters and assembly plant in the greater Montreal area. Workers at the $82 million facility will design and manufacture the fuselage for Bombardier's Global 7000 and 8000 aircraft.

"Quebec's government support, along with the high quality of North American suppliers, was critical in our decision to set up headquarters in Saint-Laurent," says Christian Cornille, president of Aerolia SAS. "Greater Montreal has a large pool of aeronautics firms, making it a strategic location for our assembly plant," he adds.

Atlantic Canada
Four provinces comprise Atlantic Canada - Newfoundland/Labrador, Prince Edward Island, Nova Scotia, and New Brunswick - and represent a mix of natural resource-based industries (energy, mining, forestry, paper, fishing) and knowledge-based industries such as ICT, clean energy, life sciences, and back-offices/call centers.

"Newfoundland and Labrador are doing fairly well with oil and gas and mining this year," indicates David Campbell, economic development consultant and president of Jupia Consultants located in Moncton, New Brunswick.

The RBC reports that nominal exports for Newfoundland/Labrador were up by 8.4 percent on a year-over-year basis in the first quarter of 2012, "with both the province's major export categories of energy and industrial goods showing solid growth."

Nova Scotia has the largest provincial economy in the Atlantic region. Among the important industries here are life sciences and ocean nutrition. Admiral Insurance, a British firm, recently established a back-office call center in Halifax that will provide 300-400 customer service jobs. In August 2012, UPS opened a new 50,000-square-foot logistics facility in Halifax, a key part of the company's Atlantic Canada expansion strategy.

"Perhaps the most impressive economic news is that the Halifax shipyard recently received a long-term, $25 billion military processing contract to build a variety of combat vessels, which will be a big boost to the Halifax economy," adds Campbell. Prince Edward Island - with a population of only 125,000 - is the smallest province in Atlantic Canada. Even so, it still packs some economic punch: Nominal exports were up by almost 28 percent in the first quarter of the year, due to a nearly 150 percent increase in machinery and equipment exports. "While the outsized gain in machinery and equipment exports is unlikely to be sustained, the recent spike implies that the annual growth rate will be quite strong in 2012," states RBC. Other key industries include agriculture and fishing.

Although New Brunswick is growing at a slower pace (1.6 percent in 2012 and 2.1 percent in 2013), it still attracts some large-scale development. For example, recently bought Radian6, expanding its presence in the province by adding 300 new jobs. "IBM also acquired Q1 Labs and Elite purchased Whitehill Technologies," says Campbell. "So big multinational firms are now doing IT in New Brunswick."

Siemens has entered into a partnership with New Brunswick (NB) Power to create a Centre of Excellence in Fredericton for smart grid technology. The goal is to integrate its smart grid technology with the province's electrical system to better understand customer usage in real time and reshape the demand on NB Power's electrical system. Automating and shifting electricity to off-peak times will maximize efficiency and save money.

A $60 million infrastructure improvement at the province's Port of Belledune is designed to attract companies that need to manufacture large, industrial products that are most easily built at the port and then shipped to a final destination by boat. The Modular Fabrication Facility (MFF) allows the layout and assembly of large pieces of equipment, often designed for major mining, energy, or construction projects. The first user of MFF is MAN Diesel & Turbo Canada, which is building an electrical module using local contractors and service providers.

Global Effects
"The global environment in which provincial economies operate continues to generate plenty of twists and turns," states RBC. "South of the Canadian border, the start to 2012 for the U.S. economy was a little softer than we anticipated, but we believe that the negative factors that dampened growth will reverse and produce faster growth going forward. In fact, this strengthening of the U.S. economy will be a key driver of provincial growth in both 2012 and 2013, particularly for Ontario, which depends heavily on the U.S. market. All in all, barring any calamitous developments in Europe or elsewhere, we continue to expect an external context that will be broadly supportive of provincial growth."