Atlantic Canada: a Region on the Rise

The dominant image of Canada's four Atlantic provinces - New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland & Labrador - as a region of rugged beauty and bucolic charm is giving way to a new one. With a population of barely 2.2 million people, Atlantic Canada is earning a reputation as a winning place for business and industry. Along with its undeniably high quality of life - low housing costs, crime rates, pollution levels - it retains abundant and well-managed natural resources, a startlingly mixed and diversified economy, an educated, trained and loyal work force, a fully modal transportation infrastructure, and an extraordinarily cost-competitive environment for growth.

In fact, in the 2006 Competitive Alternatives International Business Cost Study, compiled by Swiss-owned KPMG Management Consultants, the Atlantic cities of Moncton (New Brunswick), Charlottetown (Prince Edward Island), Halifax (Nova Scotia), and St. John's (Newfoundland & Labrador) scored first, second, third, and fourth, respectively, as the least expensive locations in northeastern North America for industry.

According to John Thompson, CEO of Enterprise Greater Moncton, "The study lends credibility to the case we are making that [we are] a good place. You have to realize that in North America alone, we are competing with around 285 jurisdictions for business. Being in this study is very useful because your name [becomes] recognized."

"The report lays the groundwork for [the city] to continue to succeed," says Clifford Lee, mayor of Charlottetown. "When investors consider where they want to do business, reports like this are considered a major component of the decision-making process. We have become a big city in the business world with all the local down-home qualities that make us unique to the rest of the world."

New Brunswick
New Brunswick's economy is dominated by manufacturing industries such as food and beverages, wood-based manufacturing, transportation equipment, and nonmetallic ores and primary metals processing. New Brunswick is blessed with an abundance of natural resources. Forests, mostly spruce and fir, occupy 85 percent of the land mass; consequently, wood and wood products - pulp and paper, sawmills, and furniture - are key to the provincial economy. New Brunswick has several large mines that extract silver, bismuth, cadmium, coal, copper, natural gas, gold, oil, lead, potash, peat, tungsten, silica, salt, and zinc. Many of these nonmetallic ores and primary metals are processed in the province.

Tourism is a vital part of the province's economy. More than 1.5 million people per year visit New Brunswick's tourist attractions, including its two national parks and numerous provincial parks. Fishing and agriculture are also very important. More than 50 varieties of fish and shellfish are caught here; in fact, the town of Shediac has been called the "lobster capital of the world." In agriculture, New Brunswick's potatoes are renowned in more than 25 countries; strawberries, apples, blueberries, and vegetables are produced for local consumption and export, and the province is self-sufficient in the production of milk and poultry.

In recent years, New Brunswick has worked hard to further promote economic development by focusing on information and communications technologies, and attracting and developing cutting-edge technology clusters. Emerging sectors include life sciences, agri-foods, precision and component manufacturing, aquaculture, environmental engineering and waste management services, software development, and e-learning platforms.

New Brunswick turned in a performance last year similar to the previous year as its economy expanded 2.5 percent. Increases in provincial manufacturing shipments, exports and restaurant receipts surpassed national rates. Capital investment reached an all-time high. Farm cash receipts, retail trade, mineral production and port tonnage also reported favorable advancements. Tourism revenue held steady. Consumer inflation slowed significantly from the previous year and fell below the Canadian rate for the first time since 2001. The number of employed in the province surged forward to reach a record high in 2005; both full-time and part-time employment profited from gains. With employment growth exceeding labor force growth, the unemployment rate was pushed down into single digits, falling to an average of 9.8 percent. The provincial participation rate achieved an all-time high of 63.9 percent.

Mandated wage benefits in New Brunswick are below the Canadian average at 16.4 percent of payroll. In fact, the province's wage rates are among the lowest on the continent. Current research indicates that average annual earnings for computer programmers, electronics technicians, machine tool operators, machinists, mechanical engineers, production supervisors, and systems analysts in New Brunswick are anywhere from five to 15 percent lower than anywhere else in North America.

The Government of New Brunswick has also taken significant and substantial steps to ensure a competitive business environment in the province through specific tax measures. These include reducing the small business tax to the lowest in Canada; increasing the small business income tax threshold (active business income) from $400,000 to $450,000; reducing the general corporate tax rate to 12.5 percent; and reducing personal income taxes.

Nova Scotia
The Nova Scotia economy has, over the years, diversified away from traditional resource-based industries - fishing, farming, mining, forestry - into technical, high-end services for both the public and private sectors. Currently, the services sector accounts for 76.5 percent of the provincial economy, proportionately larger than in Canada as a whole.

Partly as a result of this, Nova Scotia's GDP has expanded since the beginning of the decade by nearly 14 percent. The services sector continues to outperform its goods-producing counterpart by nearly every measure, helping to solidify the province's reputation as the principal location in Atlantic Canada for R&D, public administration, and defense.

Indeed, Nova Scotia boasts a strong research community with 2,300 researchers conducting leading-edge work in the medical, marine, agri-foods, and technology fields at established facilities throughout the province. Related to this, the IT sector in Nova Scotia is strong, diversified, and growing. The province witnessed 11.8 percent employment rise in software and services during 2005.

Meanwhile, high-tech manufacturing has taken off in the province, thanks to companies like Michelin, which has produced more than 150 million tires from its three plants, and Tesma PFC, which manufactures components for virtually every transmission system of General Motors' rear-wheel drive cars and light trucks. Nova Scotia is also home to the highest concentration of military personnel in Canada, with 20,000 people working directly in the aerospace and defense industries. Nova Scotia's Aerospace Business Park is home to such companies as Lockheed Martin, IMP Group, and Pratt & Whitney.

In tandem with all of this, the province is positioning itself as one of North America's main energy supply regions. Nova Scotia's Sable Offshore Energy Project produces natural gas from a number of wells off the coast and the province's supply feeds industrial and commercial/residential applications. Nova Scotia's offshore has approximately $3 billion invested in infrastructure. The 1,300-kilometer Maritimes and Northeast Pipeline connects the province directly to the U.S. Northeast market and the North American gas pipeline system.

Other investment-sensitive factors include the provincially operated Nova Scotia Business Inc.'s (NSBI) payroll rebate, which is a performance-based incentive offered to eligible companies expanding in or locating to Nova Scotia. The federal government of Canada and the provincial government also encourage scientific research and experimental development (SR&ED) through their respective SR&ED tax credit programs. These programs are designed to reward claimants who attempt to overcome a technical uncertainty; attempt to advance technology while overcoming the uncertainty; and ensure the process undertaken is a scientific one that is carried out or supervised by qualified personnel.

At the same time, Nova Scotia offers the most favorable corporate tax regime in Atlantic Canada, as well as the region's lowest provincial income tax and top marginal rate. And it levies no provincial payroll taxes. Finally, Nova Scotia communities offer skilled, educated, and available work forces; competitive cost structures; and a clean, attractive, and pleasant environment.

Prince Edward Island
Agriculture, tourism and fishing are the economic mainstays of Prince Edward Island. The province's rich, red soil is ideal for growing potatoes, which are the most important source of farm income on the island. Most industrial activity has to do with food processing. Although lobster remains "king" of the waters off Prince Edward Island, about 30 other fish and seafood species are caught, notably cultivated mussels, herring, bluefin tuna, and the renowned Malpeque oysters.

Prince Edward Island is known for its beauty, and for more than 600 miles of beaches. As a result, tourism has become a major industry on the island. The province is also the home site of Lucy Maude Montgomery, author of the "Anne of Green Gables" series and other books, and has become an international tourist phenomenon, with people from all cultures coming to participate in cultural events and fairs.

Pastoral charms aside, Prince Edward Island has been investing aggressively in the tools of new economy development in recent years. Sleemon Park, located in the small city of Summerside, has become an Eastern Canadian incubator for the aerospace industry. Beyond this, the province's information technology industry is poised for tremendous growth and diversification. To accelerate this growth, government-funded Technology PEI and its partners in economic development are making strategic investments today in the island's IT, film, and new media infrastructure, including new smart office and research facilities, advanced broadband networks, industry internship and labor development programs, and focused export and trade initiatives.

Throughout, Prince Edward Island consistently ranks as one of the most cost-effective locations to do business in North America. The labor force is known for its low turnover levels and high participation rates, while industry salary and wage rates are extremely competitive, even by Atlantic Canadian standards. Meanwhile, the province remains dedicated to establishing tax-friendly initiatives for the IT, film, and new media industries, with an existing tax-free zone dedicated to aerospace IT companies, and tax-free business parks planned for the province's rural regions.

Still, while the Canadian economy, in general, has experienced improved levels of growth in recent years, Prince Edward Island's has slowed somewhat. The province's economy grew by 1.7 percent in 2005, slightly down from the 1.9 percent growth a year earlier. Economic performance, however, was accompanied by positive employment growth, gains in labor income, and strong residential construction activity.

Statistics Canada estimates that the leading growth sectors in the province are healthcare and social assistance, finance, insurance and real estate services, wholesale trade, and manufacturing (up by 1.9 percent). Employment on Prince Edward Island has expanded to average 66,700 per month, an all-time high, while total labor income increased by 4.8 percent. The unemployment rate averaged 11.3 percent in 2005, up from 11.0 percent in 2003. Finally, manufacturing shipments on Prince Edward Island reached an all-time high of $1.4 billion in 2005, an increase of 4.3 percent, over the previous year.

Newfoundland & Labrador
Newfoundland & Labrador's economy produced output (GDP) valued at more than $18 billion in 2005. The economy has expanded by about 46 percent over the past six years, mainly due to major capital investment projects and economic restructuring and diversification. Exports, particularly crude oil, have been a main factor in this expansion.

The province's output per person relative to Canada as a whole has improved in recent years due to the economic growth. Real GDP per person for Newfoundland & Labrador represented 86 percent of the Canadian average, up from 65 percent in 1997. Export growth has been the main factor in this expansion. Goods and services exported from the province were valued at more than $11 billion. Goods accounted for well over 80 percent of exports. Most of the goods exported were are sold in foreign countries, in particular the United States, which accounts for more than 50 percent.

Crude and refined oil, fish products, newsprint, iron ore, and electricity accounted for most exported goods. Offshore oil currently accounts for the greatest share of export value and is the leading contributor to export growth in recent years. Although services represent a relatively small portion of exports, the value has been rising due to growth in industries such as tourism, communications, business, and computer services.

Beyond this, employment has been rising in recent years and has reached about 217,800. The unemployment rate has declined from its most recent peak of 20.4 percent in 1993 to 15.2 percent last year, its lowest level since 1981. Growth in the near future will stem primarily from consumer spending and construction activity related to the Voisey's Bay (mining) and White Rose (offshore oil) projects. After next year, economic growth will be significantly influenced by development and production schedules of major energy projects. Real GDP growth over the 2006 to 2007 period is expected to average 1.5 percent per year.

Still, the raw data, doesn't tell the whole story about the province. In Newfoundland & Labrador, productivity has been significantly impacted by the emergence of the oil industry. Oil production in Newfoundland & Labrador first occurred in late 1997. Since that time, GDP in oil production has grown from less than $100 million to almost $1 billion in 2001, while employment has remained relatively stable over this period.

If oil production were excluded from productivity measures, productivity growth estimates for the rest of the economy would be significantly lower in recent years. Excluding oil, labor productivity in the province is estimated to have declined by 0.2 percent per year between 1997 and 2001. This drop in labor productivity is likely due to the fact that much of the employment growth throughout this period was in the service sector, where output per hour worked is below the average for the economy. At the same time, Big Oil has helped the province diversify its technical services base and invest in technology-oriented clusters, many of which are beginning to contribute in major ways to the province's domestic and export economy.

Finally, the provincial government's open-door investment policy is consistent with its counterparts elsewhere in Atlantic Canada. The Economic Diversification and Growth Enterprises Program (EDGE), for example, provides a package of incentives to encourage significant new business investment in the province.