Atlantic Canada: A Safe Port in an Economic Storm

The Atlantic provinces - New Brunswick, Prince Edward Island, Newfoundland and Labrador, and Nova Scotia - are not immune to the global economic meltdown. But this easternmost region of Canada is faring surprisingly well, given its small population - roughly 3 million people - and the boom and bust cycles of some of its major industries, including fishing, forestry, and mining.

In fact, a quiet confidence simmers nearly everywhere you go, a sense that tough times can produce opportunities if people are willing to work together. And over the past decade, government and business leaders have been doing just that as they've striven to imagine a future for the region that leverages knowledge and innovation for long-term, sustainable prosperity.

Perhaps the most tangible example of interprovincial partnership in the past year was a historic agreement between New Brunswick and Nova Scotia to reduce barriers to business, trade, and skilled labor. The Partnership Agreement on Regulation and the Economy, which was signed in Halifax, Nova Scotia, this past February, involves improved, standardized, and harmonized regulation; mutual recognition of professional and trade credentials; and clear, consistent requirements for business. New initiatives will be added as opportunities are identified.

"Removing obstacles to business and the movement of skilled workers makes good sense any time, and even more so during a period of worldwide economic challenge," said Nova Scotia Premier Rodney MacDonald at the time of the signing. "We are working hard, with a number of measures, to strengthen our economy, and this agreement with New Brunswick is another step in the right direction. It will help make it easier for businesses to operate and grow in both of our provinces."

Added New Brunswick Premier Shawn Graham, "As the list of cooperative ventures grows, we will start to see more and more common rules for both provinces, reducing the administrative time taken to understand and comply with the differences. The agreement is also about co-operation between the two provinces and systems - and projects that will help us spend taxpayers' dollars more efficiently and provide better services to citizens."

Such measures are expected to involve the other provinces in the region, as the Council of Atlantic Premiers continues to meet to explore new ways to jointly strengthen their economies and burnish the image of their respective jurisdictions as business-savvy and sophisticated for domestic and international start-ups and expansions.

Meanwhile, the region's fundamental advantages as a business location remain as compelling as ever: one of the most skilled and educated labor forces in North America, attractive tax and financial incentives, excellent transportation infrastructure and port facilities, an incomparable quality of life, and an enviable cost structure. According to the most recent KPMG Competitive Alternatives study (2008), "Atlantic Canada offers the most consistently affordable business costs within Canada, with only 1.7 points separating Moncton [New Brunswick], Fredericton [New Brunswick], Charlottetown [Prince Edward Island], and Halifax [Nova Scotia]." The report ranks all four of these cities ahead of all New England cities examined, including Manchester, New Hampshire; Burlington, Vermont; and Hartford, Connecticut.

Responding to the Downturn
If the age of big business has come crashing to a halt (at least for the moment), then the era of big government is ascending. Central banks the world over have cut interest rates to the bone. Many have introduced radical new measures to keep their financial systems from collapsing completely. Interest rates in both Canada and the United States have been at 50-year lows. The U.S. Federal Reserve cut its target rate to practically zero, and the Bank of Canada's earmark rate is mere basis points above this.

The Government of Canada has followed its American counterpart by taking the most activist role in the economy since the New Deal. It's approach - captured in the January budget this year - marries aggressive tax cuts with spending on infrastructure. The total stimulus package is expected to be close to $40 billion over two years, which amounts to roughly 2.5 percent of national gross domestic product. (Unless otherwise indicated, all dollar figures are in Canadian dollars.)

In reality, this commitment is far less than that made by the United States and many other nations, where stimulus spending amounts to between 5 and 10 percent of overall productivity. Canada's decision, according to the International Monetary Fund, is both reasonable and prudent, and positions the country to emerge into recovery more quickly and healthier than several of its trading partners.

Given these new circumstances, the provincial governments are expected to play a significant role in delivering the funds. According to the Atlantic Provinces Economic Council (APEC), this could be a mixed blessing. "Cash-strapped Atlantic provincial governments may need to borrow in order to contribute matching infrastructure funding," says APEC in its Winter Outlook, 2009. "However, they may be reluctant to do so when their own budgets are heading into deficit territory. Both New Brunswick and Prince Edward Island are now expecting larger deficits in the current fiscal year, partly due to a deteriorating economy. Newfoundland and Labrador could be facing several years of deficit if oil prices remain below US$50/barrel."

On the other hand, APEC reports, "Provinces may be quite willing to borrow for infrastructure programs where they have already participated in setting priorities. Prince Edward Island, for example, is boosting its capital spending over the next three fiscal years while New Brunswick is providing a two-year boost. The jump in capital spending in both provinces in 2009 amounts to about 0.7 per cent of provincial GDP. Numerous road, bridge, and other infrastructure projects are already identified for shared cost expenditures in all four provinces."

In other words, according to APEC, the potential advantage of the economic downturn is that it has brought the debate on the merits of government action out from behind closed doors and into new corners of Canadian society.

Rebooting for Future Prosperity
In recent years, all governments in the Atlantic provinces have been building what they call "capacity": in New Brunswick, the clarion is "self-sufficiency"; in Prince Edward Island, it's "bioscience"; in Newfoundland and Labrador, it's "energy independence"; and in Nova Scotia, it's "building for growth." But whatever each calls it, it's the same language, and it sends the same message: Atlantic Canada is open for business - now more than ever. Every Atlantic province naturally presents its best face, but all are now beginning to understand that they are stronger together than apart.

Referring to the province's recent progress, despite the economic downturn, New Brunswick's Graham said in his 2009 State of the Province address, "Laying the cornerstones of self-sufficiency did more than provide the foundation for 20 years down the road. It gave us the base upon which to stand when the storm clouds began to gather last summer." Graham has also added another component to the mix: tax reform. According to APEC, the change is almost revolutionary: "A flat 10 percent personal tax rate and a reduction of the general corporate tax rate to 5 percent will be fully phased in by 2012. To pay for these tax decreases, [a] select committee advised an increase in the harmonized sales tax (HST), but the government is still considering its options."

Looking to Prince Edward Island, look no further than its youthful activist premier Robert Ghiz. Under his direction, the Island's aerospace industry has expanded its reach dramatically, as recorded international exports increased from about $38 million in 2006 to more than $100 million last year. Highly machined components from Prince Edward Island are being shipped to 29 different countries.

Indeed, most of the export growth in this sector last year occurred outside the main U.S. market. The value non-U.S.-bound shipments exploded from $6 million in 2006 to more than $48 million in 2007. Exports to the European Union grew from $1 million to $25 million, while shipments to Africa increased from $3 million to $12 million. And even despite the impact of the higher value of the Canadian dollar against its American counterpart, exports to the United States rose by 16 percent. The provincial government reports that the aerospace industry in Prince Edward Island maintains annual sales of about $275 million; it employs nearly 1,000 highly skilled workers.

For Nova Scotia, the future is all about building new opportunities for business investment and expansion from the ground up. In a recent newspaper editorial, MacDonald wrote: "My government's three-year, $1.9 billion infrastructure plan [is] called Building for Growth, [which] is one of the largest infrastructure programs in our province's history. In the short term, it will create and maintain about 20,000 jobs. In the longer term, the plan speaks to our vision of what Nova Scotia can and will be in the years to come." He promised investment in schools, information technology, green energy, and transportation projects, and said Nova Scotia had become the most connected jurisdiction in North America, with broadband Internet access available to all homes and businesses in the province.

Finally, Newfoundland and Labrador continues to weather the world's economic maelstrom with characteristic common sense and good humor. According to APEC, the province's offshore oil sector continues to progress, with Husky Energy planning to spend $800 million on the East Coast in 2009. Meanwhile housing boomed across the province last year, supported by optimism about future offshore developments and inward migration. "This reversal in migration trends has, at least temporarily, ended a continuous loss of population that began in 1993," says the APEC report. "Newfoundland and Labrador's population increased by an estimated 1,500 people over the last four quarters."