Western Canada: Leading Out of the Recession
Driven by natural resources and a knowledge-based work force, the resurgence of Manitoba, Saskatchewan, Alberta, and British Columbia is good news for the Canadian economy.
Mark Crawford, Contributing Editor,  (September 2010)

Canada's economy is gaining momentum, partly thanks to the vitality of Western Canada. Overall Canadian growth is expected to reach 3.4 percent in 2010 and 3.1 percent in 2011, a rebound from the country's 2.5 percent decline in 2009. Canada has gained nearly 100,000 new jobs this year, and the western provinces of Manitoba, Saskatchewan, Alberta, and British Columbia have the nation's lowest unemployment rates.

"The West is on fire," says Adam Waterous, Scotia Capital's Calgary-based head of global investment banking. "It's fantastic news for the country. These are big, big projects that are going to get developed. And there's no question that the West is going to lead the country out of the recession."

Western Canada's fortitude lies in the diversity and expanse of its natural resource sectors, which are picking up steam after a tough 2009. Vast reserves of oil, gas, timber, diamonds, metals, hydroelectric power, and rich agricultural lands have created one of the most reliable resource-based economies in the world. The West has wisely expanded beyond this base to diversify into high-growth, knowledge-based sectors, building globally-recognized clusters in aerospace, alternative energy, biomedical, biotechnology, information and communications technology, and advanced manufacturing.

The sharp decrease in demand for resources around the world last year hit Western Canada's commodity-based provinces hard. The areas took four of the last five spots in real GDP growth in the country in 2009. But now, with demand for natural resources rising, along with new incentives to improve the energy markets, the economy is on the move. Oil prices have more than doubled from recession-level lows, and investment activity has started to pick up.

Renewed Asian demand for natural resources - especially minerals, metals, industrial raw materials, and lumber - has triggered the turnaround. Companies are also negotiating favorable, longer-term fixed-price contracts due to higher commodity prices. And Western Canada, especially British Columbia, "will reap the benefits of reinvigorated Asia Pacific growth," says Warren Lovely, senior economist for the Canadian Imperial Bank of Commerce (CIBC).

"The theme of the West outperforming the rest should persist into 2011 as global commodity demands remain firm, while a strong Canadian dollar tempers growth in central Canada, and capital investment activity begins to wane in Atlantic Canada," says Michael Gregory, senior economist for BMO Capital Markets.

Supporting Each Other
British Columbia, Alberta, Saskatchewan, and Manitoba have a long history of collaboration among themselves and with other countries to market the region as innovative and progressive for business. The Pacific NorthWest Economic Region (PNWER), a public-private partnership chartered by Alaska, Idaho, Montana, Oregon, Washington, Alberta, British Columbia, Saskatchewan, Yukon, and the Northwest Territories, encourages global economic competitiveness. Last year PNWER facilitated energy and transportation infrastructure projects, bio-response planning, and border crossing policies between the two countries.

To further enhance their global competitiveness, British Columbia, Saskatchewan, and Alberta launched the New West Partnership in 2010, Canada's largest inter-provincial, barrier-free trade and investment market. These provinces will collaborate on trade and investment missions to international markets and develop cutting-edge R&D initiatives, especially in clean technology, natural resources, and agriculture. It completed its first major mission, a joint trip to China and Japan, in May.

"Asian companies and investors like what we have to offer and want to do business with us," says British Columbia Premier Gordon Campbell. "As Canada's Pacific Gateway, British Columbia has much to gain from increasing its trading relationship with Asia, including Japan. By joining forces with Alberta and Saskatchewan, we can be even more effective attracting investment and opportunity."

Having great ideas is one thing; securing the capital to turn those ideas into reality is another. All four western provinces benefit from Western Economic Diversification Canada's (WEDC) Western Economic Partnership Agreements (WEPAs), multi-year federal funding commitments that improve economic activity, especially for innovative new technologies and services. The organization has committed $200 million until 2013. For every dollar invested by the federal government in WEPAs, $1.65 was leveraged from other sources, studies show. Since it began in 1996, WEDC has invested almost $600 million in industries including forestry and paper, alternative fuel, agriculture, composites manufacturing, nanotechnology, and biomedicine - all high-growth sectors for the West.

Manitoba handled the recession fairly well, recording its fourth straight year of above-average growth. Although overall provincial GDP growth was estimated at -0.1 percent, higher capital spending and a more robust manufacturing sector helped Manitoba outperform the national economy, which declined 2.5 percent.

With the employment market and consumer spending improving this year, Manitoba's economic growth is expected to climb 2.9 percent in 2010, according to Royal Bank of Canada (RBC) Economics. "Growth is expected to continue as gradual improvements in the manufacturing sector take hold, with increasing demand for key Manitoba products in the transportation and machinery equipment areas," says Craig Wright, senior vice president and chief economist for RBC.

To help manufacturers become more competitive, the federal and provincial governments will launch a Virtual Centre of Manufacturing Excellence to teach lean manufacturing principles and other advanced processes. The center will receive a $4.2 million WEPA. As the United States and other Canadian provincial economies recover in the coming year, Manitoba exports such as machinery, transportation equipment, and aerospace products will be in higher demand. Manitoba is home to the largest aerospace sector in Western Canada and is the third-largest provider of aerospace goods and services in Canada. Four major firms anchor the sector, including Aveos, which recently signed a groundbreaking agreement with Air China to service its booming aviation market.

Rich in natural resources such as coal, potash, base metals, diamonds, uranium, forestry, agriculture, oil, and gas, Saskatchewan is positioned to lead the economic resurgence in Canada as commodity markets rebound.

"Saskatchewan's economy contracted sharply in 2009 amid a steep decline in potash production," say senior economist Michael Gregory and economist Robert Kavcic with BMO Capital Markets. "However, a rebound in that sector, combined with strong energy and population trends, are poised to fuel 4.2 percent real GDP growth this year, the strongest in Canada."

This turnaround is driving the rest of Saskatchewan's sectors. Wholesale trade statistics show Saskatchewan was up 20.9 percent in March 2010 from the previous year - the biggest increase in Canada. "The rise in wholesale trade numbers signals an increasing demand for goods, both from consumers and businesses," says Ken Cheveldayoff, minister of Enterprise Saskatchewan.

This is good news for Saskatchewan's diverse manufacturing industry, which includes machinery, transportation and industrial equipment, food and beverage processing, wood products, and chemical manufacturing. Manufacturing shipments increased by 12 percent in March 2010 from March 2009 - the third highest in Canada.

"Manufacturing is one of our largest sectors and has been impacted by tough economic conditions and a high Canadian dollar," Cheveldayoff says. "It's encouraging to see the numbers on the rise. Combine that with nearly 9,000 new jobs and it's evident we are doing quite well compared to other provinces."

Higher commodity prices combined with increasing exports and employment numbers are sparking re-investment in Alberta. GDP growth, forecast at 3.1 percent for 2010, is expected to accelerate to 4.2 percent in 2011. Alberta isn't used to economic slowdowns (the last time the economy contracted was in 1986). Now - with renewed interest in Alberta's oil and gas sector reflecting better market conditions and recent changes to the province's royalty regime that restored competitiveness - land sales for oil and gas development have surged in value and acreage.

The increase in oil and gas activity, and related increases in manufacturing and professional services, have brought Alberta's unemployment rate down from 7.4 percent to 6.6 percent in June, and is holding steady. Employment grew by 30,000 between March and June. Livestock, machinery, petrochemicals, construction materials, fabricated metals, and forest products drove international sales up more than 16 percent in the first quarter of 2010. Alberta's high-tech industries, including its globally competitive aerospace sector, also gained.

"The space sector is about to open up really quickly," says Ian Mann, a University of Alberta space researcher who collaborates with NASA and is working on the THEMIS mission to study weather in space. The Universities of Alberta and Calgary collaborate with major industry players. This year the province launched a new aerospace industry strategy to develop robotics and un-manned vehicle systems, defense electronics, and aerospace geomatics.

British Columbia
Economic indicators in British Columbia show that a broad-based recovery is under way, anchored by the mining and energy sectors. Overall growth this year is projected at 3.5 percent, and is expected to maintain that pace through 2011. Forest products are leading the resurgence, especially softwood and pulp. Employment in British Columbia is expected to grow by 21,000 jobs this year, and 32,000 jobs in 2011.

British Columbia will also see its export base broaden and deepen with infrastructure projects increasing capacity and allowing the province to leverage its gateway to Asia status. More than just natural resource-based products will be flowing west to Asia: Orders are also arriving for commercial aviation products, defense and security, component manufacturing, assemblies and sub-assemblies, and machined parts and systems. Interest continues to grow in British Columbia's remote-sensing, satellite communications, complex robotics, 3D simulation technology, and advanced aerospace clusters.

Vancouver's international reputation for high-tech communications, new media, computer and software technology, and a creative work force continues to grow. Pixar Canada just opened a new studio in Vancouver to create short films. California-based Digital Domain, a visual-effects studio responsible for The Curious Case of Benjamin Button and Titanic, opened a 20,000-square-foot, 100-employee digital production studio in Vancouver. Not to be outdone, Games Academy, a German training institute, will open a downtown Vancouver campus this fall, marking the city's first direct foreign investment in the local video game development education market. Games Academy chose Vancouver for its entry into the North American market because of the local industry's size, game development studio mix, and talent level, as well as Vancouver's geographic location and cost of doing business. Games Academy Vancouver CEO Kay Gruenwoldt says, "Compared to larger U.S. cities on the West Coast, it's still more affordable to open up shop here."

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