2 Posts from November 2010
The Resilient Northwest
Nov 30, 2010 Posted By: Livio Di Matteo Tags: northwestern ontario, ontario economy
December 1st, 2010
By Livio Di Matteo
According to the Stockholm Resilience Center (www.stockholmresilience.org), the concept of resilience refers to the capacity of a social-ecological system to withstand perturbations from various types of shock and to then renew itself afterwards. In other words, if a system is resilient, it can deal with change. The forest crisis in Northwestern Ontario was a major economic shock to the region’s economy that resulted in massive employment losses and yet if one looks at the region’s economy and especially its major center – Thunder Bay – one cannot help but notice the resilience of the economy. Thunder Bay, which has seen three of its four pulp mills close and numerous sawmill job losses over the period 2003-2009, has witnessed increases in many indicators of economic activity suggesting that the economy has been able to adapt to the shock of the forest sector loss.
The relatively resilient economy in Northwest Ontario is being driven by three broad forces: the continued transition towards a knowledge based economy in the region, the expenditure on public sector infrastructure and the growth and development of the mining sector in the region. The knowledge economy in Northwestern Ontario is being spearheaded by the development of the Thunder Bay Regional Health Sciences Centre (TBRHSC), the Northwestern Ontario School of Medicine (NOSM) and the research work of the Thunder Bay Regional Research Institute (TBRRI). The TBRHSC employs 2,500 people and has an annual budget of 280 million dollars. In addition, the TBRRI is recruiting scientists from around the world to conduct work in the areas of molecular medicine and imaging systems and new medical research associated private sector companies are being spawned such as Sentinel and Tornado. The other key blocks of the regional knowledge sector economy include Lakehead University with a total employment (full & part-time) of 2,000 and an annual operating budget of approximately 100 million dollars and Confederation College with 760 employees (full and part-time) and an annual operating budget of almost 70 million dollars. In addition, the region’s manufacturers such as Bomdardier and GRK fasteners also use knowledge intensive and skilled workers and have also seen growth in their activity. Bombardier in particular is assured a future in urban transit given the increasing demand for such systems in an urbanizing world.
With respect to public sector infrastructure, the Northwest region has recently seen millions of dollars in provincial road construction and improvements as part of a planned 273 million dollar investment in regional highways. There are 32 projects in Northwestern Ontario nearing completion involving 494 kilometres of highway and nine bridges, which have created 1,900 construction related jobs. In the Thunder Bay region, there is a waterfront development project underway as well as substantial recent investments in roads and bridges, a new library and trail development.
Finally, there is activity in the regional mining sector as well as the projected developments in the Ring of Fire. Ontario’s north is still a vast storehouse of forest and mineral wealth and continued growth in the economies of China, India and Brazil will eventually generate an upturn in resource prices which will spark a boom in resource commodities. In the James Bay Lowlands, in Ontario’s so called “Ring of Fire’, there are over 100 mining companies with holdings. Mining in Northwestern Ontario currently directly employs nearly 2,000 people with a payroll of 142 million dollars annually. In general, the combined economic benefits of a single “representative mine” as documented by University of Toronto economists Peter Dungan and Steve Murphy are large. In its opening phase, a new mine generates almost 2,000 jobs annually to Ontario and adds approximately 280 million dollars to GDP and approximately 65 percent of the jobs are local or in the region where the mine is located. Once the mine is producing, about 1,500 jobs are created annually in the local region. In light of this analysis, the long-term potential of the Ring of Fire is enormous given its potential supplies of nickel, copper, zinc, gold, chromite and palladium.
Is all this having an effect? While employment levels in Thunder Bay and region are still below their 2003 peak, other indicators suggest a rebounding and resilient economy. For example, building permits in Thunder Bay over the period 1995 to 2010 have exhibited an upward linear trend. Moreover, the total value of building permits in 2010 to date represents an increase of 44 percent over 2009. Housing prices in Thunder Bay are also very healthy and have been on a pronounced upward trend despite the debut of the forest sector crisis. Since 2003, the average MLS average housing price in Thunder Bay has risen from $111,927 to $153,800 in 2010 – an increase of 37 percent. Another indicator is the passenger volume of the Thunder Bay International Airport, which is the regional airport and therefore services all of Northwestern Ontario. Passenger volumes have increased dramatically. Since 1998, passenger volumes have increased by 30 percent and indicate that despite the forest sector downturn there is still growing demand for air travel to and from the region.
Despite its dependence on the forest sector for nearly 20 percent of its employment, it would appear that the economic shock of the last decade in northwestern Ontario has been absorbed and adjusted to and that some positive economic change has resulted especially in the Thunder Bay region. This does not mean the Northwest is out of the woods yet – there is still a provincial government energy policy that has resulted in high electricity prices and a Far North Act that impinges on future development. Nevertheless, recent performance is much better than one would have expected.
Livio Di Matteo is Professor of Economics at Lakehead University.
Laggard Ontario
Nov 30, 2010 Posted By: Livio Di Matteo Tags: ontario economy
By Livio Di Matteo
Originally published in The Financial Post, November 17, 2010
The Ontario government will be tabling its fall economic statement in the legislature on Thursday. Premier
Dalton McGuinty, who has been seemingly unaware of the impact of his energy and economic policies on
the province’s economy, would do well to take heed from the danger signs provided by another update —
the recent Statistics Canada update to provincial GDP numbers.
The new StatsCan numbers show that, as a result of the recession, real gross domestic product in 2009 fell
in every province except Manitoba. Moreover, the declines were steepest in Newfoundland and Labrador,
Saskatchewan, Alberta and Ontario.
Being in the company of so many poor performers will not be a suitable defence for Ontario’s economic
record for two main reasons. First, while Ontario’s decline was smaller than that in Newfoundland, Alberta
and Saskatchewan, those provinces can blame their drop primarily on the fall in natural resource
commodity prices, namely oil. Ontario’s key natural resource sector — forestry — while hit hard over the
last decade, is not as important a sector to Ontario as oil and gas is in these other provinces. The economy
will grow in Newfoundland, Alberta and Saskatchewan as oil and gas prices recover.
Second, Ontario’s dismal performance caps a decade of dismal performance. Ontario has become a laggard
in per capita GDP, as highlighted when it entered the ranks of the “have-not” provinces and began to
collect equalization. A survey of statistics for the last two decades shows that Ontario’s share of total
provincial GDP has declined from 42% in 1990 to 37% in 2010. More ominous, the bulk of that decline has
occurred since 2000 — largely coinciding with McGuinty’s decade of political power. Whereas in 1990,
productive Ontario’s share of national output exceeded its population share, we now are witnessing the
sorry spectacle of the reverse.
When Ontario’s economic productivity performance is examined in terms of real per-capita GDP, it
emerges that Ontario’s output has stagnated for an entire decade. Between 2000 and 2010, real per-capita
GDP in Ontario actually declined by 8%. While one may wish to ascribe this to the impact of the recession
and the global financial crisis since 2008, the fact remains that Ontario’s performance was the worst of all
10 provinces.
Indeed, over the first decade of the 21st century, eight out of 10 provinces experienced an increase in their
real per-capita output, while only Ontario and New Brunswick saw declines. Even Quebec, which has been
the historical poor economic sibling to Ontario, saw its real per-capita GDP grow 6% during the decade.
Since 2000, Ontario’s real per-capita GDP has gone from being 25% above the provincial average to being
barely at the provincial average. From having the second-highest real per-capita GDP in the country
(second only to oil-rich Alberta), it is now the fourth highest. No wonder Ontario is now receiving
equalization payments.
Ontario’s economy appears to be adrift, with its government oblivious to the real state of its economy and
seemingly unable to get a grip on economic and fiscal policy. While global economic circumstances have
played a part in Ontario’s predicament, Ontario’s regulatory and interventionist government policy culture
has not helped much.
Witness the initiatives of recent years: the messianic closing of cost-effective coal plants and implementing
of higher-cost wind and solar energy initiatives in the name of the environment, raising minimum wages,
implementing and then rescinding eco-taxes, timing the arrival of the HST with a recession, sequestering
large land areas of the province’s north from economic development. Rather than the economy, priorities
that have consumed the government’s energy include banning pit bulls and pesticides, as well as both
smoking and cellphones in vehicles (but then actually considering cellphone use in schools) and debating
the merits of mixed martial arts fighting.
In the midst of all the economic carnage, the Ontario government is presiding over a massive hike in
electricity costs — an energy source that used to be the foundation of Ontario’s economic advantage. Add
to this the fiscal deficit and a net debt that is expected to reach $240-billion by 2011, and one has an
economy that is on the verge of being unable to deliver the standard of living that its citizens have come to
expect.
That Ontario’s future economic welfare is in a clear and present danger is a sad understatement.
