Canada West Foundation Blog

Western Canada profits from its abundance of natural resources, however, in the changing global landscape, we need to take action to ensure our future prosperity. The latest research from the Canada West Foundation outlines the main contours of the contemporary energy world and takes stock of the trends shaping energy in western Canada.

State of the West: Energy – 2012 Western Canadian Energy Trends, by Senior Economist Michael Holden and Policy Analyst Robbie Rolfe, provides an overview of the provincial energy systems in western Canada, including the current state of energy production, consumption, and other associated activities and impacts. That information is framed in the context of the energy-related policy issues and challenges facing the four western provinces.

“Western Canada is characterized by a profound diversity of resources, consumption patterns, and economic and environmental impacts” said Michael Holden. “The energy picture in each province is unique, but their strengths are complementary. Through a more coordinated approach to energy policy, the western provinces can become more than the sum of their parts.”

Given the extent to which it permeates our daily lives, energy has come to dominate the economic, social, and political agenda in the region. State of the West: Energy provides a one-stop information resource on energy in western Canada, informing the debate surrounding energy policy in the West, and providing context to both where we are today and where we may go in the future.

State of the West: Energy – 2012 Western Canadian Energy Trends is part of the Foundation’s Powering Up for the Future initiative, which facilitates constructive debate on sustainable energy policy solutions for Canada and promotes the vital importance of western Canadian energy systems in the national, continental, and global economy. Click here to download a copy of the report.

By: Roslyn Kunin

Any reporter knows that if you can get the answers to six questions, you have a story. The questions are Who? What? Where? When? Why? And How?

The biggest economic story that is likely to affect all parts of Canada as we move out of 2011 and into 2012 is not within Canada. Nor is it in Asia, the source of much of global economic growth. It is not in Africa which we should be starting to watch as that continent begins to exhibit growth patterns similar to those in China and India of a few decades ago.

The story concerns the very precarious financial situation in Europe and the on-going, increasingly desperate attempts to ameliorate things or at least generate enough stability to avoid conditions becoming any worse.

So far, we have answered the “what” and the “where” questions. The “when” is now. The “why” is generating growing concern among both political and business leaders and informed citizens. Failure to put Europe back on a secure financial footing could spell the end of the euro as a widespread and growing common currency. It could threaten the European common market and the resulting free trade and mobility. The simple uncertainty of the situation could generate economic retraction in Europe, which could then spread to the rest of the world.

This has led the political leaders in Europe to earnestly seek out “how” to avoid these dire consequences. Greece and Italy have positioned unelected technocrats as heads of their governments, hoping they will be able to find and implement the tough answers needed.

An almost continuous series of summit meetings has been held, featuring Nicolas Sarkozy of France and Angela Merkel of Germany, each meeting seeming to lead only to the next summit meeting. The latest meeting did result in some more specific proposals, including a tax on financial transactions.

Already Britain and others in Europe are stepping back from this potential solution. Nevertheless, the situation is serious enough that this proposal just might work. Merkel has already stated progress could be made even if not all countries choose to participate.

However, there is still one very important unanswered question. The current proposal, and indeed any solution, will involve imposing fiscal and monetary requirements on individual countries. Rules will be set and penalties specified for breaking those rules. The big remaining question is “who” will apply and enforce these rules and penalties?

Europe and the euro zone have always had rules. They were often broken. If previously established deficit limits had been adhered to, Europe would not be in its current mess. So putting in place more rules that will intrude even more deeply into national sovereignty and expecting them to work requires a leap of faith. Unless, and until, there is an agreed upon body with both power and widespread consensual support, an effective solution to the European problem will remain elusive.

By: Roslyn Kunin

It sounded really good when US President Barack Obama spoke in Hawaii after meeting with Canada’s Prime Minister Stephen Harper: his talk centered on an expanded trans-Pacific trade agreement which would significantly increase trade and, in turn, create jobs and generate economic growth.

Canadians should be delighted at this chance to expand trade. We are twice as dependent on international trade as the US.  But the greatest part of that trade is with the US. In western Canada, we have survived the recent economic uncertainties better than much of the rest of the continent, in part because our trade with the Asia Pacific region has been growing. For the first time ever, BC wood exports to Asia have exceeded those to the US.

So it would appear to be a no-brainer that Canada should be jumping at the chance to sell more to the fast growing markets in Asia and not have our foreign trade sector held hostage to the weak and wavering conditions in the US. But, according to Finance Minister, Jim Flaherty, we have to pay attention to details before we move ahead.

What are those details? They are the Canadian monopolies on things like eggs and dairy products that we call “marketing boards”. These boards were put in place to appease the relatively small number of producers of these products by guaranteeing them protected markets for milk and other basic foods. All other Canadians pay for this program dearly in the form of notably higher prices for these groceries. How much higher? Enough to make it worthwhile for those who live close to the US border to pick up their eggs, milk and other dairy products on the south side of the Canada-US border. In fact, Canadians in US border towns are called “cheeseheads” after one of their common purchases.

Not only do the marketing boards increase the cost of living for Canadians, they are also a serious trade barrier. They have been and remain a major deterrent to expanding Canada’s trade opportunities in Asia and elsewhere. So it should be a big win-win to get rid of them. At a time of rising food costs, we would all see the amount on our grocery bills drop while our markets for goods and services abroad would expand and jobs would increase.

Even the protected producers could benefit in the long-run. Once they have lost their monopoly, they are smart enough to figure out not only how to be sufficiently productive to survive in the Canadian market, but also how to compete in markets abroad. We saw this happen in New Zealand when their previously protected food producers were exposed to the winds of competition. The quantity and quality of the output went up, the prices went down and markets and profits expanded. Canadian producers will do, at least, as well.

By: Dr. Roslyn Kunin

Over the years, I have spoken with many people who were planning on starting their own business. They told me about the great product or service they would offer. They described how they would set up the business. They all told me how much money they hoped to be making once the business got rolling.

What they never mentioned, until they were prompted, were customers. That basic business need, someone willing and able to pay for the good or service provided was, if not totally missing from the mental image of the new business, certainly not in the foreground.

We should not be too hard on these aspiring entrepreneurs for not thinking about who was going to buy their output. For a very long time, governments, policymakers, planners and others interested in economic development did the same thing. Some still do so.

Take western Canada as an example. When we think about advancing our economy, we think about inputs. These include our resources and how we can access and develop them. They include infrastructure; transportation, communication, etc. They definitely include human capital—a workforce with both hard and soft skills and, ideally, some relevant experience.

We think about what we might produce. In the past, the focus has been around the question of how the West can move up the food chain beyond its traditional, resource-based industries and into manufacturing and the newer technologies.

What we have not been thinking about is customers. Who is going to want whatever it is we are or might be producing? For too long, we have had an “if you build it, they will come” attitude. But that only happens in the movies.

Relative to much of the rest of the world, western Canada is blessed with various essential resources, an educated labour force, decent infrastructure and political stability. But we are seriously limited by our lack of customers. We have been, and still are, far too dependent on one customer—the United States.

If you have only one customer, the US is a good one to have. It is close, big, speaks English and has similar laws and customs. But it exposes you to the risk of having all your eggs in one basket. We learned this to our sorrow in the last downturn.

To advance western Canada, we need more customers, and those potential customers are sitting across the Pacific and beginning to creep into our awareness. They want, need and can afford the resources and high level services that we can provide.

So let us adjust our focus to look west as well as south. Let us develop the pipelines and other infrastructure needed to serve new markets. Let us develop and add to our customer base. That is how businesses and economies grow.

By: Michael Holden

As the Canada West Foundation highlighted in a study released earlier this year, western Canadian exporters are gradually shifting their focus away from the United States and are increasingly selling their goods in Asian markets.

Early data for 2011 show this trend continuing. Through the first six months of the year, western Canadian exports to Asia were up 23.3% compared to the same period last year, well above the growth rate for exports to the US (11.2%) or other non-US destinations (18.3%). In total, 18.2% of western Canadian exports from January to June 2011 went to Asian markets.

Leading the charge is BC. Through the first half of 2011, BC’s total exports were 14.0% higher compared to the first half of 2010. Exports to Asia, however, have risen at more than twice that rate, owing in part to strong growth in sales to China, Taiwan and South Korea.

This increase has not only helped to cement BC’s status as Canada’s largest exporting province to Asia, but, if the pattern established through the first six months hold true for the remainder of the year, BC will be the first province to reach a significant new milestone: it will export more to Asia than to the United States. From January to June 2011, BC shipped 43.2% of its merchandise exports to Asia, compared to 42.0% of sales going to the United States.

As we’re looking at just half a year’s worth of data, this feat is mostly symbolic at this point, but if the underlying trend continues, it could represent an important structural shift in how we think about the BC economy. What happens in Asia could be more important to the province’s economic outlook than what happens in the United States.

The other three western provinces are in no danger of crossing that threshold in the foreseeable future, but Asian markets continue to grow in importance for exporters on the prairies as well. Manitoba and Saskatchewan have seen increases of 39.0% and 25.4% in exports to Asia, respectively, through the first half of 2011. Both provinces now sell more than 20% of their total exports to that part of the world.

On the surface, Alberta appears to be something of an exception to this general trend. Not only are Alberta’s exports to Asia growing more slowly than any other province (7.6% through the first half of 2011), but the share of total exports going to Asia (7.5%) remains low as well. Only New Brunswick and Ontario send a smaller share of their exports to Asia.

The weakness in growth through 2011 to date is partly due to reduced sales of primary plastics and canola – two of Alberta’s largest exports to Asia. It remains to be seen if that reduction is a temporary dip or evidence of a longer-term trend.

But in terms of overall market share, Asia is far more important to Alberta than the figures suggest. Oil and gas make up more than half of Alberta’s total exports, but based on the infrastructure in place, Alberta oil and gas companies wishing to sell their products abroad have no real choice in where they can go: all roads – or, in this case, pipes – lead to the US.

Removing oil and gas from the equation gives us a chance to see where Alberta exporters sell their products when they have a choice of customer. When you do so, Alberta’s export mix begins to look a lot more like the other Prairie Provinces. In the first half of 2011, 15.7% of Alberta’s non-oil-and-gas exports went to Asia – not as much as in Saskatchewan or Manitoba, but still much higher than in any province outside western Canada.  

On Thursday, September 8, 2011, The Canada West Foundation and the Asia-Pacific Foundation are co-hosting the Canada-Asia Cooperation Conference and Dinner, which will look at the growing web of energy-related trade, investment, strategic and environmental linkages between Canada and Asia. For more details, click here.

Global demand for Canadian energy resources, including coal, shale gas, oil sands and uranium, is on the rise, especially amongst Asia’s largest and fastest growing economies. On September 8, 2011, Canada West Foundation will be collaborating with the Asia-Pacific Foundation to host the Canada-Asia Energy Cooperation Conference, which will be held alongside the 7th Annual Canada-China Energy and Environmental Forum.

The Conference will examine the growing web of energy-related trade, investment, strategic and environmental linkages between Canada and Asia, featuring Canadian and Asian experts and practitioners from a variety of sectors. Opening Remarks will be made by Alberta Environment Minister, the Honourable Rob Renner, with Alberta Energy Minister, the Honourable Ron Liepert, providing the Luncheon Keynote.

That evening, the Canada West Foundation will share our strategic vision for the future of western Canada, and Asia’s place within that vision at our Community Board Dinner. The Keynote presentation by Victor Gao, China Co-Chairman of Daiwa Capital Markets, will explore the growing and complex relationship between Canada and Asia.

Don’t miss out on these exciting events! For more information on the Canada-Asia Cooperation Conference and Community Dinner, please click here.

By: Michael Holden, Senior Economist

On February 22nd, the Canada West Foundation released a new research paper examining western Canada’s trade relationship with Asia-Pacific. Through the Gateway: Unlocking Western Canada’s Potential for Economic Diversification by Expanding Trade with Asia-Pacific looks at the importance of Asia-Pacific markets to western Canadian exporters, their impact on economic diversification in the West and some of the policy options for further expanding trade with that region.

One of the challenges in writing on current economic developments and trends is that the timing of major data releases does not always cooperate with research deadlines. Not long after Through the Gateway was launched, new trade data was released for the 2010 calendar year. With a new year’s worth of numbers in hand (along with some minor revisions to previous years’ figures), I thought it might be useful to revisit some of the key trends we highlighted in that paper to see if and how those trends are holding up.

As it turns out, data for 2010 continue to drive home the growing importance of Asia-Pacific market for western Canada. One of the most important trends we noted in Through the Gateway was the growth in western Canadian exports to Asia-Pacific—especially since the early 2000s. From 2001 to 2008, the value of goods shipped to Asia-Pacific markets rose from $14.0 billion to $26.7 billion, before falling to $22.6 billion in 2009 because of the impact of the global financial and economic crisis.

While exports to Asia-Pacific in 2010 did not recover their 2008 peak, they did rebound strongly, reaching $25.9 billion—the second highest value on record. Leading the charge was B.C., where exports were 28.9% higher than in 2009. B.C. now exports almost as much to Asia-Pacific ($12.2 billion) as it does to the United States ($13.7 billion).

Through the Gateway also observed that growth in western Canadian exports to Asia-Pacific was being driven by shipments to the region’s developing markets. In 2009, the total value of exports to wealthy countries like Japan and South Korea was about the same as the value of exports to China and other developing economies, but long-term growth in the latter group vastly exceeded growth in the former; from 1990 to 2009, exports to industrialized countries in Asia-Pacific had grown by about 25%, while those to developing economies had risen by 428%.

Although 2010 was a good year for western Canadian exports to Japan and South Korea, there was no competing with the continued boom in sales to China and other developing markets. Western Canadian exports to developing economies in Asia-Pacific rose by 18.1% compared to 2009 (reaching $13.5 billion), while exports to industrialized economies in the region increased by 11.1% (to $12.3 billion).

A final point worth mentioning is the need to consider trade flows with the United States when assessing the importance of Asia-Pacific markets. We noted in Through the Gateway that, while the share of exports going to Asia-Pacific rose from 12.5% in 2001 to 17.5% in 2009, it was hard to say how much of that increase was because of strong growth in trade with Asia-Pacific and how much was because of weak market conditions in the U.S. Factors such as a high Canadian dollar; new regulatory and security measures; the economic downturn in 2008-2009; and the resulting drop in commodity prices have all weighed on shipments of goods to the U.S. in recent years.

With the economy stabilizing in the U.S. and commodity prices recovering, western Canadian exports to the U.S. rebounded in 2010. From a six-year low of $92.1 billion in 2009, north-south sales increased to $102.4 billion in 2010. While this figure remains well below its historic high ($141.9 billion in 2008), it’s interesting to note that the recovery in exports to the U.S. did not come at the expense of growth in trade with Asia-Pacific. While the share of western Canada’s total exports to the U.S. rose from 71.5% in 2009 to 72.1% in 2010, the share going to Asia-Pacific markets rose by even more¬—from 17.5% to 18.2%.

By: Dr. Roslyn Kunin, Director of BC Office

In the 19th century, young men in North America who wanted to seek their fortunes were advised to go west. In the 21st century, those who are already in western Canada are advised to keep looking west, where Canada’s best opportunities to participate in the global economy lie across the Pacific Ocean. However, opportunities only become reality for the prepared. To benefit from growth in the trans-Pacific trade that is so important to Canada’s present and future wellbeing, western Canada must have the infrastructure and capacity in place to receive, move and dispatch goods in growing volumes. Otherwise, our growth may be limited not by lack of supply or demand, but by the lack of capacity at its ports and elsewhere to handle the flow, as illustrated in Brazil.

Fortunately, federal and provincial leaders in Canada have taken steps to remove this potential limitation. The Asia Pacific Gateway and Corridor Initiative (APGCI), now at the midpoint of its lifecycle, is a connected series of major projects to improve both port and inland goods moving capacity in western Canada.

First, we should note that the benefits will not be limited to Canada’s Pacific ports. This is because the APGCI deals not only with gateways (ports and related facilities) but also with hubs (inland distribution centres such as Edmonton and Regina). The results of this increased trade volume will be spread not only throughout western Canada but to the rest of Canada and the United States.

There are several advantages in western Canada that will be created or enhanced by the APGCI. One is the very short transit time from BC across the Pacific, especially from the port of Prince Rupert. The tonnage through Prince Rupert has been soaring given very strong markets for products like coal, and the port facilities have been enhanced to meet this demand. In 2008, volume through Prince Rupert increased 20%.

Another advantage is the very efficient and competitive rail system that goes from Canada’s west coast ports across the country and into the United States, which is emphasized by the fact that Canadian rail transport systems are much more cost effective than those in the United States. A third, often called the hidden advantage, is that many people of Asian origin currently reside in BC and are increasingly spreading across the western provinces.

Not surprisingly, there are also challenges that come with developments of this magnitude. Much of the development is primarily focused on container movements, which is ideal for all the manufactured goods that are imported, since they travel in containers. However, it may be a limiting factor for what are western Canada’s biggest exports—commodities. Demand for minerals, food, energy and wood is strong and rising rapidly, particularly in Asia. In particular, China’s demand is not only increasing sharply, but China has become a dominant player in world markets for copper and other commodities. Other developing Asian economies are expected to follow. To take advantage of these long-term markets, our inland and port facilities need be able to handle not only bulk commodities like coal and grain, but also fluid energy sources like oil and, ultimately, liquefied natural gas.

APGCI developments, like any others, must deal wisely with the continuing realities that affect all major investment projects. First, agreements must be reached with affected First Nations on whose territories the developments occur. By negotiating in good faith, arrangements can be made that are win/win for all the parties involved. As always, attention must be paid to the environmental impact of any developments. Steps can be taken to minimize environmental impacts and to compensate for any unavoidable effects.

Finally, given that taxpayer dollars are contributing to the APGCI, Canadians must be assured that they are getting value for money. Cost benefit analysis is the best tool and should be comprehensive; looking at all costs including the environmental impact. Potential competition must be considered such as the newly widened Panama Canal.

We need to take into account all the benefits, many of which are long term. In comparing present costs against future benefits, we should not be discounting future benefits too heavily. Otherwise, we will find that we have lost long term benefits to defer short term costs.

Photo Courtesy: Prince Rupert Port Authority

A new paper released through the Canada West Foundation’s Going for Gold project examines western Canada’s current trade relationship with Asia-Pacific and explains how these markets offer tremendous opportunities for economic growth and prosperity in the West, now, and in the years to come.

Through the Gateway: Unlocking Western Canada’s Potential for Economic Diversification by Expanding Trade with Asia-Pacific by author Michael Holden, Senior Economist provides the background and the numbers that show the importance of this region to western Canada’s economic prosperity. With Asia-Pacific being home to over half the world’s population and exports from the four western provinces to the region accounting for two-thirds of Canada’s total exports (totalling 9.6 Billion in 2009,) Asia-Pacific is second most important, only to the U.S.

“The research shows the importance of Asia-Pacific, not only to western Canada’s economic prosperity, but for Canada.” Canada West Foundation’s President and CEO, Dr. Roger Gibbins explains. “Considerable opportunities exist for western Canada if we take advantage of them and successfully reduce the barriers to trade and investment.”

The report describes two ways in which trade with Asia-Pacific countries promote economic diversification in western Canada 1) export market diversification and 2) export product diversification.

This publication was released at the Through the Gateway event, which was sponsored by the Vancouver Board of Trade on February 22, 2011.

All in attendance received a summary copy of the report. To download the summary report, click here.

To download the full report of Through the Gateway: Unlocking Western Canada’s Potential for Economic Diversification by Expanding Trade with Asia-Pacific, click here.