Darryl Dyck for The Globe and Mail
Darryl Dyck for The Globe and Mail
The bounty in B.C.
While much of Canada and the world endure unsettled economic weather, British Columbia finds resilience in diversification and its direct access to Asian markets
Robin Silvester stands up and gestures out his corner-office windows. As chief executive of Port Metro Vancouver, he enjoys a panoramic view that spans the heart of Canada's busiest port and the gateway for much of the country's trade with Asia.
"Look across the water," Mr. Silvester says. "That's a $120-million investment."
He is pointing to Richardson International Ltd.'s new grain silos, which add 80,000 tonnes of storage capacity to a facility that has been humming away at capacity for years, shipping grain to a growing middle class along the Pacific Rim. To Mr. Silvester, the grain terminal is a prime example of the strength of the British Columbia economy.
"We look around the port, we see all those sorts of activities going on. They're making multimillion-dollar investment decisions in port capacity," he says. "That of itself generates a lot of construction jobs, and generates capacity that creates long-term operating jobs supporting Canadian trade."
Darryl Dyck for The Globe and Mail
It is all part of a port ecosystem that has created more than 70,000 jobs in the Lower Mainland and is actually expanding – after more than $700-million in public investment in the past five years, and hundreds of millions of private-sector cash. There's the north shore of Burrard Inlet, where tug boats pull huge freighters in to be filled up with Canadian grain, oilseed and wood products on their way to Asian markets. And there's the terminal on this side of the water, where massive container ships lurch up to the bright orange cranes that unload manufactured retail goods that have crossed the Pacific.
Vancouver's thriving port is symbolic of B.C.'s robust economy, which some expect to outpace all other Canadian provinces this year and next. And as the outlook has darkened across Canada – notably in neighbouring Alberta, where plunging oil prices have slowed the once-churning economy and layoffs continue to ripple – B.C.'s ongoing success looks all the more remarkable. Businesses here have benefited from, and are seizing on, a confluence of positive factors ranging from a diverse work force and specialized skill sets, to policy-makers who long ago recognized that the future lay in emerging markets across the Pacific, rather than south of the border.
Local real estate and commercial developments are surging ahead, tax credits and talent have nurtured a booming digital media sector, and favourable conditions have led to a spike in retail spending by B.C.'s "supercharged consumers," as Royal Bank of Canada calls them. The tourists keep pouring in, at least partly through Vancouver International Airport – which is gaining new routes to Asia and luring travellers from other parts of Canada as the low loonie keeps Canadian vacationers away from the United States. There is now also a concerted push to make Vancouver the regional base for Asian firms seeking to tap into a resurgent U.S. economy and Vancouver's Asia expertise.
"The centre of gravity of Canada's trading relationship has shifted," Mr. Silvester says. "The U.S.-Canada relationship is always going to be big, but trade with Asia now is huge. And B.C. is so well placed to take advantage of that."
Chad Hipolito/The Canadian Press
To be sure, B.C.'s economy is not immune to global headwinds: In this resource-rich province, some players are being doubly hammered as prices for commodities, including coal, drop sharply due to a slowdown in China, B.C.'s key export market. There is also uncertainty surrounding the provincial government's big bet on exporting liquefied natural gas (LNG) to Asia, a venture limping ahead in a challenging global market.
But recently, the B.C. government said it is set to post a $277-million surplus for the 2015-16 fiscal year, the province's third consecutive balanced budget. Over the same time period, Alberta's government expects to run a $5.9-billion deficit, the largest on record.
"B.C. doesn't have spectacular growth, but it is stable and it is steady, and it is occurring in the face of some real fiscal trauma elsewhere in the country and elsewhere in the world," B.C. Finance Minister Mike de Jong said in an interview. "We are diversified in terms of our economic production and in terms of the markets that we supply. British Columbia's economy has proven to be remarkably resilient, where other economies have faltered."
Mr. de Jong predicts two more annual surpluses through the 2017-18 fiscal year, which would make five balanced budgets in a row. As long as there aren't economic shocks to knock the forecast off course, B.C. will have wiped out the province's direct operating debt by 2019-20 – marking the first time that has happened since 1975-76.
Another boost for B.C. is coming from an influx of new residents from other parts of Canada and overseas. From 2011 to 2013, more B.C. residents moved to Alberta than the other way around – but that trend began reversing in the third quarter of 2014. In the first quarter of 2015, B.C. actually reaped a net gain of 1,118 people from Alberta. If B.C.'s LNG aspirations come to fruition, some experts say Alberta's oil slump could provide a labour pool of skilled workers drawn by the thousands to help construct massive LNG export terminals.
Even if Albertans don't cross the Rockies for employment, they are looking to their neighbour for vacations. "We're seeing strong demand from all sorts of markets," says Tourism Victoria president Paul Nursey. The lower loonie has prompted Canadians to increasingly stay in this country for holidays, and that has been a boost for B.C.'s tourism sector.
Darryl Dyck/The Canadian Press
Victoria has been bustling with visitors from other provinces, as well as from the U.S., China, Australia and Europe – with demand rising for everything from horse-drawn carriage rides to whale-watching tours. Vancouver is also seeing its tourism industry thrive, helped by improved air connections. Vancouver International Airport handled a record 19.4 million passengers last year, up nearly 8 per cent from 2013. The airport is now on pace to break last year's record traffic.
New flights are bringing in more travellers from Australia, China, France and Japan, among other destinations. And Air Canada has chosen Vancouver as one of its hubs for the new Boeing 787 Dreamliner, which has helped entice more passengers on flights to and from Tokyo, Seoul, Shanghai and Beijing.
The Conference Board of Canada forecasts that the Vancouver region will be the fastest-growing economy this year among its survey of 13 major Canadian metropolitan areas. The Vancouver region's strengths include retail, finance and real estate – contrasting sharply with financial pain in Calgary and Edmonton, the board notes. A Nordstrom department store and the sleek Telus Garden office tower, which also houses Amazon employees, opened last week in downtown Vancouver.
Singapore-based shipping operator AAL is opening an office in Vancouver, a move made possible by the newly created Vancouver International Maritime Centre, whose goal is to attract new investment.
Diversification underpins resilience
Benjamin Tal, CIBC World Markets Inc. deputy chief economist, says the B.C. economy is well-diversified, providing the province with the resilience to withstand trouble spots such as depressed coal prices.
CIBC forecasts B.C. will be the leader among the provinces with 2.8-per-cent growth in real gross domestic product next year. The Conference Board of Canada and RBC are also picking B.C. to be No. 1 next year, with predictions for real GDP growth of 3.4 per cent and 3.1 per cent, respectively.
Mr. Tal says B.C. stands out because of subdued economic performances in other provinces, notably Alberta and Ontario. "B.C. is not booming, but it is doing better than elsewhere," he says.
Core to the province's success, says Lori Ackerman, the mayor of Fort St. John in northeast B.C., are resource-based communities like hers. "We are blessed with agriculture, forestry and natural gas," she said during a visit to Vancouver this week. "I can see products that have come from the regions down to the port to be shipped out to world markets."
In northwestern B.C., DP World's container terminal is undergoing a major expansion at the Port of Prince Rupert while a new port opened recently in Stewart, focusing on handling cargo such as wood chips for export and cement powder for import.
"I was in Stewart for the recent grand opening, and that is another port that is going to enable us to ship our products abroad," Ms. Ackerman says. "There's lots of good stuff happening in B.C."
That optimism spills over to businesses, which benefit from one of the lowest provincial corporate tax rates in Canada.
In northwest B.C., Rio Tinto Group has been the major driver of economic growth. In 2012, Rio Tinto began its $4.8-billion (U.S.) modernization project at its aluminum smelter site in Kitimat. At the peak of construction, the project employed 3,500 workers. The Haisla First Nation benefited through contracts during construction.
The new operation opened in July. As the old plant built in 1954 winds down, the new smelter will gradually increase production to reach 420,000 tonnes of aluminum output annually.
"We're very proud to ramp up the smelter that will secure 1,000 good-paying jobs in northwest B.C.," says Gaby Poirier, general manager of B.C. operations for Rio Tinto. "Some workers are fourth-generation. We're here for the long term."
While construction has largely wrapped up at Rio Tinto's smelter in Kitimat, an $8-billion (Canadian) federal shipbuilding contract for non-combat vessels got under way this June at Seaspan Marine Corp.'s North Vancouver facility.
The industrial success rippling across the province has also shown up in strong sales at a newly resurgent Ritchie Bros. Auctioneers Ltd. under CEO Ravi Saligram. As the oil and gas sector in Alberta pulls back, shutting sites and laying off workers, the Burnaby, B.C.-based auction house of used heavy equipment has seen record sales numbers at its Edmonton auction site. Buoyed B.C. buyers, he says, were taking advantage of Alberta's downturn.
"Overall, we're seeing more optimism from B.C.-based customers buying equipment at our auctions," Mr. Saligram said in an e-mail. "The diversity of the B.C. economy appears to be shielding the impact of sector-specific downturns well."
Metro Vancouver, in particular, has become increasingly diversified over the years – both economically and culturally. The city has long been home to a group of Hong Kong-born entrepreneurs, and new generations, who make deals between the two cities. The Hui family's Concord Pacific Developments sculpted Vancouver's distinctive glass skyline, while Thomas Fung, the founder of the Fairchild Group, helped shape the distinctive identity of Richmond, B.C., with his Aberdeen shopping centre full of stores from Hong Kong and Japan.
Vancouver is also home to a mix of fast-growing and established lifestyle apparel companies, such as Herschel Supply Co. (maker of the ubiquitous backpacks) and Lululemon Athletica, as well as West Coast outdoorsy retailers such as Mountain Equipment Co-op.
There are also thriving local technology companies here, such as Hootsuite and Slack, as well as branches of larger U.S. firms such as Microsoft Corp. There is a flourishing digital media, animation and special-effects sector as well, a complement to Vancouver's sound-stage reputation as Hollywood North.
Darryl Dyck for The Globe and Mail
Darryl Dyck for The Globe and Mail
The price of success
With all that success, though, comes a few stresses.
Construction projects are booming, and house prices have soared in Vancouver. That's good news for owners of detached houses, but has raised concerns about an "affordability crisis" that could endanger the city's often-mentioned livability ranking. For Saeid Fard, the vice-president for product at technology start-up Sokanu, the high house prices here – as well as low wages – make it difficult to hire and retain top employees.
"You can find three or four good developers, but if you mature and you need 50 good people, it's really hard to find them," Mr. Fard says. He says most good software developers, contrary to stereotypes, are actually in their 30s or 40s. "Those people have families and care less about whether they can go hiking every day and more about whether they can afford a house," he says.
Yuen Pau Woo, a former adviser to the World Bank, suggests Vancouver's affordability issue is less about soaring house prices and related more to comparatively low wages, particularly in the Vancouver area, where the average family median income was almost $73,400 in 2013, about the same as Windsor, Ont., and far below Sudbury and Regina.
Mr. Woo, who now heads HQ Vancouver, a government-funded organization started to lure firms from China and across Asia to set up head offices to Vancouver, said that would bring higher paying jobs and more manufacturing.
"The world economy is shifting in such a way that Vancouver could be attractive," Mr. Woo says. "The major law firms have a much larger presence in Toronto, but what we have found is that the Asia expertise of those firms is based in Vancouver. Why is that? The [Asian] deal flow is here."
Some economists also caution that, with the average price for single-family detached homes in the city of Vancouver surpassing $2.23-million, those lofty prices are a cause for broader concern. CIBC's Mr. Tal believes prices for detached properties appear to be "overshooting." Still, there are economic spinoffs to the booming housing market – home renovations and furniture purchases are a boon to retailers, he says.
At the same time, some of B.C.'s traditional industries are being hit hard. Even though exports of machinery and equipment, as well as agricultural and fish products, have increased slightly over the past decade, the vast majority of B.C.'s exports are related to the province's abundant natural resources.
Coal prices have plummeted, forcing Vancouver-based Teck Resources Ltd. to scale back production – temporarily shuttering several mines in B.C. and Alberta. The northeast B.C. community of Tumbler Ridge has been hit particularly hard by other companies that have outright halted coal-mining operations until prices for the commodity recover.
Over the past decade, the total dollar value of wood, pulp and paper products shipped from B.C. has declined, or stagnated, though there has been a recovery since the depths of the recession. Total forestry product exports, which account for nearly 35 per cent of all of B.C.'s exports, were $12.4-billion in 2014, up from $7.6-billion in 2009, but still far below the $15.1-billion sold in 2004.
And not all is rosy on the LNG front, with many projects facing regulatory hurdles, First Nations opposition and fierce global competition.
Kenneth Courtis, the former chairman for Goldman Sachs Asia, says that the world's natural gas supply is expanding exponentially, particularly in Australia, while global growth is slowing. This, he says, will lead to a huge glut of excess capacity that will keep prices low, and make many projects uneconomical.
"In 2020, we're going to have natural gas coming out of our ears, like today we have iron ore coming out of our ears, and my sense is we'll have a huge glut of natural gas," Mr. Courtis, current chairman of Starfort Holdings, says in an interview.
Mr. Courtis says LNG is sold in lengthy 25-year contracts and requires a high degree of co-ordination, partly because of the enormous amount of expensive infrastructure involved. Mr. Courtis, who helped negotiate a $25-billion LNG contract between China and Australian companies, says he had quick access to the Australian prime minister's office, as well as to the office of China's premier – a degree of co-ordination he says he simply hasn't seen from Stephen Harper's Conservative government in Ottawa or Christy Clark's Liberal administration in Victoria.
Global LNG supply is going to increase and many B.C. projects are stalled by regulatory delays and First Nations concerns, making the Canadian projects look increasingly unlikely, he says. "The rest of the world looks at this and goes – how serious is Canada on this?" Mr. Courtis asks. "I think betting on that would be about as risky as the Harper bet on the tar sands."
Darryl Dyck for The Globe and Mail
A second wave needed
For some, the shifting dynamics across the Asia-Pacific region – particularly China's transition from an investment- and export-led economy to one based on sustainable, domestic consumption – should have those in B.C. and across Canada re-evaluating how to take advantage of the available opportunities.
Stewart Beck, who is Canada's former high commissioner in India, used the provincial forestry sector as an example of renewal and looking toward future markets. Burned by the U.S. softwood lumber dispute, he says, the industry realized the pitfalls of relying on one market and launched a co-ordinated strategy that also targeted building codes and government regulations on housing materials.
"They essentially created an industry in China," says Mr. Beck, who now heads the Vancouver-based Asia-Pacific Foundation of Canada. "They caught a wave – what I'd call the first wave in China. And now they have to catch the second wave, and think about the rest of Asia."
The crash in commodity prices, Mr. Beck says, combined with rising incomes in Asia, should make people think twice about which products and markets to focus on. In short, it may be less about shipping coal to Chinese factories and more about shipping peas, lentils, high-quality seafood and advanced technologies to a new Asian middle class from Jakarta to New Delhi.
For the moment, though, things continue to look surprisingly sunny over the near-term – as they do from the port. Mr. Silvester's only real problem now is a lack of industrial-zoned land on which to expand, despite the broader slowdown.
"Clearly, lower oil prices have a huge impact on Alberta and a dampening effect across the Canadian economy," he says. "But it's kind of interesting, because we're not seeing, necessarily, that much slowing down."