STAYING STRONG
Alberta’s economy is surprisingly more diversified than long-held stereotypes would suggest,
The image of today’s Alberta is of a provincial economy in crisis. Actually, talk across the country, and especially among Canadians heavily invested in Alberta-based companies, is that one our traditionally prosperous provinces is in deep trouble. And that Alberta must, at long last, diversify away from its over-reliance on the extraction of fossil fuels.
But the reality is, that while Alberta has certainly suffered from the global oil-price collapse that began in June 2014, the provincial economy remains surprisingly strong.
And while the global oil-price collapse is certain to spur expansion beyond oil, natural gas and coal, the Alberta economy is already more diversified than suggested by the long-held stereotype.
No question, the epic collapse of the world oil price dating from 2014 has harmed most sectors of the Alberta economy. The global oil price plunged about 75 per cent to its nadir of $29 per barrel (U.S.) before stabilizing at its current $50 range. Alberta’s GDP dropped 4.0 per cent in 2015, the first full year of the collapse. By the standards of a mature economy, that’s a major recession. And since so many Alberta jobs are tied to the oilpatch, a provincial unemployment rate that averaged about 4.7 per cent in 2012 to 2014 soared in 2015 to 8.1 per cent — a 22-year high. As Alberta jobseekers have returned to the workforce, the jobless rate has risen further, to last month’s 8.8 per cent.
Any jurisdiction suffering so swift and deep an economic downturn is bound to be traumatized.
But the economy of Wild Rose Country is in fact remarkably resilient.
In 2015, when the provincial economy took its toughest pounding, Alberta still accounted for 21 per cent of total Canadian GDP, almost twice its share of the national population. And even after suffering an 18-per-cent drop in per-capita GDP that year, Alberta’s standard of living still ranked sixth in the world, ahead of all G-7 countries, including the U.S. (seventh) and Canada (15th).
And among oil economies, Alberta already is unusually diversified.
Alberta is a leader in aerospace, advanced agri-food, environmental technologies, aerial mapping and defence navigation systems, health sciences, nanotechnology and “machine learning,” the computerized automation of everything from vehicles to factory machinery.
Between 1985 and 2015, the share of Alberta GDP derived from oil and gas and coal mining has dropped from 36.1 per cent to just 19.4 per cent. And within that sector, the oilsands, for which Alberta is probably best known outside the province, accounts for just 12.3 per cent of GDP. But further diversification is an imperative.
In recent weeks, Ottawa approved Kinder Morgan Inc.’s proposed expansion of its Trans Mountain heavy oil pipeline, and Donald Trump green-lighted the Keystone XL pipeline. Each will carry landlocked Athabasca crude to global markets.
OPEC appears to have called off the market-share war with U.S. frackers (hydraulic fracturing) that triggered the oil-price collapse.
And the authoritative International Energy Agency (IEA) has forecast that demand for oil won’t peak until 2040, as global population climbs to a plateau of close to 10 billion people from the current 7.5 billion.
And yet, that bounty of good news didn’t pump up the world oil price, still stuck at this writing at $53. It will be upward of 10 years before a completed Keystone XL megaproject transports its first oil. By that time, as many as one-third of vehicles will be all-electric, and new petroleum discoveries may have glutted the world market once again. No economy would wish to be hostage to the notorious vicissitudes of oil prices. Premier Rachel Notley has already laid out a blueprint for further economic diversity. The task is hardly straightforward. For instance, Alberta can claim more tech workers, including engineers, than all but a few North American jurisdictions.
Most of them work in the oilpatch, however, and their skills are not easily transferable to R&D in 21stcentury industries like robotics, biomedicine and computer software.
As one oilpatch veteran told an Alberta reporter, referring to how few of the tens of thousands of laidoff oilpatch workers have found jobs: “It’s not easy to retrain an oilfield reservoir engineer to design video games and digital medical devices.”
Where to start with further diversification?
Education. Just as Notley is retrofitting the province’s entire power infrastructure to reduce both electricity prices and Alberta’s carbon footprint, the education system, from K-12 to postgrad, has to be recast to stream more Alberta students into 21st-century vocations, and accommodate adult students bent on reinventing themselves as well.
Processing. Notley is subsidizing two new petrochemical plants that will process Alberta petroleum rather than have other jurisdictions add value to it. The same needs to be done in agri-food and forest products, with Alberta becoming an exporter of specialized packaged foods rather than raw grains, prepared meats rather than cattle and sophisticated panelling and flooring products rather than unfinished wood.
Financial services. With savvy marketing, the Calgary-based TSX Venture Exchange can become the leading risk-capital source for niche industries in which Alberta has deep expertise, including nanotechnology, alternative energy, advanced health-care treatments, avionics and other “clean,” high-paying fields with export potential. An example here is Toronto-based TSX Group Inc.’s world leadership in mining finance.
Agri-food. Alberta has seen a tripling in agri-food production in the past 25 years. With revenue of $13.5 billion, Alberta’s agri-food industry has eclipsed the refined petroleum and coal sectors combined. Needed here are incubators, backed by public-private-sector partnerships, that commercialize the innovations emerging from Alberta labs.
Solar technology. Alberta’s solar industry has grown by leaps and bounds. But its output is restricted to commercial and agricultural customers. A provincial rebate scheme, similar to Ottawa’s financial assistance for buyers of electric vehicles, would enable the industry to tap the much larger residential market.
If remote Boise, Idaho, can emerge as a high-tech hub, a development of the past five years, Lethbridge, Medicine Hat and Red Deer can become centres of exportable excellence as well.
Sure enough, Cochrane, just west of Calgary, now has a dozen hightech firms — rather a lot for a town of only 20,000. The companies are mostly software-based, and many invent and export innovative sports and fitness gear. Indeed, Cochrane boasts of developing more sports and wearable electronics than anywhere on Earth.
It’s the rare person filling his or her gas tank who knows where the gasoline came from.
But for competitors in the Tour de France and the America’s Cup who wear Cochrane-invented navigational watchbands, the answer is clearly marked: “Made in Alberta.” dolive@thestar.ca