| || ||Michael Burt |
Canadian Industrial Outlook
Mining, oil and gas activity has been accounting for a shrinking share of our economy for a considerable period of time, but the story is expected to change in the coming years. Driven by high commodity prices mineral extraction is expected to be one of the largest sources of economic growth for Canada in the coming years. As a result of this boom, there has been a growing public debate about how we can maximize the economic benefits of our natural resource wealth. However, too often the debate still turns to the processing of those resources rather than taking a wider view.
Perhaps the best example of this is the ongoing development of the oil sands. Predictably, the conversation has turned to the possibility of building additional refinery capacity in order to process the bitumen here in Canada. These proposals may or may not have merit, but one thing is certain; they are limited in their imagination. Our recent report Fuel for Thought: The Economic Benefits of Oil Sands Investment for Canada’s Regions highlights the long and varied supply chain that feeds investment in the oil sands. Focusing on how to maximize the benefits of that supply chain provide a much broader base from which to operate.
Key sectors that provide inputs into oil sands investment include professional services, oilfield services, manufacturing, wholesale trade, financial services, and transportation. (See Chart.) Oilfield services include a variety of support activities, such as contract drilling and other oil and gas field services, which are commonly outsourced by oil and gas companies. Within professional services engineering is the industry most affected, but others include legal, accounting, computer, and scientific and technical consulting. Within manufacturing the industries most affected include primary metals, fabricated metal products and machinery. It is worth noting that all of these sectors pay above-average wages.
What is more, there is ample opportunity for growth. The level of investment itself is considerable, with hundreds of billions expected to be invested over the next 25 years. As well, international imports account for more than a quarter of the supply chain effects associated with oil sands investment. In fact, for every $1 imported from other provinces into Alberta, $1.40 is imported from other countries. Thus, there is ample opportunity for Canadian companies to increase their share of the pie.
Beyond the domestic consequences of this investment, there is also the potential that Canadian companies will be able to leverage the expertise they gain in the oil sands, to become global leaders in their fields. For example, although Canada is a net importer of capital in the oil and gas sector, it is a net exporter of capital in the oilfield services industry. As well, Canadian exports of products that are key inputs into the oil sands, such as oil and gas equipment, pumps and compressors, and metal tanks have experienced strong growth in the past five years. Over the same period, total manufacturing exports were actually down (in large part due to the lingering effects of the 2008–09 financial crisis and global recession).
The development of the oil sands and other non-renewable minerals does not just have to be about exporting raw commodities. There is some evidence that Canadian businesses are already leveraging our expertise in supplying mining, oil and gas companies to grow their business overseas. We should do all we can to encourage and develop this expertise. There is a lot more involved in extracting mineral resources than processing what comes out of the ground. Policy makers and economic development officials should take heed.