Top One Hundred Overview 2005

Robin Brunet

| July 1, 2005

BCBusiness' Top 100 CEO's Overview, 2005.

What happened? In short, B.C. had one hell of a year. Commodity prices soared, exports grew, construction exploded, the tech industry went on a hiring spree, biotechs were a magnet for cash and being on the Pacific Rim never looked better.

The only question: can we keep it up? Let’s look at the numbers...

The provincial elections are now a memory and in this perpetually polarized corner
of the country, we were divided as usual. Ironic, then, that when BCB compiled this assessment of year 2004 in early May, the only people who weren’t overly concerned about politics were economists -- regardless of their personal ideology. That well-known gadfly to the socialists, Jock Finlayson, stares out of the Business Council of B.C. boardroom window and explains: “I think we’ve created so much forward momentum in the economy that it won’t be derailed by anyone in Victoria.” Marc Lee, economist for the left-leaning Canadian Centre for Policy Alternatives (CCPA), agrees: “Politicians don’t have much of an effect on our economy, broadly speaking. We’re really at the mercy of external forces.”

And external forces ranging from low interest rates in the U.S., to the ravenous trade behemoth of China, helped make 2004 yet another year in which B.C. achieved almost across-the-board gains. Single-digit unemployment, a significant rise in exports, massive construction activity and even a modest rebound in tourism (revenues of $9.2 billion versus $8.9 billion in 2003) are some of the factors that compel Finlayson to indulge in momentary self-congratulations for having correctly predicted 2004’s economic course the year prior. His bird’s-eye viewpoint: we are
making a healthy comeback from 9/11, the tech debacle and onerous resource regulations. Not red hot, but healthy.

“The official figures won’t be released until May,” says Finlayson, “but according to our
calculations it looks like our real GDP growth was four per cent compared to Canada’s total of only 2.7 per cent, meaning this is the second year in a row we’ve beaten the rest of the country.” How did we beat it? Partly due to an 11-per-cent jump in export growth, which was fuelled by a worldwide demand for commodities and favourable commodity prices. Manufacturing shipments, meanwhile, enjoyed a 13.5-per-cent growth.

“Resource export levels were particularly strong,” says Finlayson, reviewing figures culled from Statistics Canada. “Tree harvesting was accelerated in 2004 because of the pine-beetle infestation scare. Mining activity was up: a record high of 1,277 wells were drilled in 2004 compared to 1,100 in 2003, and total exploration spending reached $130 million. Even a few new mining projects and old mines are coming online.

“But the real surprise was a sharp surge in coal prices that resulted from a strong demand in Asian countries for metallurgical coal used in steel production. The industrialization occurring in China is relentless, to the point where they’ve completely outstripped their domestic supply of metallurgical coal.”

Lumber prices were high in 2004, thanks to massive U.S. housing starts, which in turn were spurred by low interest rates. “Plus, we’ve got a lot of cost-competitive lumber producers in the Interior of B.C.,” continues Finlayson, “so these factors helped us surmount the negative effects of the softwood dispute and the strong Canadian dollar.”

Export activity wasn’t totally rosy, however. Finlayson characterizes pulp and paper as “under stress” due to the strong loonie: “Frankly, pulp producers are sucking wind but once again we have China stepping in as a burgeoning pulp importer, so that will help. By how much, we’ll have to wait and see.”

By far the worst-performing export sector in 2004 was the film industry, which insiders say will post revenues of less than $1 billion compared to more than $1.4 billion in 2003. Finlayson dissects the problem: “Our film production, which is L.A.-driven and therefore an export of sorts, is not hugely significant in terms of GDP but it’s much more labour intensive than most resource industries, so if it disappeared tomorrow, you’d feel its negative effect throughout the Lower Mainland.

“Film in 2003 enjoyed a record year of spending but in 2004 it took an awful hammering with a 30-per-cent drop in spending. Let’s face it, we may have great crews and infrastructure, but the core reason Hollywood comes here is our favourable exchange rate and this, of course, has radically declined.”

Finlayson adds that although Gordon Campbell’s tax incentives for film producers were well intentioned, they were matched, and in some cases surpassed, by incentives offered by other provinces and states.

As with tourism, Finlayson doesn’t exhibit much enthusiasm about film-industry economics; the mere mention of tax incentives triggers a brief rant. “Film is the ultimate footloose industry – B.C. and the feds cover 25 per cent of its total labour costs just to keep business thriving. But why? What other industry enjoys such perks? The only reason is pizzazz, the sex appeal of Hollywood. I’ve said so in the past and been roundly criticized for doing so.”

Discussion of such a labour-intensive sector naturally leads Finlayson to a general overview of the 2004 job market. “Job market growth was very strong and, despite the claptrap spouted by the B.C. Federation of Labour, we’re talking about good, solid, full-time jobs that were created. It’s the first time in many years that we’ve achieved single-digit unemployment and for 2004 this applies to all regions of the province save for the northwest sector.”

Finlayson’s optimism is persuasive and for the most part his colleagues on the left agree that 2004 was another year of economic recovery. But the CCPA’s Lee is not as enthused by the single-digit unemployment rate which hovers at 7.2 per cent: “A
substantial portion of that figure is due to the flurry of construction triggered by low interest rates and the 2010 Olympics, and my concern is it can’t last. Also, unemployment is calculated by the total number of unemployed people divided by the number of people in the labour force, and this formula is prone to all sorts of weird fluctuations.

“Most economists prefer studying the employment rate, which is the total number of employed people divided by the total population. This is a far more reliable indicator of what’s going on in B.C. And on this score, our total employment rate in 2004 was only 60.8 per cent. Even Saskatchewan hovers around 64 per cent and Manitoba at 65 per cent.”

Lee continues to rain on Finlayson’s parade. “Also, our average hourly wage dropped slightly to $18.99 compared to $19.08 in 2003. This is troubling, considering construction and other activities are so brisk.”

Business consultant and columnist Bill Tieleman, who is Lee’s ideological brethren, nods politely at Finlayson’s take on the economy. Politely, yet briefly. “Yes, 2004 was more favourable than previous years, and thank God for China and low interest rates,” notes Tieleman. “But we weren’t exactly stellar in our own governance. In fact, we were given a huge bailout – in excess of $1 billion – by Ottawa due to our poor performance [Tieleman refers to the federal health-care transfer payments made last year]. Plus, Gordon Campbell in his 2002 budget created 15 new taxes and tax increases in order to grab another $1 billion.

“So despite the spin made by Liberals, Liberal-friendly economists and the business community about how fantastic we’re doing, the reality is quite different.” Finlayson, Lee and Tieleman are well-educated and respected men but despite their admission that government influence over the economy has been vastly overstated, it doesn’t take much to get their partisan blood boiling. Worse, they have an unsettling talent for using the same statistics to paint starkly contrasting portraits of B.C.’s health. Are we on the upswing or stuck in the mire?