BC Business
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Patricia Croft, chief economist for Vancouver-based Phillips, Hager & North Investment Management Ltd., has just returned to Toronto. She’s seen once again for herself the visible proof of what the statistics say is true, and she isn’t mincing words: it’s boom times on the West Coast.
BCBusiness’s Top 100 companies in 2007 are major players in the economic growth of B.C. A construction boom helped unemployment sink to 5.2 per cent last year (and to less than four per cent by early 2007), employment-to-population ratios are at all-time highs, strong commodity prices have put lustre back in the B.C. mining scene and Asian economies, particularly China’s, are growing quickly. It all conspires to boost B.C.’s economy to heights that were unthinkable a decade ago.
In the 1990s, while the rest of Canada boomed, B.C. alone among the provinces languished in a recession that prompted many companies to leave for Alberta and the U.S. The brave who remained plotted a survival strategy, convening a summit of business leaders in November 1998 to draft a plan that would see them through the dark years of NDP rule. Today, Croft believes the only clouds are from the growing weakness in the U.S. housing market and its effect on B.C. forest companies. Those clouds barely existed last year. Collectively BCB’s Top 100 list rang up approximately $112.1 billion in revenues in 2006, a record amount that was 8.2 per cent above aggregate revenues for 2005 – ahead of growth in the province’s nominal GDP, which last year stood at 5.9 per cent. Just as significant, the top companies in the province saw 38.1 per cent more in revenues last year than five years earlier. The surge since 2002 is impressive, but it doesn’t surprise Jock Finlayson, executive VP of the Business Council of B.C. While it’s easy to point to indicators such as global economic growth and strong commodity prices, Finlayson ties the prosperity to the effect of policies implemented following the Liberals’ accession to power in 2001.
The exodus of businesses continued through the late 1990s and was compounded early in the new century. A meltdown in the high-tech sector sparked an international economic slowdown, amplified by the uncertainty following the terrorist attacks on New York and Washington in September 2001. Both factors contributed to a slump in revenues for the province’s 100 biggest companies from a total of $83.2 billion in 2001 to $81.2 billion in 2002. Another drop would follow in 2003 as the forest sector took hits from low pulp prices and two years of duties on softwood lumber. Meanwhile, the loonie was rising and getting ready to take a bite out of exports to the U.S. But the business environment in B.C. was starting to change. The newly elected Liberal government swapped subsidies for tax breaks, letting businesses keep more of the cash resources they needed to reinvest in their operations. Provincial taxes on personal income were also slashed, dropping an average of 25 per cent on January 1, 2002, and handing the average B.C. resident the lowest marginal tax rates in Canada. The out-migration of workers during the late 1990s – some 45,000 left for Alberta – was reversed as the current economic boom took root. B.C. is now creating jobs at twice the rate of China, says Colin Hansen, the B.C. minister of economic development. The new-found optimism received a shot in the arm with the International Olympic Committee’s July 2003 decision to award the 2010 Winter Olympics to Vancouver and Whistler, a move that kick-started a building boom that has seen the volume of major projects in the province top $125 billion. “A more competitive tax environment, I think, has played quite an important role in terms of fostering both business confidence and consumer confidence, which, in turn, translates into a greater willingness to spend and a greater capacity,” Finlayson says. The more competitive environment has attracted new businesses, entrepreneurs and business investment, Finlayson adds: “We’re in the middle of a fairly extended economic upswing in B.C.” But Finlayson points out that B.C.’s biggest companies do so much business outside the province that it’s not entirely right to compare their performance to the provincial growth rate, which points more to their contribution to the economy than to B.C.’s influence on their own fortunes. “There’s not too close a linkage between the growth of the domestic economy in B.C. and what’s been happening to the revenues of these companies,” he says. “Most of their actual revenue-generating facilities will be located outside of B.C.”’ Despite the fact that much of the business of B.C. companies is done outside the province, head offices are nevertheless important. The regular hand-wringing that takes place over the flight of head offices from B.C. underlines the important role these companies play in the health of the local economy. The most recent figures indicate that the number of B.C.-headquartered companies slipped five per cent in 2005 from 2004. The companies that do remain continue to provide benefits, such as Goldcorp Inc. and Lundin Mining Corp., two newcomers to this year’s list that have chosen to call Vancouver home despite mergers and reorganizations that could have taken them away. “Their head office is here and a lot of the key people will be based here,” Finlayson says of such companies. “[They’re] buying services in the local marketplace from law firms and investment banks and so on. You definitely get these spin-off benefits even if the real business is being done somewhere else.” Storm clouds on the horizon The companies generating those benefits include established stalwarts of the provincial economy such as Telus Corp. and Jim Pattison Group Inc. but also a host of newcomers in the province’s resurgent mining sector. The most notable example is Teck Cominco Ltd., formed in 2001 from two veteran Vancouver miners. Strong demand and good prices gave Teck Cominco a leg up over Pattison, boosting the miner’s revenues 48 per cent over 2005 figures to $6.5 billion. That snared Teck Cominco second place on the list, while the Pattison empire slipped to third with revenues of $6.3 billion, up just 3.3 per cent over 2005. A bright light in the province’s technology and life-sciences sector was Aspreva Pharmaceuticals Corp., with revenues growing 162.9 per cent over 2005 to $243.6 million (ranking it among the fastest-growing companies on the list). Still, many technology companies, especially those in life sciences, continue to seek profitability. Ballard Power Systems Inc., for example, boasted the biggest net loss of any public company on the list, losing nearly twice as much money in 2006 as it did in 2005 – a staggering $205.4 million. While pharmaceutical companies such as QLT Inc. and Cardiome Pharma Corp. cut their losses this year and advanced toward profitability, the technology business remains an easy way to make a small fortune – if you’ve got financiers willing to start you off with a large one. While the woes besetting the U.S. housing market have spurred talk of tighter controls on credit, Phillips, Hager & North’s Patricia Croft believes a more immediate threat to the B.C. economy is a higher-than-average inflation rate. The province’s inflation rate sat at 2.1 per cent at the close of 2006, according to Statistics Canada, compared to 1.6 per cent for Canada as a whole. Strong growth in personal incomes, often trumpeted as a sign that B.C. is back on the path to prosperity, is helping support price increases. “Income should be very strong, but in some ways it’s too much of a good thing,” she observes. “Inflation has been fairly high for the province of B.C.” The higher costs could dampen prospects not just for retailers but other companies, ushering in a period of fiscal restraint. While a strong dollar typically buoys investment in capital items sourced from the U.S., Croft believes cost increases are making companies think twice. Indeed, the latest report of public and private investment intentions from Statistics Canada notes that companies are already planning to hold back, with spending intentions slowing from 6.5-per-cent growth last year to an increase of just 3.1 per cent this year. Two years ago, companies were far more optimistic, forecasting capital spending would grow at a rate of 8.0 per cent. Meanwhile, any business that relies on exports to the U.S. stands to feel a pinch from weakness in the U.S. economy as well as a strong loonie that continues to bite into companies’ bottom lines, Croft adds. “If the [dollar’s] current strength is sustained, it’s going to represent a bit of a challenge as well.” This is particularly true of the forest sector and companies shipping building materials south. “Most people, when they think of commodities, believe it is a story of very broad-based strength, which it has been, but when it comes to the province of B.C. . . . the base metals have done very, very well but lumber less so,” she says. A case in point is Hardwoods Distribution Income Fund, which saw minimal growth in revenues last year and even posted a slight drop in sales in the first quarter of this year, prompting it to watch the U.S. market closely and focus more on robust alternative markets such as China. It recently boosted its sales presence in China and is preparing to introduce new products to the market. Asian markets are something Croft says B.C. companies have been successful in pursuing, making them less reliant on the U.S. and positioning them as global players for the future. “In the long term, I think it will be a big benefit to the province of B.C.,” she says. Related stories: Mineral explosion Missing in Action Ones to watch Download the Top One Hundred lists below