BC Business
BCBusiness' Robin Brunet gives an overview of B.C.'s top 100 CEO's of 2006.
You can’t complain about a 3.5-per-cent growth rate, especially when you consider that it tops Canada’s average GDP growth of 2.9 per cent in 2005. But with our bounty of natural resources and booming commodity markets, it’s hardly the raging bull many expected from the B.C. economy last year. In fact, many economists describe B.C.’s overall economic performance last year as fairly flat. “Our GDP growth isn’t impressive when you consider the enviable and extremely valuable commodities we have, plus our advantage as a Pacific Rim player,” says William Tharp, Victoria-based economist for Dundee Wealth Management. The forestry sector continued to disappoint in 2005, says Craig Campbell, leader of the global forest and paper performance improvement practice at ricewaterhouseCoopers in Vancouver. Total revenues in the sector in 2005 were about $18 billion, down slightly from 2004 but, more importantly, earnings were flat, with the industry barely managing to break even. A reduction in softwood duties was not enough to offset the soaring Canadian dollar and sagging lumber prices. Campbell predicts that even if the recently announced resolution to the softwood dispute takes hold in 2006, it won’t be enough to counteract the continuing pressures of a weak U.S. dollar and softening demand for lumber. The overall return on capital invested in the forestry industry in B.C. remains at about five per cent, Campbell notes, which is well below the 10 to 12 per cent needed to make the industry competitive globally. However, there’s a ray of hope in the ailing pulp sector. If the B.C. pulp industry retrofits its inefficient mills, it could become globally competitive like never before. “For years, B.C.’s old pulp mills have been fading away, but there’s a rare second chance to reinvest and restructure and become global leaders in the sector,” Campbell says. “This is a tremendous opportunity for the B.C. pulp sector.” The accelerated harvesting of pine-beetle-infected wood has created a glut of chips here in B.C., he says, with the lowest prices in the world (around US$120 per metric tonne). Wood chips are the largest input into the pulp- and paper-making process, and the price of this key raw material is expected to stay abnormally low for the next five to 10 years. B.C.’s other resource sector, on the other hand, came roaring back in 2005. The mining industry recorded revenues from mineral production in B.C. at $6.3 billion, with earnings notching a healthy $285 million. Those numbers mark a 37-per-cent increase in revenue over 2004’s $4.6 billion, and more than double 2004’s earnings of $107 million. And spending on exploration – the gauge of the industry’s future in the province – hit $220 million in 2005. That’s nearly double the $130 million spent in 2004, which was already a remarkable recovery from the death throes of exploration in 2003 and 2002, when expenditures were a paltry $55 million and $40 million respectively. Mining Association of B.C. president and CEO Michael McPhie believes the industry has yet to achieve its full potential. “The future could be much brighter,” he says, referring to 23 new mines in various stages of regulatory review that could be kick-started if streamlined environmental regulations and other government reforms are enacted. Tourism showed faint signs of breaking out of its prolonged post-9/11 slump last year. The industry posted revenues of $9.7 billion in B.C., up from $9.2 billion in 2004. However, American visitors continue to stay on their side of the border and we have yet to see any appreciable effects of the much vaunted “approved destination status” promised by Mainland China. Greater Vancouver welcomes about 2.3 million U.S. tourists yearly, but that number dropped three per cent in 2005 compared to 2004. High gas prices and a reduced exchange rate for the Americans take most of the blame. “Also, the fallout from 9/11 continues, with many Americans preferring to travel within their country,” says Tourism Vancouver executive VP Paul Vallee. But the winds could be shifting: “9/11 also prompted business meetings and conventions to be staged close to home. This has stretched American facilities to the limit, so we’re starting to see more and more business travel coming here.” The drop in American tourists was partially offset by a rise in visits from Europe and China. B.C. received about 484,000 European visitors last year, compared to 447,000 the year before. The expected rush of tourists from China hasn’t materialized yet, as the announced designation of Canada as an “approved destination” has not yet been finalized. We received 84,000 Mainland Chinese visitors last year, up from 80,000 in 2004. Industry watchers were also somewhat disappointed with the retail sector’s performance in 2005. Retail activity picked up last year, with $49 billion spent in retail establishments across the province, compared to $45 billion in 2004, but growth didn’t happen in all areas. “The data for Greater Vancouver was curiously flat in 2005, leaning the growth was driven by regional B.C.,” observes Sixth Line Solutions principal David Gray. The explanation for this phenomenon is simple: “Regional communities are developing and catching up to Vancouver. Plus, the cost of doing business in Vancouver is enormous.” Gray predicts another 5.5-per-cent growth in 2006, which will have enormous positive implications for a sector that employs more than 200,000 people. Much has been made – particularly in Victoria – of the recovery of the B.C. film and television industry. Total spending on film and television production in the province reached $1.2 billion in 2005, up from $800 million in 2004, nearly matching the $1.4-billion mark set in 2003. Tharp points out that while the recovery is good news, film is a relatively small contributor to the GDP and certainly not the vehicle that can supercharge the province’s fortunes. Why? The industry’s fortunes depend largely on government incentives: “You can’t give tax breaks then turn around and say the sector has rebounded,” he argues. “If we’re so great a production locale, why don’t people come here without incentives?” If a single issue worries everyone looking to 2006 and beyond, it’s ongoing labour shortages. The impact on the resource and construction sectors has been well chronicled, and in retail it may translate into a fundamental revamping of hiring policies. “Already we’re hearing talk of hiring bonuses for retail positions, which I think is hilarious,” says Gray. “Our youth base is dwindling as society ages, so we’re starting to see older people filling jobs that were normally the domain of teenagers.” But every cloud has a silver lining. “Our strong dollar will widen the difference in growth rates between B.C. and Canada in 2006 and into the future,” explains Tharp. “That’s because we have commodities on our side, whereas a manufacturing Mecca like Ontario will lose steam.” What will all this boil down to by the end of 2006? “The GDP could grow between 3.5 and four per cent,” predicts Tharp. “I know it doesn’t sound tremendous, but we may as well enjoy it because in subsequent years, given our shifting demographics, it looks like growth will decline somewhat overall.” Unless, of course, commodity prices sputter, fickle tourists decide to travel elsewhere and the government decides to curtail film incentives. 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