Planning for the Boom

The talk of booms and rumours of booms continues in Northwestern Ontario and with good reason given the ramping up of mining activity.  Along with several mines currently in production, there are a number of planned projects. Cliffs Chromite Project in the Ring of Fire is about to undergo an environmental assessment.  Thunder Bay is currently the host to some 26 exploration companies with projects expected to produce gold over the next 3-5 years at Greenstone (Hard Rock), Atikokan (Hammond Reef), Pickle Lake (PC Gold Inc.) as well as several other places.  As well, Stillwater is planning to develop a copper project near Marathon. 

All this activity is generating exploration and supply work but the mining boom is not here yet.  Nonetheless, area governments are beginning “to plan” for the development that is underway and yet to come.  Atikokan apparently has commissioned a community readiness study that among other things argues that six major projects in the area will lead to substantial construction activity, home building and potentially a doubling of the population.  Thunder Bay is apparently also undertaking  a Mining Readiness Strategy that will attempt to capitalize on the mining development.

A boom with population growth would be a welcome development in Northwestern Ontario.  This would be a much different region if Thunder Bay had 150,000 people and Nipigon and Atikokan were communities of 20,000 people each.  Yet, it remains to be seen if all of this mining development will come to pass and yield the expected employment and income benefits given the volatility of world commodity prices.  Most of the economic benefits will flow from the prospecting, exploration and setting up the mines as operating mines today are much more capital intensive.

With respect to all the planning being undertaken, the emphasize seems to be entirely short term – that is, how to meet the needs of the anticipated increase in population and demand for housing as well as capitalizing on the mining employment.  A longer view needs to be taken. Three other things these communities need to plan for.  First, making sure that new construction and development creates urban density in communities rather than a short-term build it where you like frontier  mentality.  Second, that some of the resource rents generated from these projects are invested in sovereign wealth funds for both the First Nations and the rest of the region’s residents to serve as a long-term source of income from a non-renewable resource.  Third, there be some thinking devoted to what happens when the mines close.  Is this too much to ask?

Northern Economist Goes to Suid Afrika!

Well, I had the opportunity to attend the 2012 World Economic History Conference held in the Western Cape town of Stellenbosch in South Africa.  Stellenbosch is just outside of Capetown and is one of the oldest towns in South Africa dating back to 1679 and today is a university town of about 130,000 people situated in the heart of South African wine country.  My session at the WEHC was a reunion between researchers on 19^th and early 20^th wealth in the British Empire that was organized by David Green (King’s College, London) and included along with myself, Alastair Owens (Queen Mary University, London), Jim McAloon (Victoria University of Wellington), Martin Shanahan (University of South Australia) and Roy Hora (Universidad de San Andre).

My stay in Stellenbosch was at the Eendracht Hotel on tree-lined Dorp Street.  The Eendracht was originally a home that has been converted into an elegant hotel establishment with superb accommodation and service.  Indeed, my entire stay in South Africa was marked by excellent, friendly and attentive service.  It’s a long air trip there from Canada (Toronto to Capetown via a three hour layover Amsterdam was 23 hours) but well worth the experience you are going to have.  

 

South Africa and the Western Cape region is an incredibly beautiful and diverse land featuring vineyards, mountains and beaches.   From an economic perspective, it was remarkable how many economic activities were clustered in the small region that I had the opportunity to visit.   Orchards and farming, vineyards, fishing, mining, forestry, manufacturing, resource and food processing, education, health, tourism were all part of the economic base of activities making it a remarkably self-sufficient region and yet with a surprising range of exports not least of which is wine – try the unique South African blend of Pinotage.  The cultural wealth was also amazing in terms of the vast amounts of local art on display especially in some of the wineries.

South Africa is a land of diversity and extremes ranging from climate and terrain to its society, which is marked by great wealth as well as great inequality.  In terms of comparisons with my own home here in Northern Ontario, some of the social issues such as employment, educational opportunity and housing were reminiscent of challenges we have with First Nations though rooted in a different historical context.  The demographic balance between the descendants of European settlement and the indigenous populations are also quite different as the share of population originating from European settlement is much smaller than in Canada.

As well, there were other interesting comparisons such as the fact that while we have forest fires, the Western Cape region also has fires during their summer (I was visiting in winter which is cool and wet and more like autumn for someone from Canada).  As well, we tend to have to bear proof our garbage containers and camp sites in provincial parks while in South Africa the concern is with baboons who are also on the prowl for things to eat.   

South Africa was an impressive place.  It was a great trip.  I can’t wait to go again.

 


 

 

Globe2Go From Thunder Bay

Well, I was rather disappointed to receive a letter from the Globe and Mail last week

informing me that the Globe and Mail would no longer deliver a paper copy in Thunder Bay starting September 1^st.  The letter stated rising costs and service delivery issues as the reason and offered as a substitute a cheaper subscription to the electronic Globe and Mail known as Globe2Go.  Oddly enough, our service has actually improved immensely over the last while and given all the airline competition and additional flights out of Thunder Bay (The Toronto edition of the Globe & Mail is flown into Thunder Bay every morning and delivered throughout the day) I do not see how costs have risen that much.  Yet, who am I to quibble with one of our many overlords from Toronto who constantly develop new methods to affect our daily lives here in the North.

In some respects, I suppose this was probably inevitable. I used to have a subscription to the National Post and they too left the local market citing costs.  They also dangled the prospect of a digital subscription at the time they left. This departure is particularly annoying because it also means I will no longer get my Sunday New York Times delivered.  It came on the Monday but its heft was something I looked forward to. 

Now, its not that I do not use computers or the internet (I'm blogging am I not?).  However, I find reading a newspaper on the computer or an ipad or an ipod inevitably feels like …being at work.  For some reason, I find reading the physical newspaper a more reflective ritual whereas once I’m on an electronic device I simply point and click on a few items, scan quickly and move on.  I get greater personal value from the more expensive hard copy than I do from the cheaper digital version.  If I’m only going to point and click on half a dozen stories, well the main ones are available for free on the web either from the Globe or dozens of other competitors.

Moreover, once you are into electronic subscriptions, the market opens up dramatically.  Whereas I only have the choice of the Globe and Mail or my own local paper when it comes to hard copy newspapers, once I start to consider electronic subscriptions – well, the choice is limitless. In some ways, this is an opportunity to reappraise how I currently get my news. I suppose the Globe and Mail is gambling I am so addicted to their product that an electronic Globe is better than no Globe at all.  I’m not so sure.  Maybe it is time to subscribe to the New York Times electronically or perhaps the Guardian to get my international news and rely on my local newspaper subscription and free web access to Canadian dailies for my Canadian news.  Maybe it is time to consider the choice between what the Globe offers electronically compared to the National Post.  In any event, I’m going to take some time to decide what I’m going to do given that I now am being forced to choose.

By the way, when the National Post decided to stop delivering in Thunder Bay, I did not take out the digital subscription.

Thunder Bay's Employment Surge

Data from Statistics Canada on Thunder Bay's unemployment rate, employment and labour force suggest that its economy is experiencing a rebound after quite a few years of slow performance.  The most recent unemployment rate in Thunder Bay for May 2012 came in at 5.7 percent, which is well below the national and Ontario unemployment rates.  Of course, one of the reasons our unemployment rate is so low is that the labour force has not been growing as fast as employment but the last twelve months suggest that employment has actually begun to grow faster than the labour force.

Figure 1 shows unemployment rates (seasonally adjusted) for Canada, Ontario, Thunder Bay and Greater Sudbury for the 2009 to 2012 period on the left and total employment (seasonally adjusted)  for Thunder Bay over the same period on the right.  As can be seen, the period from June 2011 to January 2012 saw robust increases in employment followed by a decline since.  Overall, employment levels in Thunder Bay are the highest that they have been in the last three years.

Figure 1

The second figure shows annualized growth rates (May to May) for 2010, 2011 and 2012.  Thunder Bay's labour force actually shrank in both 2010 and 2011 but it grew substantially in 2012 - along with employment.  Employment in 2012 grew by 5.3 percent while the labour force grew by 3.8 percent.  As a result,  the unemployment rate dropped below 7 percent in 2011 and in 2012 has fallen below 6 percent.  However, the total level of employment in May 2012 is 61,500 - which is still down from the high of 67,400 reached in March 2003 but up from a low of 57,400 as recently as June 2011.

Thunder Bay's economy appears to have begun to recover from the forest sector collapse but still has ground to go.  Moreover, its employment still seems to be subject to somewhat erratic fluctuations.  While June 2011 to January 2012 saw a period of sustained increases, employment has declined since then.  Thunder Bay is still very much an economy in transition.

Figure 2

Northern Economist on Manufacturing Decline in the Financial Post

FP Comment 

Everybody’s Dutch

Special to Financial Post  May 29, 2012 – 7:51 PM ET

Developed nations in general have seen manufacturing declines
By Livio Di Matteo

The Great Canadian Angst over the decline of manufacturing must be tempered with evidence on two fronts. First, the decline as represented by Canada’s share of GDP in manufacturing has been in progress since the end of the Second World War. Second, when examined in an international context, Canada’s performance is not that different from the advanced economies that we usually compare ourselves with.

Manufacturing’s share of Canadian GDP rose from 20% in 1926 to a peak of nearly 30% during the Second World War. From an average of 26% during the 1940s, the manufacturing-to-GDP ratio dropped to 23% by the 1960s and reached 17% during the 1980s. The period from 1980 to 2000 saw a stabilization of that ratio at about 17%, with the decline resuming in the first decade of the 21st century. Between 2000 and 2010, the ratio averaged 14%.

Despite the long-term decline in the manufacturing-to-GDP ratio, the stabilization of the ratio between 1980 and 2000 has become the new “benchmark.” This stabilization occurred during a period of substantial currency depreciation against the U.S. dollar. From the end of the Second World War to the early 1970s, the value of the Canadian dollar relative to the U.S. dollar was close to par. The period from the 1970s to 2000 saw depreciation, but since 2000 the currency has appreciated and is back where it was for much of the 1945-75 period. The recent plunge in the manufacturing-to-GDP ratio is associated with this appreciation and the Western resource boom, but this “Dutch disease” relationship is at best a short-term correlation.

Manufacturing as a share of GDP in Canada has been in decline since the end of the Second World War from a peak generated by wartime-driven industry. Until the Second World War, the manufacturing-to-GDP ratio had ranged from 20% to 25% since the 1870s. Relative to the period from 1980 to 2000, the current manufacturing decline is understandably a cause for concern. However, viewed over a longer time span, it is a process much like agriculture’s decline as a share of employment and output as we moved from the 19th to the 20th century.

That this decline is part of a long-term process of economic change and development is evident with comparisons to other economies. The accompanying figure uses data from the United Nations for the period 1970 to 2010 to calculate the manufacturing-to-GDP ratios for Canada, the other six G7 countries as well as Brazil, China, India, Australia and the Netherlands, whose experience with North Sea oil in the 1970s led to the coining of the term “Dutch disease.”

Japan and Germany have traditionally had the highest G7 manufacturing-to-GDP shares, but nevertheless declined from 35% and 31% respectively in 1970 to 20% and 19% by 2010. Over the same period, Italy went from 25% to 15%, the United States from 24% to 13%, Great Britain from 29% to 10%, France from 22% to 10% and Canada from 19% to 11%. In 1970, Canada already had the lowest manufacturing-to-GDP ratio of the G7 countries. Manufacturing in Australia and the Netherlands had comparable performances to the G7.

As for advanced developing countries, Brazil paralleled the performance of the G7, going from a manufacturing-to-GDP ratio of 25% in 1970 to 13% by 2010. China and India, on the other hand, have maintained their manufacturing sectors relative to their GDP. However, India’s manufacturing-to-GDP share performance is exceptional at only 13% in 1970 and again in 2010. China is also an exceptional performer with a high manufacturing-to-GDP ratio of 37% in 1970 and a small decline to 33% by 2010.

The decline of Canada’s manufacturing sector parallels Australia, which can be viewed as a resource-exporting country, but it also parallels France, Great Britain and Italy, which are not viewed as natural resource-driven economies. Generally speaking, all developed economies have seen declines in their manufacturing sector’s share of GDP over time. A high manufacturing-to-GDP ratio is often more representative of an earlier stage of economic development — the transition from agricultural to industrial development. These changes are really better viewed as an economic evolution.

Financial Post

Livio Di Matteo is professor of ­economics at Lakehead University and a contributor to the economics blog Worthwhile Canadian Initiative.