Alberta’s Slower Growth: An Opportunity to Get Off the Resource Rollercoaster

What is your economic outlook for Alberta?

We are calling for real GDP growth in Alberta this year. A growth rate of 2.8% in 2018 represents a moderate rate of growth; it is much better than the two years of contraction we saw in 2015 and 2016, but it is still roughly half the rate of growth that Alberta was experiencing prior to the downturn. So Alberta has returned to growth but we are recalibrating our expectations about the speed of growth.

The unemployment rate is still elevated coming into 2018 at 7%, which is almost double of the 2013-2014 level. We are working to bring jobs back to Alberta but this process is gradual. The composition of the workforce is also different than it was before the recession. There are fewer jobs coming back to the energy sector and more jobs are being created in a variety of different sectors including manufacturing, financial services and some in the retail and wholesale trades.

“There are fewer jobs coming back to the energy sector and more jobs are being created in a variety of different sectors including manufacturing, financial services and some in the retail and wholesale trades.”

In the real estate sector, it depends on which segment you look at. We are expecting housing starts to be roughly flat in residential real estate in Alberta. But housing in Calgary, Edmonton and the major markets are expected to be modestly stronger, probably by about 3-6%. But there is also an upside to having lower housing prices related to competitiveness. In some ways, a city like Calgary is more competitive than Vancouver when it comes to attracting companies. It is far more affordable to live and set up shop in Calgary, which presents some advantages especially in the tech space. Tech companies are able to attract workers who can find a combination of homes they can afford. So there are distinct advantages that come with very gradual increases in property rates.

It has been two years since the Notley Government announced the Alberta Climate Leadership Plan and the first increase in the province’s carbon tax from $20 a tonne to $30 a tonne was between 2017 and 2018. What impact are the tax and the overall plan having on Alberta’s economy?

The carbon tax is not having a significant impact on Alberta’s macro economy because it is a transfer of money. The tax gets transferred from one pocket to the other. However, the carbon tax does affect individual households and businesses. Some households receive the rebate if they are lower income or low to medium income, but many other households do not. They are certainly being impacted; they are paying more for home heating, gasoline and fuel, and all of the carbon that we use.

“The carbon tax is not having a significant impact on Alberta’s macro economy because it is a transfer of money.”

The carbon tax is based on the notion that consumers will respond to higher prices. If the price of something goes up, consumption will reduce and people will find a substitute for it. The carbon levy in 2017 came in at a modest price, however it has gone up again in 2018. The idea is to gradually increase the price on carbon, nudging consumers along to make alternative choices. If the government would have raised carbon prices dramatically right at the beginning with an enormous carbon tax, that adjustment would have been very shocking and sudden. That is why the government introduced it in two stages.

Which sectors of the economy look the most promising to you?

The agriculture and agrifoods sectors are extremely promising. It is true that Alberta has been about oil for a long time, but we have always been about agriculture – even before oil. Agriculture has much deeper and longer roots than the energy sector, even though it is not as large. In the 21st century, we are seeing more diversity in our agriculture. The big three in Alberta’s agriculture sector are wheat, cows and canola; they still account for roughly 80% of farm cash receipts. But we are seeing growth and potential in other areas of agriculture. The remaining 20% of farm cash receipts represent everything from vegetable products to organic crops to pulses and will include medicinal and recreational cannabis crops soon. All these products represent a huge growth potential for Alberta.

“The agrifoods sector, which includes manufactured food and beverage processing, has grown into the single largest segment of our manufacturing sector over the last 10 years.”

The agrifoods sector, which includes manufactured food and beverage processing, has grown into the single largest segment of our manufacturing sector over the last 10 years. It has surpassed chemical production and refining petroleum, which were always number one and two. Now, food and beverage processing is the largest manufacturing segment in Alberta. Even 10 years ago, I would have been talking about agriculture as one of the most technologically advanced sectors. The stereotype of the simple farmer out in the field might have been true 100 years ago. But in the 21st century, Western Canada and our agricultural sector are on the cutting edge of advanced technologies.

How concerned are you about NAFTA?

NAFTA is a big concern. I do not think one can overstate the significance of the NAFTA negotiations. We cannot discount the possibility that the US could end up dissolving NAFTA. If we lose free trade access to the US, the world would change for Canada in some fundamental ways. In the worst case scenario, even if the US tears up NAFTA and tariffs go up 6% on average overnight, it is not going to be the end of the world for Canada. I would not expect it to push Canada or Alberta into a recession, but it definitely clips the wings off some growth potential for Canada, at least in the short-term. I think it is another stark reminder for Canada to work on diversifying our export markets.

What is your vision for Alberta’s future economy?

My hope is that Alberta continues to contribute strongly to Canada’s economy, that we continue to provide opportunities for Canadians everywhere to come, to learn, to work, to contribute, to start something new and to be an entrepreneur. Even during recessions, Alberta has always been strong. If anyone ever asked me to come up with a motto for Alberta’s license plates, I would say it should be “Anything is possible”. Alberta has proven itself, recession after recession and boom time after boom time. So even though we are now in a period of moderate growth rates, Alberta has every opportunity to continue to contribute to Canada’s economic prosperity and to add employment and opportunity for Canadians.

“My long-term hope and dream for Alberta is for us to diversify our economy and get off this resource rollercoaster.”

A growth rate of 2% or 3% a year is lower than the 4-5% of previous years, but it accommodates increased diversity in the economy. My long-term hope and dream for Alberta is for us to diversify our economy and get off this resource rollercoaster. Energy and hydrocarbons are always going to be important to Alberta, at least in my lifetime. But there is now an opportunity to grow other sectors in order to reduce our heavy dependence on one single commodity. A moderate rate of growth with oil prices between $50 and $60 for the US benchmark price, allows other sectors of Alberta’s economy to compete for the first time. Now, those sectors such as agriculture, agrifoods, tech, transportation and logistics, tourism and manufacturing have a chance to bloom and grow.

Another advantage to having a moderate growth rate is that Alberta can now experience and handle a moderate level of immigration. When Alberta was growing at 4% or 5%, it drew people in by the tens of thousands every year from other parts of the country. That created some imbalances as well. To be honest, a high growth rate in Alberta probably also creates a little bit of resentment in the rest of the country.

“The energy sector is still the backbone of [Alberta’s] economy but we can no longer rely on it to produce all the growth that we used to enjoy.”

I released a book in 2017 called Spiders in Space: Successfully Adapting to Unwanted Change. The “Spiders in Space” metaphor draws from experiments that NASA was conducting using spiders in zero gravity. Building a web on earth requires gravity; the spider lowers itself down on its web and uses its body weight to create tension in the web. In zero gravity, those techniques of web building did not work, but the spiders were able to come up with brand new structures of webs and new techniques of building webs. It is a remarkable example of how you adapt when change hits you very suddenly, especially when the change is permanent. It is the perfect metaphor for Alberta’s position in 2018. The energy sector is still the backbone of the province’s economy but we can no longer rely on it to produce all the growth that we used to enjoy.