JANUARY 1994 Edition
B.C. ECONOMY
According to the provincial government the economy is on
a roll. Latest figures show revenues were up 12 per cent from the previous year
while spending was up three per cent. 41,000 new jobs were created in the first
three months of 1993. Housing starts were up 10 per cent, retail sales up 8.8
per cent in the first nine months of 1993, bankruptcies were down 18 per cent
and business creation up 14 per cent. It is expected that the projected $1.5
billion deficit will be met but not exceeded.
On the revenue side, the biggest gainers were the social
services tax (up 26.5 per cent, or $270 million) and the corporation income tax
(up 22 per cent, or $57 million). Personal income tax revenue continued to lag
but natural resource revenue climbed 35 per cent in the first half of the
fiscal year. B.C has the lowest deficit among all provinces as a per cent of
gross domestic product and its economy is outperforming all others.
THE "NEW"
ECONOMY
Last year saw much publicity given to Nuala Beck, guru of
the New Economy, who claims that the future health of the economy depends on
sectors such as computers and semiconductors, health and medical industries,
communications and telecommunications and instrumentation. However, Bank of
Nova Scotia economists state that it is premature to dismiss the "old
economy" of resource extraction and basic manufacturing.
They point out that traditional industries are powering
Canada's recovery through export sales to the U.S. The driving force is
transportation equipment (mainly auto manufacturing) which in turn fuels
primary metals and rubber products and the upswing in housing starts which is
boosting lumber sales.
One component of the New
Economy, electrical and electronic products, has seen a decline in orders and
shipments over the past year which has affected office and business machines,
appliances, telecommunications and other electronic equipment, and even if they
were doing well, they account for only five per cent of manufacturing activity.
Canadian companies are buying lots of high-tech equipment, but it is mainly
foreign suppliers who are benefitting.
LUMBER
Industry experts say lumber prices will hit the roof
again in 1994 as resurgent demand and the timber-supply crisis push the U.S.
into a shortfall which is expected to be about one billion board-feet. Pent up
demand from up to three million first-time homebuyers will push U.S.
single-family housing starts to 1.2 million units next year from 1.1 million in
1993. The shortfall will also force builders to reverse the decade long trend
toward the building of much larger houses. Prices for western spruce-pinefir
two-by-fours peaked at $475 US per thousand board-feet in March 1993 and then
fell. By the end of 1993, prices reached $436 US compared with $244 US a year
earlier. U.S housing starts jumped 3.9 per cent in November to the highest
level in nearly four years.
ASIA
Korea has become one of our fastest growing trade
partners and, after Japan, our most important Asian market. Korea's 40 million
people have a literacy rate of 93 per cent and emphasize education and R&D.
Last year, 40,000 Koreans visited Canada. Their economy is expected to grow 6
to 7 per cent annually in the 1990s. At this rate, the GNP of $280 billion in
1991 will exceed $800 billion by 2001. The economy is becoming high-tech
driven. Industries targeted for R&D include energy, bioengineering,
computers, consumer electronics and telecommunications. By the year 2000,
Korean trade could exceed $400 billion and could have a per capita GNP of
$17,000. The top ASEAN economies of Indonesia, Singapore, Thailand and Malaysia
have grown an average of 5.5 to 13.2 per cent annually since the 1980s. Falling
trade barriers and liberalized exchange and investment rules mean opportunities
for Canadian goods and services. These countries have 325 million people,
competitive product costs and high demand for capital and infrastructure
investments.
EXPORTS
Canadian exports for October 1993 hit a record $16.1
billion, up 3.2 per cent over September. October imports also set a new monthly
high at $14.7 billion for a trade surplus of $1.4 billion. Canada's highest
ever trade surplus of $2.2 billion was in 1984. Continuing to lead the way were
surging exports of cars, machinery and equipment, lumber and computers--mainly to the U.S.
Canada's trade surplus with the U.S. also hit a new high in October at $2.24
billion. Fish and agricultural products, except for wheat, also increased. The
October trade figures pushed Canada's merchandise trade surplus to $10.1
billion so far, up sharply from $6.9 billion in the first 10 months of 1992.
Exports have now risen 30 per cent since the beginning of 1991.
HOLLYWOOD NORTH
B.C. is the second largest film production centre in
North America surpassed only by Los Angeles. According to the industry, this
has created 10,000 jobs and brought in well over $700-million to the province
both directly through the purchase of service and goods and indirectly through
foreign investments. The B.C. Film Commission states that 61 productions were
shot in B.C. last year, up from 53 a year earlier. The Vancouver Art Gallery
profited by $56,000 for 23 days of filming and $500,000 was spent in Gibsons
during a five week period shooting a Stephen King movie which also employed 180
B.C. residents. Pacific Rim and European film makers are also discovering B.C.,
indicating that the growth of the industry will continue.
TARIFFS
Canada wants to settle the question of new agricultural
tariffs with the U.S. before it reaches the courts. Because of the recent GATT
agreement, Canada will replace import quotas that protect 37,000 dairy and
poultry farmers with huge tariffs--as high as 280 per cent on chicken and 351
per cent on butter--starting in 1995, to be reduced by 15 per cent over six
years. The U.S. has served notice that it believes the tariffs should be
eliminated by 1998 under provisions of FTA and NAFTA. In turn, the U.S. will be
required to open its borders to all Canadian goods, agricultural and otherwise,
by 1998. No doubt many lawyers will be gainfully employed in the months ahead
arguing about whether the rules of NAFTA or the GATT take precedence. It is
doubtful that the Canadian public will be particularly enthusiastic about
supporting such high agricultural tariffs.
ENVIRONMENTAL SERVICES
In Canada they may be competitors. In Indonesia, where
they are about to set up their head office, the 15 companies (from Ontario,
Newfoundland, Nova Scotia, Quebec, Alberta and B.C) are Canora Asia Ltd, a
consortium that is pooling knowledge and resources to chase multi-million
dollar contracts in Southeast Asia's hot advanced environmental services market.
For a fee of $20,000, the appeal of Canora is that it allows small to medium
sized companies with specialized services and products low cost entry to the
region and a chance to work on large projects that otherwise would be out of
their league. Besides private and government contracts, they will attempt to
secure large World Bank and Asian Development Bank projects involving solid
waste management, the treatment of hazardous waste and waste water, and the
supply of safe drinking water. Canora projects potential billings of $114
million over the first five years and net revenue of $9 million.
A "GOOD" TRADE
WAR
Quebec prevents out-of-province construction companies
from working in the province and subsidizes the local manufacture of transit
buses that could be bought for $35,000 less in Ontario. The Government of
Ontario retaliates with similar laws and it also forbids the purchase from
Quebec of furniture for public buildings. Trade between the two provinces is
$33 billion annually with Ontario having a surplus of $3 billion in that trade.
New Brunswick enacts laws to prevent Quebec construction workers working in
that province. In the west, B.C. threatens to stop Alberta construction working
in the province. An eight month old agreement allows Alberta dairies to sell
fluid milk into B.C. The Alberta milk is cheaper but consumers do not benefit.
Alberta companies are required to charge the same price as in B.C. and the
difference goes into the pockets of the B.C. producers to compensate for their
lost sales. And on it goes, the inter-provincial trade wars with more than 500
different laws that some estimate cost the economy over $6-billion a year.
Having successfully negotiated FTA, then the NAFTA and with the GATT now
concluded, there is evidence, as 1993 ends, that the political will may exist
to do away with the final hurdles to truly free trade within Canada as
bureaucrats from Ottawa and the provinces meet to find a way to eliminate these
barriers.
ELECTRONIC DATA
INTERCHANGE (EDI)
B.C.'s Liquor Distribution Branch is leading its
counterparts across the country into the electronic age. The LDB is hoping to
move soon from mailing out cheques to crediting suppliers' accounts
electronically. The LDB now has an electronic ordering system which allows for
tighter inventory control and stocks will shrink by five per cent this year.
Currently 68 per cent of wines, spirits and specialty beers are ordered
electronically, and the goal is for 90 per cent by this spring. Electronic
payment by signalling the bank to transfer funds to suppliers has been delayed
temporarily because suppliers are having difficulty generating electronic
shipping and billing notices which form the basis for electronically authorized
funds transfer. The LDB claims that, by using EDI, shipping errors are reduced
by avoiding the manual entry of information and that suppliers are much more
likely to be paid within 30 days.
TRENDS
The Nova Scotia government, with a $13.3 billion debt,
has introduced legislation to outlaw provincial overspending and trim fat from
the legislature pension plan. The budget set out a four-year plan to cut
government spending. Government must cut operating costs by three per cent each
year for the next two years and by two per cent in each of the following two years.
Capital spending must decline by five per cent each year for four years. Double
dipping--when a former member collects a pension and a provincial government
salary at the same time--will end. Anyone collecting the pension will have the
amount of their monthly pension deducted from any government pay. The
legislation increases to 55 from 50 the age a former member must reach before
being eligible for a full pension. That pension will be cut by six per cent for
every year it's being taken early, up from 3 per cent under existing rules.
TECHNOLOGY ASSISTANCE
PROGRAM
The B.C. government will provide $600,000 for this year's
Technology Assistance Program, which assists businesses pursuing research and
development. The program cost-shares up to 50 per cent of specific research and
development projects proposed by firms which don't have staff or facilities to
carry out in-house research and development. Cost-sharing is available to a
maximum of $35,000.
PRIVATIZATION
Minneapolis is about to put its public schools in private hands. The school board
recently voted to hire a consulting company to run the 43,000 student system
with a budget of $350-million (US). Minneapolis is the biggest of several U.S.
school districts that have turned to outside managers to save money or improve
performance. The performance goals--still being worked out--will likely include
closing the academic gap between white and minority children.
TRIVIA
* In England recently,
Rachel Whiteread won the ($30,000) Turner prize for art. She also won the
($80,000) K. Foundation prize for worst artist of the year.
* Labatt's Brewery held a
draw in England to give away a year's supply of beer. The winner had to pick
Canada's capital from a list of cities. The choices? Vancouver, Toronto and
Montreal!
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