Saturday, July 18, 2015

Broadening Alberta's Economic Base

Since oil and gas were discovered in Alberta, which was already mining coal, Alberta has been a fossil fuel petro state. We’ve done well from carbon. But since Premier Peter Lougheed, we have been trying to diversify our economy – find new forms of wealth generation which make us less dependent on the ebb and flow of the oil price. The reason is obvious – Alberta is a land locked, big place with mountains between here and the nearest sea port. Getting our goods to global markets is expensive. At some point, we price ourselves out of global markets due to the costs of transport and labour. Worse, our biggest potential is in heavy oil and oilsands – both expensive to get out of the ground and to market. We will find it increasingly tough to compete on price and value.

We have other goods and services. In the 1970’s Alberta opened its forests to forest companies. This led to Alberta as the home of North America’s largest pulp mill (Athabasca’s ALPAC) and several other mills, including North Americas largest supplier of quality newsprint (Whitecourt’s ANC). Our mills and lumber firms are efficient, productive and significant players in the Alberta rural economy – some 18,000 jobs and significant exports ($2.7 billion in 2014). It is a $5.4 billion industry.

Our agriculture sector is also a player on the world stage. With significant food, fibre and livestock systems, Alberta agricultural sector generated $12.9 billion in 2014 and represents some 22% of Canada’s agricultural output. The value added sector  - food and beverages – generated close to $14 billion. Our largest single employer (Sobeys – Safeway) is a significant food manufacturer.

Our ICT sector is also strong, with Canada’s leading geospatial companies clustered here and some smart companies doing great work in big data analytics, simulation, serious gaming and RF/wireless technology. The ICT sector employs some 43,000 people and generates some $13 billion in revenues.

We also have a robust creative industry sector – great theatre, ballet, music, art and film. Nurtured by the Banff Centre and good creative arts programs at our colleges and universities, a host of small companies have built a global reputation for excellence. Alberta Ballet being a great example. Its productions of creative ballet – ballets based on the music of Joni Mitchell, Elton John, Sarah McLachlan and Mozart’s Requiem – have been seen in many parts of the world, in part through the medium of television.

But none of these either individually or together are equal to our energy sector in terms of employment, GDP contribution or tax revenues. Alberta remains a fossil fuel state. It will be for a considerable time to come.

Even with a different royalty regime which produces a better return to the owners of the natural resources (the people of Alberta) from their assets and new regulations on climate change and land restoration, Alberta’s energy industries will continue to be the primary engine of our economy for many years to come. The only thing that will change this is the emergence of what is known as a “black swan” – a new form of energy which is so cheap, accessible, efficient and easy to install in homes, transport systems and other places that it displaces fossil fuels. There are many players looking for this black swan – few are likely to find one in the lifetime of my three grandchildren.

So what should Alberta do?

We should recognize that our primary asset is land and the uses we put land to. One use is tourism – already a major employer (135,000 people) and generator of wealth ($7.5 billion in 2013). This is likely to grow as more and more wealth retired people chose to travel and explore the world. The Rockies are an attractive place to visit, walk and explore. But so too are many other parts of Alberta.

The land has other values. We need to develop strategies and mechanisms for increasing the value of these lands to Albertan’s – finding new products and services which derives either from the land itself or from products grown or found on the land. New agri crops which produce higher value nutrition or health value, new ways of livestock breeding, new ways of responding to climate change (drought resistant crops), new forms of land remediation after spills, floods or drought.

One key development is the development of effective markets for eco-systems services. That is, trading in land remediation and development permits, CO2 and GHG emissions, wetlands protection and other eco-systems features. A roadmap for this work exists and should provide a strong focus for action. Such development would stimulate economic activity in rural Alberta, create a demand pull for innovative technology and new solutions (new soils which respond better to drought conditions, such as those developed from waste by the Eden Project in the UK) and new forms of eco-systems management and monitoring using advanced sensors and big data analytics.

Some see the demand for better environmental management and monitoring as a threat to the oil and gas industry and our energy companies. It is in fact an opportunity. Imagine if Nexen – now in the middle of dealing with the largest spill in Alberta history – had a rapid solution which not only cleaned up the spilled emulsion but did so in a way that enhanced the environment using synthetic biology solutions and nano materials. Imagine if it then installed a coating on all of its pipes that would enable rapid detection of future spills. Wouldn't there be a global demand for this solution and coating? Nexen could create what we might call a “spill-over” company focused on getting these responses and materials to market.

Linked to tourism, but also distinct in its own right, are our creative industries – film, television, theatre and so on. In other countries – notably the UK – these creative industries are real engines of the economy. The fashion industry in the UK generated some £26 billion ($52.6 billion) in economic impact last year and is growing quickly. Indeed, these creative industries – which includes gaming, serious play, simulation and ICT as well as design, architecture and other disciplines using design – are growing faster than any other sector of the UK economy. This requires young people to be taught design, encouraged to be creative and have opportunities to work with design related firms as part of co-operative programs. We should note that two of our most successful IT companies – BioWare and Smart – were not energy linked but were more aligned with these creative industries. We should be doing much more to incubate and support design related start-ups and enable their growth.

Finally, we have an excellent health care system in Alberta. While many see the health care system as problematic – sustainability of public health systems is always a challenge, wait times are not as we would like them and there are specific issues too numerous to mention here – it is in fact robust, responsive and focused. Within this health care system we have some world-class innovators – Dr. James Shapiro at the University of Alberta has a world-class reputation, for example, for his work on surgery and diabetes. He is one of many (and a fellow Yorkshireman). We have pockets of excellence in health innovation in Alberta, but a collection of pockets do not make a suit. We need to champion these pockets of innovation and leverage them to a new level, elevating the work to produce solutions to health challenges which the world needs to see. Alberta’s Strategic Clinical Networks (SCN’s) provide a vehicle for doing just that and should continue to be seen as engines designed to translate innovation into practice quickly and effectively. We should do more to promote these and ensure their effectiveness.

A colleague suggests that we should stop talking about diversifying the economy, since it is both unlikely to happen and sets up false expectations. Instead, he suggests, we should talk about broadening the economic base. He is right. Alberta’s firms are predominantly small – 95% of them are small or medium sized firms. We need to find the gazelles (firms growing at 20% each year from a base of $1 million or more) and nourish them in whatever sector or location they are. We also need to make sure that the infrastructure they need – like the Alberta Supernet – continues to be available to them to support their development. We need a focuses strategy for broadening the base of Alberta’s economy. We need this sooner rather than later.

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