Premier Alison Redford believes that Ontario should be more supportive of oil sands development because of the substantial economic benefits that Canada’s largest province accrues from Alberta’s oil and gas sector.
Ontario Premier Daulton McGuinty was l ess than gracious in his response by suggesting that oil and gas exports have fuelled the rise in Canada’s “petro dollar” which has “has knocked the wind out of Ontario exporters and manufacturing in particular.”
Mr. McGuinty concluded by suggesting he would prefer a weaker Canadian dollar over a strong oil and gas sector in western Canada.
He has bactracked from his original comments, but I still fear Ontario may be forgetting how connected its economy is to the rest of Canada? Mr. McGuinty would be well advised to look up the numbers. Because of its size and the national scope of its manufacturing and service industries -- not to mention the location of the bulk of Canada’s head office activity -- Ontario disproportionately benefits from economic activity elsewhere in Canada.
A new Canadian Energy Research Institute study showing the impact of the natural gas industry in western Canada on the rest of the country shows the link between Western Canada’s gas industry and Ontario’s economic growth. The report forecasts that Ontario will benefit from more than $19-billion worth of GDP and more than 265,000 person years of employment from 2010 to 2035 as a result of the growth in Alberta’s natural gas industry.British Columbia’s natural gas industry add another $16-billion in GDP and 214,000 jobs in Ontario over the same period.
In both examples, Ontario accrues more GDP and employment benefits than all other provinces combined (with the exception of the province with the direct industrial activity).
The same impacts can be seen in a wide variety of industries.
A few months ago, I worked with the Conference Board of Canada on a report outlining the impact of Nova Scotia attracting one of the large federal contracts for shipbuilding.
The economic impact model developed by the Conference Board found that for every $1,000 worth of output in the Nova Scotia shipbuilding sector, the GDP in Ontario rises by $195. By contrast, shipbuilding in Ontario has very little spinoff the other way into the rest of Canada.
These are just two examples, but the same effect is found across a wide variety of sectors from manufacturing to financial services. When the rest of the Canadian economy is growing that has an outsized positive impact on the Ontario economy.
At the same time, there is evidence that Mr. McGuinty is right in his assertion that a highly valued Canada dollar likely has a negative impact on manufacturing exports.
From 2001 to 2010, the value of the Canadian dollar compared to the U.S. greenback rose by 50 per cent. Over the same period, the value of automotive product exports dropped by 39 per cent and machinery and equipment exports declined by 26 per cent.
There are clearly a broader set of influences on the decline in exports including the protracted weakness of the U.S. economy and the increased competitive pressure from offshore manufacturing but a 50 per cent increase undoubtedly has an impact.
In the end, Premier McGuinty should be careful what he wishes for. A collapse in the economy of western Canada would lead to a world of hurt in Ontario. He’d be better off supporting the oil sands and doubling efforts to increase the productivity and competitiveness of his exporters.
David Campbell is an economic development consultant and columnist based in Moncton, New Brunswick. He also authors a daily blog on economic issues in Atlantic Canada which can be found at www.davidwcampbell.com.
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