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Finlayson Op-Ed: The election and B.C.'s export economy (Vancouver Sun)

So far, the provincial election campaign has focused on issues such as housing, jobs, health care, education, social services and transportation.  These all matter to voters, of course, but several other topics that have received little attention to date are also important in shaping B.C.’s long-term economic prosperity. One is export competitiveness. 

In a small jurisdiction like B.C., the ability to raise real incomes over time depends in large part on whether we can increase exports and stimulate the growth of export-capable industries. Successful export industries produce many benefits, including furnishing the income that allows us to pay for imports. Most export industries also offer above-average wages and salaries. 

The data show that B.C. relies heavily on a handful of “traded industry clusters” — industries that sell goods and services in outside markets or that compete directly against imports in the domestic market. A question to consider is how the political parties intend to bolster B.C.’s traded industry clusters in coming years.

Last year, B.C. earned about $40 billion by selling goods to other countries. More than three-quarters of our merchandise exports consist of natural resources and related products. 

Forestry continues to occupy a large place of B.C.’s economy, accounting for more than 35 per cent of merchandise exports (in dollar terms) in 2016.  The top two forestry exports are lumber and pulp/paper.

About one-fifth of exports in 2016 came from the energy sector, with coal and natural gas being the principal contributors.   

Metallic minerals comprised 12.2 per cent of B.C.’s exports last year. Copper, aluminum and zinc are the three leading, mining-related merchandise exports.

Machinery and equipment industries also represented a little over 12 per cent of B.C.’s merchandise exports in 2016, up from 10 per cent in 2010.  Electrical/electronic equipment, transportation equipment, motor vehicles and parts, and scientific and technical equipment are among the advanced manufacturing industries in which B.C. is home to a number of successful exporting firms.

Agriculture and seafood products make up roughly 11 per cent of the province’s goods exports. B.C. is fortunate to have a substantial and diversified agri-food sector, with a variety of sub-industries involved in shipping agricultural and seafood products to markets around the world.     

Smaller shares of the province’s merchandise exports are supplied by fabricated metals, chemicals, plastics, apparel and textiles, and a couple of other industries that manufacture consumer goods.

The industries highlighted above will remain at the heart of B.C.’s export economy for the foreseeable future. How do the political parties propose to help them thrive and grow? Here, the primary challenge is to create an environment that encourages companies, entrepreneurs and investors to allocate capital to improve business operations and expand production capacity in all of our export-intensive sectors. Without regular investment, industries are destined to stagnate, shrink or wither away. 

This, in turn, requires that the province maintain competitive taxes and fees for the major export-focused industries; establish efficient and timely regulatory and approval processes; ensure an ongoing supply of qualified labour and a high-quality education system; invest in infrastructure that supports trade (e.g., transportation, energy and communications infrastructure); commit to sound government fiscal policies; and keep energy and other business-input costs at reasonable levels.   

B.C.’s roughly $40 billion of annual merchandise exports is not the end of the story.  This province also sells “services” to customers in foreign markets, with the value of these exports rising steadily over time. 

According to Statistics Canada, in 2015 British Columbians earned almost $16 billion exporting services to other countries, up from $12.4 billion in 2010.  Services now represent close to 30 per cent of the province’s total international exports. Relative to the size of the economy, B.C. is more involved in trading services than are other Canadian provinces.

A tradable service is one that can be delivered across international borders in one of several ways; using “virtual” channels to enable a commercial transaction to take place (e.g., a B.C. engineering company or law firm does work for a foreign client using the Internet); when a foreigner visits or temporarily resides in B.C. (e.g., a tourist or student); or when a B.C. service provider is present in a foreign market.

The increased role of services in global trade mirrors their growing importance in the overall economy. For Canada, services expanded from 65 per cent of gross domestic product in 2000 to more than 70 per cent today.  In B.C., services’ share of GDP is even higher — around 75 per cent.  Today, 80 per cent of all jobs are in the broadly-defined services sector (this includes public administration and other government-funded service industries).

What services does B.C. sell internationally?  The three principal service categories are travel, transportation and commercial.

The first captures spending in B.C. by foreign tourists and business visitors. This is a major economic engine for British Columbia. We estimate that out-of-country visitors spend $3.5-4 billion a year in the province.  And there is great potential to increase this, as Asia’s middle class continues to grow by 150 million every year and air connections between B.C. and Asian cities are further developed.

Transportation service exports entail spending in Canada by foreigners to support the movement of goods and people into, from and through the country. Because B.C. is home to two ports — including Canada’s biggest — and is the nation’s primary point of access to the Asia-Pacific, transportation occupies an unusually large place in our economy.

Commercial services groups together a diverse set of industries that are increasingly active in cross-border business. Some examples are law, accounting and management consulting; engineering, architecture, and design; telecommunications, software and other computer services; film and television production and post-production; scientific and technical services; and financial services. Together, these industries provide hundreds of thousands of relatively high-paying jobs.    

Looking ahead, some of the best opportunities to expand B.C.’s exports lie in the services domain, particularly as the world moves toward a true digital economy, global tourism continues to boom, and ever more data and other types of knowledge are transferred across borders. 

Nor should it be overlooked that services comprise a significant portion of the value of many traded products. Services such as transportation, finance, research and development, telecommunications, and design are embodied in many of the products we export. For every $100 of goods that Canada sells abroad, $40-45 reflects the value of service inputs used in the production of those goods.

To succeed in an era of rapidly growing international services trade, B.C. will need top-notch communications and digital infrastructure; improved air connections with offshore markets; a post-secondary education system that produces graduates with in-demand skills; immigration policies that facilitate the recruitment of talent; and taxation and other economic policies that foster innovation, creativity, and entrepreneurial activity.

While the election platforms of the parties touch on these themes, they tend to play down the significance of exports in driving economic and income growth. Voters interested in B.C.’s long-term economic well-being should ask both current and aspiring elected officials to explain how they propose to strengthen the foundations for the province’s export-based industries.  

Jock Finlayson is vice-president and chief policy officer of the Business Council of B.C. 

As published by The Vancouver Sun