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Trade, Productivity & Competitiveness

BC’s ability to adapt to a rapidly changing world economy will depend on how well we can find new ways of doing business, adopt new ideas and practices, and connect with new trading partners. The Council encourages public policies that support research and innovation, business practices that increase productivity, connections that open new trading opportunities, and processes to commercialize BC’s best research.

D'Avignon & Finlayson: If we don't supply oil, others will (Vancouver Sun)

It is time for a mature conversation on oil exports, against the backdrop of the economic reality we face in Canada and around the world.  Simply put, the evidence confirms that all of us will continue to need all forms of energy, including oil, over the coming decades.  For Canada, the key question is whether we want to have the option to safely export our oil to global markets other than the United States, currently our only customer, and which pays less than the world market price and requires less of our product each year. In 2013, energy made up one-quarter of Canada’s merchandise exports, of which oil and gas constituted the vast majority.  Finding ways to access the world market for our country’s biggest export industry should be a priority for all governments in Canada.

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Finlayson Op-Ed: B.C.’ s industrial economy is fading (Vancouver Sun)

Statistics Canada recently reported that B.C.’s economy grew by 3.2 per cent after inflation in 2014, putting B.C. second among the provinces. Gains in residential and commercial construction and a solid advance in consumer spending were the key contributing factors. The job market, however, was surprisingly subdued, with employment rising by less than 1 per cent on a year-over-year basis.

As the clock winds down on 2015, it appears that B.C.’s macro-economy continues to perform fairly well, at least by Canadian standards. Economic growth should end up exceeding 2.5 per cent this year, with strength in retail sales, housing-related activity, tourism, film production, and parts of the advanced technology sector. At a time when Canada’s economy is being pummeled by a deep slump in global oil and metals prices, B.C. is holding its own.

Yet if we look below the surface, the economic picture in the province is less favourable. In particular, what might be described as the “industrial economy” is clearly struggling, with negative implications for business investment and exports.

The “industrial economy” consists of primary resource extraction and related downstream processing in the forestry, mining, and agricultural sectors; the production, transmission and exporting of energy; oil and gas refining, chemical production, and cement/concrete manufacturing; food processing; plastics; non-metallic minerals; metal fabrication; primary metal manufacturing; and beverage manufacturing industries.

Taken together, the industries carry significant weight in our economy. Collectively, they employ almost 200,000 British Columbians, most of whom enjoy wages and benefits that surpass the average. These industries also represent an important source of demand for the outputs of many B.C. service sectors, including transportation, engineering, scientific and technical services, other professional services, environmental consulting, and financial services. Perhaps most strikingly, the enterprises that comprise the industrial economy dominate B.C.’s export base, accounting for around four-fifths of the province’s international exports, year after year.

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British Columbia Since 1995: A Brief Retrospective

As we ponder what British Columbia will look like in 2035 as part of our 50th anniversary programme, it is useful to review how the province’s economy and society have been reshaped over the past two decades, a period of time that has seen the rise of Asia, an expansion of BC’s gateway economy, the development of new and emerging industries, various commodity cycles, changes in the currency, steady inflows of migrants, population aging, and continued urbanization. 

What follows is a brief snapshot of a number of significant, high-level economic and demographic trends that have influenced the province since the mid-1990s.  But first, to provide a bit of context, we highlight a few features of the political setting and the wider external environment from two decades ago. 

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Peacock Op-Ed: Canada’s Participation in the Trans-Pacific Partnership is Good for BC (Business in Surrey)

Canada was at the table when negotiations recently concluded for the Trans-Pacific Partnership (TPP) agreement, the largest, most ambitious free trade initiative in history. This is good news for ourprovince. The TPP is a comprehensive trade deal that will help expand and secure access to much of the markets of key Asia-Pacific nations. Although growth in emerging markets has slowed of late, Asia is still projected to comprise two-thirds of the world’s middle class by 2030-35, and will grow to account for upwards of one-half of world GDP within three decades. There will be early benefits from participating in the TPP, but most of the upside will emerge over the medium term.

The TPP currently has 12 participating countries:  Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam. Over time the expectation is that other countries, perhaps including China and South Korea, will also join. Last year, BC exported nearly $23 billion to the other 11 TPP member countries, which accounted for more than 60% of our total merchandise exports.

One reason the TPP is good for BC is it will enhance and deepen these existing trading relationships. Once in force, the agreement will eliminate tariffs on almost all of BC’s key exports and provide secure access to growing economies in the Asia-Pacific. BC will have an advantage over non-TPP countries (notably Europe and Russia) by having duty free access for most of our major merchandise exports, including: wood and other forest products; aluminum, iron and steel products; seafood; agricultural products, and chemicals and plastics. Although global trade has been liberalized and barriers have been steadily lowered over the past few decades, BC’s exports still face sizable tariffs in some TPP markets, ranging from 5% to as much as 40% in a few countries. Japan, BC’s third largest export market, levies tariffs of 6% on some lumber products, 5% on many seafood items and 15% on ice wine. Malaysia has stiff tariffs of 40% on some plywood and panel products. Vietnam also has many punitive tariffs in place.

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Finlayson Op-Ed: Memo to Finance Minister Bill Morneau (Troy Media)

Congratulations on your election to the House of Commons as the MP for Toronto Centre and your appointment as Minister of Finance.  Business leaders across Canada wish you well as you come to grips with the economic challenges that lie ahead.

One challenge is that Canada appears to have entered a period of sub-par growth.  Our economy lost ground over the first half of 2015, largely due to the impact of sharply lower oil prices together with weakness in the markets for many other commodities that form a large part of Canada’s export basket.  More recent data signal a pick-up in activity over the summer and into the fall.  However, for 2015 as a whole, inflation-adjusted gross domestic product (real GDP) is likely to increase by perhaps 1 per cent, down from an average of 2.2 per cent over 2013-14.

The economy should gain a bit of momentum through 2016, in response to the ongoing expansion in the United States, the low Canadian dollar, and continued accommodative monetary policy.  Real GDP is expected to climb by 1.5-2.0 per cent next year.  But looking further ahead, Canada also faces stiff economic headwinds from lower-for-longer commodity prices, record high levels of household indebtedness, and weak overall business investment. A slow growth macro-economic environment lends support to your government’s plan to expand infrastructure spending over the next few years.   But while spending more on infrastructure is a sound idea, the most convincing reason for doing so is not to boost short-term aggregate demand, but instead to make Canada’s economy more productive and competitive.  This includes ensuring that critical infrastructure is in place to enable our resource, manufacturing and tourism industries to connect with and efficiently sell into global markets.

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The Trans-Pacific Partnership – Positioning Canada and British Columbia for the Pacific Century

The October 5, 2015 announcement that 12 Pacific Rim countries, including Canada, have signed the Trans-Pacific Partnership Agreement (TPP) is good news for British Columbia. Once/if ratified by all of the signatory countries, it will take time for BC businesses to feel the full effects of the deal: elimination of some tariffs will take 10 years or more. Eventually, the global economic potential of the “TPP region” and the new areas covered by the agreement, particularly services and investor and intellectual property protections, could reshape trade flows and boost economic development in what is already the most dynamic region in the world.

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Finlayson, Ragan Op-Ed: We need a serious discussion about congestion pricing (Vancouver Sun)

In the past year, public debate in Metro Vancouver has focused heavily on how to pay for new transportation capacity. But there is a critical missing piece in this mobility puzzle. Improved transit services and more investment in roads are needed but they aren’t enough. Experience shows that we can’t just build our way out of gridlock. We won’t solve the problem of traffic congestion without also changing the underlying incentives. That’s why we need a serious discussion about congestion pricing.

This summer’s transit referendum was about how to pay for new transit investments. Its failure doesn’t signal that people are happy being stuck in traffic; nor does it signal that we are using our current infrastructure efficiently. There are several things that pretty much everyone agrees with regarding transportation in Metro Vancouver. First, traffic congestion is extremely costly: time lost in traffic costs people and businesses in the region at least $1.4 billion per year. Second, more and expanded public-transit options are necessary, as are maintenance, repairs and upgrading of existing roads and bridges. Third, those transportation investments somehow will have to be made, for neither businesses nor residents can afford to live without them indefinitely.

Another point of agreement is that traffic congestion is getting worse. Given that Metro Vancouver’s population is projected to grow by about million people over the next 25 years, one can easily imagine how bad things could get. As population and port activities increase, container truck traffic will also grow. Who pays for the time that trucks spend idling on backed-up highways and arterial roads? These time delays raise costs for businesses and increase prices for consumers. We all pay for traffic congestion.

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Finlayson Op-Ed: Get ready for the next big boom in U.S. housing (Financial Post)

One of the most striking economic developments in the United States since 2008 has been a pattern of generally depressed household formation. Households are created when young people leave the family nest, when new migrants arrive in a country (or a region), and when couples or roommates split (resulting in two households where one existed before). Deaths, the movement of the elderly into institutional care, population out-migration, and marriage are among the factors that cause the number of households to decline.

Household formation plays a central role in driving the demand for housing and other goods and services tied to the emergence of households – everything from furniture, carpets and cable and internet subscriptions to mortgage appraisals, home renovations, and cleaning and landscaping services.

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Growth in the Economy = Women

Women make up half of the world’s population. Looking ahead, this means half of the potential global labour force consists of women. Potential is the key word. There are many barriers to full labour force participation by women, notably in emerging economies, but also to some extent in the advanced economies too. But suppose parity is possible. It could add a total of between $12 trillion and $28 trillion to global GDP by 2025. Over a 10 year period beginning in 2015, this would be equal to between $1.2 trillion and $2.8 trillion per year. Importantly, this “extra” economic growth would be on top of baseline forecast growth rates, which have been rather subdued of late.

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Release: Business Council welcomes the conclusion of the Trans Pacific Partnership Negotiations
New opportunities for Canada's Gateway to the Asia Pacific

Vancouver, BC - British Columbia business leaders welcome the successful conclusion of the negotiations to establish the Trans-Pacific Partnership (TPP).  Canada and 11 other Asia-Pacific nations have been working toward a TPP agreement for more than two years.  

“Given British Columbia’s position as the country’s gateway to the Asia-Pacific,  we recognize the importance of ensuring that Canada is part of this landmark trade and investment agreement with countries that collectively are home to more than 800 million people and generate $28 trillion in annual economic activity,” said Greg D’Avignon, President and Chief Executive Officer of the Business Council of British Columbia.  “The Business Council believes the TPP will help the Canadian and the BC economies grow by removing tariffs and other barriers, enabling more of our export industries to build new business, and strengthening the position of Canadian companies in global supply chains encompassing commodities, manufactured goods, and tradable services.” 

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Winners and Losers from the Slumping Loonie...Through a British Columbia Lens

In the final months of 2012 the Canadian dollar was trading slightly above parity with the US greenback. Nearly three years later, one Canadian dollar is worth ~76 US cents. This marks an unprecedented depreciation of the Canadian currency – more than 25% in a bit less than three years. A decline of this speed and magnitude has significant economic implications.

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Recent international trade numbers suggest some improvement in Canada's limping economy

Statistics Canada’s just released snapshot of Canada’s trade performance in June offers a hint that the much anticipated upturn in non-energy exports may finally be materializing. 

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Letter to the Honourable Ed Fast regarding Canada's Participation in the TPP

On July 28, 2015, Greg D'Avignon, President and CEO of the Business Council wrote to the Honourable Ed Fast, Minister of International Trade regarding Canada's participation in the Trans-Pacific Partnership multi-national trade agreement.

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Finlayson Op-Ed: Planning Ahead for Ongoing Change? (PeopleTalk Magazine)

Most people are aware that the population in Canada and other western countries is aging, that longevity is increasing, and that the front-end of the large baby boom generation has started to retire.  Fertility rates have also fallen, which means the future supply of workers will be under additional downward pressure even as the ranks of seniors swell.  But how quickly will our population grow, and age, in the next 20 years? Will employers soon face a dramatic shortfall of working-age British Columbians?

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Finlayson Op-Ed: Canada flirting with recession (Troy Media, Business in Vancouver)

The latest economic growth report from Statistics Canada casts a cloud over the country’s economic outlook for 2015.  Real gross domestic product (GDP) fell at a 0.6 per cent annualized rate in the first three months of the year, considerably worse than even forecasters of a pessimistic bent were expecting.  Digging into the details, it is clear that the slump in global oil prices is taking a measurable toll on Canada’s energy-centric economy. 

Non-residential investment plunged by 15 per cent in Q1, led by sharp cuts in capital-spending by the oil and gas industry.  In recent years, the energy sector has accounted for more than one-third of all non-residential investment, as well as for roughly one quarter of Canada’s merchandise exports.  So the epic downturn in oil and natural gas markets is dampening overall private sector capital outlays and weighing heavily on Canada’s export receipts.  

Harsh winter weather also played a role in the gloomy Q1 report -- consumer spending came in below consensus, as many Canadians apparently decided to stay indoors.

Economists define a “recession” as two consecutive quarters of declining real GDP.  We are half way there, and some recent economic data signal further softness into the second quarter. 

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Digital Infrastructure will continue to transform the Way People Work and Interact

The internet and wireless communication networks have become an essential part of society’s infrastructure in the 21st century.  It has altered the way people work and interact and the way businesses operate and serve customers. And the transformation has been very rapid considering that in less than two decades the commercial internet has become fundamental to business operations. Already about 2.5 billion people are connected to the internet, a third of the world’s population; projections point to 4 billion users by 2020, equal to more than half of the global population 

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Rising Exports will Support Strong Economic Growth in BC

Exports are vital to sustaining and increasing BC’s standard of living because they allow us to pay for imports of goods and services not produced locally, they support hundreds of thousands of jobs, and they provide local firms with opportunities to grow and benefit from economies of scale. The discipline of having to compete in the international marketplace encourages firms to invest in productivity enhancing equipment and processes. In turn, this means that export-oriented industries tend to have above-average levels of productivity and therefore are able to pay above-average wages/benefits.

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Growth and Greater Diversity in BC's Export Base
A primer on BC exports

As a small, open economy British Columbia has always depended on and prospered from its international connections. These linkages have been steadily enhanced and supported by improved global transportation and communications; expanding cross-border flows of goods, services, capital and technology; expanding the growth of international travel; and rising numbers of international migrants.

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Women in Small Sized Business in BC

Small businesses make up ~98% of businesses in Canada and provide more than 50% of the private sector payroll.  The figures are very similar for British Columbia. It is not a large leap to discover that small businesses support a significant number of jobs and contribute a great deal to our GDP – about 26% in the case of BC.  

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Finlayson Op-Ed: The Sobering Reality Behind Business Incentives (Troy Media)

Recent news stories from both sides of the Canada-U.S. border highlight the growing role of business incentives and “subsidies” in shaping the climate for corporate location and expansion decisions. 

The big three U.S. automobile producers are in the midst of downgrading their presence in Ontario as they build new plants in various American states as well as Mexico. Asian and European automobile producers are also stepping up capital spending in the U.S. and Mexico.    

One of the factors behind this trend is the rich incentive packages provided by U.S. state and local governments keen to secure auto-related manufacturing plants and jobs.  While Ontario and the Canadian government have also been prepared to spend taxpayers’ money to lure automobile investment, so far they have been unwilling to match the stupendous sums on offer in states such as Kentucky, South Carolina, Tennessee, and Michigan.

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