A look at manufacturing in B.C.

B.C. manufacturers are still struggling with fallout from the ongoing pandemic, including gummed-up global supply chains and the need for heightened health and safety precautions in their production facilities. They are also grappling with other challenges, notably growing shortages of labour, the corrosive effects of more expensive energy inputs, and the mounting burden of government-imposed regulatory and tax costs. How the manufacturing sector performs has implications for the wider B.C. economy. That’s mainly because of the outsized place of manufacturing in the province’s export mix, the large number of high-paying jobs that are sustained and supported by local manufacturing firms, and the fact that B.C. manufacturers purchase tens of billions of dollars worth of goods and services from other B.C. companies every year.[1]Nationally, manufacturing accounts for more than 10% of Canada’s GDP and supplies about two-thirds of the country’s merchandise exports. Direct employment in the Canadian manufacturing sector stands at 1.7 million.[2] Because they are heavily exposed to international competition, Canadian manufacturers are under intense pressure to make use of productivity- and efficiency-augmenting technologies, to innovate, and to improve workforce skills. Manufacturers in B.C. face the same pressures.

Manufacturing spans a diverse cluster of individual industries. What they have in common is that all parts of the sector are primarily involved “in the physical or chemical transformation of raw materials or substances into new products.”[3]The categories of manufacturing in the North American Industrial Classification System (NAICS) are listed in Table 1, which also shows each segment’s share of total manufacturing output in Canada and B.C.

Measured in GDP terms, British Columbia has the fourth largest manufacturing sector in Canada, behind Ontario, Quebec and Alberta (whose share of national manufacturing output is boosted by its outsized refining, chemical and petrochemical industries). Pre-COVID, manufacturing accounted for 6-8% of British Columbia’s total GDP, somewhat less than the Canadian average.[4]The composition of manufacturing in B.C. differs from that at the national level. Pre-COVID, the five biggest manufacturing sub-industries in B.C., based on real GDP, were wood products, food products, primary metal manufacturing, fabricated metal products, and beverage manufacturing. This list highlights B.C.’s stronger orientation toward natural resource industries compared to Canada as a whole.[5] Machinery manufacturing and paper are also important parts of the broad sector in B.C. Transportation equipment, machinery manufacturing and chemicals are among the manufacturing sub-sectors that have a smaller presence in B.C.’s manufacturing sector than they do nationally.

Table 1

That said, B.C. manufacturers share a key characteristic with their counterparts in the rest of Canada: a strong reliance on exports. Canadian manufacturing firms, in aggregate, export over half of their annual production. In B.C. the share is even higher, mainly because the province’s forest products industry is even more export-dependent than the average Canadian manufacturing sub-sector. Manufactured goods make up 50-60% of the value of B.C.’s international merchandise exports in a typical year.[6]Table 2 lists B.C.’s leading manufactured export categories pre-COVID. Readers interested in doing a deeper dive into B.C.’s international exports are invited to consult this recent Business Council report.

Table 2

Pre-COVID, manufacturing employed approximately 170,000 British Columbians. Figure 1 shows the distribution of B.C. manufacturing jobs across various industries within the overall sector. Food processing and wood products are the two biggest employers. Metal fabrication and machinery manufacturing are also significant manufacturing sub-sectors in employment terms. There are several segments accounting for smaller shares, with about 10% of all manufacturing jobs in B.C. captured in the miscellaneous category – reflecting the diverse mix of smaller sub-industries found within the province’s manufacturing sector.

Figure 1

The typical B.C. manufacturing firm is an SME with fewer than 50 employees. Such SMEs make up 94% of all manufacturing firms in the province. Scaling more B.C. manufacturing businesses should be a central goal of any strategy to grow the productive potential of our economy and advance B.C.’s prosperity. The good news is that manufacturing pays above average wages and benefits to employees. This fact, coupled with the large share of B.C.’s exports supplied by manufacturers, underscores the need for policymakers to pay closer attention to the competitive landscape and the attractiveness of the local business environment for the sector.

As COVID-19 hopefully fades away in the next year or so, manufacturing is positioned to make a significant contribution to B.C.’s continued economic recovery and growth. Globally, there is evidence that some multinational firms are reviewing and revamping their supply chains to reduce complexity, increase resilience, and selectively “re-shore” certain elements of production so that more value-added is performed closer to the end-use markets they serve. If this trend persists, there should be scope to expand manufacturing and build new production facilities in North America, after a long period of off-shoring to China and other lower-cost jurisdictions.[7]
A recent U.S. study found that the manufacturing industries with the greatest potential for some degree of North American re-shoring are transportation equipment, computer and electronic products, electrical equipment and components, medical equipment and supplies, and sophisticated plastics.[8]

Against this backdrop, now is a good time for policymakers in B.C. (and Canada) to consider ways to improve the business environment for manufacturing and attract new investment to the sector. In our view, this will require a few key steps: 1) accelerating efforts to develop and attract sufficient numbers of workers with the skills that manufacturers need to operate, compete and grow; 2) reducing the cost of doing business through tax and regulatory reforms and by investing in infrastructure assets and services that bolster the competitiveness of manufacturing in B.C.; 3) taking action to leverage the province’s strengths in natural resources and advanced technologies to reinforce existing manufacturing industry clusters; and 4) avoiding measures that would make B.C. a less appealing location in which to manufacture goods and add value to locally-sourced raw materials and primary resources.

[1] Some examples of locally-sourced business inputs purchased by B.C. manufacturing firms are raw materials, energy, transportation services, communication services, professional and technical services, and financial services.

[2] Innovation, Science and Economic Development Canada, “Canadian manufacturing sector gateway,” https://ised.-isde.canada.ca/site/canadian-manufacturing-sector-gateway/en.

[3] B.C. Stats, A Profile of British Columbia’s Manufacturing Sector (2015), p. 7.

[4] B.C. Ministry of Finance, 2021 British Columbia Financial and Economic Review,
81st edition, Table A1.3 (GDP by basic prices by industry). The annual figure varies based in part on commodity market trends, which speaks to the outsized importance of resource-based goods in B.C.’s manufacturing output.

[5] B.C. Stats, A Profile of British Columbia’s Manufacturing Sector (2015), p. 12.

[6]
The share varies with commodity market cycles and shifting prices for manufacturing categories such as wood products, pulp and paper, primary metals, and fabricated metals.

[7] For example, see Rob Spiegel, “Supply Shortages Boost Reshoring,” Design News
(June 8, 2022).

[8] National Institute of Standards and Technology, U.S. Department of Commerce, “Reshoring and the Pandemic: Bringing Manufacturing Back to America” (March 31, 2022).