Newfoundland’s Oil Makes Investment Climate Stronger Than Other Atlantic Provinces
Newfoundland and Labrador is the only Atlantic Canadian province expected to see positive investment intentions this year, a report by the Business Development Bank of Canada (BDC) shows.
The report forecasts small and medium businesses’ (SMB) investment plans for the coming year. Atlantic Canada, it found, has the highest number of business owners planning to reduce their investments.
Nova Scotia sees 34 per cent of its entrepreneurs planning to decrease investment, while New Brunswick and PEI see a 32 per cent decrease. But in Newfoundland, 36 per cent of entrepreneurs want to increase investments – the most optimistic in the country.
“The production of oil from the Hebron offshore platform has been increasing over the last few months and it’s going to continue to increase in 2019, so that’s the main reason why we are seeing the increase in the GDP,” said Pierre Cléroux, BDC’s Chief Economist. “There’s also going to be more investment in the oil sector in the next few years, so that’s the reason for the turnaround.”
But Cléroux says the small size of Newfoundland’s economy means one major project could turn a negative GDP around.
“The GDP is very volatile because it’s a small economy. So that’s the reason why it can be in a negative one year, and a positive next year and negative again. You have to keep that in mind.”
In the rest of the region, although the economy is still expected to grow – at around 1 per cent for New Brunswick and Nova Scotia – it’s slower than desired.
Confidence in the economy in Atlantic Canada declined from 65 per cent last year to 59 per cent this year – one of the key reasons business owners are holding back investments. But business owners in the region are still the most confident groups in the country after Quebec.
National and global trends also affect the region: Canada’s economic growth is slowing, interest rates are rising and commodity prices are falling. Aside from oil, lower prices in the mining sector also hurt Atlantic Canada.
“The commodity prices in mining has dropped 9 per cent since last summer. So what it does is it reduced investment, also it reduced economic activity in the mining sector, which is important in different parts of the Atlantic provinces.”
But the shortage of qualified workers is the top issue that will limit small business investment in Atlantic Canada and nationwide, the report shows. More than half of Canadian business owners said they will limit investment because of this. Labour shortages, caused by an ageing population, are forcing businesses to skip on opportunities to export or take on more clients.
The country hit a 43-year-low unemployment rate of 5.6 per cent, which Cléroux said is because there are more jobs created than there are people to fill them. The labour force isn’t growing as rapidly as it did in the early 2000s.
“So you see the power of demography. The fact that a lot of people are retiring, this is the reason why we have this problem,” he said.
We are at the point, in many parts of the country actually, where the shortage of labour is limiting the growth of businesses.”
Other issues causing business owners to hold back investment are the lack of cash flow and government help.
“But frankly, I think the most important part is to be able to generate revenue inside the company so you can invest more. Because even if you get some help from the government, it’s going to be temporary,” Cléroux said.
To increase cash flow and help deal with the labour shortage, businesses are investing more in technology, he said.
The report shows 43 per cent of businesses nationally plan to invest in new technologies, R&D, intellectual property and training. This is a marked shift away from investment in more tangible assets like machinery and buildings.
With SMBs making up 99.7 per cent of all business in Canada, their investment is a key driver of economic growth. Nationwide, business leaders remain optimistic and will keep investing this year, but they’ll spend around the same amount as 2018.