Tom,
This is the view from my part of the world.
Harry
**********************
Saturday, October 3, 1998
No recession here
British Columbia's resource sectors may be in the doldrums, but films,
high technology and tourism all look surprisingly healthy
By DREW HASSELBACK
Vancouver Bureau The Financial Post
Trying to talk about the British Columbian economy without saying the
word "recession" is like trying to chat about U.S. politics without
using the word "impeachment."
For months, private sector economists have been producing piles of
reports concluding that if B.C. isn't in recession already, it soon will
be.
Their conclusions are based on the overall numbers. But even the
economic pessimists agree there are some bright spots in the economy.
Industries such as film production, advanced technology and tourism are
certainly performing much better than the province's beleaguered
forestry and mining sectors.
Those sectors alone won't be powerful enough to pull the region out of
recession. Yet they do provide a buffer that should make the downturn
shallow a contraction of about 1% in 1998 versus the devasting 8%
contraction that whalloped the province in the early 1980s.
Not that government representatives are inclined to use the "R" word.
When B.C. Finance Minister Joy MacPhail stepped up to deliver some
startlingly bad numbers about the province's finances, NDP government
spin doctors also distributed leaflets detailing the vibrant health of
the economy's star sectors.
Film crews are crowding Vancouver's downtown with campers, trucks and
cables; cruise ships jam the city's docks; and engineers and computer
wizards in nearby Burnaby are inventing all sorts of high-tech doodads.
That's why MacPhail won't describe the entire provincial economy as in
recession. "I leave that to the academics," she says, conveniently
setting aside the fact she studied at the prestigious London School of
Economics. Instead, she says the resource industries are in recession
and leaves it at that.
The academics might quibble as to whether the technical definition of
recession two consecutive quarters of declining output applies to
particular sectors or only to entire geographic areas. But the
government is correct to point out there is more to the economy than
rocks and trees.
B.C. is much more diversified than it was at the onset of the 1981
recession. Back then, says Jock Finlayson, an economist who is
vice-president of policy with the Business Council of British Columbia,
more than 20% of the economy depended on natural resources. When the
bottom fell out of the resource sector and the North American economy
fell in the tank, the province's economy shrank by a disastrous 8%.
Now, he says, resources and related manufacturing account for 13% of
the economy.
A more palatable truth is out there on television and movie sets.
"Recession? What recession?" shrugs Robert Cabral, chief executive of
film company Rainmaker Entertainment Group Ltd.
Activity continues at a high level as more Hollywood-based film and
television producers realize they can pay Canadians in those highly
colorful, dirt cheap C$s.
At $1 billion a year, film in B.C. may still be puny compared with the
$14-billion forestry business, but it's highly labor intensive. That's a
welcome addition considering the unemployment rate is projected to rise
to 10% by the end of next year from 8.7% last year.
Rainmaker, which has more than doubled its staff to 190 in the past
four years, provides post-production services. After film crews shoot
the scenes, the company uses computers to generate special effects. It
recently expanded to provide a broader range of production services,
such as hiring and organizing film crews. This year the firm will work
on 14 television series and several feature films, making 1998 the
busiest year in its almost 20-year history.
In addition to the cheap C$, B.C. has been following Ontario's lead and
has attracted Hollywood with tax credits. Cabral also says Vancouver has
developed an infrastructure that should convince the film business to
stay put, even if the C$ improves and a future government repeals the
tax credits.
"Over the last seven or eight years, studios from Los Angeles doing
work up here have become more and more comfortable working in
Vancouver," he says. "They're capable of doing their work here in town
and there's enough support structure and studio space to accommodate
them."
What's more, he adds, the infrastructure has led to the creation of
local studios such as Lions Gate Entertainment Corp. which will ease
Vancouver's dependence on California.
Just as the low-ball loonie is bringing movie business to Vancouver,
it's also bringing more U.S. tourists to town.
At present, the tourism business in Vancouver is not as robust as the
government likes to project. But observers say the industry is healthy
enough to survive the present flat period, and should rebound into one
of the star performers in the economy.
The problem is that since the Asian crash, fewer Asians have been
coming. While 11% more Americans visited Vancouver in the first half of
this year, the number of Asian visitors has dropped by 16%.
That has an adverse effect on the city's economy because Asians tend to
spend more money than Americans.
"The story is not in the overall numbers," says Rick Antonson,
president and CEO of Tourism Vancouver. "We'll still get close to eight
million visitors this year. The difference is in the mix and in spending
patterns. The Japanese and Asian visitors tend to stay longer and leave
more of a retail impression on the marketplace."
For June, hotel occupancy in the greater Vancouver area hit 81.7%, the
lowest level for that month in five years.
Overall, Finlayson estimates the tourism business is probably flat this
year. But he says the sector is performing well relative to other
sectors and has established a platform for future growth.
"What's happened this year is that probably more Americans have come
than ever before. They probably discovered they liked it so they're
going to come back."
The high-tech sector continues to experience phenomenal growth. In
terms of sales volume, the industry is growing by between 15% and 20% a
year, according to the B.C. Technology Industries Association.
"We're planning on expanding in Vancouver despite all the gloom and
doom," says Bob Laurie, president of Q.Media Services Corp., a firm that
replicates and packages software for software pub- lishers. "The
recession is out there but is not in a fundamental way affecting our
business."
While George Hunter, executive director of the Technical Industries
Association, agrees the sector has tremendous room for growth, it's not
without its difficulties.
A key problem is people. The association estimates the sector employs
about 41,000 people in B.C. At present, there are about 2,000 jobs going
unfilled. This personnel shortfall is a direct result of B.C.'s tax
rate, Hunter says.
For a resident earning between $40,000 and $50,000 a year, the tax rate
is 40%. In Washington state a person making the same figures in US$s
would pay 28% in taxes. A Washington state resident would have to earn
US$260,000 to pay 40% in taxes.
Add to this the fact U.S. high-tech companies are desperate for people.
Hunter says there are between 200,000 and 250,000 unfilled high-tech
jobs in the U.S.
Still, the problems of the high-tech sector pale beside those of the
forestry and mining sectors, the traditional anchors of the province's
economy.
By all accounts, B.C. has caught a bad case of Asian flu. It sends
one-third of its exports to Asia, with recession-plagued Japan
accounting for three quarters of that amount. Exports to Japan dropped
35% during the first half of this year.
As well, the province continues to suffer from low prices for lumber,
pulp, copper and coal.
Canadian Imperial Bank of Commerce says the provincial economy could
shrink by as much as 1.3% in calendar 1998.
"This is really a storm B.C. has to ride out," says Teresa Courchene,
an economist with Toronto Dominion Bank. "It's not going to go on
forever. Things are going to turn around. They always do."
The provincial government, while inclined to blame B.C.'s woes on Asia,
concedes there's little it can do. Critics charge, however, this stance
merely deflects attention from things within the government's control,
such as the high cost of doing business in B.C., particularly in
forestry.
Observers such as Finlayson say the forest industry can't compete
because of high stumpage fees and overly rigorous regulation.
Courchene says the government's hands aren't tied. It's true the
province can't do much to change the commodities market or rebuild the
Asian economy, she says.
But it could recognize the province is in a recession and accept the
fact the deficit will widen more than the $95 million forecast for the
year ending April 30, 1999. Then it could take steps to improve the
business climate by cutting taxes.
"That's the first thing B.C. has to figure out here. If they really are
in recession, the government's strategy has to shift a little bit and
they should really put the priority on the business environment and tax
rates."
|
