The trend isn’t new. And by some accounts, it’s been ongoing for more than three decades. Canada’s economic power centre—long dominated by the Toronto-Montreal corridor—has been gradually shifting towards Western Canada.
Westerners shouldn’t get too smug, though. Recessions—such as those in 1980-84 and 2008-09—have tended to be much harder on the resource-rich provinces of Alberta, B.C. and Saskatchewan. And in terms of overall GDP, the four western provinces are still only half the size of Ontario and Quebec combined.
But in terms of momentum, power is shifting towards the West in general—and to Calgary in particular. What are the factors that will push Canada’s economic centre of gravity further west in 2011?
One of the most powerful forces is the much better fiscal situation among the governments in Western Canada. Saskatchewan is running a surplus; B.C. and Manitoba are close. And while Alberta is still running a pretty hefty deficit, the province is debt free and has plenty of savings to dip into. Ontario, on the other hand, is in some trouble. It’s not comparable to Greece (as some commentators have suggested), but big spending cuts and/or tax increases will eventually hit that province—and probably Quebec, too.
Secondly, the West has a much more diversified set of trading partners and is much more oriented towards China, India and the emerging economies than Central or Eastern Canada. This is especially true in B.C., which sent only 45 percent of its exports to the U.S. in 2010 (compared with 80 percent from Ontario). Even the Prairie provinces, with all their energy exports piped south of the 49th parallel, sent slightly less to the U.S. (78 percent). With the emerging economies leading global growth, the broader trade diversity in the West will be a solid benefit.
Third, strong oil prices will continue to shift power to the West—and Alberta and Saskatchewan particularly. Forecasts for wells drilled have been revised upward for 2011. And improved technologies in horizontal drilling—many of which were developed in Alberta—are giving new life to old oil fields.
And of course, there are the oilsands. While they’ve certainly generated more than their fair share of controversy and problems, the largest engineering projects on the face of the Earth have taken on a life of their own. That is lifting not only the fortunes of northeastern Alberta, but the manufacturing heartland of central Alberta as well. A new upgrader near Edmonton is set to be built.
Fourth, Western Canada is rich in an array of non-oil resources. With the exception of natural gas, almost all of Canada’s natural resources are enjoying high prices in 2011. That will boost activity in potash, uranium, base metals and even forestry. Agricultural commodities such as wheat, barley and canola are also experiencing a strong run-up in prices, which should continue this year.
Finally, the power shift to Western Canada is also taking place on the global stage. The world’s largest international investors and investment bankers are lining up to get a piece of the West. With a surge in mergers, acquisitions and equity sales for Canadian energy companies, Calgary is gaining tremendously in global investment banking. Canada now ranks fourth in the world (behind the U.S., U.K. and Japan) in terms of generating investment banking fees. Toronto still accounts for the lion’s share of that. But the big growth has been in Calgary as players like Barclays Capital, Credit Suisse and Citigroup scoop up talent and office space.
Money and economic clout is power. And the country’s power centre is gradually but steadily moving west.