:
I call this meeting to order. This is meeting No. 72 of the Standing Committee on Finance. Orders of the day pursuant to Standing Order 108(2), we are continuing our study of the impact of low oil prices on the Canadian economy.
Colleagues, we have two panels here this morning.
In the first panel we have five presenters. From the Bank of Canada, we have the deputy chief, Mr. Rhys Mendes. Welcome to the committee. From the Canadian Automobile Association we have the vice-president, Mr. Jeff Walker. Welcome. From the Canadian Manufacturers and Exporters, we have the president and CEO, Mr. Jayson Myers. Welcome back. From the Canadian Vehicle Manufacturers Association, we have the president, Mr. Mark Nantais. Welcome to you as well, Mark.
We're expecting to have economist Jim Stanford from Unifor, but we're having a little trouble with our video conference. We're hoping to get that up in the next minute or so.
You will each have five minutes maximum for an opening statement.
We'll begin with Mr. Mendes.
:
Thank you, and good morning, Mr. Chair, and honourable members. On behalf of the Bank of Canada I'd like to thank you for this opportunity to share our analysis on the impact of global oil prices both on the Canadian economy in general and on the manufacturing sector in particular.
I should mention that our analysis is at the level of the economy as a whole. The rapid fall in oil prices is going to have both positive and negative effects on different sectors of the Canadian economy. To assess the overall impact, we used a modelling tool that we built to take account of the various channels and spillovers across sectors. We also drew on numerous surveys and meetings with firms and business associations. The bottom line is that a sizeable decline in oil prices since June 2014 is unambiguously negative for the Canadian economy as outlined in our January monetary policy report. Most of the negative effects will appear in the first half of this year.
The energy price decline will reduce aggregate income. Even though real GDP grew in the fourth quarter of 2014 by 2.4%, the real incomes of Canadians contracted. This occurred because the world price of an important Canadian export declined, and that means the loss of purchasing power for Canadians. In addition to this negative terms of trade effect, business investment is expected to be weaker. Business investment in the oil and gas sector, which is roughly a third of total business investment, is anticipated to fall by about 30% in 2015, but the effects of the oil price shock will be felt across the country.
The main transmission channels are the aggregate income effect that works through lost purchasing power and supply chain effects that work through interprovincial trade. For example, nearly one-third of the goods and services purchased by Alberta's oil sands industry are drawn from other provinces.
There are some positive but partial offsets. While Canadians are worse off than the aggregate, cheaper oil means more money in the pockets of individual consumers. They can either spend the additional disposable income or save it, and these decisions will matter for economic growth. Lower costs for firms that use oil as an input may lead to a rise in profits, output, and investment in non-oil related sectors of the economy.
It's also important to keep in mind that today's lower oil prices are mainly the result of abundant global supply as my colleague deputy governor Tim Lane pointed out in a recent speech. This supply-driven decline in oil prices is stimulating economic activity in the United States, our main trading partner. This will support Canadian exports if the export sector responds in line with historical experience.
Lower oil prices will have an impact on Canada through another channel. We are not net oil exporters and the value of the Canadian dollar tends to move with the price of oil. From 2002 to 2008, oil prices and the dollar were both on a general upward trend. You may recall that in 2008, when oil was trading at well over $100 per barrel, the Canadian dollar was almost at parity with the U.S. dollar. Today we're much lower and our dollar is at about 80¢ against the U.S. dollar. The lower dollar is improving the competitiveness of production in Canada, which should further boost exports and eventually investment. As we noted in our January monetary policy report, the manufacturing sector is expected to benefit from stronger U.S. demand, lower shipping costs, and the weaker Canadian dollar.
As we assess the ability of Canada's manufacturing sector to benefit from cheaper oil and the lower dollar, we have to recall where we're coming from. In Canada, competitiveness challenges and a prolonged period of weak U.S. demand forced many of our non-energy exporters to discard unneeded capital and eliminate jobs, or to close their doors for good. Rebuilding the lost productive capacity won't happen overnight. The bank has long been saying that in order for us to return to sustainable growth, we need a rotation of demand toward exports and business investment. Growth in our non-energy exports is showing more momentum in recent quarters, suggesting that rotation is indeed happening.
Finally let me note that our most recent business outlook survey indicated that hiring intentions and investment plans were robust for manufacturers. A majority of firms reported that they were planning investment projects aimed at increasing production. Overall, these are positive signs that the rebuilding process is under way.
This concludes my opening remarks, and I look forward to the discussion.
:
Thanks for having me. It's very much appreciated.
The Canadian Automobile Association is a representative organization of 6.1 million Canadians. We're very active in the consumer space. We're keen to stay apprised of key issues affecting Canadian consumers that cover the waterfront of the areas we're in, specifically around vehicles and things like gas prices. We've been commissioning consumer research on the changes in gas prices over the last few months. Our most recent research came out in January, and it's quite fascinating what we're observing.
The first thing to say is people are paying attention. People are paying attention both to the drop in gas prices and to the larger changes that are happening in terms of oil prices overall. The world they see is that they have cheaper gas. The world they're thinking about is not so much about oil prices. From a consumer point of view, for the most part, Canadians are seeing it through that lens at least today. They're watching it and they're doing some things that are counterintuitive economically. What we found is people are paying more attention. They're driving further to get cheap gas, as gas is cheaper than it was before. Some of the stuff that's going on doesn't always make economic sense behaviourally, but people are happy at that level. That's what we've observed.
In terms of how people see the larger impact, what we observe is that there's Alberta and there's everybody else. Albertans in the data say they're worried about the macro-economic part of this equation and the numbers. Is this going to have a significant long-term economic impact? Two-thirds of Albertans say it will have a significant effect. Everybody else, the minority in the one-third to 40%, say it will have a significant negative macro-economic effect over the longer term.
The reason, from what we see in the data, is that most Canadians still believe this is a short-term thing. They don't think that this is going to go on for a long time. We asked them how long it would be until gas prices go forward. Will they go up again over time, or will they stay down? People are still saying that this is a three- to six-month thing. They're expecting it to turn around, maybe not quite go where they were before, but not to stay down in the ballpark where it has been. Since they don't see it as a long-term thing—and I think people on this panel would say it could be—there's a gap in terms of their perception of where it's going to be macro-economically over time. We would perceive that as this goes on, there will be more Canadians who will be thinking more like Albertans already are thinking about where this is.
Let me make a couple of final points about this. What we observe now is that they are feeling pretty good economically overall, as Jason alluded to. They're not seeing, other than Alberta, prices changing in housing or job losses. Reference was made to job intentions in Ontario and other manufacturing parts of the country. People aren't seeing that. When they're not seeing that, they're not going to start saying that they're concerned. What we see is that it's a micro-economic problem today for everybody outside of Alberta. In Alberta it's a macro-economic problem. We'll see where that goes over time as people understand and recognize this could be a longer-term versus a shorter-term problem.
[English]
I have prepared and distributed a document analyzing the impact of lower oil prices on the manufacturing sector from our perspective. I'm not going to go into detail on that subject; you can take a look at that yourself. The only thing I could probably accurately forecast is that if you have a group of economists, you'll at least get as many, if not more, opinions about the impact of lower oil prices on the economy.
Let me focus on a couple of key issues. One is the relationship between the American dollar and the price of oil. It's important to realize that oil prices are denominated in U.S. dollars, and if the currency exchange rate of the U.S. dollar is rising against other currencies, the price of oil will naturally fall, and you don't need any change in supply and demand to effect that decline in the price of oil. There's a very strong correlation. In fact, if you take the U.S. dollar against a basket of currencies and weight it in terms of overall transactions for oil, what you find is that the U.S. dollar has fallen by 25%. That accounts for just over half of the decline in the price of oil that we've seen since last September.
This is a story about the strength of the U.S. dollar right now, which is an indication that other economies appear weak or are weakening, which also feeds into the other 50% of the equation about supply and demand in oil. Lower global demand for oil and continued overcapacity are on the supply and demand side and that's also bringing oil prices down.
That's important because the impact on Canadian manufacturing of the lower price of oil, I agree with Rhys, is net negative. However, that is being offset and will be offset over a period of time by a stronger U.S. economy, and also by the fact that the Canadian dollar is relatively low against the U.S. dollar. Rhys mentioned the impact that lower oil prices are having on economic activity in western Canada. That of course affects manufacturing across the country. We estimate that the hit on the manufacturing sector will be about $12 billion a year. It's not only because of lower demand for manufactured products and equipment particularly in the new projects in the oil sector in western Canada, but it's also because right now there's tremendous downward pricing pressure being exerted by the procurement companies, by the major oil operators, throughout the supply chain. It's not only a matter of lost production, but also of very dramatically lower pricing leverage.
The part that is offsetting the impact of oil prices, of course, is the fact that to some extent, some sectors will benefit primarily from lower feedstock costs. In the petroleum products sector, for instance, the price of petrochemicals and plastics is coming down along with the price of oil, not as rapidly, but it is having some positive cost implications for manufacturers who use those feedstocks.
On the whole though, let's not exaggerate the impact of lower oil prices on energy costs. Energy costs from oil are 0.3% of total operating costs for manufacturing. The impact is marginal. The biggest benefit will be on the purchasing power, not of Canadian consumers—because if you go down south you're going to be spending a lot of that money there, or on imported products—but the biggest benefit is to strengthen consumer recovery in the United States. The combination of a lower dollar and a stronger U.S. recovery is where the major benefit is.
One final point is that we can't take the lower oil price, the stronger U.S. economy, or the lower dollar for granted. Nobody is going to be competitive unless they continue to invest in new technology, new products, better skills. Competition is intense, and the currency rates around the world are also falling, so this is no silver bullet for Canadian manufacturers.
:
Thank you very much, Mr. Chairman, and good morning.
From the CVMA's perspective, we expect lower oil prices will have a mixed effect on the auto sector for consumer purchases and manufacturing operations. If there are four points I'd like to leave you with today, they would be as follows:
First, automobile manufacturing looks at the long term for investment decision-making and for establishing business contracts with suppliers and transportation services.
Second, the price of oil potentially impacts auto companies in two ways, both in terms of vehicle sales and in terms of production.
Third, the impacts of lower-priced oil are varied and they are not immediate, and the vehicle market response and demand for certain vehicles can adversely impact production, depending on the types of vehicles being produced at our plants.
Fourth, the suggestion that competitiveness is enhanced by a lower Canadian dollar can be misleading and may not be a factor in changing a company's outlook on competitiveness.
Prior to the decline in oil prices, Canada experienced two back-to-back record years for new vehicle sales, and forecasts for 2015 suggest another record year, with new vehicle sales growing at between 2% to 4%. Since the decline in oil prices, new vehicle sales in Canada continue to increase on an overall basis at a rate of about 2% to 3% over last year.
We are starting to see signs of regional differences in the rate of sales, however. For example, new vehicle sales in Alberta declined in January 2015 vis-à-vis last year, with overall sales in Canada continuing to increase. Thus far, the impact of lower oil prices has strengthened truck and crossover sales on a North American basis, but there is a related softening in car demand in certain segments. As such, we submit that lower oil prices and a lower Canadian dollar will still result in softening of some car-related production in Canada.
As mentioned, investment decisions are made on a long-term basis, and while the lower Canadian dollar and lower energy prices should help some input costs, the relative cost of manufacturing in Canada will have to continue to be measured against the relative cost of manufacturing in other countries that will also benefit from lower energy prices and lower currency values.
In theory, auto manufacturing plants should benefit from the recent drop in oil prices in the short term in respect of both operations and transportation costs. This is subject to any drop in oil prices being passed on to the manufacturer or customer in the form of lower energy prices. This cost reduction is not immediate, nor is it absolute.
When considering the longer-term competitiveness and factors that weigh into investment decisions, the changes in oil prices and resulting fluctuations in currency represent short-term impacts and are likely not the most critical factors in manufacturing investment decisions, nor do they guarantee improved competitiveness.
In terms of auto manufacturing, the lower cost of oil highlights the increased importance of non-energy related exports and investment to support the Canadian economy, and hence, and of even greater importance, of having the right mix of policies in place to support a competitive auto manufacturing industry and manufacturing more generally.
Annual Canadian automotive exports are at about $64 billion. About 85% of the vehicles we build in Canada are exported to the United States. It is anticipated that the added savings due to low oil prices will add to the available personal disposable incomes in the United States and that this will be positive for the U.S. economy and for the demand for products that we export there.
We cannot look at these issues in isolation, and while we have seen recent investment announcements, it is imperative that we continue to assess all the factors that affect investment decisions in the longer term. It remains critical for Canada to have globally competitive investment support strategies in place to secure reinvestment of the existing automotive footprint.
To keep pace with changes in competitive jurisdictions for auto investment, the government is encouraged to review, for example, the automotive innovation fund in the context of incentives being promoted in competing jurisdictions that are actually successfully winning some of these new investments. It should also look at the ability for large companies to exchange unused SR and ED tax credits in exchange for direct funding when used for new R and D projects. These would both be improvements.
In closing, Mr. Chairman, let me say that the committee's study of the impact of the price of oil on the economy is really a worthwhile exercise. The message I would like to impart to you today is that in a highly competitive environment for global automotive investment decisions, there are factors more in the control of government than the price of oil that would have a greater positive impact.
Mr. Chairman, thank you very much. I would be pleased to answer any questions the committee may have.
:
Can you illuminate one or two specific ones?
Thank you, first of all, for your presentation.
I find this very engaging. What we're looking at here is what the impacts are, as many of you have outlined, and also what, if anything, government should be doing about it. We have a budget coming sometime this spring. We're looking at policy options, and we of course are in an election year as well, and people are considering what to do about the current situation, given what it is.
Can you give us one or two things, Mr. Nantais, that you would point to?
As you know, in the auto industry we came out of the dark years of 2008 and 2009 hurting very badly. It's true that we made some very hard decisions that resulted in job losses, to the tune of about 40,000 jobs, in the auto industry. We took out unused capacity. We became much more productive. We came out being stronger, yes, but it was with a great deal of pain.
Also, and I'll talk about the relativity of what's going on, so did other jurisdictions go through that phase, and they too now recognize the value of an auto industry, and of the spin-off jobs at 9:1, for instance, which is why they're so aggressively seeking new investments.
Yes, we did come out stronger, but as we go forward and we want to keep the mandates here, we're going to have to up our game. Nothing is static in this world anymore. The competition for investment has never been greater than we have seen.... I've been around long enough to have gone through a number of these cycles, and I've never seen a cycle as deep as 2008 and 2009, but we run the risk of losing more, if we don't up our game.
:
All right. Thank you very much, Mr. Chair.
I'm Jim Stanford, economist with Unifor, which is Canada's largest trade union in the private sector of the economy. We represent members working in more than 20 sectors of Canada's economy, at all stages of the value-added chain, if you like, from resources to processing, manufacturing, transportation, and services. Our members are feeling the impacts of the change in oil prices—good, bad, and ugly, if you like—in all of those different sectors.
I apologize if I repeat anything that was said by the witnesses earlier and I would refer members of the committee to the brief that we've prepared at Unifor for our members on the many and various effects of the oil price decline. It's on our website, and I think it was passed around to the committee this morning.
Obviously, a decline in oil prices by half is a major shock for the Canadian macroeconomy. In my judgment—and I actually worked, in another life, as an energy economist for a few years before I joined the union movement—prices are likely to stay at this level or perhaps go even lower in the medium term. I don't see any quick change in the global forces that drove the price down to the levels that they did.
Also, it's not at all clear that the current oil price is low by historical standards. In fact, it's about equal to its 40-year inflation-adjusted average, which suggests that the price in recent years was high rather as opposed to the current price being low. I think we should shape our response to this on the expectation that prices are likely to stay at current levels or lower levels for some time to come.
As you've heard in your hearings, there are many various and contradictory economic effects from the decline in prices. Petroleum production will not be quickly affected. In fact, Canada's production is going to keep growing in the medium term. We are seeing a major retrenchment of investment in new exploration and in development and construction projects in the petroleum sector. Since that sector accounted for 30% of businesses' fixed capital spending in Canada before the decline, this is a major problem for our economy, and there will be big spinoff effects from it.
The real GDP effect will be muted. Extraction will continue to grow, investment will fall, and some other sectors are going to experience benefits, including consumer spending, benefits for energy-consuming industries, especially in the transportation sector and to a small degree, as Mr. Myers just said, in manufacturing itself.
The impact of lower oil prices on demand in the U.S., our major export customer, is unambiguously positive, and that will benefit our economy. There will be some losses among manufacturing companies that supplied the oil and gas industry with manufactured inputs, but as a share of our total manufacturing activity in Canada, that supply chain linkage was small.
The most important beneficial impact, of course, will be the decline in the Canadian dollar, which is now back to its purchasing power parity level.
I stress that the dollar today is not low. In fact, the dollar is at its appropriate level, given relative consumer prices in Canada and elsewhere.
There will be significant benefits from a lower dollar, both immediate and in the longer run, on net demand for Canadian-made goods and services in all tradable sectors, not just manufacturing, but also tourism and tradable services.
It even helps the petroleum and resource sectors themselves to grapple, by cushioning some of the impact of the decline in world prices. We're seeing some benefits of that already. For example, Canada's exports of auto parts grew by 15% last year, which is a very encouraging sign for an industry that has experienced a very challenging decade.
There are some caveats regarding the beneficial impact of the lower dollar.
First of all, the Canadian dollar has not weakened universally. Our dollar has appreciated against the euro, which is a major competitor in manufacturing markets, by 15% over the last year. There has been no change in our dollar relative to the Mexican peso, and Mexico is of course the largest source of imported automotive products to Canada. Our currency has appreciated in the last year against the Japanese yen.
While the lower dollar is beneficial, it's clearly not a cure-all for our manufacturing problems. Partly because so much capacity was lost during the last decade, it's difficult for the industry to take advantage of this space that the lower dollar provides.
Second, companies don't know how long the lower dollar is going to last. I think it is important in this regard for government and the Bank of Canada to indicate their views that in the long run the dollar should not shoot back to levels well above its purchasing power parity; otherwise the potential positive impact of a lower dollar on investment decisions will be muted.
We would stress very much the need for continuing strong, proactive economic strategies to help key strategic sectors, such as auto, aerospace, telecommunications equipment, and also such strategic tradable services as digital media, in which we have a lot of Unifor members working. That will be part of the response.
I think the major economic challenge to Canada's macroeconomy from lower oil prices is going to be the fallout from retrenchment in petroleum investment, and part of government's response to that can be very strong support for increased investment, both public and private, in other sectors of the economy. “Public” means support for infrastructure spending. “Private” means partnering with industry to boost investment in key sectors such as those I mentioned.
I'll leave it at that, Mr. Chair, and look forward to discussion with committee members. Thank you very much.
:
I certainly think this is an important concern going forward. The fear, and I think the legitimate fear, that the dollar may indeed shoot back up if and when oil prices do recover is indeed limiting the beneficial impacts of the lower dollar now on investment decisions.
I do disagree with Mr. Mendes on a couple of points.
Number one is the transmission mechanism linking oil prices to the value of the Canadian dollar. Why do those two variables move in tandem? It is not because of the need for foreigners to buy Canadian dollars to purchase our oil.
As you've seen, including from the Bank of Canada's own research, the net demand for all Canadian-made products, energy and non-energy, has declined during the period of the oil boom, and we have gone from a situation of trade surplus into chronic and significant current account deficits. Counting everything that Canadians make, foreigners were buying less of what we make even when the oil price was high, so it is absolutely not a function of demand for the dollar resulting from real purchases of our commodities.
I think the transmission mechanism is more through financial assets and the demand among foreign investors for Canadian assets related to the energy sector when the oil price and other commodity prices are high. Through both portfolio investment flows and direct investment flows, that was a mechanism that drove up the dollar, even though our net export performance was deteriorating badly.
I think the Bank of Canada and the Government of Canada can both play a role in breaking that link, because our dollar is considered a petrocurrency, but Canada is not, by and large, a petro-economy. Depending on how you measure it, petroleum extraction is only perhaps 5% of our national GDP.
I think the Bank of Canada needs to reconsider its view that they will leave the foreign exchange market alone. Other central banks around the world have intervened quite effectively. The bank clearly has the capacity to do that when the problem is over-appreciation; there's no limit to the bank's ability, even indirectly through the bank's positioning statements. I do notice that Governor Poloz and others have indicated that the narrow focus on inflation rate targeting may not be appropriate anymore. We've learned the hard way that there are other things the bank has to keep an eye on, including the dollar.
The federal government could also play a role by regulating those inflows of foreign capital that are driven by very high oil prices, in particular by I think a stronger mechanism for reviewing foreign direct investment in the oil patch when oil prices are shooting up. That, I think, was a key part of the transmission mechanism to a higher dollar.
Anyway, Mr. Stanford, it's good to see you. I have to say that we've heard a lot of testimony, and I agree with everything you said in your opening testimony. I commend you for that too. I think there are a lot of opposing views, but I share virtually everything you said in your opening remarks. I'm encouraged by that, because one of the things I see within this testimony and other testimonies is that what the government has been doing is also a recognition from all sides that we need cooperation and that the days are over where we pit the one group against the other.
Somebody mentioned in their testimony—I think it was you, Mr. Myers—the need for universities and colleges to work in conjunction with industry. Maybe I'm a dreamer, but those are things that I believe are going to happen in this country. Increasingly there's an appetite for that. I commend you for your testimony.
I'm going to do a little dig, Jim, if you don't mind. One of the things that I think and personally feel is the biggest mistake we made in the automotive sector back in the 1980s and 1990s is that when we had the lower dollar we leveraged that against the automakers and we demanded higher rates. I hope the union sees that. I believe, just in listening to your testimony, that you recognize the importance of the lower dollar or the advantage we have. I hope we don't blow that like we did the last time. That's just an encouragement on your part.
I also wanted to make mention of what you talked about, Mr. Walker, in regard to the possibility of looking into the oil prices. I have to say that's been done a number of times, and there is a Competition Bureau. When it has been studied in committee, there was representation from all sides, and I know that at each particular committee, the committee members walk away and say that they guess it's explained.
I liked what you said, too, Jayson, about the fact that they're going to use that money, and they're going to use that money for investment. Again, I think we need to reiterate that it is a corporate decision. I don't know if we want to get into a position where governments will tell businesses what to do. I think we need that cooperation.
That's my little spiel. I just wanted to say that. I see that we're seeing some agreement across the board there too.
Jayson, I wonder if you could talk about the importance of—maybe we could go to you as well, Mark—what has happened to the auto industry and how it has positively affected.... I remember that back in 2006 they said that we needed a bridge, we needed harmonization, and we needed all those things you're talking about. Just tell us how that has strengthened our position in the auto industry. I'll leave it to either one of you to start.
:
Maybe I'll start, Jayson.
Had those things not occurred and continued to happen, I can say with a great deal of confidence that the most recent investments would not have happened. That's very clear.
The question is—and I've talked about upping our game—that we need to capitalize on what we have, but when you look at the packages of incentives that other jurisdictions are putting together, they are massive. Obviously, I don't think we have the wherewithal to match dollar-for-dollar that type of thing, but we have to be mindful of that, and we have to put together the best package that we can.
What has happened over the last three months with the very positive announcements I can't say is going to happen in the next three years, but we are at a point in time where we are in another investment cycle now. That's going to be driven by regulatory issues such as greenhouse gas regulations and so forth. It will be probably the most significant advancement of technology in motor vehicles that has ever occurred in our history. As Jay mentioned, this does translate into our ability to produce these vehicles and the technology that goes onto the shop floor to build them. It will be a very different game as we go forward.
It's very critical that we can maintain what we're doing, as I mentioned, while we need to look at things like whether the automotive investment fund is a permanent thing, because certainty is very critical in terms of investments through the long term. We need to look at SR and ED tax credits and how we can best use unused credits, etc., and at all of the accelerated capital costs. These are all things that are useful and necessary not just for the auto industry, but for manufacturing generally.
We've come out of that recession with a great deal of new capacity. We are operating at maximum capacity right now. To move forward, we need to look at these additional things.
:
Maybe I'll just focus on three key points.
The first one is the need to secure a new investment in terms of assembly, because that drives the auto supply chain. The movement of assembly down into the southern states and Mexico means that we've lost a lot of the potential for growth here in Canada, so to secure a new investment there is critical.
The second one is that the entire auto industry is going through some pretty big technological changes in response to regulatory requirements around emissions, driving, lightweighting, smart vehicles, and all of this stuff. We have to make sure that our auto parts industry in particular keeps up with that technology, and I think those investments in R and D and new technology are critical.
The third one, of course, is that our auto parts and vehicle assembly industry is a global industry. Trade, regulatory cooperation, and making sure that we have trade remedies in place so that we can effectively enforce the trade rules of our trade agreements are extremely important, as is the new opportunity.
To the extent that our fiscal plans and our economic strategies were premised on the expectation that the oil price was high and going one way, and that we would be an energy superpower, and that this would drive our whole economy forward, then I think that was a mistake. Now, in reality, there were many other things, of course, that were being done, so we never, as a country, put all our eggs in the oil basket, nor should we have.
In at least our rhetoric, and to some extent in our policy, I think we emphasized too much that one sector and underestimated the importance of maintaining diversity in our economy and maximizing the value-added links to that natural resource sector. We wasted huge opportunities in using the growth in resources to leverage more demand for Canadian manufactured goods, for Canadian-made services and other inputs, to get more bang from the buck.
One good example of that has been how we've treated our petroleum refining industry. The graph in the handout shows you that real GDP in refining has actually declined since 2002 by over 10%. We should actually be focusing on getting more value-added out of our resource and less of a belief that pure extraction will save the day for us.
:
Thank you, Mr. Stanford.
I have time for one question, and I want to follow up with Mr. Myers.
First of all, I thought your point that lower oil prices will result in a very small reduction in energy costs was a very interesting one which I just wanted to highlight.
Second, in your brief, you stated the following:
The rapid depreciation of the Canadian dollar has increased the cost of imported materials, parts, and equipment for manufacturers across Canada....in the short-term many companies are caught with higher input costs without offsetting revenue benefits.
I wanted you to expand on that and perhaps address the question of whether the Canadian manufacturing sector and companies took advantage when the dollar was near parity in terms of upgrading their equipment. You talked about investing in the skills, equipment, and new products. Did they invest in new equipment? Then perhaps you could link into a much broader policy issue, which we hear a lot about, that companies are sitting on cash, to use a sort of colloquial expression.
Could you address that?
:
I think it comes down to all of the impacts on cashflow. Right now, in the short term for companies that are caught with high inventory costs and high materials costs and that aren't able to take advantage of the lower dollar immediately, that does eat into their cashflow and their operating cash. Over a period of time it may work out because they'll be selling at a lower dollar and making more Canadian dollars, so there is an offsetting benefit there.
It's very difficult for any company, let alone any government, to do any forecasting around prices or currencies. This is a dismal profession. I remember it was only a few years ago that some economists—I don't want to say some of us—were predicting a price of $200 a barrel for oil. It's very difficult for anybody...particularly when contracts are set over a long period of time. The price volatility and currency volatility do really affect cashflow, usually negatively, until adjustments can be made.
To your major point, we hear a lot about companies sitting on cash, and in fact, they are in their balance sheets; cash is more in their balance sheets. But that's like saying you have more cash in your RRSP. You're not necessarily going to spend that, nor should you be spending that cash immediately.
What drives investment is operating cash, which is usually after-tax profits plus depreciation. That's why the accelerated capital cost allowance is so important; it drives the cashflow that drives the investment. Right now, and really since 2011, we're seeing record levels of investment in machinery and equipment, usually productive new technologies on the part of manufacturers. A lot of that is attributable to the accelerated depreciation that has been in effect since 2007.
The operating cash drives the investment, and so all of these changes in prices and in currency values will also be affecting that cashflow in a very volatile way. I think it's very important that we continue to encourage the productive use and productive investment from that cash rather than just simply a distribution of dividends.
:
I call this meeting back to order.
We are continuing with our study of the impact of low oil prices on the Canadian economy.
Colleagues, I understand that there will be a vote in the House in an hour, so I'm not exactly sure how we're going to proceed here. We'll do as much as we can before that vote and see whether we can come back.
First of all, from the Automotive Parts Manufacturers' Association, we have the president, Mr. Flavio Volpe. Welcome.
From the Canadian Labour Congress, we have the senior economist, Ms. Angella MacEwen. Welcome back.
We have from the Forest Products Association of Canada, the executive vice-president, Ms. Catherine Cobden. Welcome back to the committee.
From the Canadian Steel Producers Association, we have the president, Mr. Ron Watkins. Welcome to you.
From Fort McMurray, we have the mayor of the Regional Municipality of Wood Buffalo, Ms. Melissa Blake.
Melissa, can you hear me okay?
:
Good morning, committee chair and honourable members. I'm pleased to join you today. I would like to thank you for this opportunity to share with you our views and perspectives on the effect of oil price fluctuation and the consequent foreign exchange rate on the automotive parts manufacturing sector.
To start, please allow me to introduce the Automotive Parts Manufacturers' Association. The APMA is Canada's national association representing OEM producers of parts, equipment, tools, supplies, and services for the worldwide automotive industry. The association was founded in 1952, and its members account for 90% of independent parts production in Canada. In 2013 automotive parts shipments were over $25 billion, and the industry employment level was over 80,000 people.
Much has been made about the material decline in the spot value of oil in recent months and its consequent effect on the value of Canadian currency, especially against its American equivalent. While creating a disadvantage for anyone importing American finished goods, the common position is that Canadian exporters have accrued an advantage over the immediate short term. The biggest export in the Canadian manufacturing sector is automotive, and the most diverse job-intensive subsector of that business is automotive parts manufacturing. Approximately 500 independent companies in Canada manufacture parts for original equipment manufacturers' assembly operations at home and abroad.
Parts manufacturers deal with currency risk management and manipulation, and export finished goods as a matter of course. We're here today to contribute to your committee's analysis because we believe the benefits accruing from the currently advantageous Canada-U.S. foreign exchange rate is neither permanent nor structural in the automotive parts manufacturing sector. Furthermore, from a long-term planning perspective, the longer the currency valuation outlook remains pessimistic, the more likely that OEM forecasting modellers will be planning to benefit from Canadian purchasing while ignoring escalating U.S. dollar-based input costs that develop at the same time.
Most parts manufacturers fall into a similar band, with EBITDA margins running from 8% to 12% and gross margins in the 15% to 20% range. The major inputs to a typical systems supplier or heavy manufacturing North American plant would be raw materials such as steel or resin, components from the lower tiers of suppliers, direct labour, and plant overhead.
While raw materials and lower-tier components as a percentage of sales can vary depending on the nature of the product being produced, one can generalize that they likely represent in the range of 50% of the cost of sales. For most suppliers, the underlying currency of these key input costs is predominantly the U.S. dollar. While the drop in oil prices has reduced the input costs of some non-specialized resin supply in the market, complex resins used in higher value-added applications remain relatively unaffected.
Direct labour, of course, for a Canadian supplier operating in Canada is clearly denominated in Canadian currency. In the automotive parts sector, that typically constitutes about 10% of sales costs, a relatively smaller cost compared with raw materials, and I should note, a lower percentage of costs than final assemblers.
Plant overhead is a mix of Canadian foreign currency-based exposure. Canadian-based costs include electricity, indirect labour, and local services. However, virtually all specialized and heavy machinery and ancillary equipment is based in U.S. or Euro currency costs. These costs typically run in the 15% to 20% of sales costs, with approximately half of that being in Canadian currency.
If we take these figures together as a typical volume-based auto parts supplier's cost breakdown, a supplier would have U.S. dollar content in the 50% to 65% range of costs of sales. On the revenue side of the ledger, the transacting currency typically differs by OEM, but most manufacturers would see a majority of the percentage of sales in U.S. dollars. However, increasingly during the recent term of Canadian currency overvaluation of the last five to ten years, many OEMs have begun the practice of pricing directly in Canadian dollars at the time of sourcing. Those plants do not benefit at all from the Canadian dollar devaluation.
While programs priced in U.S. dollars are benefiting in the short to mid term, they would typically see some of these gains retracted through the business planning process and purchasing repricing from their OEM customers. Many suppliers with multiple operations and OEM customers have adopted hedging programs to reduce their exposure, but the success of those mechanisms is difficult to forecast because cashflows from any given product program are based on future volume estimates. History has shown that they fluctuate materially.
I'll save you the rest on multi-jurisdictional exposure. I'll say only that a lot of Canadian companies have U.S. plants as well, and they operate Mexican plants.
Canadian-based plants in those portfolios are doing well against their American plants, but of course, as we've been competing with the Mexican operations, the Canadian dollar and the peso have kept pace and there are a lot of other dynamics that come into play. Foreign exchange isn't one of them.
:
I'd like to thank the committee for taking this study on. We think it's very important. Thank you for inviting the Canadian Labour Congress.
I'm here on behalf of 3.3 million members of the Canadian Labour Congress. We bring together workers from virtually all sectors of the Canadian economy, in all occupations, and in all parts of Canada. I'm going to be speaking from that perspective.
It has long been the position of the CLC that Canada has had an overreliance on unprocessed and semi-processed resource exports, which has had a negative impact on productivity. We heard Jim Stanford earlier talking about the need for making linkages between stuff that we pull out of the ground and stuff that we sell.
As a result of globalization and unfavourable trade deals, a high dollar, and a devastating recession, manufacturing in Ontario especially has experienced devastating losses over the past decade.
Coming out of the recession, business investments in manufacturing and other areas have been very slow to rebound. The October 2014 monetary policy report of the Bank of Canada suggested that this was because of a semi-permament loss of capacity in several manufacturing export sectors and that we should not expect to see business investment and hiring pick up until it was clear that the Canadian economy was on more solid footing.
That was before the price of oil collapsed. In the context of what normally happens to manufacturing if the price of oil collapses, the dollar lowers, and that's better for export sectors, but this indicates that we don't necessarily have the capacity for those export and manufacturing sectors to pick up the slack and carry the economy forward. Given that context, it's the opinion of the Canadian Labour Congress that the lower price of oil will be a net negative for the Canadian economy as the lower dollar will be insufficient to spur new business investment.
We've also pointed out several times that corporate tax cuts have failed to spur new business investment. If we look at the GDP data released for the fourth quarter of 2014, it's clear that there were areas of weakness showing in the economy even before the full impact of oil prices was felt. These include continued dependence on consumer spending to drive economic growth. In that quarter it grew 2% on an annualized basis. In that quarter we saw decreases in machinery and equipment investments, the export of goods falling to 0.5% on an annualized basis, and growth hinging on a buildup of inventories.
One impact of the falling price of oil we could expect to see is cuts to investments by private sector companies and public sector bodies such as the Province of Alberta and other hard-hit oil provinces. We see a shrinking potential output, which will lead to increased unemployment.
To compensate for this lack of investment in the Canadian economy and to respond to the additional negative impact that the falling price of oil will have on the Canadian economy, the Canadian Labour Congress calls for a major public investment program to create good jobs, to promote our environmental goals, to stimulate new private sector investment, and to boost overall productivity.
In October 2014, the International Monetary Fund suggested that the time was right for Canada to make some much-needed infrastructure investments. I previously testified before the committee about these investments. Clearly identified infrastructure needs could be financed through borrowing without increasing our debt-to-GDP ratios since the types of public infrastructure investment we're calling for increase growth both in the short term and in the long term.
Encouraging value-added production investment in key sectors along with green job and green skills initiatives will enhance innovation and labour productivity. These initiatives will also require active government strategies on trade, sectoral development, and domestic procurement strategies. Having a sectoral development policy that seeks to promote more investment, production, employment, and exports, especially in a diversity of sectors in the economy, is key to attaining a more desirable sectoral mix and a greater share of output and employment.
Thank you.
:
Thank you very much. I appreciate the opportunity to be here.
My name is Catherine Cobden. I am the executive vice-president of the Forest Products Association of Canada.
To begin, I'd like to remind you that Canada enjoys one of the largest and best-managed fibre baskets in the world. We have a significant manufacturing presence and 235,000 Canadians who have great jobs in the rural economy.
The drop in the price of oil has been a benefit to our industry in the short term. We've had some lower manufacturing costs, and we see a favourable exchange rate that certainly helps us with our main market in the U.S.
Our prospects look better than a year ago. The recovery of the U.S. economy is taking hold. For example, U.S. housing starts have now hit the important one-million mark. The recovery is still slower than we had anticipated and hoped.
Our exports have grown by roughly 10% over the last year, and we also foresee in the longer term significant growth potential for most of our forest products, such as pulp, lumber, tissue, bio-products, etc.
I have to remind you of the difficult times we faced in the last decade. It translated into half of our global market being lost. I don't need to remind you of the story. You all know the story. We've been before this committee many times to describe it.
While our exports are inching up and we are pleased to see some of this progress, we still have work to do to capture the lost ground, and frankly, to capture our rightful place in supplying the growing global demand that's out there. I hope it's Canada that supplies it and not, for example, the Brazilians.
The sector is busy transforming and innovating, and we have done so, significantly, in partnership with governments. We've been retooling our operations, and we boast the best productivity levels in the country. We've been expanding our marketplace. We are very proud to be Canada's largest exporter to China. We've been deepening our world-leading environmental performances, and we are so pleased that global polling of our customers recently demonstrated that Canadian forest practices are viewed as the very best out there. As I think this committee is well aware, we've been investing in new technologies and products to add more value to the Canadian forest product offerings.
As we move forward, however, we really feel we must not take anything for granted. We must remember that the benefit of low oil prices is only temporary. We must recognize that exchange rates all over the world are devaluing against the U.S. dollar, and some of our major competing environments are experiencing favourable rates, much better than our own. I brought a little prop—which I will make sure I leave with the committee—on the currency of our competing jurisdictions and how it relates to the Canadian dollar.
Of course, I talked about global growth, and I see there are major investments going on in our competing jurisdictions, such as Brazil, Finland, and Sweden. They are readying to capture that growth, so we need to respond.
How do we respond? Well, I suggest we double down and keep doing what we've been doing. We have been focusing on transformation and innovation, and we've been building a strong partnership. We have great strengths: our world-leading environmental credentials, world-class fibre quality, trade agreements, and innovation expertise. We have an innovation system like no other country in the forest industry. We must build on these advantages and recognize that we are in a global race with competing nations and not just competing industries.
The drop in oil pricing and the dollar does not give us room for complacency. I would remind the committee about our past discussions of the need to continue our partnership on innovation, market activities, trade agreements, and transformational support that will propel the sector forward. It's a challenge we can take on together. We will reach our potential; we will create great jobs, and we will prosper.
Thank you.
:
Thank you, Mr. Chairman.
Good morning, committee members and fellow witnesses. I appreciate this opportunity to appear before you today.
My name is Ron Watkins. I'm the president of the Canadian Steel Producers Association, an industry with annual shipments in the range of $12 billion to $14 billion and employing some 18,000 people in Canada. We operate steel mills in Alberta through to Quebec. With other parts of the steel industry, we're an economic force across the country.
Today the focus of this committee is the impact of sharply lower oil prices on the manufacturing sector. You've already heard from many experts, including this morning's panel, with multiple perspectives. I will provide you our views from the point of view of the Canadian steel industry.
First, regarding the potential impact on our own production costs, we foresee modest net benefits at best. Our processes run primarily on natural gas and electricity, and the cost of the latter especially remains relatively high in Canada. Lower-priced oil could reduce our transportation costs, although that is contingent on those pass-throughs from the shippers. We've yet to experience that.
However, a key point here is that Canada is not an energy island. Our competitors in other jurisdictions are also experiencing lower energy prices, so our relative energy cost differentials have not shifted as much as absolute costs have. I think we've heard similar observations on exchange rate movements globally, as well as in North America.
Second, regarding the potential impacts of lower oil prices on our customers, and particularly our manufacturing customers, there's a range of factors at play in various sectors, as you've heard already today from other experts. Associated exchange rate effects can help exports, certainly, but they also increase input costs. Structurally, the erosion of the Canadian manufacturing base—this is a prime customer for our industry—over the past few years will not suddenly or easily be reversed by short-term shifts in input costs. Plants that closed will not reopen or be quickly replaced.
Manufacturing investment needs sustainable medium-term economic conditions and supportive public policies. That is why our industry consistently advocates pro-manufacturing policies across a range of policy fields. This includes the long-term extension of the accelerated capital cost allowance—we appreciate this committee's support for that—and competitive tax rates. It is also why we emphasize strong trade remedy laws to ensure fair competition in our market to counter the injury from dumped and subsidized imports, as recent rulings of the Canadian International Trade Tribunal have demonstrated.
Third, and very importantly for our sector, decreased capital spending in the energy sector will have a direct negative impact on the demand for steel products. For us, energy is much more than a cost factor. It's a vital customer for a wide range of steel products: construction materials, fabricated structures, drilling equipment, processing plants, storage facilities, and of course, pipelines and railcars to get Canadian oil and gas products to domestic and export markets.
Mayor Blake can probably speak better than I to the range and volumes of steel that move through her community. I look forward to her testimony too.
The energy-steel relationship embodies supply chains that stretch across Canada, beginning with iron ore mined in Quebec or recycled steel from multiple sources. These materials are transformed into steel in several provinces, then formed into pipe and tube and multiple other steel products for exploring, developing, processing, and transporting oil and gas resources.
In doing so, we employ thousands of people directly and indirectly in well-paid industrial jobs. When the energy sector is going, so do these opportunities, but the converse, of course, is also true, as we have seen already with hundreds of recent layoffs in our industry. In this key respect, the decline in oil prices has a direct negative impact on Canadian manufacturing and in turn on our own suppliers.
To summarize, lower oil prices are in no way a silver bullet for an expansion of Canadian manufacturing, certainly not for our industry, particularly because of the impacts on energy sector demand. We need to look to the medium-term outlook both for energy costs and for other structural factors that ultimately drive investment decisions.
Finally, it remains important that government policies across a range of factors help to set investment conditions that will strengthen the major supply chains we serve, including the energy sector itself.
In closing, Mr. Chairman, our industry feels that Canadians really need to be dissuaded from this false dichotomy between manufacturing and energy, or worse still, between west and east. The two industries are integrated through cross-country supply chains. More broadly, we continue to encourage this committee to focus on the structural policies that will contribute to investment and production in each of the supply chains we serve.
Thank you very much, Mr. Chairman.
:
Good morning and thank you, Mr. Chair and members of the committee, for this invitation to appear and share a community perspective on this global issue. Certainly it's going to be different from the ones you've heard before.
The Regional Municipality of Wood Buffalo consists of 10 communities in 66,000 square kilometres in northeastern Alberta. We are home to five first nations, several Métis locals, and many different nationalities, with over 156 different languages spoken in the homes of our school population.
In the 2012 census we identified a resident population of 77,000 and some additional 39,000 guest workers who live on-site in project accommodations. They come from all over Canada to work in the oil sands and then take their paycheques back home, wherever that is, and that brings our population up to about 116,000. We are well educated and earn an average household income of about $190,000 per year. Unemployment is at 3.8%, and yet there is a notable wage gap. The average age is 32, and just over half of our citizens are under the age of 35. In fact, over the last five years, our local hospital has delivered anywhere from 1,100 to 1,400 new babies each year.
Ladies and gentlemen of the committee, when I say that we've seen this before, what I mean is that we've seen variations of this before. When our region experiences a downturn, we find a way to take advantage of that.
In mid-2008 we had our first breather since the rush of new oil sands development took hold a decade before. We had a chance then to catch up, a chance to plan, and a chance to get ready for what was coming next. What came next was a very busy rebound.
Even today we have $21 billion in oil sands projects that are already approved, $4 billion that are in various forms of construction, and another $26.5 billion in applications, yet that capital spending pales in comparison to what these companies will spend in operations over the life of each of those projects. Each and every year forward, that combined value will go up from the approximate $5.3 billion that it was in 2012.
On the ground, people are still working and living normal lives. They're going to doctors and taking kids to sports, arts, and anything else that kids will do. They are still getting groceries, going out for meals, and even travelling, though they may be more carefully considering large purchases like cars, trucks, or RVs.
Businesses vary, and those that have exclusive ties to industry are further constrained and being asked to do more with less. There have been layoffs, but local businesses are in fact still hiring.
The non-profit sector has long been familiar with doing more with less, but now it is strained even further. Our food bank use was up 75% this January over last, and our February numbers are worse. Thankfully, we're a community that cares, and we will be able to overcome these challenges.
My council approved the 2015 budget with the expectation that we would not need to raise taxes. Four months later we are revisiting the capital projects and discretionary spending to ensure fiscal prudence in changing economic times. Our local economy and the contractors within certainly do need projects to bid on. In times like these, it's how we help keep people working, and Canada's investment in infrastructure helps us keep these projects on our books and those people working in our communities.
Our community is really still just catching up from the more than doubling of our population since the year 2000. The work is real and it is truly needed, and so is the need to curb inflation, reset expectations, and achieve greater efficiency in the industry, but experience tells me that it is really hard to predict the price of oil in either direction. From a community perspective, the rapid upswings can be even more difficult than what we're currently experiencing.
While these are challenging times, there remains a great deal of confidence in our local community. We take a long-term view and we remain optimistic that we will see a rebound someday and that we will once again change our economic outlook and activities.
To conclude, I believe that the need for energy will never cease. I believe that the oil sands will remain an important contributor in satisfying global demands. I know humanity must adapt and innovate in an ever-changing world. I also know that we must work together to ensure that my home, my community, and my people are able to survive, thrive, and prosper for ourselves and for our nation.
We've come through darker economic days of our past even stronger than before, and I believe that we will do that again this time, too. Believe me when I tell you that you simply have to see this place before you believe anything at all about it.
Thank you very much for the opportunity. I certainly look forward to any questions.
Turning to Ms. MacEwen for a second, one of the things we're hearing is not so much that $50 oil and 80¢, approximately, are the new normal, but they're much more a return to normal in the sense that the 40-year average on oil is about this price and the loonie may be somewhere closer to its true global value. It has appreciated against other currencies, just not against the U.S. dollar.
One thing that concerns me and part of the impetus for this study was that traditionally, in previous drops in oil, the loonie also fell and manufacturing picked up, so the net impact across the Canadian economy may have been hard in communities like Ms. Blake's before, yet there would be a consequent rise in others. But we're hearing from some in the manufacturing sector that this might not be the case, that there may be something structural happening where those manufacturing jobs are not returning with a robust U.S. economy and a lower Canadian dollar. Is that something your union has occupied itself with?
First of all, am I reading the situation right? Second, is there something structural that's happened in the manufacturing sector, in which we're not seeing the return to work of those value-added jobs, and is there anything we can do about it?
:
One of our members is there, actually.
It's a very good question, and I'd add just a couple of points to what I think every industry has done. They have had to become more productive and more efficient in their operations. Certainly it has been a challenge for us. We're a heavily trade-exposed sector. We're competing not just with the U.S., but with Asian and European countries as well as in our own market, so we have no options but to improve our productivity and compete.
One of the interesting ways that I think our industry has changed over time—I've been with the association now for eight or nine years—is that our employment levels have gone down, but our production levels have not, so that's a productivity increase. One of the things we've actually been able to learn from is the transnational nature of our companies in a sense. They're adapting best practices from their global organizations. I can tell you that some of our practices are being adopted by sister companies in other countries.
We're working hard at it. We've made a lot of improvement. There is always more that needs to be done, and there's also a role for public policy in that domain, as you know. It's very much a key issue for us, always.
:
Thank you, Ms. Bateman.
Colleagues, I want to give you an update. There's about 21 minutes until the vote. The clerk has arranged to have a bus for those members who have to go vote.
I am going to stay. I am going to pair with Mr. Cullen. If others want to pair, they can endeavour to do that, but if you do want to vote, there will be a bus provided to take you to the vote.
Before I go to Mr. Brison, may I get approval for the budget for this study?
Some hon. members: Agreed.
The Chair: That's great. Thank you.
We'll go to Mr. Brison, please.
Mr. Watkins, I am the member for Beauport-Limoilou, which is one of the five urban ridings of Quebec City. Many important debates are held in our beautiful city, including debates on infrastructure. A streetcar project was put on hold for a while. As Ms. MacEwen said, we must consider investing in an adequate infrastructure program to meet the challenges facing our municipalities and intercity transportation.
Given the current climate of economic restraint, independent of the level of government, the project was scaled down to become smaller and less costly. However, experts are protesting and saying that, on the contrary, this is the time to invest in infrastructure that is truly substantial and heavier, and especially more efficient in terms of public transport and traffic flow.
Considering the impact this could have on your industry, should we be much more active in terms of investing in infrastructure at different levels? This could also involve intercity transportation with a high-speed train.
I'm going to go to Ms. Cobden for a second.
It's a great success story, and our illustrious chair Mr. Rajotte and I served in industry and we went through those trying times. Those were difficult times. I remember that we all struggled with what we should do.
This is going to be a segue to Mr. Watkins. One of the questions that was raised was whether there were other jurisdictions that have done other things in forestry. Interestingly enough, Sweden has. They started to recognize that boreal forests cover the whole planet and they're going to start producing the industry.
You've done some marvellous things. You've done innovative things. It's great to see. Again, it was very painful to watch some of these mills that were inefficient and couldn't survive close, but you did some marvellous things. I'm going to ask you both, is there something else that the forestry industry.... I'm going to ask the steel industry, because you're in the same position. Interestingly enough, while you had the opportunity when you had the high dollar, you didn't take that opportunity. I'm not being critical, but what I'm saying is that when the investment was made and when you had the opportunity to make the investment, we failed to make those investments. I'm just curious. Is there something that the forestry industry is doing besides just doing a great job milling and such, or are there some areas you're exploring that we, as Canadians, could be leaders in?
Mr. Watkins, I'm going to ask you the same question.
:
Deficits have been an issue; this government has run successive ones nationally, but is now, according to the finance minister, on track to balance.... Yet we are running—I'm just looking up the numbers here—tens of billions of dollars of infrastructure deficit across Canada, with municipalities like yours unable to meet the challenges. The Toronto Region Board of Trade, and groups from Fort McMurray, to Vancouver, Halifax, and beyond, recognize infrastructure, particularly around congestion.... I look at Highway 63 and just even the danger factor for those workers travelling south to Edmonton. I wonder, with these circumstances, why the government wouldn't see this as an opportunity to build the next stage for Canada. Thank you for that.
I want to turn to Ms. MacEwen for a moment. There is a connection—and this goes to Ms. Cobden's testimony as well as Mr. Watkins'—and it's an implicit connection between an increase in productivity and efficiency within any of our industries, and a drop in labour participation. Is it an explicit connection? I come from a forestry sector in northern British Columbia. We've seen mills, almost within the same breath, announce major investments, $10 million, $20 million, $30 million, into a mill and then within a couple of weeks the layoff announcement comes, because the mill becomes more efficient. It's just that fewer people are required to turn out the same volume, or even more in most cases.
I want to go to Ms. Cobden just for a second before I go to you, Ms. MacEwen.
How many Canadians worked in the forestry industry, say, 15 years ago?
It's very important to understand that connection. I tried to explain earlier. I know you're talking about Tenaris in your own riding, but again, the products they are supplying through there originate with steel made somewhere else. We think this supply chain effect across the country is very important to showing how manufacturing and energy are not just compatible with each other but are interdependent.
As I explained earlier, we can trace the pipes in Nisku or in the ground in Wood Buffalo back to an iron mine in Quebec as the starting point, to a steel mill in Ontario or Quebec, or Regina or Calgary, as the processing point, and onward.
It's not just that material is moving; there's a value-added at each one of those steps. This is a value-added chain across the country whereby we get Canadian steel into the oil and gas segment. That's why we're so keen on that development. We're equally supportive of the efforts to spur LNG investment in British Columbia. That's a very steel-intensive business, not just at the port but back into the gas fields as well and in transporting the gas to port. These are essential relationships.
What's really changed in our industry over the years is the proportional importance of that in terms of our production.
We grew up as an industry based largely on automotive and construction. The energy sector is kind of in the ballpark with automotive as an end use of our steel products. That's energy broadly defined. It's a very important set of relationships.
The key point to your question is that it doesn't all happen in Alberta. A lot of what's happening in Alberta is actually causing things to happen in provinces east of there.