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conferenceboard.ca
Charting a Course to Prosperity:Benchmarking the Competitiveness of Newfoundland and Labrador
April 8, 2016
Pedro Antunes
Deputy Chief Economist
The Conference Board of Canada
2
1. Overview of Newfoundland and Labrador Economic Performance
2. Jurisdiction Selection and Benchmarking Methodology
3. Benchmarking Results
4. Challenges and Opportunities: Policy Recommendations
Outline
3
0.0
0.5
1.0
1.5
2.0
NL PEI NS NB Que Ont Man Sask Alta BC
2004-14
Real per Capita GDP Growth by Provinceaverage annual compound growth, per cent
Sources: Statistics Canada; The Conference Board of Canada.
4
0
5
10
15
20
25
30
35
40
NL PEI NS NB Que Ont Man Sask Alta BC
2004-14
Real Wage Gains by Province.per cent change over the period
Sources: Statistics Canada; The Conference Board of Canada.
5
Where are oil prices headed?
• Excess supply remains an issue—Saudi Arabia
fixated on regaining market share
• Iran’s production of 3-4 million barrels per day is
adding to the glut
• Iraq also supplying more oil to the market than
expected
• Despite oversupply, oil prices have recovered lately
• Still, we don’t expect to see WTI at US$50 until 2018
6
0
10
20
30
40
50
60
70
80
90
100
110
2002 03 04 05 06 07 08 09 10 11 12 13 14 15 16f 17f 18f 19f
Where are oil prices headed? WTI Crude Price, US$ per barrel
Sources: Bureau of Economic Analysis The Conference Board of Canada.
59%
drop
7
• Energy and resource investment heavily cut back
• Domestic economy is losing momentum
• Manufacturing will continue to ramp up
• Oil production will not contribute much to the
economy until Hebron starts producing in 2018
Newfoundland and Labrador Outlook
8
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
25.0
30.0
06 07 08 09 10 11 12 13 14 15f 16f 17f
Newfoundland and Labrador Constructionper cent change, $2007
Sources: The Conference Board of Canada ; Statistics Canada.
9
-30.0
-25.0
-20.0
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
25.0
08 09 10 11 12 13 14 15f 16f 17f
Newfoundland and Labrador Metal Miningper cent change, $2007.
Sources: The Conference Board of Canada ; Statistics Canada.
10
-30.0
-25.0
-20.0
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
25.0
05 06 07 08 09 10 11 12 13 14 15f 16f 17f 18f 19f 20f
Newfoundland and Labrador Oil Industryper cent change, $2007.
Sources: The Conference Board of Canada ; Statistics Canada.
11
-10
-8
-6
-4
-2
0
2
4
6
8
10
07 08 09 10 11 12 13 14 15f 16f 17fSources: The Conference Board of Canada; Statistics Canada.
Newfoundland and Labrador Real GDP(per cent change, $2007)
12
• The main impediment to economic growth in the province will be the demographic situation
• An aging population and the need for infrastructure spending will also put pressure on the provincial budget
• Better productivity and diversifying economic growth would help
• A focus on immigration and training would be a good place to start
Challenges Ahead for Newfoundland and Labrador
13
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
2015 2035
Population distribution by age, 2015and 2035
Sources: The Conference Board of Canada; Statistics Canada.
14
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
1981-90 1991-00 2001-05 2006-10 2011-20f 2021-30f 2031-35f
Newfoundland and Labrador: Labour Force average annual compound growth, per cent
Sources: Statistics Canada; The Conference Board of Canada.
15
Sources: Canadian Institute of Health Information, The Conference Board of Canada and Statistics Canada.
Average Public Health Expenditures in 2013 by Age and Population Change by Cohort
-10
-5
0
5
10
15
20
25
30
35
Health care spending by age (000 $) Population change (per cent 2015-19)
16
Contributions to Growth in Health Care Spending. average annual compound growth rate
Total Health Care Spending 5.6
Contributions:
Changes in access 1.0
Demographic changes 1.8
Population growth 0.8
Aging 1.0
Inflation 2.9
NOTE: Numbers may not add due to rounding Source: The Conference Board of Canada.
17
-2,500
-2,000
-1,500
-1,000
-500
0
500
1,000
1,500
2,000
2,500
3,000
2003/04 2005/06 2007/08 2009/10 2011/12 2013/14 2015/16 2017/18 2019/20
Surplus (Deficit) Royalties - Offshore oil
N.L.’s: Public Accounts$ millions
Source: Budget 2015 and Fall Update, Newfoundland and Labrador Department of Finance.
18
2
3
4
5
6
7
8
9
10
0
10
20
30
40
50
60
70
80
Net Debt (left scale) Debt financing costs (right scale)
N.L.’s: Debt Beginning to Climb AgainNet public debt and debt financing costs as a per cent of GDP
Source: Budget 2015 and Fall Update, Newfoundland and Labrador Department of Finance.
19
Charting a Course to Prosperity…
• Viewing the supply side of the economy
through a production function approach
• Our productive capacity depends on:
the amount and type of capital,
the amount and quality of labour and
the efficiency with which capital and labour
mix to produce output
20
What is Efficiency/Productivity?
Over time is a key determinant of income levels
in an economy
Contributes directly to labour productivity—
output per hour worked
Capital stock per worker is the other defining
component of labour productivity
21
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
NL PEI NS NB Que Ont Man Sask Alta BC
Previous decade 2004-2014
Canada 20-year average U.S 20-year average
Labour Productivity Growth by Provinceaverage annual compound growth, per cent
Sources: Statistics Canada; The Conference Board of Canada.
22
Competitiveness and Labour Productivity Determinants Framework
Source: The Conference Board of Canada.
23
• Comparator jurisdiction need to be:
–direct market competitors to the province (i.e. same goods exports to same markets), and
–face similar business operating environment. (i.e. this rules out middle eastern oil-producing countries.)
• Industrial structure, rural population dispersion, population ageing, and the size of the economy were also considered.
Jurisdiction Selection Methodology
24
Source: The Conference Board of Canada.
Finalized Jurisdiction List
Alberta Texas*
Saskatchewan North Dakota*
Quebec United Kingdom
Nova Scotia Norway
New Brunswick
* U.S. national data were used when
data for Texas and North Dakota
were not available.
25
Sources: OECD; Statistics Canada; U.S. Bureau of Economic Accounts; The Conference Board of Canada.
BIG PICTURE Indicators
Indicator
Newfoundland
and Labrador's
Grade
Newfoundland
and Labrador's
Rank
Real gross domestic product (GDP)
per capita (2013 level)C 6/10
Growth in real GDP per capita
(growth compounded over 2008-
2013)
D 8/10
Labour productivity (GDP per hours
worked) (2013 level) B 5/10
Growth in labour productivity
(growth compounded over 2008-
2013)
D 10/10
26
Sources: OECD; Statistics Canada; The Conference Board of Canada
Innovation Indicators
Indicator
Newfoundland
and Labrador's
Grade
Newfoundland
and Labrador's
Rank
Business expenditures on research
and development as a percent of
GDP (2007-2011 average)
D 8/10
Government expenditures on
research and development as a
percent of GDP (2007-2011
average)
C 7/10
Patent applications per million
people (2006-2010 average)D 10/10
27
Sources: OECD; Statistics Canada; The Conference Board of Canada.
Business sector R&D spending as a proportion of GDP(per cent; competitor average is unweighted)
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
2001 02 03 04 05 06 07 08 09 10 11
Newfoundland and Labrador Competitor Average
28
* Due to data availability Texas and North Dakota were replaced with the U.S. national data.
Sources: fDi Markets; OECD; Statistics Canada; The Conference Board of Canada.
Investment Indicators
Indicator
Newfoundland
and Labrador's
Grade
Newfoundland
and Labrador's
Rank
Investment in machinery and
equipment as a per cent of GDP D 5/9*
Investment in non-residential
structures as a per cent of GDPC 4/9*
Inward Greenfield Foreign Direct
Investment A 1/9*
Government investment in gross fixed
capital formation (provincial
comparison only)
-8/10
provinces
Average age of public infrastructure
(provincial comparison only)-
9/10
provinces
29
01234567
Sources: Statistics Canada; OECD; The Conference Board of Canada.
Investment in machinery and equipment, 2008-2012 averageinvestment of m & e as a percentage of GDP
30
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Sources: fDi Markets; The Conference Board of Canada.
Inward foreign direct investment, 2008-2012 averageinward greenfield FDI performance index
31
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
PEI NB NS Que Man Ont BC Alta NL Sask
Sources: Statistics Canada; The Conference Board of Canada.
Government investment in Gross Fixed Capital Formation, 2004-2013 averagegovernment investment as a share of GDP
32
* Due to data availability Texas and North Dakota were replaced with the U.S. national data.
Sources: Statistics Canada; OECD; American Community Survey; World Bank; Council of Ministers of Education Canada; U.S. Bureau of Labor
Statistics; U.S. Census Bureau; Statistics Norway; UK's Office for National Statistics; The Conference Board of Canada.
Human Capital Indicators
Part 1: Education and Skills
Indicator N.L.’s Grade N.L.'s Rank
University completion D 9/10
College completion B 5/9*
Science, math, computer science
and engineering graduatesB 3/9*
Apprenticeship completion - 6/10 provinces
Student skills C 4/9*
Adult skills D 9/9*
33
Sources: Statistics Canada; OECD; The Conference Board of Canada.
College completion, 2011Percentage of the population aged 25 to 64 that has a college degree
0
5
10
15
20
25
30
34
Sources: Statistics Canada; The Conference Board of Canada.
Apprenticeship completions as a share of the labour force, 2008-2012 averageper cent
0.00
0.05
0.10
0.15
0.20
0.25
0.30
0.35
0.40
Alta. Sask. B.C. Que. Man. N.L. N.B. Ont. P.E.I. N.S.
35
* Due to data availability Texas and North Dakota were replaced with the U.S. national data.
Sources: Statistics Canada; OECD; American Community Survey; World Bank; Council of Ministers of Education Canada; U.S. Bureau of Labor
Statistics; U.S. Census Bureau; Statistics Norway; UK's Office for National Statistics; The Conference Board of Canada.
Human Capital Indicators
Part 2: Labour Market
Indicator N.L.’s Grade N.L.’s Rank
Labour Force Participation D 9/10
Employment Growth C 4/10
Unemployment Rate D 10/10
Unit Labour Cost Growth D 9/9*
Work Stoppages Due To Strikes
and LockoutsC 8/9*
Population Aging D 9/9*
Net Migration D 8/10
36
0
2
4
6
8
10
12
Sources: OECD; Statistics Canada; U.S. Bureau of Labor Statistics; The Conference Board of Canada.
Unemployment rate, 2013percent of labour force that is unemployed
37
* Due to data availability Texas and North Dakota were replaced with the U.S. national data.
** No Norwegian data were available for four indicators.
Sources: OECD; Canada Revenue Agency; KPMG; Statistics Canada; U.S. Bureau of Economic Accounts; Employment and Social Development
Canada; UN International Labour Organization; UK Office for National Statistics; Statistics Norway; University of Calgary School of Public
Policy; The Conference Board of Canada.
Business and Policy Environment Indicators
Indicator N.L.’s Grade N.L.’s Rank
Provincial Corporate Income Taxes - 8/10 provinces
Marginal Effective Tax Rate on
CapitalA 3/9*
Taxes Levied on Businesses A 3/9**
Statutory Labour Costs B 5/9**
Transportation Costs D 9/9**
Utility Costs D 7/9**
Net Provincial Debt - 5/10 provinces
38
0
5
10
15
20
25
30
35
40
Sources: University of Calgary School of Public Policy; The Conference Board of Canada.
Marginal Effective Tax Rate on Capital, 2013per cent
39
Strengthening the building blocks of productivity growth by focusing policies on:
• Innovation—enhancing the development and adoption of new products and processes.
• Investment—building the stock and quality of physical capital.
• Human capital—enriching the province’s labour force.
• Business and policy environment—policies must be competitive, efficient, and fiscally prudent.
Challenges and Opportunities: Policy Recommendations
40
• Increase in competition results in increased innovation.
• Increasing competition can be accomplished through:
–Government procurement strategies
–Lowering interprovincial and international trade barriers
Innovation Policies
41
Sources: Chen and Mintz (University of Calgary); The Conference Board of Canada.
Subsidies and Credits Distort Capital Allocation
(2013 Marginal effective tax rates on capital; per cent)
-60
-50
-40
-30
-20
-10
0
10
20
30
Newfoundland and Labrador Alberta
42
• Broaden the tax base by eliminating or reducing preferential tax treatment and use these additional revenue to reduce the overall corporate tax rate.
–Compliance costs would decrease and investments would be allocated to more efficient uses.
• Government increase infrastructure investment, but make sure timing is right and they are not competing for labour with private sector.
Investment Policies
43
• Increase training/education:
• Support students/apprentices financially through grants and loans.
• Connect high school students with opportunities & improve career guidance.
• Businesses can increase on-the-job training.
• Attract migrants:
• Recognize credentials & training across provinces.
• Do a better job at “selling” NFLD to potential migrants.
• Target migrants with skill sets req’d in labour force.
Human Capital Policies
44
• Engage older workforce:
–Workplaces that encourage part-time or casual work to prolong retirement.
–Changing retirement age or linking it to life expectancy.
–Phased-in public sector retirement benefits.
–Employer sponsored training opportunities (w govt subsidy?)
• Engage women in workforce:
–Incentive programs for women joining apprenticeships.
–Childcare support.
Human Capital Policies
45
• Current fiscal situation is not sustainable: expenditures are outpacing revenues and debt is beginning to climb again.
• Spending needs to be prioritized and efficiencies and innovations made.
• A balance needs to be found regarding:
• every day program spending (such as health and education),
• public infrastructure investments,
• savings (i.e. creating a sovereign wealth fund),
• debt repayment.
Fiscal Policies
46
Relying on oil revenues to pay everyday expenses is troubling for two reasons:
1. price and market volatility can cause unpredictability.
2. non-renewable resource = temporary revenue.
Sovereign wealth funds mitigate both issues.
• NL should put aside a portion of resource revenue into a Fund, then live off interest from Fund as revenue.
Fiscal Policies
47
Core Message on Business Innovation in Canada—Lack of investments in innovation not fundamental issue in Canada
Issue: Innovation Management
… and LEADERSHIP
nurturing a Culture of Entrepreneurship
and pursuing Innovation
comprehensively, competitively and
methodically
with the right metrics to ensure
value!
48
49
1. Citizens will need to upgrade their skills and education to reap the full benefits of this prosperous time.
2. Companies will need to invest in both employee training and in capital and machinery to increase productivity and competitiveness.
3. Government should prioritize spending, reduce debt, and create a competitive, equitable, and efficient taxation environment to attract new businesses and ensure future generations benefit from the oil wealth.
Conclusion
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