Philip Cross is a senior fellow at the C.D. Howe Institute and former chief economic analyst at Statistics Canada
The recent release of the annual survey of business investment is, for me, among the most important data releases from Statistics Canada. If eyes are the window to the soul for humans, then investment is the window to understanding what firms are thinking, not just this year, but their plans for the future.
As interesting as the overall increase of about 8 per cent in business investment intentions for 2012 was its industrial composition. The surge of energy investment is well-known, led by the oil sands. What is less appreciated is the historic boom in mining investment, which has lifted capital spending in this sector to nearly $16-billion, not far from the $20-billion Canada invests in all of its manufacturing industries.
This is not a matter of weakness in manufacturing. Apart from the ICT boom in the late 1990s (think Nortel and JDS), investment in manufacturing in 2012 equals its highest on record. This is a remarkable achievement for an industry some perceive as being in its death throes. However, there are wide regional variations for the completeness of the recovery of manufacturing investment: the Atlantic region, Quebec, Manitoba, Saskatchewan and B.C. all have exceeded pre-recession levels, while Ontario and Alberta are well below, mostly due to autos and oil refining, respectively.
Instead, mining’s rapid closing-in on manufacturing reflects the continuing flood of money into this sector, not a relative weakness in manufacturing. From a low of barely $2-billion at the turn of the millennium -- not enough even to offset the depreciation of its capital and one-tenth of all investment in factories -- investment in mining rose sharply until 2008, before retreating briefly to $7.1-billion during the recession. However, growth since the recession has been on a lunar trajectory, nearly doubling in just three years to $15.7-billion in 2012. In fact, the $8.6-billion increase in the level of investment in mining over the last three years equals the peak level of all mining investment reached in 2008.
The source of the surge in mining investment has been quite diverse, reflecting the widespread advance in prices. For 2012, gold leads the way with $3.6-billion of capital spending. But not far behind are copper-nickel-zinc mines at $3-billion, potash at $2.9-billion and iron ore at $2.7-billion as the Labrador Trough is developed. Needless to say, investment in all these industries shatters their previous records back to 1991, often by a multiple of 10 or more. It is noteworthy that despite this decade-long surge in investment, production of most of these metals remains well below their levels of a decade-ago, a reflection of how it takes ever-increasing amounts of inputs to extract metals (especially gold) as well as the long lags before these projects come on-line.
Unlike manufacturing, which is heavily-concentrated in central Canada, or Alberta’s oil sands, all the regions benefit from the mining boom. Newfoundland is seeing rapid development of its metals in Labrador. Quebec’s iron ore and gold deposits have attracted almost as much investment as its manufacturing industry. Even in Ontario, the $3.4-billion of investment in mining is half of all the investment by its manufacturing sector, which is mistakenly held to be the key to its wealth. In western Canada, mining investment in areas such as copper, zinc and potash dwarfs its manufacturing sector, with the exception of Alberta, which has almost no mineral wealth outside of oil and gas, and hardly needs it. So the surge in mining development will help smooth out regional tensions in Canada.