Canada's unlikely economic sweet spot
Halfway between Alberta's depressed oil patch and Ontario's weakened factories is a city that's defying the odds. Winnipeg has built a solid economic foundation on a range of industries, and a new wave of entrepreneurs is now driving a renaissance in the capital of a province that doesn't boom – but won't bust
Lyle Stafford for The Globe and Mail
When Saskatchewan native Joshua Simair set out to launch a food-delivery business in 2013, he didn't consider the bustling startup hubs of Toronto or Waterloo, Ont. The 29-year-old and his co-founders decided the best place in the country to grow their algorithm-powered network was Winnipeg.
The city's low cost of living, deep talent pool and strong sense of community were a good fit for Skip the Dishes, which is built for mid-size markets like Winnipeg itself and allows customers to order from dozens of restaurants and have their meals delivered by local drivers with an average delivery time of 45 minutes.
Walking through his open-concept office filled with close to 300 employees in a trendy historic building three years later, Mr. Simair says he has no regrets about the location. "We're able to access a large network of people that are in my opinion as good as or better than in San Francisco or New York. It's basically talent arbitrage… fundamentally, this city is terrific."
Winnipeg, as anyone in the city will tell you with a rueful laugh, is best known by outsiders for its freezing winters and large mosquitoes. But it has also become known for something else – powering the engine of one of Canada's most stable, resilient provincial economies. As its Prairie neighbours, deeply dependent on oil, natural gas and potash, suffer from a commodities downturn, Manitoba's economy has found a golden mean, avoiding extremes bred from over-reliance on a single natural resource.
"We don't boom and we don't bust," Manitobans will say, pointing to a range of solid economic sectors: agriculture, health sciences, hydro-electric power, manufacturing, transportation, aerospace and financial services.
That diversification helped Manitoba emerge from the Great Recession relatively unscathed – real GDP shrank only 0.2 per cent in 2009, compared with declines of 5.5 per cent in Alberta, 5.3 per cent in Saskatchewan and 3.1 per cent in Ontario. Today, almost two years into an oil shock that has swallowed thousands of jobs and sent resource-rich provinces Alberta, Saskatchewan and Newfoundland into a tailspin, Manitoba has emerged as a rare bright bright spot where the fruits of that diversification are paying off once again.
The province is projected to have the third-highest rate of economic growth this year – 2.2 per cent according to RBC Economics Research, outpacing the national average of 1.7 per cent – and to enjoy the lowest unemployment rate in the country, 5.4 per cent, well below the Canadian norm of 7 per cent.
The city has lost head offices in recent years, such as CanWest Global Communications and HudBay Minerals, but it still has financial stalwarts like Great-West Life and Investors Group, grain giant Richardson International, manufacturing operations for Boeing and maintenance and repair work for Standard Aero. And it has a small but growing technology sector, with around 50 startups like Mr. Simair's, and a dedicated band of locals committed to fostering its growth.
Without one dominant runaway resource in the province, "we gotta grind," says Mike Pyle, CEO of Exchange Income Corp., a holding company with interests in aviation and manufacturing that has seen its share price increase by more than 150 per cent over the past 10 years. In 2014, the company sold a U.S. cellphone tower business that was rapidly growing its revenues but sapping its resources. Mr. Pyle said Exchange Income returned to a more diversified portfolio of companies after the sale, drawing a comparison to the Manitoba economy.
"The advantage of that is you don't get the other side when the pendulum swings against you. I think that's Manitoba's greatest advantage and we need to push growth from that level of stability."
But he cautioned that the Manitoba economy is being propped up to some extent by "a ton of deficit spending" – the provincial deficit is projected to be $773-million for 2016, more than $350-million above initial forecasts – and argues the government should instead focus on reducing taxes and encouraging private sector growth.
With a new business-friendly provincial government elected this month and a mayoral administration keen on promoting the city across the country, there is a growing belief in Winnipeg that a high-growth sector could emerge to complement the city's existing strengths, drawing on that stable economy and the sense of community fostered in part by its relatively small size and isolated location.
However, with a lack of venture capital in the province, many say there's a need for revised tax policies and new funding to support that growth and compete with other provinces. Manitoba companies attracted just three venture-capital deals worth a total of $4-million out of $2.3-billion in venture investment across Canada in 2015, according to Canada's Venture Capital & Private Equity Association.
"We've got so many small to mid-sized businesses that need to reach that next level and that's what's missing. There's not those resources for them to go to," says Dayna Spiring, formerly the chief strategy officer of the Canadian Wheat Board who took over as CEO of Economic Development Winnipeg in March.
Brian Pallister – the Progressive Conservative premier-elect poised to take over after more than 16 years of NDP rule – said during the campaign he would "make investment capital more accessible for Manitoba entrepreneurs."
How he will put that pledge into action remains unknown but Ms. Spiring is encouraged by his emphasis on economic development. "It's the first time that the stars have all aligned for Winnipeg to say 'Let's go do this.'"
Lyle Stafford for The Globe and Mail
'A tiger that needs to be unleashed'
Marshall Ring, CEO of the Manitoba Technology Accelerator (MTA), says entrepreneurs in the city need examples of success and he hopes "graduates" of his hands-on incubation program such as Skip the Dishes can play that role.
"We have this problem of lack of history. That is the biggest balloon I'm trying to pop right now," he says. "What incents someone to say 'I can build a tech company here in Winnipeg and do well'? And where do they get investors?'"
Wallace Trenholm, a serial entrepreneur from Ontario who sold a previous business to BlackBerry Ltd. in 2006, relocated to Winnipeg to build his current artificial intelligence and machine learning business Sightline Innovation Inc. Although the 35-person company maintains an office focused on sales in Toronto, Mr. Trenholm says it is far easier to hire talented engineers and developers in Winnipeg. The cost of living means salaries are far cheaper than what he would pay in Silicon Valley, he says, adding the Winnipeg workforce is also less fickle and employee turnover is lower.
He expects to eventually seek venture capital backing but in the meantime Mr. Trenholm says Sightline has been able to tap into "Manitoba pride" and the fact that the whole province wants to see local companies succeed. "The Manitoba business community stepped up and invested in our company. There's a lot of money in Manitoba, a lot of high-worth families out there."
David Asper, a member of Winnipeg's old guard of business leaders, is among those taking a leading investing role in the city's burgeoning innovation economy. The lawyer, businessman and son of CanWest founder Izzy Asper is an active backer of Winnipeg tech startups – such as nuclear imaging firm Cubresa – through the Manitoba Knights, an angel investing group that works with Mr. Ring and the MTA.
While he believes capital investment should be driven by private industry, Mr. Asper says the province can help by keeping tax and regulatory burdens low and competitive.
"I actually think that the Manitoba economy is a tiger that needs to be unleashed and I'm waiting with keen interest to see how the government might be able to facilitate that."
Mr. Asper, who was one of the Manitoba Knights' first and most active investors, says that from a philosophical perspective he believes "it's always great if you can invest in your local economy."
Mr. Asper and other angel investors are helping to fill a gap left by the legacy of the Manitoba government's attempt to spur investment in small business through labour-sponsored funds.
Created in 1992, the Crocus Investment Fund invested in small and medium-size companies and its investors received provincial tax breaks. The fund's assets grew steadily from $2-million to a high of $174-million in 2003, but Crocus went into receivership in 2005 following management missteps and serious valuation concerns about many of the companies in its portfolio.
Stuart Henrickson, executive director for entrepreneurship at the University of Manitoba's Asper School of Buinsess, moved back to Winnipeg in 2010 after a long career in corporate finance. "All I was hearing about was Crocus. It was a big black mark. Five years after Crocus, virtually nobody wanted to talk about investment funds."
"The government started to say it wouldn't put in the first dollar but it would create tax credits and follow-on funding. The government was really gunshy about throwing money at the startup world."
Michael Legary incorporated cyber-security firm Seccuris in 2000 and sold it last year to Japanese technology giant Hitachi Systems Ltd. for an undisclosed amount (after merging with Montreal firm Above Security). He says the fallout from Crocus slowed the provincial government's ability to act, noting that "the average person on the street really still has a bad taste in their mouth left from it."
"The kinds of investments and risks taken were not well understood and left the negative repercussion of people not wanting to invest locally. Wanting a sure thing," Mr. Legary says. "I think we're getting over that and starting to see a change, because the interesting element now is that it's hip and cool to invest in startups."
Economic Development Winnipeg's Ms. Spiring says "we're still living in this hangover from the Crocus days," but argues the fund was not a bad business in itself, but an example of bad governance. "I think we need to create a similar fund and we need to make sure the governance is in place. I'm not sure that labour-sponsored is the way to go, but there does have to be some government involvement in that."
Lyle Stafford for The Globe and Mail
Lyle Stafford for The Globe and Mail
'The magic of Winnipeg'
A dearth of venture funding is not exactly unique in Canada but some suggest Winnipeg's size and sense of community are standout factors that give the city strength.
"It's big enough that you've got everything here and yet it's small enough that everybody knows each other and you can collaborate very, very easily, which is why there's a lot of success coming out of this place," says Paul Soubry, the CEO of New Flyer, which is the biggest bus manufacturer in North America. It acquired Motor Coach Industries International Inc. last year for $470-million (U.S.) New Flyer shares are up more than 70 per cent since the deal was announced in November.
When the company was developing a new electric bus, he says it worked with Winnipeg Transit and Manitoba Hydro on the charging infrastructure and Red River College on training technicians.
"To be able to pick up the phone and call the Premier or the key guys in the government or get the head of Manitoba Hydro or MTS [Manitoba Telecom Services Inc.] and get them together and so forth – that's part of what the magic of Winnipeg is," he says.
Winnipeg's size also lends itself to a certain degree of self-policing in the business world, Mr. Soubry says. "If you help somebody, everybody knows. If you screw somebody, everybody knows."
Winnipeg and its surrounding rural municipalities account for almost 800,000 of the province's 1.3 million residents and the area is on track to reach a population of one million by 2035. The city is attracting about 10,000 newcomers a year, in part due to provincial policies designed to encourage immigration.
Winnipeg mayor Brian Bowman is trying to bolster the city's sense of community in the downtown core and has pledged to increase the number of downtown residents to 20,000 within his term, up from 15,000 when he took office. After being elected in late 2014, the 44-year-old faced an early controversy over the development of a parcel of downtown land. But the issue was ultimately resolved and in February, True North Sports and Entertainment (owner of the Jets and the MTS Centre they play in) announced a $400-million, four-tower office, residential, hotel and retail development.
John Woods for The Globe and Mail
That private sector investment gives a significant boost to the mayor's goal, but Winnipeg needs downtown amenities like a major grocery store and a dog park, he says, adding he wants to see the removal of the concrete barriers that block pedestrian traffic at the city's historic Portage and Main intersection.
Mr. Bowman is also trying to spur employment in the Exchange District, a downtown area that covers about 20 city blocks and has been deemed a national historic site, named for the Winnipeg Grain Exchange. Over the past five years, a vibrant startup community has coalesced in the area, which is home to a campus of Red River College as well as numerous restaurants and art galleries.
Groups that used to operate in silos have increasingly begun to co-operate, says Joelle Foster, director of Futurepreneur Canada in Manitoba, which provides seed loans to about 60 businesses a year. Less than two weeks ago, three other area organizations that support entrepreneurship – Ramp Up Manitoba/Startup Winnipeg, AssentWorks and the Eureka project –combined to form a streamlined resource named North Forge.
Between the three they now offer space for startups, regular networking and crash-course weekends, an incubator program and the AssentWorks "makerspace," a fabrication lab that provides access to millions of dollars worth of specialized equipment to make physical prototypes for a low monthly fee.
At 36, Seccuris's Mr. Legary, who helped start the non-profit AssentWorks almost six years ago, is something of a pioneer of the Winnipeg startup scene. He moved his then two-year-old company to a brick building on McDermot Ave. in 2002, well before the downtown core's current revitalization, setting up shop in a basement unit to save some money.
Despite selling Seccuris, he remains a fixture in the Exchange district and on a walk from AssentWorks down Adelaide St., across a two block stretch now honourarily named "Innovation Alley," he recalls with a characteristic broad smile how the company grew to more than 100 employees and eventually moved out of the basement.
"Downtown Winnipeg has been going through this revitalization over the last decade," he says. "I think all the parts were there: Cheap space, the college was right there, and the Exchange District – just for food and fun, people like being there."
It took some time, but the entrepreneurial community came together organically, says the Manitoba Technology Accelerator CEO Mr. Ring, recounting how he happened to move into the same McDermot Ave. building as Seccuris several years ago. "We got cheap rent and a cool spot and found other people there who were probably attracted to the same thing."
"What I like about it is it's not some sort of top-down approach. It's not 'central planning' that's directing this," Mr. Ring says. "It's actually market demand that's pushing it."
That growing startup scene is among the features mayor Bowman is touting on a tour of Canadian cities, beginning with Montreal earlier this month, to talk up Winnipeg to investors and big corporations.
He points to the completion of a new airport, the return of the Winnipeg Jets hockey team to a downtown arena, and tourist draws like a slick new polar bear exhibit at the Assiniboine Zoo, the Inuit Art Centre and the Canadian Museum of Human rights, which adds a distinct architectural flavour to the skyline. The city is also home to several universities and colleges, including the University of Manitoba and Red River College.
The low cost and ease of living in Winnipeg are also a draw, with average home prices in the range of $300,000 and short commute times from the surrounding suburbs to the downtown business district.
Yet, the city is not an easy sell in every respect. Early in Mr. Bowman's tenure Maclean's Magazine published a front-page headline arguing Canada's racism problem is "ugliest in Winnipeg." The mayor, who is Métis, convened an emotional press conference with Aboriginal leaders and acknowledged the problem.
A year later, he says, "the initial headline was a difficult one to see and rather than debate endlessly whether the headline was fair or not, we came together as a community to admit a difficult reality in all Canadian cities and that's the fact that racism does exist."
Mr. Bowman declared 2016 to be the "year of reconciliation" and announced a number of commitments, including diversity training for city staff and the development of an urban Aboriginal accord for Winnipeg.
"There is this renewal and confidence that has been building in Winnipeg for a number of years and a renewed sense of pride and swagger that is only limited by our community's ambition," Mr. Bowman says.