Canada has staked its future on the oil sands. In November, Report on Business magazine together with Thomson Reuters examine what that means both at home and abroad. Read more from the issue at tgam.ca/oil.
With its booming energy sector, vast inflow of investment capital, growing population, high wages and Canada's tightest labour market, Alberta often seems a land apart from the rest of the country. And in truth, it is.
While Saskatchewan, another recent bright spot, reels from a decline in commodity prices and most other provinces struggle to right their listing ships, Alberta's oil-infused economy just keeps sailing along. It will almost certainly continue to lead the provincial league tables in just about every key economic and fiscal measure over the next few years and possibly well beyond that. GDP this year is expected to expand by 3.5 per cent to 4 per cent, depending on which bank economist's crystal ball you choose.
That's well above the forecast national average of 2.4 per cent to 2.7 per cent. No other province will even make it to 3 per cent. The Alberta government itself pegs growth at 3.8 per cent, thanks to what it calls an economy "firing on all cylinders."
That may be true, but one industry is driving this growth engine. Not everyone works in the oil patch: The actual number of people employed in energy is about one in 16, and it directly accounts for no more than one-quarter of provincial GDP, down from more than one-third a decade ago. But it's oil money that fuels the Alberta rocket, lifting everything from construction, financial services and housing to health care, retailing and research and luring young Canadians in droves from other provinces.
The reasons are readily apparent in the jobs and income data. Alberta consistently posts the country's highest job growth–which is expected this year to be at least three times the national average of 0.9 per cent (despite a hiccup in August, when employment declined by 13,400). Most other provinces would be happy with half Alberta's total.
Even after rising slightly in August, its unemployment rate is still below 5 per cent (which is generally regarded as full employment by economists), compared with the national average of 7 per cent and lower than any other province except Saskatchewan at 3.2 per cent. The tight job market and strong expansion translate into higher wages and a per capita income that easily outstrips that of oil-rich Norway, bank-rich Switzerland and every other Canadian province.
Fortunately, for all the growing concerns about fossil fuels and climate change and grassroots opposition to new pipelines and oil sands developments, global demand keeps rising. Which is why the investment dollars are still pouring into new projects. The Canadian Energy Research Institute estimated that capital investment in the oil sands would total $207-billion between 2013 and 2022.
Thanks to the flood of royalty revenues, Alberta is likely to post a budget surplus this fiscal year of $1.7-billion, the Conference Board of Canada predicts. That's higher than the provincial government's own forecast earlier this year of $1.1-billion. By contrast, a fading Ontario, which long ago ceded its traditional role to Alberta as the country's growth engine, is facing a deficit of about $12.5-billion, by far the worst of any province.
All of this does not mean the prairie sky above Alberta is perpetually blue. A sharp drop in world oil prices wouldn't hurt existing projects, but could put a serious crimp in future investments. Meanwhile, the province must come up with billions to upgrade and expand the infrastructure necessary to cope with the population surge, as well as the oil megaprojects.
New Premier Jim Prentice calculates that it could cost as much as $30-billion over the next five years for schools, roads, hospitals, clinics and other badly needed infrastructure. That might not have been a problem if previous governments had followed Norway's example and not squandered much of the billions tucked away in the province's rainy day fund, which resulted in heavy borrowing. On that score at least, Alberta isn't so different from the rest of Canada after all.