Our Operating Environment

Western Canada's Economic Environment

About Western Canada

While differences exist among the four western provinces in terms of economic structure, one key similarity is prevalent: economic performance in the West is heavily dependent on commodities and natural resources, which include agriculture, forestry, mining, and oil and gas, despite the strengths in manufacturing and other sectors, taken as a whole. Compared to the rest of Canada, the West's economic output from the resource sector accounts for a much higher component of the total gross domestic product (GDP) (see Figure 1). Taking the year 2007 as an example, 15 per cent of the regions' GDP was produced by the resource sector, compared to three per cent for the rest of the country.

In British Columbia, the forestry industry is at the forefront of the economic landscape. In Alberta, oil and gas production dominates the province's economy. Saskatchewan's mix of potash mining, oil extraction, and agriculture industries leads its growth. Manitoba, which is the most diversified economy in the West, has a significant percentage of its GDP output based on the mining and agricultural sectors.

The western Canadian economy is also largely dependant on trade, with approximately one third of its total GDP derived from exports. The largest trading partner is the United States, accounting for about 80 per cent of the West's total exports.

Strong economic growth has created spin-off opportunities for supporting industries such as manufacturing, industrial and residential construction, science and technology innovation, and services throughout the regions. Western Canada has been taking advantage of these opportunities and working hard to build stronger economic foundations and maintain its competitiveness in the global market.

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Western Canada's Economic Outlook ²

Canada's real GDP growth in 2008 slowed to 0.5 per cent, from 2.7 per cent in 2007. Private sector forecasters predict the economy will contract between 2.4 per cent and 0.5 per cent in 2009³. The global economic crisis has undermined the nation's economic performance, with no province being sheltered from the slowdown.

Before the crisis hit the global economy in the second half of 2008, Western Canada had been experiencing strong growth as a result of favourable market and economic conditions. High commodity prices, thriving consumer spending and strong demand for exports had led to impressive economic growth in these regions. For the year 2007, real GDP growth for the western provinces was recorded as 3.0 per cent for British Columbia, 3.1 per cent for Alberta, 2.5 per cent for Saskatchewan, and 3.3 per cent for Manitoba. The It is believed that the current economic crisis, however, has seriously affected the economic performance of Western Canada in 2008, with growth rates predicted to be much slower. The West's dependence on natural resources and the US market leaves it particularly vulnerable to external factors.

In Western Canada, a number of factors have contributed to a weakened short-term economic outlook: low and volatile commodity prices; decreased export demand for goods and products; record low consumer confidence; declining capital investment intentions; and a more pessimistic outlook for the US economy. Nonetheless, the most direct short-term factor is the effect of falling commodity prices on the domestic economy in the West, as high energy and resource prices have been the source of strong income gains for the past few years. For 2009, British Columbia's economy is expected to experience a contraction due to weak demand domestically and in export markets, as well as weaknesses in the forestry, manufacturing, mining and construction sectors. Although the Vancouver 2010 Winter Olympic Games and the Economic Action Plan are expected to stimulate the economy, the economic contraction rate will likely still be in the range of 2.3 per cent to 0.1 per cent of GDP.

After slower growth in 2008, the economic outlook for Alberta remains uncertain in 2009. Many oil sands projects and investments are either cancelled or delayed due to falling oil prices. Housing prices have receded and significant job losses have been reported. Forecasters suggest that Alberta will be among the Canadian provinces experiencing the sharpest declines in 2009, and predict a recession rate of between -2.5 per cent to -0.5 per cent of GDP.

For Saskatchewan, the economy is expected to remain on a relatively stable ground and to outpace all Canadian provinces in 2009, after leading the nation in growth in 2008. Real GDP growth has been forecasted to reach as low as zero per cent to as high as 1.6 per cent. While commodity price decreases will slow growth, the medium-term outlook is still favourable for potash, uranium, and energy industries.

A more diversified economy is helping Manitoba weather the current economic situation. Robust demand for transportation equipment, in particular for aerospace parts and transit buses, brings positive prospects to the manufacturing sector in spite of the lagging demand from the United States and challenging economic conditions globally. As such, the private sector's outlook for the province is divided, ranging between a pessimistic -1.3 per cent contraction to an optimistic 1.0 per cent growth in 2009.⁴

Over the long term, diversification of the western economy is the key to sustained economic success. A number of structural issues need to be addressed to ensure a more resilient western economy, including the:

• ongoing reliance on the resource sector and exposure to volatile commodity markets;
• low business expenditures on research and development, resulting in fewer technologies being commercialized;
• lack of access to early stage capital to facilitate company start-up and growth;
• lagging levels of business productivity, negatively affecting global competitiveness;
• lack of exports by a large proportion of SMEs (given that exporters generally outperform non-exporters);
• aging population and workforce affecting access to the necessary skilled labour pool; and
• low participation rate of the Aboriginal labour force, which represents a significant proportion of the available workforce.

Addressing these issues is vital to ensuring a more competitive and diversified economy in Western Canada in the long run.

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Governance

The Deputy Minister chairs the departmental Executive Committee, which is responsible for overall strategic direction and management of the department. WD's Executive Committee is comprised of the Deputy Minister and the direct reports to the Deputy Minister (see Department Organization Chart, Annex D), as well as the Director, Consultation, Marketing and Communications. There is also a series of other committees charged with specific components of the department's planning, policy, reporting and evaluation responsibilities.

At all levels of the organization, the plans and management strategies are guided by the following consistent components:

• planning activities are framed by the departmental strategic outcomes.
• plans and activities are informed by risk assessment/management strategies; and, 
• plans are informed by, and responsive to, the results achieved and reported on in the previous period.

Under the leadership of the Assistant Deputy Ministers, the regions are responsible for delivering the programs and initiatives that respond to regional opportunities and challenges, and contribute to achieving the desired outcomes of the department.

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Opportunities and Challenges

The department anticipates facing a number of opportunities and challenges during the course of 2010-2011.

The department's core resources, both grants and contributions, and operating funds, are scheduled to decline. At the same time, WD will be delivering on two new temporary initiatives announced in Budget 2009 - the western component of the two-year $1B CAF program and the western component of the $500M RInC program, essentially doubling WD's grants and contributions resources over the next two years.

WD delivers on its mandate largely through grants and contributions projects, including national initiatives such as CAF and the RInC program. While these two new programs clearly present an opportunity for WD to directly contribute to the Government of Canada's economic stimulus objectives, they also present challenges, particularly as a result of the short timeframes for launching and completing the delivery of the programs within the two-year time frame. For example, grants and contributions project management system, Project Gateway, must be redesigned to accommodate the new programs. There are significant workload and time pressures associated with recruitment, reassignment and training of staff, as well as accommodations, equipment, reporting, performance measurement, and so forth, which are all activities that must be quickly ramped up to meet the program objectives (CAF and RInC).

WD has the opportunity to deliver these two programs in a manner that responds to the West's interests and needs.

The delivery of these national initiatives provides a significant opportunity for WD to review its human resources and public service renewal priorities and strategically align desired business outcomes with human resource priorities. These programs present an opportunity for the renewal of WD's workforce in order to improve its capacity to deliver programming for the West through a highly trained and professional public service. For example, strategic recruitment for the CAF and RInC programs - either for new or existing staff - provides an opportunity to enhance departmental representation in employment equity and official languages groups. Existing staff can benefit from the developmental opportunities associated with the delivery of the new programs. Experienced program officers and managers will bring their knowledge of grants and contribution program delivery to the CAF and RInC programs.

In addition, analysis of WD's demographics suggests a significant increase in anticipated retirements in both the project officer and managers levels, beginning in 2012 and continuing into 2014. Twenty-five per cent of WD employees will be eligible for retirement before the end of the 2013-2014 fiscal year. The challenges associated with public service renewal in this environment, particularly regarding replacement of departing staff and knowledge transfer to new recruits, can be mitigated by the development of longer-term recruitment and retention objectives and strategies. Skill sets that will be useful to the department in the long-term can be targeted in recruitment initiatives designed to also meet the temporary and short-term needs of programs such as CAF and RInC.

WD has assigned additional resources and increased attention to performance measurement, in order to assess and better communicate the benefits the department provides to Canadians. The results of audits and evaluations will be critical in ensuring that WD's programs are relevant, are managed effectively and efficiently, for ensuring that that resources are appropriately allocated to best support WD's priorities, and that WD is providing streamlined services to clients in order to deliver results quickly.

WD continues to rely on its relationships with a strong network of other organizations including: academic and financial institutions; research centers; not-for-profit organizations; and other levels of government in order to maximize the benefits of our investment in Western Canada. While there are complexities and challenges associated with aligning priorities of different organizations, it enables WD to ensure that western Canadian interests are more fully reflected in national decision-making.

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Entrepreneurship and Innovation

Strategic Outcome:

The western Canadian economy is competitive, expanded and diversified

Entrepreneurship and Innovation	2009-2010	2010-2011	2011-2012
Human Resources (FTEs)	123	119	119
Planned Spending ($ thousands)	126,113	94,025	87,548

Innovation drives business growth and competitiveness, and the future of Western Canada's economy and continued success will be determined by the degree to which western Canadian businesses and industries innovate and engage ingrowing and competitive markets.

WD works with western Canadian businesses, industry and research organizations to undertake initiatives to enhance business productivity and competitiveness, support trade and investment attraction and improve access to international markets for western Canadian technologies, services and value-added products. WD strengthens value-added production by supporting initiatives in priority sectors to introduce new products, technologies or innovations to existing productions and processes. The department also improves access to risk capital and business services for entrepreneurs and small business through programs and services offered in conjunction with other business services organizations and associations.

Challenges and the WD Response

• Continued heavy reliance on natural resources along with the potential risk of resource price collapse presents both huge challenges and opportunities for industry-led solutions to pursue productivity enhancements.
  • To encourage and enable industry-led solutions to productivity challenges, WD will focus on sectors/clusters that are ready to implement productivity enhancements.
• Continuing deterioration in external trade, especially US exports.
  • To ensure that export readiness/advisory information services continue to be provided to SMEs; support international business development projects targeting the US and Mexico, the Asia-Pacific and Latin America regions; and undertake targeted research and analysis to better understand trade and investment policy issues affecting Western Canada.
• Low business investment in research and development.
  • To enhance technology commercialization, efforts need to be made to increase investments in organizations that introduce new products to markets.  Research on priority technology sectors indicates that there are niche opportunities to increase commercialization.  To pursue this priority, WD will undertake further sector research and analysis to pinpoint gaps and opportunities, and will explore approaches such as pilot demonstrations, first user or internship programs. 
  • To create or expand knowledge infrastructure, and research and skill building; encourage research and development, which leads to technologies with commercial potential; foster skills development, which leads an increase in the number of highly qualified personnel; and build networks, which contribute to increased knowledge exchange and collaboration in innovation.
• Need to increase/maintain the depth of knowledge and subject-matter expertise in entrepreneurship and innovation within the department.
  • Focus on the recruitment of experienced mid-career professionals in order to ensure that subject-matter expertise is maintained.
  • Learning and development priorities will assist in increasing officer and manager depth of knowledge in targeted subject matter fields (for example, technology commercialization, and access to capital).

We will measure our success for this strategic outcome by: 

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Community Economic Development

Strategic Outcome:

Communities in Western Canada are economically viable

Community Economic Development	2009-2010	2010-2011	2011-2012
Human Resources (FTEs)	81	76	73
Planned Spending ($ thousands)	88,846	38,429	37,520

WD is working to increase the economic viability of western Canadian communities by supporting economic development and diversification initiatives that enable them to sustain their economies and adjust to changing and challenging economic circumstances. This may include facilitating economic recovery from depressed economic circumstances while ensuring that economic, social and environmental considerations are taken into account in initiatives designed to foster community growth and economic development.

Challenges and the WD Response

• Diversification of rural economies in Western Canada.
  • Work with western Community Futures Development Corporations and other rural-based economic development organizations to focus their efforts to diversify rural communities.
• Support the growth and competitiveness of western Canadian small business.
  • Continue to facilitate/enable access to risk capital and business services to SMEs through programs and services (i.e. Western Canada Business Service Network).
  • Work with western Canadian business, industry and research organizations to undertake initiatives to enhance business productivity and competitiveness.
• Maintain economies of western communities during the current global economic downturn.
  • Deliver the western component of the two-year, $1B CAF initiative announced in Budget 2009.  This national initiative will help communities maintain and create jobs in order to reduce the short-term impacts of the global economic downturn.
  • Deliver the western component of the RInC initiative announced in Budget 2009.  This national initiative will provide $500M over two years to support construction of new community recreational facilities and upgrades to existing facilities.
  • Promote rural diversification through support of projects that help communities to undertake value-added processing and encourage new opportunities for skilled employment.
  • Encourage Aboriginal participation in the economy.
• Communities adversely affected by the widespread beetle infestation and downturn in the forestry sector.
  • Deliver, monitor and evaluate the Community Economic Diversification Initiative and Airport Improvements Initiative components of the federal mountain pine beetle response in British Columbia.
• Aging public infrastructure in Western Canada.
  • Continue the administration of the Infrastructure Canada Program until the program's planned conclusion on March 31, 2011.
  • Continue the delivery of the Municipal Rural Infrastructure Fund.
  • Administer Canada Strategic Infrastructure Fund projects.
  • Deliver the Building Canada Fund Communities Component (including additional funds provided in Budget 2009 - Canada's Economic Action Plan) and non-transportation related Major Infrastructure Component projects.
  • Continue collaboration with Infrastructure Canada and the other regional development agencies to improve the delivery of national infrastructure programs.
• Ensuring the department has the people in place to deliver on new program commitments (CAF, and RInC).
  • Delivery of the CAF and RInC programs will be supported by the development of a human resource strategy including classification, staffing and training activities.
  • Utilize the knowledge and experience of existing staff, recruit new staff, and undertake training and orienting employees, as appropriate.

We will measure our success for this strategic outcome by:

• An increase in disposable income per capita; and
• A stable labour productivity growth rate of 1.2 per cent (real gross domestic product per hour worked).

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Policy, Advocacy and Coordination

Strategic Outcome:

Policies and Programs that strengthen the western Canadian economy

Policy, Advocacy and Coordination	2009-2010	2010-2011	2011-2012
Human Resources (FTEs)	62	60	60
Financial Resources	8,800	8,610	8,602

As a relatively small department, WD must ensure that its policies and programs are responsive, strategic and focused with respect to the diversification challenges in the West.

The Western Economic Diversification Act (1988) empowers the Minister to advance the interests of Western Canada in national economic policy, program and project development and implementation, through the establishment of cooperative relationships with the western provinces and other stakeholders, and through the initiation of policy research.  WD provides a strong voice for Western Canada in national policy discussions, resulting in effective strategies, policies and programs to address the economic development needs and aspirations of Western Canada.  This includes leading federal and intergovernmental collaboration to pursue key opportunities for long-term growth and diversification in areas of federal or shared federal-provincial jurisdiction.  WD also undertakes research and analysis required to enable effective policy and program decisions.

Challenges and the WD Response

• Each provincial economy has unique characteristics and priorities.
  • Work within this environment and support national economic development priorities in cooperation and collaboration with other orders of government.
  • Partnerships with the four western provinces through agreements such as the Western Economic Partnership Agreements and other joint federal-provincial arrangements allow WD to work with other orders of government to enable significant investments in projects that support federal and provincial priorities.
• Risk that economic development initiatives are not coordinated and thus do not maximize the economic benefits to the West.
  • Further the efforts of the working group of Western Deputy Ministers with responsibility for economic development and innovation. 
  • Participate in western-based consultation forums such as the Regional Federal Councils located in each western province, regional trade teams, and senior western innovation officials.
• Risk of not capitalizing on the strengths in the West in order to improve the economy.
  • Encourage an increase in Western Canada's value-added content in global supply chains through the federal Asia-Pacific Gateway and Corridors Initiative and the Mid-Continent Trade Corridor.
  • Promote the West's aerospace, defence, security, shipbuilding and high-technology industries to key federal stakeholders and international prime contractors looking to identify suppliers for the federal government's defence procurement.
  • Champion Western Canada's contributions to the federal science and technology strategy, including the potential of western Canadian businesses to become more innovative in order to bolster national competitiveness and productivity.
  • Advance the business case for developing transportation, distribution and logistics centres in the West.
• WD needs to have the necessary research basis to identify key risks and opportunities for western Canadian economic prosperity.
  • Enhance engagement with universities to support student-led research in areas of shared priorities.
  • Support research that assists in the development of policy options for Western Canada and helps position it for long-term success in the global economy.
  • Develop strategies, policies, and programs for long-term growth and competitiveness.
  • Deepen the understanding of Canadian stakeholders of the economic opportunities associated with the Asia-Pacific Gateway and Corridor and/or the Mid-Continent Trade Corridor.

We will measure our success for this strategic outcome by:

• Aiming to have 55 per cent of key informants, who agree that WD activities provide policies and programs that support the economic development of Western Canada;
• Investing and leveraging $350M in project funding; and
• 85 per cent of projects completed this fiscal year successfully meeting or exceeding performance targets.

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