VICTORIA -- While Mark Carney is very capable and impressive, Britain has no lack of financial experts meeting that description. What differentiates him, and what drove the British government's determination to recruit him, is that he presided over the central bank of the economy that weathered the financial crisis better than other developed countries.
The most often cited reasons include sound home mortgage practices and prudent federal fiscal management. While those factors were crucial in the early days of the financial crisis, they don't explain Canada's continuing strong performance even as our closest neighbour and dominant trading partner suffers through protracted economic doldrums. So what is it that has made Canada and, by association the governor of our central bank, such a star performer?
The pivotal differentiator is that Canada is one of the world's largest resource exporters. Natural Resources Canada estimates that in 2010, our energy, mining and forestry sectors generated new capital investment of $95 billion and total exports of $200 billion. The degree to which natural resources underpin Canada's economic prosperity is illustrated by balance-of-trade data showing an $84 billion net balance resource-trade surplus while manufacturing incurred a trade deficit of more than $60 billion.
The largest contributor to Canada's balance of trade is, by a wide margin, oil and gas. The industry is a huge job creator, employing more than 500,000 people. It's also the largest investor in the Canadian economy, with $55 billion for new capital projects in 2012. And many of those dollars went to manufacturers and contractors from coast to coast.
In 2011, the industry paid $21 billion into the coffers of the federal and provincial governments. And here are some facts that make the huge importance of oil and gas to our country even clearer. Now that Ontario has become a so-called have-not province, the four oil and gas producing provinces (B.C., Alberta, Saskatchewan and Newfoundland) are the only contributors to equalization. So what if those provinces were no longer able to pay into equalization?
Quebec's deficit for the fiscal year ending March 31 is projected to be $2.3 billion. But without Quebec's $7.4-billion equalization grant, that deficit would balloon to a staggering $9.7 billion. Manitoba's $570-million deficit would quadruple to $2.3 billion. New Brunswick's $410-million deficit would jump to more than $1.9 billion, Nova Scotia's $250-million deficit would rise to over $1.5 billion and P.E.I.'s deficit would go from $75 million to $400 million.
It's clear the vitality of the oil and gas industry, and the provinces that have it, are crucial to the economic and social fabric of our nation. But that vitality is now under serious threat from a growing price discount due to lack of export pipeline capacity.
Until recently, industry leaders viewed this as a short-term problem. That was before Canadian crude fell $42 per barrel below U.S. Gulf Coast prices in December, slashing production revenues and rendering new investments uneconomic. The most visible reaction was the cancellation of Suncor's $11.6-billion Voyageur project, but nearly all oilsands producers are reducing investment plans.
In his Jan. 24 speech to investors, Cenovus Energy CEO Brian Ferguson stated the Canadian-U.S. price gap had widened to $36 billion per year, constituting a huge subsidy to American oil consumers: "Math on that is roughly $1,200 per Canadian in a subsidy to the United States. That's because of a lack of takeaway capacity."
TransCanada's Keystone XL Pipeline to southern U.S. refineries remains tied up in a highly political tug of war between American proponents and anti-oilsands activists, making it even clearer that Canada must diversify to world-priced Asian markets. But Enbridge's proposed Northern Gateway conduit to Asia via the West Coast is caught in its own homemade tug of war featuring those same anti-oilsands environmental groups stoking public fear of oil spills.
In reality, the risks of a spill are extremely low. Just look at Newfoundland's oil industry, which has an excellent operating record in the vastly more hostile North Atlantic environment.
Every day, more than 100,000 kilometres of pipelines carry over three million barrels of oil throughout Canada. How could a nation let its most important economic resource languish for failure to build one more pipeline?
One thing is certain: Failure to solve this problem means the next Bank of Canada governor will preside over a substantially less robust economy than his predecessor.
Gwyn Morgan is a Canadian business leader and director of two global corporations.