Natural resources remain vital to Canadian prosperity – by Livio Di Matteo (Fraser Institute Website – January 29, 2016)

https://www.fraserinstitute.org/

Despite the hardship afflicting Canada’s energy sector, we should remember the long-term importance of Canada’s resource sector and dispel the tendency to write it off. Prime Minister Trudeau’s recent remark at the World Economic Forum in Davos, Switzerland that, “My predecessor wanted you to know Canada for its resources. I want you to know Canadians for our resourcefulness,” unfortunately reflects an attitude of discomfort with Canada’s resource economy.

The last time this attitude came to the fore was the 1990s when the growth of technology and the knowledge economy generated a flood of commentary that the era of rocks and trees was over. Canada was no longer to be a country of “hewers of wood and drawers of water” but was to take its proper place in the fast lanes of the information highway.

The tech sector bust and commodity boom of the early 21st century of course demonstrated that resources were still important. Indeed, the resource sectors of Alberta, Saskatchewan and Newfoundland and Labrador with their focus on energy production, were a key reason why Canada weathered the 2009 recession period as well as it did.

Resources still matter. The resource sector is not just energy but includes forestry, mining and agriculture. Canadian economic development began with exports of fish and fur and lumber, and then expanded into agricultural settlement culminating with urbanization, manufacturing and services. If you think of the economy as a tree then the resource sector is the trunk supporting the branches and leafy foliage of value added and service-sector activities.

Queen’s University economic historian Ian Keay finds that the exploitation of Canada’s natural resources during the 20th century made direct and indirect contributions to the size and efficiency of the Canadian economy and had a substantial positive impact on the level of real per capita GDP, contributing about 20 per cent. In other words, without a resource sector there would be a 20 per cent national pay cut.

According to Natural Resources Canada, in 2014 Canada’s natural resources accounted for 1.8 million direct and indirect high-paying jobs, nearly one-fifth of Canada’s nominal GDP, $259 billion worth of Canadian exports and generated $26 billion a year in revenues for governments. Natural resource companies generate nearly half of total non-residential capital investment in Canada accounting for a key chunk of capital formation.

As for the belief that the resource sector erodes value-added manufacturing employment, it remains that nearly half of Canada’s total manufacturing output—from pulp mills to automobile production—is indeed resource-based. The resource sector is also vital to the economic health of our transportation sector as natural resource products account for more than two-thirds of rail and marine shipments in Canada.

More important, the resource sector is not just about extraction—it’s truly also about resourcefulness and innovation in dealing with the scientific challenges of finding, accessing and transporting natural resources as well as developing environmentally friendly technologies. Think of the modern mining where computers and Geographic Information Systems are crucial to prospecting or modern forestry where microchips drive sawmill equipment. And of course, the oilsands represent an innovative application of engineering technology to the resource development process.

In short, natural resources matter because they are more than just hewing wood or drawing water. The resource sector relies on human and physical capital, investment, and resourcefulness to make its way in the world and these provide valuable economic linkages and value added to the economy as a whole.

Canada’s resource endowment is an advantage and not a liability, and a major contributor to our national wealth. We should use the current downturn to invest in the future infrastructure needed for this sector because the sector is cyclical. Eventually, there will be recovery and growing international demand for our resource products.

For the original source of this article, click here: https://www.fraserinstitute.org/blogs/natural-resources-remain-vital-to-canadian-prosperity

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