LIVE WORK INVEST IN BC 2004

More from the 2004 BC Check-Up

Enclosed with Beyond Numbers this month is a copy of the 2004 edition of the BC Check- Up report. The report is a 16-page summary of extensive research findings that are available in full on our Check-Up website at www.bccheckup.com.

This article spotlights some of the information on the site, delving into the three main topics we're focusing on during our current media campaign: financial vulnerability, job creation, and innovation.

Financial vulnerability

In the past several years, the Canadian economy benefited from low interest rates, which fuelled both consumer spending and housing investment. However, these low interest rates also led to a dramatic rise in personal indebtedness, which stood at historically high levels in Canada in 2003.

In BC, for instance, total indebtedness per capita rose by 34.1% between 1998 and 2003. In absolute terms, the province's debt levels ranked second highest among those in the comparison jurisdictions, behind Ontario.

BC's total personal debt increase of 6.6% in 2003 actually represented an improvement, as it meant a decrease in the growth rate. Nevertheless, total debt per capita in BC remained highin fact, it was 9% more than the combined total of both Saskatchewan and Manitoba.

The composition of total debt split between personal consumer debt and mortgage debt also differed within our comparison areas. BC consistently had the highest ratio of mortgage debt to total debt, standing at 72.2% in 2003 compared to 68.5% for Ontario, the second highest jurisdiction. This result wasn't surprising given that BC had the highest average housing prices throughout the 1998-2003 period.

Even though per capita mortgage debt in BC increased by 25% between 1998 and 2003, the growth in personal consumer borrowing outpaced mortgage borrowing by more than two to one. In fact, borrowing for both consumer goods and housing investment outpaced personal disposable income growth and brought down personal savings rates.2 Negative for seven years, the savings rate in BC hit a low of-8.2% in 2003, with total real personal indebtedness per capita very nearly equalling real personal disposable income (91%).

Job creation

Between 1998 and 2003, over 1.6 million jobs were created in the Canadian economy, with almost 80% of these in the service sector. On the goods manufacturing side, the most rapid employment growth during this time took place in utilities, construction, and manufacturing. Job losses in agriculture and resources offset some of these gains.

Of the comparison provinces, Alberta and Ontario ranked highest in job creation between 1998 and 2003 (13.5%). During the same period, BC's job creation performance was 8.2%.

In absolute terms, BC gained a total of 153,100 jobs between 1998 and 2003, over 90% of which were in the service sector. This five-year gain in service-sector jobs was actually ten times higher than in the goods-producing sector, and was unique to EC's labour market. Over the same period, service sector employment growth for the national average was 4.5 times that of the goods-producing sector; service-sector job growth in Ontario was three times higher than job growth in the goods-producing sector; and service-sector job growth in Alberta was only 2.5 times greater than in the goods-producing sector.

In BC, a province with a long history of primary-resource harvesting and manufacturing, this kind of growth in the service sector signified a fundamental shift in the economy. Between 1998 and 2003, the largest employment growth in the service sector occurred in trade (26,200 jobs); educational services (25,700); health care and social assistance (17,200); professional, scientific, and technical services (16,800); information, culture, and recreation (12,000); and accommodation and food services (12,900).

While the Lower Mainland/Southwest Region of BC continued to dominate in employment growth, gains in the service sector actually occurred throughout the province. Tourism is a case in point. Even as North American tourism revenues faltered in the wake of September 11, 2001, this sub-sector continued to generate over 4% of EC's GDP. In fact, it created thousands of jobs throughout the province over the past decade, as BC communities sought new ways to diversify their local economies.3

By contrast, a loss of jobs in the forestry, fisheries, and mining and oil/gas extraction industries dampened overall employment gains in the goods-producing sector between 1998 and 2003. However, although 3,900 jobs were lost in resources during this time, this loss was offset by a significant gain of 10,400 jobs in durables manufacturing. Adding some smaller gains in other sub-sectors, the net effect was a total gain in the goods-producing sector of 12,900 jobs.

Between 2002 and 2003, job creation in BC accelerated in response to improved markets and economic conditions. During this period, 22,800 new jobs were generated in the goodsproducing sector-approximately 7,900 of them in resources alone. This signalled improved employment in the resource subsector, where jobs in forestry, fisheries, and mining and oil/gas had declined steadily over the previous four years.

In fact, the gains in the goods-manufacturing sector in 2002-2003 were not far behind those in the service sector, where 27,10 new jobs were created. The most significant increases in service-sector employment occurred in finance, insurance, real estate, and leasing (7,800 jobs), and business, building, and other support services (7,300). Growth in these sub-sectors was stimulated by BC's buoyant real estate market and a strong upsurge in migration.

Innovation

Innovation is a key indicator of future productivity gains. Increasing innovation indicates that the economy is generating more innovative products, services, and processes, and moving towards productivity growth.4

Several factors drive innovation activity. R&D spending is one key factor, as it directly funds the creative work that leads to the items being patented.5 An increase in the ratio of new patents per million population is another, as it indicates that the economy is generating more innovative products, services, and processes, and clearing the way to productivity growth.6

BC saw a 50% gain in R&D spending between 1996 and 2001, reaching an R&D-spending-to-GDP rate of 1.2% in the latter year, compared to a national average of 1.9%. This gain supported the trend in BC of increasing the number of patents and pointed to an improvement in the province's overall economy.

Growing awareness of the link between innovation and productivity strengthened efforts to improve innovation in recent years. Both federal and provincial governments introduced policy initiatives to help with this effort, including Ottawa's Innovation Strategy7 and the Scientific Research and Experimental Development Tax Credit.

New patents per million population increased by 64.5% between 1998 and 2003, a higher increase than in Alberta or Ontario, or the Canadian average. Seen in context, however, EC's 35.9 patents per million population in 2003 was still 10% lower than the Canadian average (40.1), and substantially lower than in Alberta (50.7).

In an international comparison of more than 100 countries on new US patents registered in 2002, Canada ranked ninth." Its patents per million population rates exceeded those of several developed nations in Western Europe, but were only about one-third of the top-ranked US rate.

The same was true for R&D intensity. On an international basis, Canada and its provinces ranked far behind other developed jurisdictions. In 1999, Canada's R&D-to-GDP ratio ranked thirteenth in an Organisation for Economic Co-operation and Development (OECD) study, with Sweden ranking first, Finland second, Japan third, and the US fourth.

Want to find out more?

Again, if you want more information on these topics or any of the other topics covered in the BC Check-Up summary report, visit our website at www.bccheck-up.com and select "Backup." There you'll find an analysis of each of the 15 indicators summarized in the report, along with a full overview of each of the province's eight development regions. (These overviews can be downloaded into a PDF format.)

And don't forget, the BC Check-Up is a great report to share with colleagues, clients, and leaders in your community. For additional copies, contact Alexis Knight at 604-488-2615 (toll-free 1-800-663-2677) or by email at knight@ica.bc.ca.

ENDNOTES

1 This indicator reflects total accumulated debt owed by consumers to the chartered banks. This figure is reported quarterly by the Bank of Canada. For the BC Check-Up report, we used the last quarter report in each year. As previously indicated, this total represents debt held by chartered banks only, which represent 2/3 of all financial lending institutions in Canada but exclude trust and mortgage loan companies, credit unions, life insurance companies, non-depository credit intermediaries, NHA mortgagebacked securities, and special purpose corporations.

2 Statistics Canada, The Daily - Review of Personal Disposable Income (2003).

3 BC Statistics, Tourism sector Monitor (January 2004).

4 Use of patents per capita rates to assess innovation trends within a country or region is well researched. see J. Furman, M. Porter, and S. Stern. "The Determinants of National Innovative Capacity." Research Policy. Vol. 31. 2002. 899-933.

5 To track the process of its Innovation Strategy, the federal government has established 15 targets based on input indicators (http://innovation.gc.ca/gol/innovation/interface.nsf/engdocBasic/3.4.2.html).

6 Furman et al, 899-933.

7 Instituted in February 2002 for a ten-year period.

8 World Economic Forum (2003), Global Competitiveness Report (2003-2004). The new US-patents-per-million-population rates were as follows: 1) US - 301; 2) Japan - 273; 3) Taiwan - 241; 4) Sweden - 190; 5) Switzerland - 189; 6) Israel - 165; 7) Finland - 155; 8) Germany - 136; 9) Canada - 109; and 10) Singapore 97.

Copyright Institute of Chartered Accountants of British Columbia Oct 2004
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