It’s taken two years for B.C.’s manufacturing sector to recover from the economic downturn. But uncertainty over the HST and a potential drop in skilled worker visas threaten to derail the industry’s recovery.
Statistics Canada recently reported an 8.7% increase in manufacturing sales in B.C. last year to $35.8 billion, up from $32.9 billion in 2009.
Many of the key manufacturing sectors in B.C. contributed to the overall increase, with primary metal manufacturers reporting a 27% increase in sales year-over-year in December.
Other sectors with substantial sales increases included:
- machinery manufacturers (15.6%);
- wood product producers (11.7%);
- plastics and rubber producers (11.4%); and
- fabricated metal manufacturers (10.4%).
The increases benefit most of the largest manufacturing employers in B.C., many of which are based in the Lower Mainland. According to BC Stats, the proportion of manufacturing jobs in Metro Vancouver has been steadily growing over the past decade to 58% of all manufacturing jobs in the province from a low of 49% in 1998. The massive cuts in forestry jobs in communities outside the Lower Mainland have been the main reason for the increased concentration of manufacturing jobs in Metro Vancouver. But some sectors, including food manufacturing, have remained relatively stable during the downturn and subsequent recovery.
While food producers are generally counter-cyclical industries that do relatively well in a recession, greater diversification in markets has also kept the sector strong. Craig Williams, vice-president of the Canadian Manufacturers and Exporters Association of BC, noted that less than half of the food products manufactured in B.C. now go to the U.S.
“That’s very different from the rest of Canada where it’s in excess of 70%. In boom times, we were close to 60%, but now it’s less than half going to the U.S.”
A Conference Board of Canada report released last week suggested that many Canadian manufacturers are waiting for the U.S. to fully recover from the recession to generate consistent profit growth over the next few years.
But Williams said employing such a strategy is fraught with market risk.
“Business as usual is not going to happen anymore; the world’s economy is changing, and you can’t rely on the U.S. Those that rely on the U.S. coming back will sadly be out of tune with reality.”
But in addition to market diversification, manufacturers need the opportunity and, in some cases, the incentive to innovate and increase the value of products manufactured in B.C.
The lowering of corporate taxes in B.C. and in Canada over the past few years has been one key incentive. Both Victoria and Ottawa have been cutting corporate taxes such that by 2012, the federal tax rate will fall to 15% from 19% a few years ago. B.C.’s corporate tax rate has dropped to 10% in 2011 from 16.5% in 2001.
The HST has also been a significant boost to a manufacturer’s bottom line. It allows businesses to increase employment and capital investments to raise productivity.
“The HST is hugely important,” Williams said. “If that gets reversed, we will become the most non-competitive jurisdiction in the country. It would be a huge setback to our competitiveness.”
Williams said the key for the province’s manufacturers and exporters is to continually innovate and invest in product research and development. The HST plays a vital role in that, by providing additional research capital. But equally important is finding the needed skilled workers.
While the recession may have temporarily reduced the shortage for skilled workers, the need will again outpace supply as the economy continues to grow.
Reports of reducing the number of foreign skilled workers will exasperate the problem in the long term.
“There is a shortage of skilled workers in this country; we’re begging for people with skills,” said Williams. “We have some world-class manufacturing leaders here. They’re little gems that no one knows about, but we need to encourage these guys to grow.”