Saskatchewan Economic Success

On 01/24/2012, in Economics, by Jordan Wilson

My wealth management business is based in Saskatchewan, Canada.

Within Canada, the Saskatchewan economy is doing quite well. The main reason is that Saskatchewan has substantial reserves of natural resources.

But it is more than that. After all Saskatchewan had resources since the dinosaurs liquified.

So why the good times now? 

Significant Natural Resources

Oil and natural gas reserves are strong. I expect the oil sands sub-sector to grow as well.

Mining is also a big industry, especially potash and uranium. Diamond mining may be another leader over time.

Part of the strong economy is due to just sitting on these reserves. Luck of the draw.

But unless someone wants to buy your product, it has little real value.

Strong Global Demand

Part is due to global demand and high resource prices.

Over recent years, demand for various natural resources has been strong. As a result, prices have risen, bringing in higher revenues and improved profits.

This attracts new companies into the sectors. They hire staff and stimulate the local economies. It also adds to government coffers in higher amounts of personal and corporate income taxes and consumption taxes.

Again, some luck of the draw.

I worked in the oil patch when the price per barrel was under $14. Not a great time to be an oilman. Over the last 40 years, there has been significant volatility in oil prices. Today is good. We shall see what next year brings.

Business Friendly Governments

Part of the growth is due to the current (relatively) conservative provincial government being more business friendly than socialist predecessors. And that is not a political statement, simply the truth.

No luck here. Only good government. Well, at least better government than before.

Government regulations and tax laws can help or hinder economic development.

A Keystone Rant

Political considerations play a role. Look at the Keystone XL pipeline. Environmental issues trumped (for the moment) a steady stream of oil from an ethical supplier, construction jobs building the pipeline, increased employment at the U.S. refineries, etc.

Pure political foolishness. Especially from environmentalists who “believe” the environment is better off by having Canada build a pipeline to Vancouver, then ship the oil across the world via tanker (that run on love?), and be processed in environmentally safe Chinese refineries.

Yep, it is all about keeping the environment clean. Really it is. Honest.

Enough of the rant. Back to Saskatchewan.

Pro-Business Brings Exponential Returns

When I grew up in conservative Alberta, Alberta was extremely prosperous. Saskatchewan, with arguably better resources, was not business friendly under its socialist regimes. Being in the oil industry in Alberta during the 1990s, the differences between the provinces were stark.

And the economies of each province reflected these policies.

You never needed (and still do not although it is getting better) a border sign between Alberta and Saskatchewan. You immediately knew which province you were in by the quality of the roads. Anyone from Alberta or Saskatchewan knows exactly what I mean.

I articled with Price Waterhouse in Calgary, Alberta. A majority of my fellow articling students were from Saskatchewan. The reason; that was where the jobs were. The brain drain from Saskatchewan to provinces with stronger economies was enormous. Future accountants, lawyers, engineers, etc., were not building business in Saskatchewan. Instead, they were benefitting Alberta, British Columbia, and Ontario. And the taxes they paid on their incomes went to pave Alberta highways rather than those in Saskatchewan.

Alberta, in turn, flush with royalties from their natural resources, increased their revenues further from income tax and new resident spending. As such, they were able to lower income tax rates, thereby attracting even more company head offices and individual residents.

Additionally, there was no need in the past for provincial sales tax in Alberta. This enticed Saskatchewan residents to save 5% (7% prior to October 2006) on many purchases by shopping across the border.

A vicious cycle. The winners grow and grow while the losers suffer.

Pro-Business Does Not Mean Slash and Burn Policies

Occasionally, I meet people who think that corporations and pro-business governments want nothing more than to gobble up every last resource today, fill their pockets with wealth, and leave a scarred planet for future generations.

I really find those arguments tedious, not to mention mendacious.

Alberta had pro-business policies in the 1980s and 1990s, when I worked in the oil patch. Profits were encouraged.

But heaven help you if you did not properly reclaim the land after shutting down a well or mine. Substantial oversight from government went into this area and penalties were steep. Also, from my experience in the industries, most executives are decent people who want the best. Yes, there are occasionally bad actors, and yes accidents happen, but the number of problems in developed countries is extremely low given the sheer volume of work.

And for those who argue that killing one polar bear is too much, well I cannot really respond. I respect your opinion. And when you shut off your iPhone or iPad that was made in Chinese sweatshops, then shipped by cargo plane or tanker from China to your country, then trucked across the roads to your local store (where the planes/tankers/trucks run on unicorn kisses), we can have a conversation about priorities.

If, as a nation, we decide to live life plowing our fields with our horses and fishing from streams,  I shall happily don my overalls. I shall also spend my evenings by candlelight quickly learning Chinese dialects, as they will be running our countries 几乎立即 (almost immediately).

No Resources? Be Creative

Even regions not flush with natural resources can prosper with effective government policies.

Outside of well-fed cows producing milk for chocolate, Switzerland lacks natural resources. A land-locked country, relatively small population, really not much going for it outside of tourism. Yet the country identified areas of opportunity and implemented laws to promote these areas. For example, strong personal privacy laws in their banking sector created the best location for banking.

Historically, the same applies to insurance in Bermuda, the fund industry in the Cayman Islands, or diamonds in the Netherlands.

Even within a country like the United States, pockets of innovation stand out. Looking for a corporate tax haven? Consider the state of Delaware. According to Wikipedia statistics, “over 50% of U.S. publicly traded corporations and 60% of the Fortune 500 companies are incorporated in Delaware.”

Saskatchewan Economic Success

In a nutshell, these three key factors are currently working in Saskatchewan’s favour.

A large supply of natural resources, strong global demand for these resources, and a government that is working to make Saskatchewan an attractive place to run a business.

Whether that continues remains to be seen.

But as they say in Saskatchewan, “let’s make hay while the sun shines.”

Then once the sun sets, drink a ton of Pilsner and dance around with watermelons on their heads (although this might not be part of the official adage).

This analysis is not overly in-depth. More for information than anything.

And there are other factors that also have played a role. For example, an Alberta government that became less attractive over time, causing companies to look elsewhere for opportunities. Waning interest in nuclear energy. High unemployment in other regions, providing manpower to expand operations in Saskatchewan yet avoid skyrocketing wages. And so on.

I would also say that although the current Saskatchewan government is an improvement over the socialist regime, it still can take many steps forward to be truly pro-business. So I would not consider this a ringing endorsement of the provincial government. Not by a long shot.

1 Response » to “Saskatchewan Economic Success”

  1. Morgan says:

    Thank you, I’ve recently been hunting for information about this subject for ages and yours is the best I have found so far.

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