From rags to riches: Boom times for the ‘have nots’ are redrawing Canada’s economic and political map

Two huge, dome-covered warehouses, each about the size of a football field, stand on the mine site, eerily empty except for a few dusty sweepings of potash on the floors.

“A decade ago there would have been a mountain of potash in here,” says Will Brandsema, the general manager of AMEC engineering, whose firm recently completed a $400-million expansion of the mine for the Potash Corporation of Saskatchewan.

Today, worldwide demand for the pinkish, chalk-like mineral is so great that the Potash Corp. can’t keep its warehouses full.

In the past four years, the price of potash – the basic ingredient of fertilizer – has soared to nearly $1,000 per tonne from roughly $100, largely because of rising populations in China and India and their sudden appetite for high-value, fertilizer-grown food.

Thanks to a quirk of geologic good fortune, Saskatchewan is filled with potash and now produces more than a quarter of the world’s supply. What was for years an unremarkable export has suddenly become one of the most treasured commodities on Earth – pink gold you might call it – which alongside surging sales of oil, uranium and even grain is suddenly making Saskatchewan the economic envy of the nation.

Three thousand kilometres away, another once-poor province accustomed to life on the economic fringes of Canada is also reaping a windfall from its natural resources.

Skyrocketing oil prices are fuelling an extraordinary economic turnaround in Newfoundland and Labrador, where a fourth offshore oil project will soon be in development. Petro-dollars are transforming St. John’s from a down-at-the-heels provincial capital into a bustling energy city brimming with stylish restaurants, affluent condo developments, and a sense of euphoria not seen there since cod were first discovered on the Grand Banks.

“The Newfoundland and Saskatchewan economies have gone from stagnant to stellar,” declared Statistics Canada in its May Economic Observer. “These two provinces have moved beyond old stereotypes and stepped into a new era of prosperity.”

Both provinces led the country last year in the growth of provincial exports, in the rate of housing starts, and in GDP growth – the only provinces along with Alberta whose per capita GDP was above the national average.

In June, a report by the TD Bank Financial Group called Saskatchewan “Canada’s commodity superstore,” and said if the province was a country it would rank fifth in the world among OECD nations in terms of GDP per capita, trailing only Luxembourg, Norway, the U.S. and Ireland. (Alberta would come second if ranked on the same list).

As for Newfoundland and Labrador, over the past decade its per capita GDP has gone from $10,000 below the national average to $10,000 above: the fastest, 10-year turnaround of any province in Canadian history.

Both provinces also reaped a bonanza last year off commodity royalties. Newfoundland posted a record $1.4-billion budget surplus; Saskatchewan announced a $641-million surplus plus a $1-billion infrastructure spending spree.

While Saskatchewan and Newfoundland enjoy their economic renaissance, recession stalks other regions of Canada, in particular the industrial heartland of Ontario, where many manufacturers are struggling with high energy costs and a high dollar, and the North American auto makers – once Canada’s economic engine – are shedding jobs and shutting factories.

John Pollock, the chairman of Electrohome Ltd. in Kitchener, Ont. – who is winding up the affairs of a once-proud consumer electronics maker forced to the sidelines by overseas competition – predicts Ontario is entering a period of perhaps a decade or more, in which it will no longer drive the country’s economy.

“There’s going to be a period of transition that’s going to be tough,” he says. “Ontario has supported the rest of the country, provinces like Saskatchewan and Newfoundland, for years. Maybe it’s time for a shift.”

Global financier George Soros recently described Canada’s economy as a split personality – half beleaguered by a sluggish, manufacturing sector, and half enjoying the wonders of the worldwide resource boom.

Never before, says Brett Gartner, an economist with the Canada West Foundation, a Calgary think-tank, have the fault lines between energy-dependent provinces in the centre of the country, and energy-rich ones in the regions been so stark.

“Of course, Ontario’s not about to fade away – it still accounts for more than 40 per cent of the national economy. But let’s not discount what’s happening in the regions. It’s quite astounding.”

In Saskatchewan, for example, the Potash Corp., buoyed by a share price that has made it one of the leading companies on the Toronto Stock Exchange, is spending $3.2 billion constructing new mines and expanding existing ones. Much of that work has gone to AMEC, an international engineering firm that recently refurbished a second mill at the Lanigan mine after the mill was closed in the 1980s for lack of demand.

Will Brandsema, who runs AMEC’s Saskatoon office, says he can’t hire engineers fast enough to fill the jobs created by mine expansions in both the potash and uranium industries. Eight years ago, AMEC employed 64 people in Saskatoon, today that number is 325.

“You talk about have-not provinces,” says Brandsema. “Ten years ago, I spent most of my time in the office looking for business. Now I spend most of my time with human resources, looking for people to hire.

“It’s just amazing the growth here, and not only in potash. Thirty per cent of the world’s uranium comes out of this province. And we have other commodities – oil, gas, coal, and the whole agricultural side – all of these are going to grow.”

Saskatchewan left the ranks of equalization receiving provinces in 2007 and Newfoundland and Labrador is expected to become a “have”province this year or next, a startling change considering that the cod fishery – once the foundation of the province’s economy – has not substantially reopened since its devastating closure by Ottawa in 1992.

John Crosbie, who announced the closure as federal fisheries minister and is now the province’s lieutenant-governor, expressed the mood of many Newfoundlanders while reading his government’s throne speech in March:

“Ours is not the province it was two decades ago,”Crosbie said. “We are – for the first time in our history – poised to come off equalization very soon. This is a stunning achievement that will reinforce the bold new attitude of self-confidence that has taken hold among Newfoundlanders and Labradorians.”

What do such economic shifts mean for the country as a whole, and how will the rise of two weaker provinces, coupled with the manufacturing malaise in Ontario, affect the workings of Confederation?

First, many economists say it’s a mistake to underestimate the resilience and strength of the huge Ontario economy. They also say the surging energy economies of Alberta, Saskatchewan and Newfoundland and Labrador face their own challenges, including cyclical commodity prices, the social costs of rapid development, and serious labour shortages.

Canada is already facing a labour crunch that’s only going to worsen with time. In six years, says economist Brian Lee Crowley, president of the Atlantic Institute for Market Studies, there will be more people leaving Canada’s labour force than entering it. The new demand for workers in Saskatchewan and Newfoundland, especially in construction and engineering, can only exacerbate the problem.

In 2006, for the first time in 23 years, Saskatchewan stopped losing people, on a net basis, to other provinces, thanks to the thousands of workers streaming home from Alberta to new jobs in Regina, Saskatoon, Moose Jaw and elsewhere.

As job opportunities also grow in Newfoundland, and competition for skilled workers intensifies, the availability of labour will fall and the cost of it will increase, putting further pressures on the dollar and on manufacturers.

The rampant growth of Canada’s resource-rich economies is also expected to force changes to the federal equalization program.

In April, the TD Bank forecast that Ontario, a longtime contributor to equalization, could become a recipient as early as 2010 – not because Ontario’s economy is falling apart, but because it is slipping relative to the rampant growth of commodity-producing provinces.

As the resource boom pushes the average level of provincial revenues higher, so provinces like Ontario will fall below that average, and the cost of funding equalization will increase. Yet the federal government won’t be able to afford the program, because Ottawa has no access to the commodity revenues that are driving up its cost – natural resource royalties flow only to the provinces.

“The amount of money required for that program is going to get bigger and bigger,” says Wade Locke, an economist at Memorial University in St. John’s. “It’s currently $13 billion, it’s going to be $30 billion in 10 years. The federal government doesn’t have the financial wherewithal to fund that program.”

Yet abolishing or changing equalization, a program required by the Constitution, presents huge political problems, particularly in Quebec, the largest recipient.

“You’re going to see some serious restructuring of equalization, but not before the next election,” says Locke. “The Harper government is not going to do it.”

Changes to equalization, not to mention a realignment of “have”and “have-not” provinces, could also prompt a new wave of regional beefs and resentments – the bane of Confederation.

Oil itself could become a flashpoint that divides the country. Public demands in Quebec, Ontario or British Columbia for a national carbon tax would now raise the ire of more than just one oil-producing province.

Meanwhile, Saskatchewan and Newfoundland, which typically wield little weight in national discussions, could use their new economic clout to campaign for a truly effective Senate, with real power to represent regional interests.

“There is some realignment of economic power occurring which will influence the national political debate,” says former Newfoundland premier Brian Peckford, who now works as a business consultant in British Columbia.

“Premiers’ meetings, for example, won’t be dominated by only a few big provinces. Smaller provinces like Saskatchewan and Newfoundland won’t have to shout and demand to be heard. We’ll get noticed simply by being there.”

Still, Peckford –  who grew up in a province so poor that he remembers, as a boy, studying his school books by kerosene lamp – warns Newfoundlanders not to let their budding affluence go to their heads.

“I would caution them that as they grow financially, they must also grow emotionally and socially. The last thing Newfoundland and Labrador should do is get arrogant about this, because one never knows how long it will last, and a lot of Canadians helped us after we joined Confederation, so it’s our turn now to contribute back.”