New Brunswick needs growth industries
We have been spending a lot of time in the past few years talking about how we boost the talent pipeline as a driver of economic development. We can’t forget, however; that we actually need growth industries if we want to ‘grow’. I believe there is a causal relationship between a tightening labour market and the province’s weak economic growth since 2007 but that is by no means the only cause.
One of the challenges is that the main drivers of private sector GDP growth before 2007 have either dropped into decline or are not contributing as much post 2007.
Normally we don’t spend a lot of time showing real GDP by industry because it can be a bit confusing. Not only is GDP a sub-set of industry output in this case it is shown in Chained 2012 dollars. I want to show this to show absolute impact on GDP growth. We could look at percentage change but that can be misleading because an increase from $1 to $2 is a 100% increase whereas an increase from $1000 to $1002 is only a 0.2% increase but it adds more to the GDP than the first set of numbers.
The average annual real GDP growth between 1997 and 2006 was 2.9% and the average since has only been 0.5% (excluding 2020 which was an outlier as GDP dropped by 3.7%).
When you look on a sector-by-sector basis, you can see what has happened. The first table shows the industry groups that added at least $40 million per year to real GDP between 1997 and 2006. The ICT sector, construction (overall), manufacturing (overall), wholesale and retail trade, real estate, admin. support services, health care and public administration all had robust GDP growth. Look at the ‘call centre’ sector (admin. services). It led all private sector industries for GDP growth with the exception of construction, adding nearly $700 million to its GDP contribution over the nine year period. Since? It’s GDP contribution has declined (although it still contributes more GDP than the ICT industry, agriculture (excluding value added processing) and oil refining sector. The bottom line is that we had private sector growth and public sector growth.
Fast forward to the 2006-2019 period. Only one sector saw $40M real GDP growth per year and that is real estate, renting and leasing. I put the overall public sector GDP growth here too as it shows how even the public sector GDP is driven by other factors such as private sector growth and population growth. You don’t want to rely on real estate GDP growth, trust me on this.
I dropped the threshold down to $20M in real GDP growth per year since 2006. Still no other private sector makes the list - except one - retail trade. Again, not the right sector to rely on to grow your economy.
I dropped the threshold all the way down to $10M in real GDP growth per year since 2006. A few more private sector industries start to show up but even then only a few of them are export-focused: ICT, food manufacturing and maybe some professional services.
So this is the economic story of New Brunswick in a nutshell. Few new growth industries have emerged that have made more than a nominal impact on GDP.
Contrast this with Canada overall. Over the same timeframe, the country has seen robust GDP growth in agriculture, ICT, PSE, tourism-related GDP, administrative and support services, along with the public sector. And fairly strong growth in mining (excluding oil and gas), food manufacturing and chemical manufacturing.
So where is the next generation of private sector GDP drivers in New Brunswick?
I think there is potential for more agriculture and value-added processing but this is heavily dependent on workers and sector investment.
ICT has an opportunity to grow here but there are risks. Most of the top IT firms in New Brunswick now have offices in other places - Halifax, Toronto, the U.S. some Europe and Latin America. They may grow here if it makes sense but they could also grow their global footprint.
Tourism - NB is a laggard here but I think there is potential but again talent and investment will be key.
Admin. services?? Tricky one. The GDP is growing nationally in this sector but it is heavily dependent on workers - back office, customer service, support - telephone-based, computer-based work. There are not nearly enough NBers interested in this kind of work these days.
Manufacturing? Maybe but so much of our manufacturing GDP is tied to our natural resources - trees, fish, potatoes, etc. If we don’t have more trees, more fish, more potatoes, it’s hard to see significant increases in GDP.
Professional services GDP has risen strongly in Canada - robust growth in legal and accounting services, as well as architectural and engineering services. But to grow those sectors above average from here means export revenue and export revenue means you have to have the value proposition and the firms to build export markets.
One last one that is kind of interesting. The federal government is a major employer in New Brunswick (DoD, ACOA, etc.). As of 2020 there were 11,288 federal government employees in New Brunswick. This was a 29% increase or nearly +2,600 since 2013. Some people don’t like to think of government jobs and GDP as a ‘growth’ industry but when it comes to the federal government, it is. That payroll flowing into New Brunswick is every bit as good as the private sector, and even better if the average wages are higher because of more tax revenue.
I’d still like to see either a) a bit federal government cybersecurity operation in the new cyber-building in Fredericton and or b) a large federal government language translation centre. But seeing as NB has more federal workers, as a share of total employment than any other province except PEI (yes, we passed NS back in 2013), I’m not sure how much more we can expect.