Economic outlook: The mood of a nation (part 2)

Western Canadian businesses share their economic worries.

For an expanded version of this story, please go here.

Canada is home to so many diverse businesses that it might seem unlikely they would have much in common. But as staff writer Joe Castaldo found on a weeklong trip to seven cities across the country, the issues facing businesses are more similar than we think.

Eastern Canadians shared their concerns in the first part of this series (April 14 issue). The high Canadian dollar, labour shortages and the impact of a weakening U.S. market were frequently brought up.

The issues out west are not radically different, though each community has unique challenges. A burgeoning tech scene is taking shape in Calgary. Quesnel, B.C., is struggling to cope with a depressed forestry industry. And Prince Rupert, B.C., battered on many economic fronts, could find new life as a thriving port city. When a town becomes too reliant on one industry, or the economy falters, sometimes the only thing to do is change.


Michael Sikorsky is leaving Calgary this year. The founder of “crowdsourcing” company Cambrian House will be moving to California, likely San Francisco, to become a part of what he sees as a more vibrant startup culture. “Even though I love Calgary, I can’t stay here anymore,” the 34-year-old says. “You always feel like you’re out there on the ledge all by yourself. You don’t have anyone to talk to about what’s going on, so it just makes sense you’re going to be a bit more fearful about what can happen.”

Calgary is an oil and gas town, so on the surface it’s no surprise Sikorsky, a tech entrepreneur, would feel isolated in this environment. But in fact, the city is home to more tech startups per capita than any other place in Canada, according to Calgary Economic Development. In addition to Cambrian House, a number of local companies have also made headlines over the past few years, including iStockphoto, Voodoo PC and Immersive Media.

Claudia Moore is working to raise the profile of the city’s tech sector as president of Material Insight, a consulting firm for local startups. “The next three to five years will be definitive for Calgary,” Moore says. “It takes you a little while to figure out what you want to be when you grow up, and Calgary is on the cusp of that.” In some ways, the city has an advantage in terms of developing into a tech hub: an entrepreneurial-minded, maverick culture, and a pool of investors rich with oil and gas money. But will they be willing to part with their cash, especially at a time like this?

Moore concedes that no matter how independent the tech sector may think it is, the entire psychology of Calgary is affected by the oil and gas industry. And in an annual survey conducted by the city’s Chamber of Commerce, concern about the health of the economy cracked the list of the Top 5 issues affecting businesses, unlike last year. Educating the city’s investors will be tough, but not impossible. “There’s no question there’s uncertainty in the marketplace,” Moore says. “With oil and gas, you’re traditionally tied into a global market, whereas with a technology company, you have a little bit more control over your destiny.”

Moore says angel investors with oil and gas backgrounds are coming on the scene. She points to Bone Creek Capital, a firm more accustomed to resource plays, which invested in mobile firm Redwood Technologies.

But the city’s wealth has also increased the cost of living, and that could impede development of the tech sector. “Part of Calgary’s success was you could go to school here, get a job here and buy a house here,” Moore says. “That can all stay true, but we need to start competing for people differently. It’s not as easy as it was before.”

So what would have kept someone like Michael Sikorsky in Calgary? A “phenomenal” startup culture. “We’ve got all this capital here,” he says. “We should be taking a shotgun approach to innovation.”

Quesnel, B.C.

Large swaths of skeletal grey trees scar what was once the dark green landscape of Quesnel. The trees are dead, killed by the mountain pine beetle. “We’re the epicenter of the problem,” says Norm Livingstone, manager of the SilvaGro Partnership, a local nursery. Sure, the high Canadian dollar has caused bleeding in the forestry industry, and both a U.S. recession and a slowdown in housing starts would cause further pain, but at least markets tend to be cyclical. The pine beetle has always existed in B.C., but several consecutive warm winters and dry summers have caused the population to explode, and more than 13 million hectares of provincial forest have been affected. The bug doesn’t appear to be going away any time soon.

That has been keeping Claude Paquet busy. The burly 60-year-old founded Clan Logging 37 years ago in Quesnel (pop. 9,915), and for many years business was relatively stable. Now he’s logging more and more trees annually to provide lumber producers with enough usable wood. Beetle wood is dry, cracked and difficult if not impossible for mills to process. The forest floor is also wetter and muddier than ever since there are fewer healthy trees around to absorb rainwater, making logging itself more difficult. New equipment could help matters, but it doesn’t come cheaply. “It’s very difficult for us to balance if it’s worth it or not,” Paquet says. “We’re not as stable with the market as it is.”

He sees things only getting worse. The area around Quesnel is predominantly made up of pine forests, which the beetle has decimated. Paquet says other species of trees are now affected in the region, such as spruce and Douglas fir. “The bug is powerful enough that they will do the rest of them,” he says.

Quesnel processed about five million cubic metres of timber between 2006 and 2007, but that number will decline to less than two million cubic metres in less than 10 years. The town will be hit hard. “We haven’t got hurt much with job losses yet, but I can see that coming,” Paquet says. Still, a robust pulp market has kept Paquet and his 50 employees supplying pulp mills with wood chips, and pellets made from the dead trees are exported to Europe for power generation.

The pine beetle has actually provided a boost for the SilvaGro nursery — temporarily, at least. More logging means more tree planting to replenish the forest, so SilvaGro’s business has picked up. It even built a new nursery recently to handle capacity. “It’s been a bit of a boom,” Livingstone says, “but that will come to an end as the amount of wood to log declines.”

Livingstone is concerned about the town’s population of younger trees — the next generation to be logged — and how badly they’ve been hit by the beetle. The insect typically attacks older trees, but not exclusively. “That’s the one black hole for me,” he says. “Who’s looking after those trees? How much is affected? We don’t even have those numbers yet.”

Quesnel also has to figure out what to do with all of the dead trees; while Europe may be hungry for wood pellets to produce energy, few such projects exist locally. The town’s economic development committee released a plan in February exploring ways to cope with the pine beetle, and a significant portion was devoted to bio-energy initiatives. The province is also accepting proposals for power generation projects using pine beetle wood. But so far, Livingstone has seen little action. “I’m very skeptical about government,” he says. “We’ve always been behind the eight ball in dealing with the pine beetle.”

Time is also running out to make use of the wood, Paquet says. “We can’t wait too much longer. The wood will rot faster than we expect it to.”

Prince Rupert, B.C.

Prince Rupert sits on an island in the northwest. Naturally, the town gets little sunlight and lots of rain. A similar gloom has engulfed Prince Rupert’s economy. The fisheries withered, forestry tanked, the shipping port lost business and the pulp mill shut down, putting more than 700 people out of work — all in the past decade or so. But the town does have a reason to hope for better times, even in the face of a shaky economy.

The hope stems from the local port, which has transformed itself over the past few years to handle container ships, largely through the work of Don Krusel, president and CEO of the Prince Rupert Port Authority. “With the collapsing of our industries, it really was a do-or-die situation for us,” he says. The town is nearly three days closer to Shanghai than is the port in Los Angeles, and Krusel believes that geographic advantage will result in a boom in shipping, and prosperity for local residents.

The port has been receiving one container ship a week since the fall, and the town is now increasingly tied to the global marketplace. “We’re more interested in the Chinese economy, and what the U.S. economy is doing these days,” Krusel says. “Our future is more dependent on the ups and downs of the global economy.” That means Prince Rupert has not escaped the effects of a faltering U.S.

Container traffic to West Coast ports has slowed down, Krusel says, making it more difficult to attract a second shipping line to use Prince Rupert’s services. “It’s tough for a shipping line to make a decision to go into a whole new port when they’re actually reducing service in their other ports,” he explains. “The question is how long this slowdown will last before we get into the next upswing.”

He won’t just be sitting around waiting to find out. Expasion of the port to triple its size will begin next year, adding another 700 direct jobs on top of the 300 the port has already created, Krusel says.

“The port has been our saviour. Without it, we’d be in dire straits,” says real estate agent Allen Moore. But he’s not quite ready to concede the town’s economic decline has reversed for good. “I’ve lived in Rupert all my life. I’ve seen all the ups and downs, so I don’t get very excited,” he says.

Any kind of rejuvenation is in its infancy. Real estate speculators started buying housing as soon as the port development got underway nearly three years ago, but many houses are falling apart. Retail is sluggish, with a few storefronts on the small downtown strip sitting vacant. The population declined by 12.5% to less than 13,000 people between 2001 and 2006, and the unemployment rate is more than twice the B.C. average at 13%.

“We’ve got a lot of teens getting into crack and coke. There’s always been a lot of heroin in town,” says Myles Moreau, an outreach worker for more than 20 years. He admits the port development has been good for the town, though he’s concerned economic growth will attract more crime and gang activity.

He could be getting ahead of himself, however. As realtor Moore says, “It’s going to be a long, long recovery.”