CEO Resources
Breakfast with the BC Finance Minister: January 2010
Overview
I was invited this week to an informal breakfast with BC’s Finance Minister. It was a candid discussion in which he shared his perspective on the province’s economic outlook for the next few years. I found his insights interesting and relevant to the mid-sized business leaders I meet every day. Perhaps you will too.
General Outlook
Colin Hansen, BC’s Minister of Finance said he suspects the economic decline in BC is over; however, recovery will be a slow process. While the media has been expressing buoyancy and optimism, clutching at the uptick in consumer confidence numbers and housing sales as evidence, these numbers are not a report on the “real” economy. The Canadian and BC economies are too closely tied to the US’ and the US is stagnant. Of all provinces, the US effect will be least felt in BC as BC’s economy is the least dependant on US exports. Exports to the Asia-Pacific region now comprise over 30% of BC’s total. Further, most experts believe Asia-Pacific will lead the world out of recession. He also stated BC’s recovery will be fueled largely by the Olympics. After this overview, he spoke about specific industries.
Forestry
The forestry industry will continue to suffer. 2 years ago BC exported 2 million board feet to the US. Last year that figure dropped to around 350,000. There was some hope that the worst of the toxic debt would have worked its way through the system by now and new housing starts in the US would take a sharp up-swing. This has not proven out.
It is estimated that only 40% of the toxic debt has been realized, and 1 in every 4 homeowner in the US has negative equity in their home. While exported board feet are up to around 400,000, significant improvement is not expected in the short term.
He suggested some forestry industry businesses can reposition. While the industry itself will remain soft, those companies that re-tool to supply wood pellets, bio-fuel, etc. could fare well.
Engineering and Construction
Industries that count on government dollars will have to find other sources of revenue. The government does not have money to spend. I asked if this applied to public infrastructure projects and he said it did not. Spending on public infrastructure for 2008 and 2009 was about $7.5 billion (think Golden Ears Bridge and Surrey Hospital). It is forecasted to remain at around $6.5 billion for the next 3 or 4 years. Necessary infrastructure projects, such as schools, that were planned for 5 years from now are being pulled forward in an effort to stimulate the economy.
Mining and Clean Technology
He was bullish on clean-tech and mining for two reasons: First, the availability of foreign investment actively pursuing opportunity in these areas; and second, the readiness of many projects and companies to capitalize on this opportunity. He made particular note of Chinese money. China has sizable foreign exchange reserves (over US$2 trillion) and the BC government is receiving a significant number of Chinese delegations interested in reviewing investment opportunities in BC. He also brought this conversation back to forestry – those companies that can re-tool to produce bio-mass fuel sources will be well served to do so.
Interest and Inflation
There is no crystal ball for this one but his belief is that if inflation starts to climb it will happen quickly. He believes government’s response will be equally fast in raising the bank rate (significantly if necessary) to combat inflation. When asked about his concern on a return to the climate of the early 1980s, Hansen seemed to think it highly unlikely, but did caution that interest rates could rise sharply and without much warning.
The HST
You can’t expect Colin Hansen to show up at a meeting these days without at least a word on the HST. He expressed that this has by far been the most challenging issue of his political career. He also spent some time talking about the benefits of the HST. Of interest to me were the following points:
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HST will allow businesses to use the flow-through credits on purchases that they used to pay PST on. He therefore expects companies planning major expenditures on which they would have had to pay PST to wait until the summer so they can pay HST instead (therefore effectively reducing the price). He also talked about 6 month lease to own options that have been springing up as a result of this opportunity.
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The marginal investor tax rate will be reduced from about 26% to about 15%. What this means is that pre-HST foreign investment would have to pay 26% tax before they ever received a penny of return. Post-HST the rate drops to 15%. He said this was the single biggest convincing factor for him – there are many projects ready to go in BC just waiting for investors and he wanted the province to be competitive (globally and also with Ontario) in attracting that investment.
In Conclusion
The above is a memoir of what was said, not quotes. The statistics and numbers were given verbally and may have been recorded incorrectly so should be verified. What I found most fascinating was the relevance and applicability of the information to the strategic planning sessions our clients are engaged in right now. It changes the way they are allocating financial resources, management attention, and business development strategy.
Thank you to Image Group for including me in this enlightening opportunity.
Next Steps
Knowing what to do is one part of the equation. Getting people to do it is the other. Changing the attitudes, beliefs and actions of the employees in your organization is no easy task but it is a task worth the investment.
To learn how other business leaders are making meaningful advances in this area contact Tara Landes at (604) 345-0424, or tlandes@mrsibenchmarking.com.
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Tara Landes is a Principal at MRSI Benchmarking Inc., a full-service benchmarking and change management firm committed to delivering lasting change in small and medium-sized businesses across the United States and Canada. Researching best practices from multiple industries, we take companies from where they are now to where they want to be, so they may achieve their goals and fully actualize their potential. Visit us on the web at www.mrsibenchmarking.com