2012 Perspectives Magazine - Manitoba Heavy Construction ...

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Demand for New Infrastructure and
Skilled Labour Shortages could
Undermine Canadian Prosperity
bill ferreira
The past three years have been
extremely challenging. What
started as a well-intentioned policy
to help increase home ownership in
the United States, morphed within
seven years into one of the most
precarious financial threats the
world has faced since the Great
Depression. The collapse of Lehman
Brothers, the fire sale of Merrill
Lynch to Bank of America, and the
near-failure of AIG all contributed
to the greatest loss of investor
confidence since the precipitous
drop of the US stock market on
October 29, 1929, that heralded the
start of the Great Depression.
This time, however, governments around the world acted quickly
and in a coordinated fashion to restore investor and consumer
confidence through a series of bailouts and market interventions.
The governments of the world’s largest economies pumped
more than 2 trillion dollars of stimulus into their economies to
jumpstart the global economy and to prevent the recession of
2008 from turning into a decade-long depression.
Canada is in an Enviable Position
Canada, for the most part, weathered the global upheavals
with surprisingly little economic pain. Federal and provincial
governments responded to the crisis with a series of measures that
maintained access to credit, helped the auto industry restructure,
extended benefits for the unemployed, and supported ongoing
employment by pouring billions of dollars into infrastructure
construction through a series of time-limited stimulus programs.
Consequently, today, employment in Canada has surpassed prerecession
levels and the economy is growing again.
The cost of these aggressive measures on public treasuries
has been significant. Canada’s gross debt-to-GDP level now
exceeds 84 per cent, making the country vulnerable to market
pressures and requiring governments, at all levels, to curtail
future spending.
Thankfully, unlike many other parts of the world, Canada’s
economy is growing at a healthy pace. Driven in part by strong
global demand for energy, minerals and other natural resources,
this decade is looking increasingly bright for Canada. A recent study
for PricewaterhouseCoopers conducted by Oxford Economics
predicted that continued demand for Canadian natural resources
and the accompanying infrastructure required to support their
extraction, production and export will turn Canada’s construction
market into the world’s fifth largest. Only the Chinese, US, Indian
and Japanese markets will be ahead of Canada. In order to achieve
these projections, two current impediments must be overcome:
1) Since government budgets will be constrained for the
foreseeable future, governments will need to work with the
private sector on developing innovative financial solutions to
help finance this critical new construction. New public-private
infrastructure funding solutions will be required to help fund the
construction of the additional support infrastructure necessary
to keep pace with growing international demand for Canadian
energy and natural resources.
2) With increasing demand for construction services throughout
the decade, construction labour scarcity issues will need to be
addressed. If Canada is to remain economically competitive, an
adequate supply of construction labour will be required to avoid
the escalating construction costs witnessed in many parts of
Western Canada prior to the onset of the 2008 recession. Simply
put, if construction costs are allowed to spiral upward due to
labour scarcity, the impact on dependent industries (i.e. oil and
gas, mining, forestry, manufacturing, commercial re-estate)
will be significant and could, if unchecked, reduce overall
investment in the economy and make Canadian industry less
globally competitive.
Infrastructure Funding Requires Innovation
With regard to infrastructure, governments have been scrambling
for more than a decade to keep up with increased demand for
asset renewal and expansion. Recent government infrastructure
renewal programs have made a difference, and according to
the World Economic Forum’s Global Competitiveness Index,
these efforts have raised Canada’s overall infrastructure
competitiveness ranking to ninth best in the world, up from 13th
in 2010. However, with tight budgets going forward and many
municipal assets approaching the end of their useful service life,
the capacity of governments to spend on new infrastructure to
support growing global demand for Canadian natural resources
will be significantly constrained. The solution, therefore, will
be to develop new alternative funding mechanisms to ensure
that Canada’s infrastructure remains globally competitive and
adequately meet the needs of the economy.
34 perspectives Magazine