Home July 2017 Finding the Way

Finding the Way

Alberta’s economy is making a comeback, but many challenges remain.

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Ed Gibbons, Chair, Alberta’s Industrial Heartland Association.

The Alberta Government Treasury Board and Finance report, Alberta Economy – Indicators at a Glance (May 2017) notes that the province’s GDP tumbled by 3.8 per cent in 2016; however, the Alberta Activity Index rose 2.2 per cent in February, which strongly suggests a return to economic growth. Gains were seen in employment (8 per cent year-over year), the employment rate dropped to 6.5 per cent, the amount of active drilling rigs tripled since last year and retail sales grew 7.2 per cent (y/y).

One place where economic recovery is clearly evident is in Alberta’s Industrial Heartland. 

Created in 1998 by the municipalities that have land within the Heartland, Alberta’s Industrial Heartland Association (AIHA) promotes responsible development within the region.

“The region (Heartland) experienced a slow and steady pace of growth during the economic downturn in a variety of sectors and projects,” says Ed Gibbons, chair, AIHA. “Projects already under construction continued as planned: the $8.5 billion Sturgeon Refinery, Pembina’s Canadian Diluent Hub, Pembina’s fractionation expansion projects (RFS 2 and RFS 3), Keyera’s fractionation expansion project (KFS 2) as well as the addition of a deethanizer and Plains Midstream’s fractionation expansion.”

Gibbons continues, “Two major propane processing projects continued to move forward (facilities by Inter Pipeline Ltd. and Pembina Pipeline Corporation). The combined value of these projects is approximately $6 billion. These companies will capitalize on the abundant, cost advantaged propane that’s available in the region.

“Inter Pipeline made a major acquisition with the purchase of Williams Energy Canada’s assets, citing the great growth opportunity in Alberta/Canada. There are investments in transportation, logistics and storage facilities, such as the Pembina rail expansion, the Alberta Midland Rail Terminal and the ATCO Energy Solutions salt cavern storage expansion.

“It is important to note that the slowdown of Alberta’s economy has helped slow construction cost escalations. This helps boost the overall competitiveness of the region, and it will ultimately help make a stronger case for future investment,” says Gibbons.

“Alberta’s Industrial Heartland Association is very active year-round in encouraging sustainable investment in the region. The Association conducts detailed studies on the competitiveness of Alberta’s Industrial Heartland relative to other jurisdictions, which can support policy development by governments as well as investment decisions by the private sector,” Gibbons concludes.

Things may be thriving in the big picture, and in the Capital City, many companies that pared down to make operations as lean as possible during the downturn are gearing up for a comeback; but several challenges still remain – especially for small-to-medium business owners in Alberta.

Universe Machine Corporation has provided services and products for a variety of industries, but primarily for the oilfield sector, since 1965. Ron Feigel, business development, has a bird’s eye, and starkly realistic, view of what the tail end of the recession looks like for small-to-medium enterprises.

“Oil prices are not improving as analysts predicted, investment in Alberta has declined dramatically and moved elsewhere and few, if any, new resource projects are moving forward. Many small manufacturing and service businesses in Alberta are still struggling to adjust and cope with our new Provincial and Federal Governments. Until oil prices show sustained improvement and our governments become more pro-business, it’s unlikely investment dollars will flow back into Alberta to create jobs and boost our economy,” says Feigel.

“Our Alberta economy especially – and really, most of Canada’s economy – has been built on natural resources and is still reliant on them to provide our wealth and future, whether we like it or not. The reality is that we are fortunate to live in a country that is rich in numerous natural resources. To not take advantage of our resource base and to help secure the future for our next generations by utilizing these riches wisely would be utterly foolish.

“All of our governments need to support Canadian resource industries. This will encourage investment, strengthen businesses and keep and grow jobs – which is positive for all of Canada. The wealth generated can be put to work diversifying businesses and would set in motion a prudent strategy for developing cleaner energy alternatives on parallel platforms.

“Universe Machine Corporation and our affiliated businesses are all still operating well below capacity. As we get closer to capacity, Universe will again invest in capital expenditures. Generally, we have a more positive attitude that the future still looks bright, and confidence is certainly returning.

“A common saying is that the best cure for low oil prices is low oil prices! We feel supply and demand for oil and other natural resources will balance out again in several years, and governments will change or adjust for the better, but in the meantime, we have to continue running, remaining lean and efficient while keeping our expectations realistic.”

Universe Machine’s view is one built on decades of experience. The key to surviving a downturn, Feigel notes, is to be aware and prepared.

“Industry downturns are not unexpected, and fairly major ones seem to occur every 7-10 years,” Feigel points out. “Universe Machine has been in business 52 years and has likely experienced half a dozen significant downturns. This economic downturn was not difficult to anticipate, although it’s not really possible to know how deep it would be or how long it might drag on. Oil prices started dropping in 2014, and because they had been high for about five years, this was an early warning sign that the chances of further decline was high.

“By 2014, Universe Machine was already preparing to run leaner by not replacing staff who left the organization or retired. Inventories were pared down and capital expenditures were cancelled or deferred. We also looked at the history of other jurisdictions where governments changed. With new governments both federally and provincially in 2015, we predicted the changes would also bring a high likelihood of economic difficulties and further turmoil for our industries and businesses. Many changes in governments worried us even more, so we stepped up our efforts in 2015 to downsize more rapidly and reduce costs wherever possible.

“Universe Machine Corporation has always operated prudently and grown conservatively, but steadily, to meet our customers’ needs, but without taking on excessive risk or debt. Our company also recognizes the value of our highly skilled and loyal employees; without them, we certainly could not be this successful.

“This downturn, regretfully, forced us to reduce staff by more than one-third, but we have not only managed to keep our long-term employees working, but wages and benefits for existing staff were also not reduced.

“During this downturn, we have shifted resources into research and development and into developing new offerings, adding or improving services and creating efficiencies that will help benefit both Universe and our customers.

“These are all factors that have contributed to our long-term success, and we’ve never had a losing year since being founded in 1965 by Kurt Feigel Sr.”

Each recession changes Alberta and the people that create businesses within the province. While the slow climb upwards has begun, obstacles still remain; but the passion and dedication of Alberta’s entrepreneurs, and those that choose to invest in our province, remains as optimistic as ever, and that’s how and why Alberta keeps finding a way, even when the way is difficult.

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