Think about Alberta, you think about oil and gas. Reserves in the feted oil sands are vast, rivalling those of Saudi Arabia. Just two years ago, widespread fear that the planet was running out of oil vaulted Alberta’s extensive and politically secure supplies to the centre of the global stage. With all the attention, it’s easy for the casual observer to forget Alberta’s other economy and its potential.
Without a doubt, the discovery of oil near Leduc in February, 1947 transformed the Alberta economy. Today, direct mining activity accounts for close to 20 per cent of provincial GDP, but the total effect is much greater. Petroleum and coal processing accounts for 25 per cent of manufacturing activity, and development of oil extraction sites accounts for a substantial share of construction. Add to that the services in the province that support oil and gas activities, and one rapidly gets a sense of the sector’s dominance.
Oil and gas have made the province wealthy and famous. But these gains have a cost. Prices for these commodities can be very volatile, and have led to boom and bust cycles in the province, as seen clearly in the past 18 months. Alberta has itself, during the bust cycles, lamented its reliance on fossil fuels, and has embarked on diversification strategies. In today’s global economy, where the thirst for oil seems at times insatiable, does it make sense to pursue diversification or not?
Recent GDP data initially suggest not. Adding up non-energy primary and manufacturing industries, and attributing an appropriate share of service sector support to these industries gets us to somewhere between 10 and 15 per cent of GDP. Small, but not insignificant. However, trade shares are more inspiring. Energy exports are still dominant, but other merchandise exports account for a disproportionate 29 per cent of total foreign shipments. Moreover, Alberta is a top Canadian player in a number of these categories, including crops, meat products, pulp, chemicals and fertilizers.
Activity is also inspiring. In 2000, sales to developed markets, largely the US, swallowed up 86 per cent of non-energy exports. By 2009, the share was still dominant, but had dropped to 70 per cent. While the past decade saw flat sales to traditional customers, growth to emerging markets averaged almost 10 per cent annually. Diversification is happening, albeit on a small scale.
Continue this trend, and the scales change enough to turn heads. Imagine that emerging markets had started in 2000 with a higher share – say, 40 per cent of total non-energy shipments. Instead of languishing, total growth of non-energy exports would have averaged 5 per cent annually, adding $7.4B to shipments over this period, or about 10 per cent to total trade. If we can assume that increased diversification effort, by whatever means, grew annual shipments to emerging markets by 2 per cent more per annum, the increase in Alberta’s total trade activity over this period would sum to something in the range of 15 per cent-19 per cent.
Is such sustained diversification possible? First, it is already occurring. Second, emerging markets are some of the world’s top opportunities for Alberta’s key non-energy sectors, as identified by EDC’s Trade Opportunities Matrix. Third, potential growth in these markets will be hot for decades to come.
The bottom line? Alberta’s other economy is already showing a dynamism that in the near future will blossom. Further harnessing dynamic emerging market growth will only enhance nascent progress.
