Resource Industries Still
a Strong Economic Driver

Over time, British Columbia has become less dependent on the production and sale of natural resource products.¹ According to recent statistics, the extraction and processing of resources accounts for approximately 13 percent of the province’s gross domestic product;² two decades ago, the proportion exceeded 21 percent. A similar trend is evident in the pattern of employment. In 1997, direct jobs in the forestry, mining, oil and gas, and agri-food industries numbered about 170,000 (this includes fishery and agricultural workers but excludes those in beverage manufacturing), representing slightly less than 10 percent of a total employed labour force of some 1.85 million individuals.³ In the decades following the Second World War, up to one-fifth of all jobs in BC were in the resource sector.

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This seemingly reduced dependence on commodities is a healthy trend. It shows that BC has had a measure of success in diversifying its economy, and that industries not tied to the traditional resource base—e.g., tourism, advanced technology, non-resource manufacturing, film, and knowledge-based service—have been expanding at a faster pace than overall GDP. But the figures cited above actually paint a somewhat misleading picture. As discussed below, there is persuasive evidence that BC’s economic prosperity is still closely tied to the health of its resource-based industries.

Defining the resource sector

The resource sector consists of industries engaged in the extraction and production of primary commodities and raw materials, as well as those involved in related manufacturing and processing activity. Primary resource industries include forestry and logging, coal and metal mining, petroleum and natural gas extraction, fish harvesting, and agricultural production. The manufacturing/processing component of the resource sector is made up of industries like food processing,⁴ pulp and paper, wood manufacturing, petroleum refining, and some parts of metal processing.

The resource sector’s economic importance

A number of indicators underscore the fact that the resource sector remains vital to the health of BC’s economy, despite its dwindling share of GDP and employment:

• at least three-quarters of the province’s international merchandise exports consist of resource-based goods, with forest products alone accounting for more than half. Despite the emergence of a vibrant high-tech sector and the growth of other non-resource industries, there has actually been relatively little diversification in the structure of BC’s export trade over the past decade;
• resources also make up almost two-thirds of British Columbia’s exports of goods to the rest of Canada⁵;
• resource industries are the source of roughly 70 percent of BC’s manufacturing shipments;
• workers in resource industries are paid substantially more than their counterparts in other industries. In 1997, for example, the average forestry worker earned $46,130 (not counting benefits), which was $14,180 higher than the all-industry average wage.⁶ Average weekly earnings in mining ($1,050) are 71 percent above the average for all BC industries. Because resource industry employees earn high incomes, they are an important source of demand for consumer goods and services in their communities;
• of the 100 largest companies with their headquarters in BC, 37 are in the resource sector. In addition, several “non-resource” companies in the top 100 (e.g., BC Rail) rely on resource industries as major customers⁷;
• the provincial government continues to garner a sizeable portion of its revenues from the resource industries. In 1997-98, direct resource taxes, royalties, and levies provided 12 percent of the government’s “own-source” budgetary revenue.⁸ On top of this are the corporate income, capital, property, sales, and payroll taxes paid to Victoria by resource companies, plus the various taxes paid by their employees (and suppliers), plus a sizable fraction of the dividends and other payments which the government receives each year from BC Hydro. In total, perhaps 30 percent of the BC government’s own-source budgetary revenues come from firms and employees in the resource sector.

A key reason why resource industries have a bigger economic impact than is suggested by their reported shares of GDP or employment lies in their “spill-over” effects. Industries differ greatly in the extent to which they drive economic activity in other parts of the economy. Some industries, particularly those engaged in exporting, stimulate considerable activity in other sectors, mainly because the demand for what they produce is externally generated and they therefore provide a source of “external” income which flows into the province. Other industries, such as those focused on providing services within local markets, tend to have fewer economic spin-offs.

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The forestry, mining, oil and gas, and agri-food industries all have significant, positive “multipliers,” which means they support employment and income flows in other BC industries. They do so by purchasing a wide range of business inputs (e.g., energy, transportation services, legal/accounting services) from BC firms outside of the resource sector, and by providing incomes for their own employees—incomes that are then largely spent within the province on housing and a host of other consumer goods and services.

Published studies suggest that each direct job in the resource-based industries supports between 1.5 and 2.2 additional jobs in other parts of the BC economy.⁹ Using the more conservative employment multiplier of 1.5, the current 170,000 direct resource sector jobs translate into another 255,000 or so jobs elsewhere in the economy, for a combined total of 425,000 jobs dependent, in one way or another, on resource-based industries. Note that the latter figure amounts to well over one-fifth of all jobs in British Columbia.

A similar logic can be applied in the case of GDP, although determining the appropriate GDP multipliers is a complicated matter. Based on reasonable, up-to-date assumptions about the size of the resource sector and the extent to which it stimulates economic activity in other industries, a credible estimate is that somewhere between 25 and 30 percent of BC economic output ultimately is attributable to the resource-based industries (i.e., at least double their reported share of around 13 percent of GDP).¹⁰

Conclusion

Resource industries remain critical to British Columbia’s economy. When, as is the case today, they suffer due to weak global markets and uncompetitive cost structures at home, the pain is widely felt, including by the provincial government (through lower revenues and higher social payments). This goes a long way toward explaining why the recent sharp downturn in world-wide commodity prices, coupled with BC’s status as a “high-cost” producer of most resource-based products, has combined to push the province into an apparent recession in 1998.

While the resource sector continues to be important, BC needs to continue diversifying its economy by encouraging the growth of non-resource industries that can provide exports, create new wealth, and sustain well-paid jobs. In fact, the need for further economic diversification is plain. British Columbia resource producers face unprecedented competitive pressures in international markets. The economic “rents” which the province has long harvested from its resource economy are diminishing due to this heightened global competition, increased world supplies of raw materials, and high operating costs for resources industries here in BC. Yet the hard reality is that British Columbia remains dependent on its resource industries to generate incomes, exports, jobs, and government revenues. To a significant extent, our present high standard of living is still tied to the existence of efficient, profitable, and internationally competitive natural resource industries, and this situation is not going to change any time soon.

Notes

¹This article is reprinted with permission from the Business Council of British Columbia’s Policy Perspectives, vol. 5, no. 3, August 1998.

²British Columbia Economic Accounts, 1987-1996, p. 50. GDP is measured at factor cost. Note that the above figure of 13 percent of GDP does not count the utilities sector (e.g., electricity and gas distribution) as part of the resource economy.

³BC Stats, Earnings and Employment Trends, May 1998.

⁴Excluding beverage manufacturing.

⁵Statistics Canada, Interprovincial Trade in Canada, 1984-1996, p. 123. Note that if exports of services are included, the share of resources in total BC interprovincial exports falls to around one-quarter.

⁶Price Waterhouse, The Forestry Industry in British Columbia, 1997, p. 16.

⁷BC Business Magazine, July 1998.

⁸“Own-source” revenue equals total budgetary revenue minus cash contributions from the federal government. The 12 percent figure does not include stumpage revenues flowing to Forest Renewal BC, as these are not counted as part of the government’s budget.

⁹Ministry of Finance and Corporate Relations, The Structure of the British Columbia Economy, prepared for the British Columbia Roundtable on the Environment and the Economy (March 1991); Ministry of Forests, Okanagan Timber Supply Area Socio-Economic Analysis, prepared by ARA Consulting Inc., October 1994. A 1995 economic analysis found that the forest industry was the largest single source of income in 28 of 63 local economic areas outside of the lower mainland region, while mining was the biggest source of income in 6 other local areas. See G. Horne and C. Powell, Treasury Board Staff, Ministry of Finance and Corporate Relations, British Columbia Local Area Economic Dependencies and Impact Ratios, February 1995.

¹⁰A 1997 report for the Vancouver Board of Trade and Forest Alliance estimated that, after considering direct as well as indirect and induced economic effects, the forest industry accounts for almost one-fifth of British Columbia’s GDP. The Chancellor Partners, The Economic Impact of the Forest Industry on British Columbia and Metropolitan Vancouver, December 1997.

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