Productivity – Newfoundland and Labrador and the Future of Canada

Canada is among the least­ ­productive of the ­Organisation for ­Economic Co-operation and ­Development (OECD) nations, and while our oil and gas ­sector ­outperforms other countries, ­productivity in the sector has ­generally been negative. Much of that can be attributed to high levels of investment in recent years, which skew results downward. As the fruits of that investment ripen, productivity gains will be made. Meanwhile, Newfoundland and Labrador is leading the way.

Over the past two years, Deloitte has been ­studying the ­“productivity gap”—the growing ­disparity ­between productivity (defined as the ­average value produced per hour worked) in the ­Canadian and U.S. economies. At basic ­­parity in the early 1980s, today ­Canadian output per worker is only 86% of the U.S. output.

Interestingly, however, productivity growth in Canadian ­mining and oil and gas ­sectors ­outperformed their U.S. counterparts by 1.6% between 2000 and 2008 (the most ­recent years for which there is appropriate data). That said, in both countries the results were still negative (-9.5% growth in Canada) and, owing to the value of mining and oil and gas as a component of Canadian GDP (they ­combine for around 10.25%), overall ­productivity in these sectors remain a drag on the Canada-U.S. productivity gap.

But the situation—at least as far as the oil and gas sector is concerned, if not the ­overall ­Canadian economy—is anything but doom and gloom.

And That’s Where Newfoundland & Labrador Come In.

For one, Newfoundland and Labrador was the only province to help close the Canada-U.S. productivity gap in the period from 2000 to 2010, during which nearly all sectors in the province exhibited productivity growth above their national counterparts for overall ­productivity growth of three times the national average.

Second, the province’s mining and oil and gas sectors have been a powerhouse, with ­exceptional productivity growth of about 6% and a major share of 27% of provincial GDP, and, as noted, have been helping to balance out ­declines elsewhere in the country. Alberta, for ­instance, which accounts for nearly two-thirds of ­Canada’s mining and oil and gas GDP, had slower productivity growth than the Canadian sector average.

It all goes back to investments made in the 1990s to develop the province’s offshore ­resources, investments that are now paying significant dividends. But Newfoundland and Labrador shouldn’t be sitting around on these laurels. Indeed, the current drag from Alberta on productivity will eventually reverse as the billions in investment being made in the oil sands will gradually pay off. That will be good for everyone, including Newfoundland and Labrador.

In the meantime, there’s work to do. ­Businesses, governments, and academia all have a role to play. Companies should be ­looking where ­possible at national and i­nternational ­expansion, at leveraging new capital ­equipment, at creating more ­clusters, and, finally, at not just ­inventing but ­regularly reinventing themselves. ­Government should be ­encouraging foreign direct ­investment, ­improving the responsiveness and ­flexibility of the immigration system, providing ­incentives for companies to grow rather than for ­remaining small, expanding trade, and ­fostering ­fact-based decision-making. And academia should be looking at the extent to which we have proven adept at ­commercializing on our research efforts: while Canadian science and ­engineering ­academics are thoroughly ­competitive in publishing, they are much less so in the ­development of saleable intellectual property. Universities, we think, should see themselves as part of a larger system that ­fosters the ­commercialization of new ideas and ­develops a corresponding curriculum that supports ­productivity growth.

The example of Newfoundland and ­Labrador offshore shows that, in order to narrow the ­productivity gap, we have to ensure that the­ ­investments being made today come to fruition. In general, our research in this area proves we are not limited by anything except our attitude.

Geoff Cochrane is a partner in Deloitte’s ­Assurance & Advisory practice, based in St. John’s. You can reach him at gcochrane@deloitte.ca. For more information on Deloitte’s ­productivity enhancement recommendations, please see “The future of productivity: Clear choices for a competitive Canada.”