This Boom Goes On | A lesson from Saskatchewan on building a recession-resistant economy |
Unlike Alberta, Saskatchewan spread its newfound prosperity across enough baskets that the province was last into the recession. Now it’s ready to be the first out
by Amy Jo Ehman
Check out these numbers: Since 2007, A market cap increase from $35 million to more than $500 million, output of 450 tonnes per day, a hold on one-third of Saskatchewan’s international export market and sales to more than 80 countries eager for a commodity the province has more of than just about anywhere else in the world.
Potash? Uranium? Oil?
Try lentils.
“In a recession, people don’t consider whether they’ll buy their basic protein. They do consider whether they’ll buy a new car or new clothes, but not their basic diet,” says Murad Al-Katib, president, CEO and founder of Regina-based Alliance Grain Traders Inc., whose primary markets are in Turkey, South Asia and North Africa. “Our company has seen explosive growth over the past two years.”
Al-Katib, who grew up in the farming community of Davidson, 145 kilometres northwest of Regina, started marketing lentils from his basement in 2001 and took Alliance Grain Traders onto the TSX three years ago after constructing a $5-million lentil- and pea-splitting facility in Regina with financing from one of his biggest customers, the Arbel Group of Turkey. Last September, he bought Arbel.
Millions of acres sown to lentils represent a dramatic diversification in Saskatchewan’s agricultural sector over the past 20 years. It also symbolizes a healthy diversification across sectors, which has helped the province weather the global economic storm.
“We used to sell a little bit of oil and a bunch of wheat, and now we’re selling things I didn’t even know the world wanted,” says Steve McLellan, CEO of the Saskatchewan Chamber of Commerce.
“We’ve become so diversified as a province that when one sector declines, as we’ve seen with potash, others seem to pick up the ball and run with it. It’s allowed us to sustain our profitability as a province at a time when the rest of the world is feeling the pinch.”
As Albertans dare to hope for a modest recovery in 2010, folks in Saskatchewan dare to wonder if the recession has simply passed them by. Activity is returning to the oilpatch, economic indicators are holding steady and prosperity appears to hang in the balance. There’s a chance that, unlike its western neighbour – and almost every province and territory in Canada, for that matter – Saskatchewan has managed its boom so deftly that it might continue without the worry of something so severe as a bust.
Several forecasters back that up. CIBC and RBC are predicting Saskatchewan will lead the nation in economic growth in 2010, while BMO has placed it second to British Columbia with its Olympic-sized economic boost.
Their bullish forecasts are predicated on a rebound in the resource sector, particularly potash, whose meteoric rise in 2008 crashed to the floorboards last year. That unpredictability has forecasters at TD and Scotiabank pegging Saskatchewan in fourth place among the provinces.
However, those sour predictions don’t curb the enthusiasm of boosters like McLellan: “We were the last into the recession – what I refer to as a recess – and we’re going to be the first out of it as well.”
That “recess” couldn’t have come at a better time, according to those on the inside of Saskatchewan’s overheated economy two years ago.
While potash royalties soared and drilling companies flocked to the oilpatch, many sectors – from construction to service industries – felt the strain of rapid growth and a shortage of qualified employees. The pace was exhilarating, but exhausting.
“Honestly, we needed a correction,” says Derrick Big Eagle, of Eagle Drilling Services Ltd., a contract driller with 175 employees operating six rigs primarily in the burgeoning Bakken oil play in southeast Saskatchewan. With its extensive pool of light crude, excitement over the Bakken field was a key factor in that province’s record-high resource land sales in 2008.
“It was getting a little ‘green’ out there. The experience level got rushed and people were moving up ladders before putting in their time,” says Big Eagle, whose company was recently commended for surpassing one million hours without time lost to accidental injury.
From a high of 95 to100 rigs drilling in the Bakken at the height of the boom, to a low of 20 rigs just a few months later, the pace has recovered to a comfortable 75 rigs, according to Big Eagle.
Besides the contribution a favourable royalty regime has made to that rebound, Big Eagle’s Calgary-based business partner Rob MacCuish identifies another advantage vis-à-vis Alberta: the price of oil has recovered more quickly than the price of natural gas, neither of which holds a grip on Saskatchewan’s economy.
“When the oil and gas industry picked up, it was a bonus for Saskatchewan, whereas when it dropped off, it really hit Alberta hard,” says MacCuish.
“Saskatchewan has a lot more oil waiting than gas waiting, whereas Alberta has more gas waiting than oil, on the conventional side.”
However, the big boom-and-bust headlines in Saskatchewan were reserved for another resource commodity: potash (see sidebar, next page). Record sales in 2008 were followed by a 37-year low as prices and sales plummeted, due in part to a decision by belt-tightening farmers around the world to forgo fertilizer, of which potash is a key component.
The Saskatchewan government was slow to see the oncoming crash. The provincial budget, which had optimistically swelled by an estimated $1.9 billion in potash royalties had, by the end of 2009 shrunk, by roughly $1.8 billion.
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