Respected economist echoes McGuinty: "petro dollar damaging to Canada's manufacturing industry"

Economist Robyn Allan addresses recent remarks from Ontario Premier Dalton McGuinty and Alberta Premier Alison Redford, highlighting conflicting viewpoints on oil and the Canadian economy.

Photo of Alberta oil sands by Kris Krug

Respected economist Robyn Allan, former CEO of the Insurance Corporation of B.C., says the country’s move towards an oil-based economy will have severe effects on other sectors like manufacturing—a point Ontario Premier Dalton McGuinty recently reiterated during a public clash with Alberta’s Alison Redford.

“If all this rapid expansion of oil sands leads to a higher Canadian dollar, nobody in Canada ultimately can win,” Allan said, adding her support for Premier McGuinty’s concerns.

When Redford called on Ontario and Quebec to stand up for the oil sands, McGuinty responded with a resounding “no”. Instead, he suggested that the high Canadian dollar—the “petro dollar” being driven up by demand for Western oil and gas—is hurting Ontario’s economy by making manufacturing exports less competitive internationally.

A high dollar driven by global oil demand

"The only reason the dollar is high (is because) it's a petro dollar, driven by the global demand for oil and gas to be sourced in Western Canada," McGuinty told the press on Monday.

“That has knocked the wind out of Ontario exporters and manufacturing in particular. So if I had my preferences as to whether we had a rapidly growing oil and gas sector in the West or a lower dollar, I’ll tell you where I stand: with the lower dollar.”

The Premier later apologized for the harshness of his words, assuring reporters on Wednesday that Ontario is “proud of the work that’s being done by Canadians in every part of Canada”. But his initial response sheds light on an important difference in opinion.

Are the oil sands good for Canada’s economy, or not?

“I think definitely in part we are suffering from the situation where the export of our natural resources, particularly crude oil, leads to upward pressure on the Canadian dollar. And as a result, that makes other sectors of the economy less competitive in terms of the exports,” said Allan, echoing McGuinty’s sentiments.

“He’s absolutely right to be concerned, and all Canadians should be concerned, and even the oil industry should be concerned,” she said.

Alberta oil a benefit to all of Canada: Harper

Others, however, disagree with this assessment. Prime Minister Stephen Harper has been busy spreading the word about Alberta’s oil industry and its vast economic benefits, not just for Albertans but for people across Canada. And in Redford’s words, “When we talk about oil sands, it’s not about what’s in Alberta’s best interests, it is about what’s in Canada’s best interests.”

The Alberta Premier has cited a report from the Canadian Energy Research Institute (CERI), which says Ontario is actually profiting more from the oil sands than other provinces outside of Alberta. The report explains the “trickle-down” benefit to Eastern manufacturers as oil sands producers require materials and commodities like steel.

CERI predicts that Ontario will reap about $63-billion in spin-off benefits, in addition to the 65,520 oil-sands-related jobs that are expected between 2010 and 2035. But according to Allan, the group’s analysis does not account for harm caused by the rising dollar.

“The study [Redford]’s been citing only looks at the benefits that the oil sands are receiving, and not the costs to the rest of Canada,” Allan told the Observer.

“That report is based on another CERI study that actually identifies a very strong correlation between oil prices and the Canadian dollar. So it actually says exactly what Premier McGuinty’s saying.”

Acknowledging the potential for inflation, the CERI report calls on the federal government to ensure the dollar stays low enough to prevent excessive economic damage.

“While it is highly probable that the Canadian dollar will trade above par with the U.S. dollar, it is assumed that the Bank of Canada would intervene, to put downward pressure on the relative value of the Canadian dollar,” the study reads.

Canada’s “Dutch Disease”

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