Those who battled through the 16-page survey of Canada in the 3 December issue of The Economist should have immediately been alerted to the fact that there is a fine investment opportunity in the country by the amount of words devoted to knocking it.
I have long been impressed by the potential of Canada's Alberta tar sands (from which oil can be extracted), but there is one aspect of their significance that has eluded me until very recently the impact the investment in, and revenues from, the industry are now having on the rest of the Canadian economy.
Despite its vast expanses and plentiful natural resources, Canada has a population of only 32.5 million, of whom 13.3 million are in full-time employment and just under three million in part-time employment. Canada's unemployment rate fell to 6.4% in November, a 30-year low. The employment rate, at 73.5% in the third quarter, is bettered only by the UK (74.7%) and Denmark (75.5%).
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Part of the reason for this is that the capital development programmes in the tar sands and oil infrastructure sectors that have been set in place are already absorbing huge amounts of labour and have bid up hourly wage inflation in Alberta to 6.7% a year. Retail sales growth by value is 7% in British Columbia, 9% in Saskatchewan and 13% in Alberta.
Things don't look so good in Ontario at the moment, where the strong Canadian dollar and fall-out from the ailing US auto industry will have sobering effects (retail sales growth here is only 3%).
But the oil sands do mean that Canada has the capacity to re-deploy the labour shaken out of the old manufacturing industries. This all makes those sectors directly exposed to the Canadian consumer and domestic business services look like good places to be, and means that Canada should be seen as more than a commodity play.
Unless oil and commodity prices fall very significantly say oil well below US$40/barrel there will be no reason to halt the investment boom. Indeed, as geopolitical tensions rise in the Middle East, then the opposite scenario presents itself. The attractive prospect arises because of the wealth and income that is accruing to the Canadian people and their government, irrespective of world trade developments or the US industrial economy.
Think of the Alberta tar sands as a multiple of the UK's North Sea oil endowment, but residing in an economy with about half the population. With such an uncertain economic outlook for 2006, domestic non-oil Canada may be the closest thing to a safe haven. Go West, young man!
Dr Peter Warburton is managing director of Halkin Services
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