Crucial economic indicator down more than 50 per cent in Alberta

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Appeared in the Edmonton Sun, July 19, 2023
Crucial economic indicator down more than 50 per cent in Alberta

Business investment—a key driver of higher incomes and improved living standards—has markedly declined in Alberta. In fact, from 2014 to 2021 (the latest year of available data), business investment per worker in the province (adjusted for inflation) declined by more than 50 per cent, from $52,533 to $23,839. This should be a major concern for policymakers and Albertans more broadly.

Business investment includes spending on equipment, machinery, factories and new technologies (but excludes residential homebuilding). Again, these private-sector investments are key to increasing overall economic prosperity.

Think of it this way; business investment provides workers with the tools and new technologies to produce more and better goods and services. And as companies become more efficient, improve productivity and increase profits, they’re able to pay higher wages, leading to better paying jobs and improved living standards. Consequently, a marked reduction in business investment is worrying news.

Compared to the United States, our performance was even worse. During that same time period (2014 to 2021) U.S. business investment per worker (adjusted for inflation, in Canadian dollars) increased 14.6 per cent from $23,333 to $26,751. Put differently, business investment per worker increased in the U.S. while it fell markedly in Alberta.

That matters. The U.S. is not only Canada’s largest trading partner, but provinces compete with the U.S. to attract capital and workers including skilled workers. Relatively weak business investment compared to the U.S. indicates that businesses see less opportunity in Alberta—a worrying prospect for economic growth in years ahead.

In part, this relative decline in business investment reflects the oil price collapse in 2014 (the energy sector comprises a larger share of Alberta’s economy than in the U.S.). Moreover, oil and gas investment did not fully recover in Alberta as it did for our southern neighbour, which reflects an increase in regulatory constraints, policy uncertainty and an unfavourable business environment for energy development in Canada that particularly affects Alberta.

But declines in the energy sector do not solely explain Alberta’s faltering business investment. More broadly, the Trudeau government’s recent tax and regulatory policies have helped spur an overall flight of investment capital from Canada. Even before the pandemic, from 2014 to 2019, nearly half (seven of 15) of Canada’s main industries saw a decline in investment, including agriculture, forestry, fishing, utilities and retail trade.

Prosperity depends in large part on the strength of business investment. As such, Alberta’s relatively weak business investment should sound alarm bells and prompt policymakers—both provincially and federally—to enact policy reform. That means lowering taxes and reducing regulations to make Alberta a more attractive place to invest and do business.