Join Up Here Business as we take a look at what’s driving – and what’s holding back – the Yukon, the Northwest Territories and Nunavut heading into 2008.

Up Here Business thought it appropriate to launch this, our inaugural issue, with our first annual State of the Economies review. In an effort to better understand the forces at work around us, we’ve scoured the statistical files, spoken with political and business leaders in the three territories, and gathered a sense of where things stand and where they might be going.

Besides being a tool we can use each year to look backward and forward, we thought such a report would be useful for developing a snapshot of the three territories’s economies to provide us with a “baseline,” a concept well understood by Northerners. Once established, baseline information can be compared to that gathered in the future, giving us some indication of territorial trends.

It’s a fool’s errand, perhaps, covering three such diverse economies. Ties are all north-south, you may say, and really there’s so little in common between territories that stretch 3,800 kilometres across the top of Canada, from Mt. Logan in the southwest corner of the Yukon to Resolution Island at the mouth of Frobisher Bay. Well, little in common except isolation, a cold climate, small populations, economies built on resource extraction and a subservient relationship with Ottawa.

So, what did we find out? Well, the three territories are all in the boom phase of the boom and bust cycle. High global prices for base metals, gold and uranium have led to an influx of exploration and mining that has so far lasted several years. The gross domestic product is climbing for each territory, unemployment numbers are down and the influx of wealth – and people – has led to soaring house prices. At least that’s the case in the capitals. Each territory also wrestles with tougher economic conditions in outlying communities, and with trying to extract maximum benefits from the current growth and soften the next downturn.
o, here’s a brief comparison of some of the leading indicators – gross domestic product, employment, population growth, construction investment and transfer payments – in the three economies:

Gross Domestic Product

All three territories outstripped the national average when it comes to gross domestic product growth in 2006, the last full year for which numbers are available. Nunavut – bolstered by the construction of Tahera Diamond Corp.’s Jericho mine – led the way among the three territories, growing by 3.4 per cent. The Yukon’s economy advanced 2.9 per cent, down from 3.9 per cent a year earlier due to a downturn in construction activity. The NWT also grew by 2.9 per cent while the national average was 2.8 per cent.

Employment

The unemployment rates in the territories have been in decline for years, to the point where the NWT and particularly the Yukon are at or near what is generally considered full employment.

The Yukon’s rate stood at 4.3 per cent in 2006, the lowest since Statistics Canada’s Labour Force Survey began in the Yukon in 1992 and tied for the second lowest in Canada in 2006.

The NWT wasn’t far behind at 5.4 per cent (down from 7.0 per cent in 2003) and Nunavut too has been faring better, recording an unemployment rate of 10.3 per cent, down from 17.4 per cent in 2001.

Population Growth

A sure sign of boom times is an influx of southerners coming up to get rich. All three territories have seen significant population growth since 2003, and the combined population of the three territories surpassed 100,000 in 2007.

The Yukon and the NWT each grew by about 400 people, to 31,000 and 42,600 respectively. Nunavut grew much more quickly, by 1,900 people to 31,100, driven largely by a fertility rate of 3.1 children per woman since 2001, twice the national average.

The news that ought to concern policymakers stems from the most recent quarterly information from Statistics Canada. The third quarter of 2007 saw the NWT’s population decline by a little more than 200 people, or half a percentage point. Nunavut’s population was stagnant, and the only reason it did not suffer a decline was because of its high birth rate. The Yukon grew by almost half a percentage point in the quarter, but that growth has come with its own challenges, as property prices soar and land for development is scarce in Whitehorse.

Construction Investment

Residential construction investment has been soaring in all three territories in recent months. In the third quarter of 2007 the Yukon saw $52.8-million invested in residential construction, up from $41.3-million a year earlier, an increase of 28 per cent.

The NWT saw a similar percentage gain of 32.7 per cent, from $20.2-million to $26.7-million over the same period. Nunavut had the highest percentage increase in the country – 59.1 per cent – from $21.7-million to $34.4-million.

All three territories did much better than the national average for the third quarter of 2007, which was a nine per cent increase.

Transfers from Ottawa

The federal government transfers billions of dollars every year to the provinces and territories. The total support provided by Ottawa to the provinces and territories through major transfers will be about $67.2-billion for the fiscal year 2007-2008, for an average of $2,041 per person.

For the territories, funding from Ottawa comes primarily through Territorial Formula Financing (TFF), with lesser amounts coming from the Canada Health Transfer (CHT) and the Canada Social Transfer (CST).

The Yukon expects to receive $590-million from Ottawa in 2007-2008, about $19,039 per person. This represents 70 per cent of the Yukon’s total expected revenue of $841-million. $540-million of the transfer amount will be through the TFF, with $33-million through the CHT and $16-million through the CST.

The NWT will receive $863-million from Ottawa this year, about $20,331 per person. This represents 70 per cent of the NWT’s total expected revenue of $1.231-billion. The transfers are broken down into $788-million in TFF, $45-million in CHT and $29-million in CST.

The figures for Nunavut are $941-million in total transfers, or about $30,358 per person, representing 90 per cent of the territory’s total expected revenue of $1.05-billion. The transfers are broken down into $893-million in TFF, $33-million in CHT and $14-million in CST.

The Driver

In a word – minerals. The exploration for and exploitation of mineral wealth is behind the success of all three territories. Nunavut led the way in 2007, with $266.7-million invested in exploration. That represented just over one in 10 dollars spent on exploration in Canada.

The NWT saw $191.6-million and the Yukon $143.9-million. For the Yukon that’s a greater than tenfold increase since 2003 (for complete details, see the graph on page 25).

The Yukon also saw its share of dollars spent nationwide grow from 1.8 per cent in 2003 to 5.7 per cent in 2007. The news on this front was not as good for the other two territories: The NWT’s share fell from 7.8 to 7.5 per cent and Nunavut’s from 13.5 to 10.5 per cent over those four years.

The Challenges

Labour. We heard about this from everybody: We’re facing a labour shortage, and of course the employment figures back it up. We’re in competition with southern jurisdictions, particularly Alberta, that are also booming only we’re farther away and have a higher cost of living. Employers are having to get creative to lure and retain employees, even going so far as hiring from as far away as Asia (for advice on doing this, see Your Business, page 51).

Diversification. All three governments talk about diversifying their economies, but it’s a tough thing to do. All three talk about tourism, but it remains a small percentage of GDP everywhere. Nunavut would like to expand its fisheries (there are rich shrimp grounds off Baffin Island), the NWT has oil and gas (for more, see the interview with NWT Premier Floyd Roland), and the Yukon is pinning some hope on the movies (see interview with economic development minister Jim Kenyon).

Managing the Waste. For all it’s economic benefits, mining often saddles jurisdictions with long-term costs, just look at the old Giant gold mine in Yellowknife, where governments are trying to figure out how to deal with 237,000 tonnes of highly toxic arsenic trioxide dust, and the Faro lead-zinc mine in the Yukon, which has a high-end estimated cleanup cost of $850-million. If we in the North already suffer from boom and bust economies, at least let government and industry ensure that today’s boom does not exacerbate tomorrow’s bust.

Infrastructure. Railways, roads, ports and power lines: each territory has a wish list for improvements to infrastructure that will allow for easier and cheaper movement of people and goods, bringing down the costs of operating in the North.

Roland takes the reins in the NWT
The NWT economy has been driven by diamonds but oil and gas holds the key to keeping the good times rolling.

In some ways, Floyd Roland should be the envy of premiers everywhere in Canada. Elected in October as the Northwest Territories new premier by the 19 MLAs that make up the NWT’s legislative assembly in a consensus-style government, Roland is the leader of a region where the economy is one of the country’s great success stories.

Long considered a bureaucrat-heavy welfare state propped up with funds supplied by Canadian taxpayers, the NWT’s economy has been flexing its economic muscles like a steroid-enabled baseball player since the new millennium began. Here are a few statistics to consider: Since 1999 the NWT has had the fastest growing economy in Canada with an annual growth rate of 8.8 per cent. Between 1999 and 2004, total personal income in the NWT increased by 41 per cent compared to 27 per cent in Canada. Between 1996 and 2005, the proportion of the NWT population on income support in smaller communities declined from 18.4 per cent to 7.8 per cent.

The diamond-mining boom has sparked much of that growth. In 1999 mining represented 30 per cent of the economy. In 2006 the mining sector represented half of the NWT’s gross domestic product and diamond mining accounted for over 90 per cent of the value of mining production. The territory has three producing diamond mines – BHP Billiton’s Ekati, Rio Tinto’s Diavik and De Beers Canada’s Snap Lake, which went into production in the fall of 2007. A fourth mine – De Beers’s Gahcho Kué – is in environmental assessment. Roland acknowledges diamond mining will continue to do the heavy lifting for the NWT’s economy for some time. “They have big infrastructure and the need for human resources,” Roland says. “That’s driving a lot of what we are doing.”

However, Roland, now in his fourth term as an MLA, also realizes the strength of the territory’s economy is also a weakness: It isn’t diverse enough. “The challenge for us is how we further diversify our economy to try to come up with a better balance,” he says. “The message we’ve gotten is we have to look at changing our economy, looking at smaller communities, looking at tourism. These are the areas we’ll need to work on.”
But there is more to the NWT’s economic potential than diamonds. Exploration for other non-renewable resources like gold, uranium, copper, lead and zinc continues and world-class deposits have been found. But it’s oil and gas and the Mackenzie Gas Project that could really send the NWT’s economy into overdrive. Currently in the latter stages of a regulatory review, the MGP is the mega-project of all mega-projects. A consortium led by Imperial Oil Ltd. plans to build a 1,200-kilometre natural gas pipeline at a cost of $16.2-billion to ship nearly six trillion cubic feet of natural gas to southern markets.

If the MGP is approved by the National Energy Board and built by the proponents, it is expected to begin shipping gas south by 2014. But the real benefit to the NWT’s economy is the sustained exploration the pipeline will spur as companies look for new supplies of gas to keep the pipeline filled. It’s a scenario that will result in a bustling oil and gas industry for the next 30 to 40 years.

And then there is hydroelectric power. With an abundance of large and powerful rivers, the NWT has the potential to generate hydroelectric power that would rival other great hydro projects like James Bay and Churchill Falls. That power could be sold to energy-hungry customers in North America. But it would also require multi-million dollar investments to make it happen and, so far, that investment has failed to materialize.

There are also some big roadblocks standing in the way of the NWT’s economy reaching its full potential. The cost of living here is much higher than in southern Canada, which makes it tough for NWT businesses big and small to stay afloat. Then there is the lack of infrastructure. Roland says his government must work with the federal government to build needed infrastructure – like an all-weather highway through the Mackenzie Valley – that will reduce the cost of living in the NWT. “If we are going to have viable, sustainable communities,” Roland says. “One of the things that has been proven by history is that if you have good transportation infrastructure that can help stabilize the cost of living.”

Such roadblocks won’t be easy to remove but Roland says his government will tackle them and he sees a bright future for his territory. “When you look at the demand for resources in the markets today and looking at what we have available, the potential for the North is large,” he says. “The North is truly an area that can be an economic driver within Canada.”

Global miners invest in Nunavut
Nunavut’s economy has perked up thanks to mining. Now the territory must branch out if it wants to really grow.

Since Nunavut was born in 1999 the public sector has driven what growth the territory’s economy has enjoyed. The public sector represents more than half of Nunavut’s domestic economy and accounts for more than 6,000 of the jobs Nunavummiut hold.

But much like its territorial cousins to the west, private sector investment in Nunavut has picked up and the mining industry is leading the charge. In 2007 Nunavut led the North in mining exploration spending with $266.7-million. What’s even more encouraging is the territory had one mine go into production and a few more are on the way. That kind of activity has Nunavut Premier Paul Okalik feeling good about his territory’s economic future.

“I think we’re just behind Alberta in terms of growth of the economies throughout Canada at just below six per cent this year,” Okalik says. “The mining sector has been pushing our economy and it’s just starting. There are diamonds, gold, uranium and other base metals that are proven throughout the territory.”

The territory’s lone producing mine, the Jericho diamond mine in the territory’s Kitikmeot region, opened in 2006. But the mine has been losing money and its future is in doubt. Still, that bad news hasn’t dulled Okalik’s optimism about Nunavut’s mining industry. Agnico-Eagle’s Meadowbank gold project in the Kivalliq region is the next mine slated to come on line. Production is expected to start in 2010. With 2.9-million ounces of proven and probable gold reserves, the mine is expected to operate for eight years.

And with mineral prices rising due to increased world demand, several Nunavut deposits that were once uneconomic are now looking viable – including projects far along the regulatory review stage, such as Zinifex’s High Lake copper, zinc, gold and silver project and Baffinland’s Mary River iron project.

While Nunavut’s economy hasn’t been nearly as dependent on diamonds for its growth as the NWT, Okalik – the only premier Nunavut has ever known – knows that diversifying Nunavut’s economy is critical. “Our government has been our largest employer and we want to change that. We’d rather have the private sector do its role and create opportunities,” Okalik says. “We have an emerging fisheries industry. There is a lot of potential there for our citizens that may want to work in the fishery as opposed to mining activity. Our tourism numbers have been low but there has been growth in cruise ships coming to our territory. That creates some opportunities for the smaller communities that don’t have as much mining activity taking place.”

Okalik talks about taking advantage of abundant Nunavut resources – both renewable and non-renewable – to diversify the economy and provide jobs outside the Nunavut’s bigger communities. He mentions promoting the caribou harvest in the Kivalliq community of Coral Harbour and the shrimp fishery in the Baffin region communities of Clyde River and Qikiqtarjuaq that bring in $15-million annually.

However, succeeding as a private sector business in Nunavut is difficult. Local markets are often too small to generate enough revenue to cover costs, the best-educated Nunavummiut gravitate to the high wages and benefits offered by government or the land claim organizations and the cost of fuel, rent and transportation is so high, it’s difficult to stay competitive in the export market with southern businesses.

The Nunavut government continues to focus on improving its programs and services and educating its young population (more than 53 per cent of its 30,000 residents are less than 25 years old, the highest ratio in Canada) so its people can thrive in the modern-day economy. However, Okalik despairs over the territory’s lack of infrastructure.

More of everything is needed – housing, municipal works, marine facilities and, especially, roads, as none of Nunavut’s 27 communities are linked by roads. It’s a situation that seriously hampers Nunavut’s attempt to reach its economic potential. “We’re still in the pre-Confederation stage. We’re waiting on our federal partners to build a true highway to our territory,” Okalik says with a hint of exasperation. “They built Southern Canada with infrastructure. We’re waiting on them to do the same so that we can take advantage of the resources we do have and help the rest of the country in developing our resources. That’s our dream – to be contributors to the rest of the country in terms of economic activity.”

Canada’s Real Pacific Gateway
The Yukon is in an extended boom phase. The challenge will be to smooth over any looming bust.

Editor’s Note: Premier Dennis Fentie was suffering from complications following surgery at the time this magazine was being put together and was therefore unable to participate. Economic development minister Jim Kenyon stood in for our interview with the Yukon government.

Five successive surpluses and a bank account in the black to the tune of $269-million have the Yukon sitting pretty atop the Canadian heap. Even Alberta doesn’t have as much money in the bank on a per capita basis as does the Yukon.

It’s a far cry from the situation only a few short years ago, and the Yukon Party is happy to take credit for the turnaround. “When we came in the Yukon was very much a U-haul economy,” says Economic Development Minister Jim Kenyon. “There was lots of turnover, the population was decreasing and unemployment was in double digits.”

Not so anymore. With the population climbing and a gross domestic product growing at an average of more than three per cent per year in recent years, the territory is booming.

Kenyon says the single biggest reason for the turnaround was the decision by the Yukon Party to put the Yukon Protected Areas Strategy on hold in early 2003. Passed by the previous NDP government, Kenyon says the YPAS frightened investors who “could have a park dropped on their operation,” without warning. Without YPAS, the Yukon has seen expenditures on mineral exploration grow from $7.8-million in 2002 to about $150-million in 2007. In the Fraser Institute’s annual survey of mining companies, the Yukon has risen from 33rd to 11th in attractiveness for mining investment in the last four years.

While mining may be the main engine of growth, Kenyon insists that his territory is not simply a source of raw materials. “We have the highest education levels in Canada, with more PhDs per capita than any other jurisdiction,” he says. “Our investment in arts, sports and recreation is almost 10 times the national average, not including the Canada Winter Games, which alone saw millions invested, including $40-million on a sports complex.”

Despite the good news, Kenyon recognizes the need for economic diversification in the Yukon, which has always had a boom and bust economy. “A big mine comes on line, we do very well, a big mine plays out and everything goes in the tank,” he says. Tourism is a faithful standby (although it contributes only 4.5 per cent of the territories’s GDP) and Kenyon points to a burgeoning film industry as one bit of good news on this front. The territory has seen an increasing number of films and commercials shot locally, and is beginning to develop a trained workforce.

Kenyon says there’s much more to come. “We’re the gateway to China,” he says. When the federal government talks about a Pacific gateway, it’s generally referring to Vancouver and Prince Rupert, but the ports closest to the Yukon – Skagway, Haines, even Anchorage – are almost five sailing days closer to Southeast Asia than Vancouver. “If we can develop the right infrastructure, and we’re starting to do that, we can have a container ship offload to a railroad and have the goods in Chicago or Toronto before they’re even off the ship in Vancouver,” he says. “Conversely, we can haul a lot of minerals out.”

To realize the potential, the Yukon will need to invest in infrastructure, and that means rail lines. The government has recently finished a $4.7-million study on the economics of various rail routes, and they come with a projected price tag of $11-billion. But perhaps there are short-track solutions, where it might be built in sections, to service one or two mines at a time.