Batten down the hatches in 2009

Commentary by Mac Olsen

The grim economic news just keeps coming, with no end in sight, which could bode ill for this region in 2009. Let’s take stock of the situation. First, there’s been a global economic meltdown, with home foreclosures going through the stratosphere in the U.S. being one sign. This fall, Congress approved an authorization of $700 billion to help keep U.S. banks and other financial institutions solvent. The Big Three automakers have their hats in hand and are begging Congress for a bailout. Otherwise, the fear is, they could be forced out of business. However, Congress doesn’t seem to be in a charitable mood with the Big Three as they were with the banks and other financial institutions. Of course, Ontario’s economy is tied heavily to the auto sector, with most of the vehicles manufactured there exported to the U.S. But what should concern people in this region is, how will the dealerships fare if their parent companies go under? More importantly, will people have to go to Edmonton or elsewhere to buy new vehicles or have their service work done? Second, there is the downward spiral of oil prices, dropping from their high of $145 US a barrel last summer to the $50 US range recently. We can complain all we want about paying $1.50 per litre for regular unleaded fuel. Yet the fact remains, Alberta’s economy is so dependent on oil prices that jobs inside and outside the oilpatch could be at stake. What will the fallout be for the oilsands near Fort McMurray and in the Peace River region, as well as oil production near Slave Lake? The government has already tried to head off potential cutbacks in the drilling of new wells. On Nov. 19, the Edmonton Journal reported the government would allow companies that drill new wells to choose their own royalty rates starting Jan. 1, 2009. This choice is available to companies drilling new wells between 1,000 and 3,500 metres deep and it will be a one-time-only option. The government says it’s doing this to ensure new development continues as the global economic crisis becomes more serious and oil prices fall below $55 US a barrel. The government also insists companies will not receive a royalty holiday, but the choice between “transitional rates” or the new royalty framework that takes effect in 2009. However, the change could leave the government with $1.8 billion less than expected over five years. It must be reminded there was a great debate in 2007 over whether oil companies should pay higher royalties. In the end, the government decided to impose them and now it’s altering its own rules in the hope of sustaining the Alberta economy through the rough period. Let’s hope this measure doesn’t blow up in the government’s face. Third, the forestry sector in this region remains weak. Tolko Industries Ltd. shut down its OSB plant near High Prairie indefinitely in 2007 and Vanderwell Contractors has reduced operations at its Mitsue lumber mill to just one shift and 80 workers. Given the collapse of the U.S. housing market and the global financial instability, it’s realistic to assume the forestry sector in this region will remain weak in 2009. So, batten down the hatches in 2009. Whether we like it or not, the economic viability of our region is tied to what happens in the U.S. and around the world.

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