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JDI Roundtable on Manufacturing Competitiveness in New Brunswick

What’s unique about N.B. manufacturing?

Herb Emery

Manufacturing exports are New Brunswick’s economic engine and with the right policies, regulations and business conditions, manufacturing has another gear that can drive growth of our GDP and population.

Manufacturing in New Brunswick has not followed the path of the sector in other advanced economies. Employment and value added in manufacturing in New Brunswick have not declined as much as in Maine, the U.S. and Ontario. Among the ten provinces, by manufacturing’s share of GDP, New Brunswick ranks no lower than fourth since 1997, and that share has declined less than in Quebec, Ontario and Manitoba.

In the Atlantic region, New Brunswick’s dollar value of GDP from manufacturing is 10 per cent greater than Nova Scotia, three times that of Newfoundland and Labrador and five times that of Prince Edward Island. 

New Brunswick’s manufacturing sector differs from that of other provinces in terms of its high concentration of output from four industries, its high share of output exported, and its high dependence on the U.S. market. These features of the province’s manufacturing sector mean that it will be strongly influenced by external factors like changes in the value of the Canadian dollar and trade agreements with other countries.

The extremely high exposure to global competition of manufacturers in New Brunswick also means that policy decisions have particularly large impacts on the sector in comparison to other provinces. New Brunswick manufacturers are not competing for local market share; they are competing for a larger share of the global economic pie.

Manufacturing in New Brunswick and other Maritime provinces lags the rest of Canada with respect to investment and productivity growth. It has less capital intensive production than provinces outside the region. And, like manufacturers in the rest of Canada, producers in the sector have often passively relied on a low exchange rate to drive competitiveness and output growth.

Meanwhile, in contrast to U.S. manufacturers that have leveraged capital investment to raise productivity while reducing employment, New Brunswick manufacturers largely respond to exchange-rate-driven profit opportunities by adjusting employment while maintaining fixed productivity.

Historically, an abundance of labour in New Brunswick likely made this the efficient organization of the sector, but with an aging population and labour scarcity in the province, labour-driven expansion in production is proving to be a limiting factor. Manufacturers cannot find the workers they need at prevailing wage rates, and raising wages to attract labour is a challenge without increases in labour productivity.

Prior to 2010, New Brunswick’s abundance of labour created a competitive advantage in terms of lower wage costs for producers. That advantage appears to have now disappeared with population aging, out-migration and education and training investments that are not aligned with developing the workforce needed for manufacturing. New Brunswick employers report frustration with labour shortages at a time when labour market indicators suggest New Brunswick looks more like a full-employment economy. 

It is surprising that manufacturing in New Brunswick has not followed the path of other jurisdictions with aging populations. Across countries, an aging workforce is associated with a shift in production exploiting industrial automation technologies. The greater the demographic change, the more rapid is the development of automation technologies.

Manufacturers in New Brunswick still have the opportunity to shift to investment strategies to raise labour productivity with higher capital intensity of production to remain competitive.

So what is holding back the investment in New Brunswick manufacturing that would drive a transformation of the sector? The Canadian Manufacturers and Exporters in 2019 identified that the eroding business climate is having a direct effect on technology investment in Atlantic Canada. CME consultations with manufacturers in New Brunswick identified that the reasons for the general deterioration of the business cost environment were rising tax burdens, onerous regulatory requirements, and government policy decisions that were driving up the cost of doing business in the region.

In the last few years alone, some prominent examples of rising business costs specific to New Brunswick are WorkSafeNB premiums going from among the lowest in Canada to the highest, rising energy costs, and the imposition of carbon taxes by the federal government.

The resilience of the manufacturing sector in the province, despite the policy-driven decline in business climate, could represent a risk that inevitable economic adjustment has been delayed, or an opportunity. In fact, the resilience of the sector may represent opportunity for growth.

What would happen in our province if all the effort that our manufacturers put into sustaining their operations was instead channeled into growing their production and export sales?

The health of the manufacturing sector is not just to the benefit of businesses and workers in that sector. If New Brunswick’s economy has shown weakness compared to other countries and provinces, including Nova Scotia, it has been in its failure to see growth in the non-manufacturing sectors of the economy. Even after accounting for growth in the broader public sector including health care, employment and value added have not grown since 2008.

As the margins between revenue and business costs have been squeezed in New Brunswick, businesses servicing manufacturers have also been exposed to greater external competition. In other words, changing communications technology, changing service needs of manufacturers and the drive to reduce costs has “off-shored” our province’s service sector.

Logic would suggest that as formerly “non-tradable” services are now tradable exports, government needs to also look at the ability of our service sector to compete with businesses in Canada and around the globe.

Improving the business climate may be the first order of business to start investment in manufacturing to raise GDP, employment and to modernize more of the sector. And the collateral benefit may be a larger and more profitable service sector.

Herb Emery is a Brunswick News columnist and the Vaughan Chair in Regional Economics at the University of New Brunswick.

This article first appeared in Brunswick News publications – Sept. 11, 2019

The JDI Roundtable on Manufacturing Competitiveness in New Brunswick is an independent research program made possible through the generosity of J.D. Irving, Ltd. The funding supports arms-length research conducted at UNB.