On resources and roads...
[A note from your correspondent: this post is both exceptionally long and dwells on the economy of the North. I will not be offended in any way if you, my dear reader, decide that my writing is not interesting enough to keep your attention to the end, and instead log on to youtube to watch some men dancing on treadmills.]
"When I was a kid in the Yukon and a mine opened, the profits went to New York, the jobs went to Edmonton, the taxes went to Ottawa and all we got was a hole in the ground, which we could use as a garbage dump—if the federal government gave us permission."
These sentiments from Tony Penikett, a former Premier of the Yukon, during an interview the The Economist highlight much of what has changed in the North over the past few decades.
For much of its history as part of the Confederation, the North was ignored. It wasn't until after the second world war that Canadian politicians first began to take notice of the people that live there. The Canadian government, with an unfortunate lack of tact and knowledge, decided that they would make Canadians out of the the people of the North. They took the people off of the land, put them in communities, and, when gold was discovered, started selling the rights to the land under their feet.
It was under this system that Mr Penikett's memories were formed.
Most Canadians would not know what the difference is between a province and a territory, aside from an apparent requirement that you need to be south of the 60th parallel to be a province. In more practical terms, a territory is an extension of the federal government. The government taxes and spends in the territories as it would under any other federal jurisdiction. In the NWT, the important factor has always been mineral and resource rights, and the ability to tax those resources (to date, only the Yukon has mineral rights of the three territories).
Since the federal government has called the shots in the past, it often happened that the people of the north got little or no say about what happened. When you look at the size of the territories and the associated resources, and compare it with the representation it receives in Ottawa (the three territories each get one seat of the 308 in the House of Commons) you can see why the people of the North have felt a bit cheated in the past.
At least that used to be the case.
Since the 1990s, there have been quite a few treaties signed between the Canadian government and the various aboriginal and inuit groups, giving back the rights of the land. With the return of these rights, there have also arose some rather interesting corporate structures. The Nunasi Corp and the Inuvialuit Development Corp were formed in the wake of such land treaties with the inuit people, and have grown into economic powerhouses that own everything from barges, to helicopters, to optical centres, to airlines. With revenues totalling in the hundreds of millions of dollars, the original residents are of the North are beginning to take a piece of the action.
***
Due to the size of the available resources, and the relatively low population, the Northwest Territories has the largest economy per person of any of the other provinces. If the territory were to be considered its own country, it would have the highest GDP per capita of any country in the world ($95,000 compared with Luxembourg in second place with $83,000 and much higher than the sluggish Alberta at $66,000). The problem, is that not enough of this money stays in the North. Corporations take their profits back to New York, mine workers take their wages back to Edmonton, and Ottawa takes its tax money back to . . . Ottawa.
To solve this problem, the territorial government has tried to create value-added services in the North by doing things like guaranteeing loans for companies to set up diamond polishing operations. These efforts have had some success, but the fact remains that it is quite expensive to live and operate in the North. Other initiatives include tying mandatory northern resident hiring ratios to mineral rights, then using extra payroll taxes to claw back some of the money that would otherwise go to workers from the south.
Even with all these efforts, the federal government is still forced to spend over $18,000 each year for each person that lives in the territories, while only being able to generate $16,000 in taxes. And still Northerners are displeased.
Road access, behind mineral rights, is the second most heated topic of discussion in the NWT. I think I have mentioned before that there is no road access to Yellowknife for parts of the year, and that some communities are connected by a road for only a few weeks each year. Technically, the highway systems in the territories fall under federal jurisdiction, but politicians in the North are quick to point out that there has not been a single kilometer of road built in the NWT since 1987. When you combine this with shorter and shorter ice road seasons each year (if you don't "believe" in global warming, I will let you come up with a reason why this is happening), the end result is a crippling effect on the economy.
DeBeers has been building a new diamond mine called the Snap Lake Project. It will be the NWTs third such mine, but there have been delays in construction due to the short ice road seasons. When companies cannot rely on the winter roads, it is hard to convince them to invest.
The obstacles are not limited strictly to business either: I was in Rae Lakes (Gameti) again last week, and the residents there are having to send their teenagers to another community because even though money is waiting to expand the school to include high school classrooms, the government cannot convince any contractors to take on the job. The winter roads have become increasingly unpredictable in recent years, and the possibility of not being able to get all of the supplies into the communities in order to meet deadlines scares them all away.
Some would like to see a highway tracing the entire Mackenzie Valley from Inuvik to Yellowknife. This $700 million project is almost 20 times the annual highways budget for the entire NWT. And given the current construction environment in the North, I would bet on those cost estimates being on the "very low" side of the scale. This ambitious goal seems rather unrealistic, given that the government cannot even muster the $70 million required to build a year-round bridge to Yellowknife. However, if this project were at least started, it would certainly boost the economy of the North (if only due to the money spent on the road itself).
Another ambitious project is the Mackenzie Gas Pipeline. I have met people living in Yellowknife who first moved here in anticipation of working on the MGP . . . in the 1970s. Yes, the MGP is a throwback to the late 70s / early 80s, but the project ran into opposition from various groups, and when combined with low oil prices, interest in the project died out. As we can all attest to today, there is no question that the price of gas has increased enough to make the economics of the pipeline possible.
Unfortunately (for Imperial Oil), the various interest groups are now more involved in the process than in the 1970s. The project has been delayed several times due to another group, or council, or association coming out and insisting they were not consulted. In fact, the economy of Inuvik (where the Joint Review Panels have been taking place) has been booming mostly due to these meetings. As corporate and government lawyers fly back and forth from Inuvik to Yellowknife to Edmonton to Calgary, week after week, the small community has been more than happy to accommodate the extended talks. But in general, it is widely agreed that the economic benefit to the territory will outweigh the environmental impact of a pipeline carved through the North.
The project is so popular that there have even been rumors that the federal government wants to invest a controlling interest in the pipeline, rather than give tax incentives to the various corporate and aboriginal groups that are already invested. It appears that Ottawa's paternalistic tendencies die hard.
"When I was a kid in the Yukon and a mine opened, the profits went to New York, the jobs went to Edmonton, the taxes went to Ottawa and all we got was a hole in the ground, which we could use as a garbage dump—if the federal government gave us permission."
These sentiments from Tony Penikett, a former Premier of the Yukon, during an interview the The Economist highlight much of what has changed in the North over the past few decades.
For much of its history as part of the Confederation, the North was ignored. It wasn't until after the second world war that Canadian politicians first began to take notice of the people that live there. The Canadian government, with an unfortunate lack of tact and knowledge, decided that they would make Canadians out of the the people of the North. They took the people off of the land, put them in communities, and, when gold was discovered, started selling the rights to the land under their feet.
It was under this system that Mr Penikett's memories were formed.
Most Canadians would not know what the difference is between a province and a territory, aside from an apparent requirement that you need to be south of the 60th parallel to be a province. In more practical terms, a territory is an extension of the federal government. The government taxes and spends in the territories as it would under any other federal jurisdiction. In the NWT, the important factor has always been mineral and resource rights, and the ability to tax those resources (to date, only the Yukon has mineral rights of the three territories).
Since the federal government has called the shots in the past, it often happened that the people of the north got little or no say about what happened. When you look at the size of the territories and the associated resources, and compare it with the representation it receives in Ottawa (the three territories each get one seat of the 308 in the House of Commons) you can see why the people of the North have felt a bit cheated in the past.
At least that used to be the case.
Since the 1990s, there have been quite a few treaties signed between the Canadian government and the various aboriginal and inuit groups, giving back the rights of the land. With the return of these rights, there have also arose some rather interesting corporate structures. The Nunasi Corp and the Inuvialuit Development Corp were formed in the wake of such land treaties with the inuit people, and have grown into economic powerhouses that own everything from barges, to helicopters, to optical centres, to airlines. With revenues totalling in the hundreds of millions of dollars, the original residents are of the North are beginning to take a piece of the action.
***
Due to the size of the available resources, and the relatively low population, the Northwest Territories has the largest economy per person of any of the other provinces. If the territory were to be considered its own country, it would have the highest GDP per capita of any country in the world ($95,000 compared with Luxembourg in second place with $83,000 and much higher than the sluggish Alberta at $66,000). The problem, is that not enough of this money stays in the North. Corporations take their profits back to New York, mine workers take their wages back to Edmonton, and Ottawa takes its tax money back to . . . Ottawa.
To solve this problem, the territorial government has tried to create value-added services in the North by doing things like guaranteeing loans for companies to set up diamond polishing operations. These efforts have had some success, but the fact remains that it is quite expensive to live and operate in the North. Other initiatives include tying mandatory northern resident hiring ratios to mineral rights, then using extra payroll taxes to claw back some of the money that would otherwise go to workers from the south.
Even with all these efforts, the federal government is still forced to spend over $18,000 each year for each person that lives in the territories, while only being able to generate $16,000 in taxes. And still Northerners are displeased.
Road access, behind mineral rights, is the second most heated topic of discussion in the NWT. I think I have mentioned before that there is no road access to Yellowknife for parts of the year, and that some communities are connected by a road for only a few weeks each year. Technically, the highway systems in the territories fall under federal jurisdiction, but politicians in the North are quick to point out that there has not been a single kilometer of road built in the NWT since 1987. When you combine this with shorter and shorter ice road seasons each year (if you don't "believe" in global warming, I will let you come up with a reason why this is happening), the end result is a crippling effect on the economy.
DeBeers has been building a new diamond mine called the Snap Lake Project. It will be the NWTs third such mine, but there have been delays in construction due to the short ice road seasons. When companies cannot rely on the winter roads, it is hard to convince them to invest.
The obstacles are not limited strictly to business either: I was in Rae Lakes (Gameti) again last week, and the residents there are having to send their teenagers to another community because even though money is waiting to expand the school to include high school classrooms, the government cannot convince any contractors to take on the job. The winter roads have become increasingly unpredictable in recent years, and the possibility of not being able to get all of the supplies into the communities in order to meet deadlines scares them all away.
Some would like to see a highway tracing the entire Mackenzie Valley from Inuvik to Yellowknife. This $700 million project is almost 20 times the annual highways budget for the entire NWT. And given the current construction environment in the North, I would bet on those cost estimates being on the "very low" side of the scale. This ambitious goal seems rather unrealistic, given that the government cannot even muster the $70 million required to build a year-round bridge to Yellowknife. However, if this project were at least started, it would certainly boost the economy of the North (if only due to the money spent on the road itself).
Another ambitious project is the Mackenzie Gas Pipeline. I have met people living in Yellowknife who first moved here in anticipation of working on the MGP . . . in the 1970s. Yes, the MGP is a throwback to the late 70s / early 80s, but the project ran into opposition from various groups, and when combined with low oil prices, interest in the project died out. As we can all attest to today, there is no question that the price of gas has increased enough to make the economics of the pipeline possible.
Unfortunately (for Imperial Oil), the various interest groups are now more involved in the process than in the 1970s. The project has been delayed several times due to another group, or council, or association coming out and insisting they were not consulted. In fact, the economy of Inuvik (where the Joint Review Panels have been taking place) has been booming mostly due to these meetings. As corporate and government lawyers fly back and forth from Inuvik to Yellowknife to Edmonton to Calgary, week after week, the small community has been more than happy to accommodate the extended talks. But in general, it is widely agreed that the economic benefit to the territory will outweigh the environmental impact of a pipeline carved through the North.
The project is so popular that there have even been rumors that the federal government wants to invest a controlling interest in the pipeline, rather than give tax incentives to the various corporate and aboriginal groups that are already invested. It appears that Ottawa's paternalistic tendencies die hard.
posted by Byron at 9:34 PM
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