Strategic Context

The strategic context is an assessment of the general economic environment that the Ministry and business community faced during 2005/06. It also describes some of B.C.'s challenges and opportunities in 2005/06 and in the near term.

In 2005, economic growth in B.C. was strong, supported by a low unemployment rate, robust domestic demand and strong business investment. Growth is expected to moderate over the medium term but B.C. will continue to be an economic leader in Canada. B.C.'s real GDP grew by a solid 3.5 per cent in 2005, stronger than the 3.4 per cent growth rate forecast in the September Budget Update. Employment growth in 2005 was robust — an increase of 3.3 per cent over 2004 translating into 67,800 new jobs created. This strong performance also meant that B.C. was ranked first in Canada in per capita job creation. Unemployment averaged 5.9 per cent in 2005 and had decreased to only 5.1 per cent by year end. Total business investment (including residential) expanded by 5.9 per cent in 2005. Residential housing starts in 2005 surged to 34,700. Real investment in non-residential building construction grew by 18.8 per cent in 2005. Business machinery and equipment investment rose an estimated 8.5 per cent (inflation adjusted).

The Budget and Fiscal Plan released with the February 2006 budget provides additional information on B.C.'s economic performance and outlook. http://www.bcbudget.gov.bc.ca/2006/

External Factors

As Canada's gateway to the Pacific Rim, B.C. has an opportunity to benefit from the global shifts in trade and investment patterns. Improvements to transportation infrastructure will be required to meet the increasing sea and air traffic between our West Coast ports and airports and the important markets of the Asia-Pacific region. China and India have cemented their positions as major economic powers, resulting in a significant re-alignment of international trade and investment and considerable opportunities for the province and Canada. However, B.C. companies continue to face increasing global competition and the province has been taking a leading national role in pressing for the reform of international trade remedy rules through the World Trade Organization and NAFTA.

Key Challenges

Strong Canadian Dollar: The appreciation of the Canadian dollar continued in 2005, averaging 82.5 cents US, up from 76.8 cents US in 2004. By the end of 2005, the dollar was over 85.0 cents US. The dollar also gained against many other currencies.

Export Growth Rooted in the Resource Industries: B.C. has made progress towards diversifying its economy. The technology industries account for three per cent of provincial GDP. Several world-class industry clusters are flourishing and opportunities for international trade are occurring in a wide range of sectors. Currently, 80 per cent of B.C. exports, 69 per cent of manufacturing shipments and 63 per cent of exports to other provinces are resource-based.

Mountain Pine Beetle: As of fall 2005, the mountain pine beetle has affected 8.5 M hectares of B.C. forests. While increased harvesting is creating economic growth in the short-term, the Mountain Pine Beetle presents a major long-term challenge for many communities in various regions.

Aboriginal Socio-Economic Status: The demographic makeup of B.C.'s Aboriginal population is significantly younger than that of the non-Aboriginal population — nearly 50 per cent of Aboriginal people in B.C. are under the age of 25, compared with just over 30 per cent of non-Aboriginal people. There is more than a 10 per cent point gap between Aboriginal and non-Aboriginal employment rates, and a difference of more than $3 per hour in average hourly wages.

Productivity: Improvements to productivity in B.C. have generally lagged that of other Canadian provinces and American states. Improvements in productivity would fuel economic growth and raise B.C.'s standard of living.

Demographics and Skill Shortages: B.C.'s robust economic growth and record low unemployment rate have increased the shortage of highly skilled people that businesses need to grow and expand. Immigration is now the key source of labour force growth in B.C. Initiatives and programs that focus on ensuring the availability of a skilled workforce are necessary to meet the demands of B.C.'s growing economy.

United States Security and Trade Restrictions: Some export dependent industries face market access risks from new and proposed United States anti-terrorism rules and heightened security at borders.

Key Economic Development Opportunities

2010 Olympic and Paralympic Winter Games: The 2010 Winter Games will open up new opportunities for investment and trade development, awareness building along with increases in tourism, and will help raise B.C.'s international profile. The Vancouver Organizing Committee of the Games (VANOC) will purchase almost $2 billion in goods and services to stage the Games. Infrastructure investments leading up to the Games will give a significant boost to the provincial economy.

Asia-Pacific Strategy: B.C. is Canada's gateway to the growing Asia-Pacific region. Establishing B.C. as the pre-eminent transportation, trade and cultural hub between Asia and North America (which includes trade, commerce, education, transportation, immigration, innovation and culture) will ensure all British Columbians and Canadians benefit from our growing relationship with and proximity to the Asia-Pacific.

Cost Advantages: KPMG's latest Competitive Alternatives Report showed that despite the appreciation of the Canadian dollar, B.C. continued to enjoy a significant cost advantage over the United States and other G-7 locations in value-added manufacturing, business services and technology-based industries. This indicates the province's continuing attractiveness as a location for new business and investment.

Competitive Tax Environment: B.C. offers one of the lowest general business corporate income tax rates and small business rates in the country at 12 per cent, and 4.5 per cent respectively. The personal income tax regime results in the lowest rate of personal income tax on the first $80,000 of income of all the Canadian provinces.

New Relationship with First Nations: In late 2005, the province signed a historic agreement with First Nations and the Federal government to work together to close the social and economic gap between First Nations and other British Columbians, reconcile Aboriginal rights and title with those of the Crown, and establish a new relationship based on mutual respect and recognition. This will include the creation of new opportunities for Aboriginal participation in the B.C. economy.

Eliminating Trade Barriers: B.C. is pushing ahead with eliminating barriers to internal and international trade. The province is viewed as a national leader in this area. At the province's initiative, Alberta and B.C. negotiated a ground-breaking Trade, Investment and Labour Mobility Agreement that applies to all government measures across all sectors of the economy. Under the Council of the Federation internal trade initiative, B.C. successfully brokered an agreement in which all provinces, territories and the Federal government opened the procurement of their Crown corporations to suppliers across Canada. The province has taken a lead role in pressing the Federal government to seek reforms to trade remedy rules at the international level, and has actively encouraged the Federal government to seek improved access to markets in the Asia-Pacific, through such initiatives as the Canada-South Korea Free Trade Agreement (negotiations underway). B.C. has been working with the Federal government to strengthen Canada's commitments to improved market access for service providers and to seek greater international market access for the province's services exporters through the World Trade Organization negotiations.

Linkage to the Five Great Goals

The Ministry of Economic Development is involved in achieving all of the Five Great Goals for a Golden Decade. These goals are to:

1. Make British Columbia the best educated, most literate jurisdiction on the continent.

2. Lead the way in North America in healthy living and physical fitness.

3. Build the best system of support in Canada for persons with disabilities, those with special needs, children at risk and seniors.

4. Lead the world in sustainable environmental management, with the best air and water quality, and the best fisheries management, bar none.

5. Create more jobs per capita than anywhere else in Canada.

The Ministry will contribute towards the goal of making B.C. the best educated, most literate jurisdiction on the continent by identifying B.C.'s labour market shortages, implementing a labour market strategy, and building skills capacity that will improve the province's ability to compete in the national and international marketplace.

The Ministry will contribute towards the goal for creating more jobs per capital than anywhere else in Canada by facilitating economic growth and business competitiveness throughout the province by implementing an Asia-Pacific Strategy to capitalize on expanding Asian markets and positioning B.C. as a key gateway for commerce on the Pacific Coast; leveraging Federal, provincial and private sector funding to address the infrastructure needs of regional economies; and maximizing economic and social development opportunities before, during and after the 2010 Olympic and Paralympic Winter Games.

The Ministry's efforts in promoting economic growth, creating jobs, generating revenues, increasing trade and attracting investment, will directly support the remaining four great goals so that B.C. will lead North America in healthy living, build the best support system in Canada for persons with disabilities, special needs, children at risk and seniors, and lead the world in sustainable environmental management.

Cross Ministry Initiatives

Asia-Pacific Strategy: The Ministry leads and works with many agencies to support the Asia-Pacific Strategy including the Ministries of Transportation, Forests, Education, Advanced Education, and the Ministry of Attorney General and Minister Responsible for Multiculturalism.

2010 Olympic and Paralympic Winter Games: To facilitate the successful hosting of the 2010 Winter Games, the B.C. Olympic and Paralympic Winter Games Secretariat has been working diligently with Provincial Ministries, agencies, and Crowns directly or indirectly related to the Games.

First Nations: The Ministry works with the Ministry of Aboriginal Relations and Reconciliation (MARR) to increase Aboriginal Peoples' participation and prosperity in B.C.'s economy as well as work towards developing a business climate that provides more certainty and clarity to proponents when addressing Aboriginal Peoples' interests and legal requirements. The Ministry is also taking an active role by working with MARR, the Ministry of Tourism, Sport and the Arts, Aboriginal Tourism B.C., Tourism B.C. and other stakeholders to facilitate partnerships and support the implementation of an integrated Aboriginal Cultural Tourism Blueprint Strategy for B.C.

Mountain Pine Beetle: The Ministry works with the Ministry of Forest and Range's Emergency Response Team and with regional community coalitions to minimize economic impacts on Mountain Pine Beetle affected areas.

Regulatory Reform: The Ministry continues to pursue regulatory reform and streamlining initiatives with the B.C. Competition Council to examine government and private sector issues affecting industry competitiveness, such as eliminating barriers to labour mobility and trade.

ActNow B.C.: The Ministry participates in the provincial ActNow B.C. initiative aimed at supporting individuals and communities to protect and improve their health through several programs which include the Major Post-Secondary Sports Training Facilities Initiative, the Olympic/Paralympic Live Sites Program and the Canada/B.C. Infrastructure Program.

Major Changes in Responsibility

In June, 2005, the Ministry was realigned and renamed the Ministry of Economic Development. Major changes in responsibility resulted from the transfer of the following initiatives:

In addition and as part of the government reorganization, the following programs were transferred out of the Ministry:

The Ministry was also named the lead for the government's special focus on the Asia-Pacific and developing an Asia-Pacific Strategy.