Alberta’s recovery is on two timelines
By ATB Financial 25 February 2021 7 min read
Alberta’s economic recovery from the COVID-19 crisis is both short term and long term, says Robert Roach, Deputy Chief Economist and Managing Director at ATB Financial.
With economic uncertainty across many sectors of the economy, ATB and MNP have partnered in a comprehensive content series to further explore the challenges and opportunities of economic recovery first discussed at The Alberta Economic Recovery Summit. The series will share home-grown solutions to Alberta-specific challenges across key sectors, including agriculture, aviation and logistics, energy and cleantech, financial services, petrochemicals, technology and data, and tourism. As the first in the series, this piece looks at broad economic recovery in the province and what industry leaders should consider in the months ahead.
A dual-timeline recovery
The short-term recovery is about putting the pandemic behind us via widespread vaccinations.
"The optimistic scenario is that the vaccination roll out will go roughly as planned and we'll get something approaching herd immunity by the fall. That triggers all kinds of positive economic outcomes as the economy can fully or almost fully reopen."
Deputy Chief Economist and Managing Director, ATB Financial
With vaccinations already started in the province and warmer weather on the way, the summer months should look a lot like they did in 2020. The other shoe to drop, however, is just how much damage the pandemic has caused in terms of permanent business closures and job loss.
Roach says it’s important to be realistic about how long the recovery will take, that some businesses will not come back and some will never be the same. On the bright side, at least some Albertans have pent up savings and will be anxious to get out and spend once the pandemic is behind us.
Even with increased economic activity, the unemployment rate is not likely to improve significantly in 2021 and will stubbornly hover around the 10% mark in Alberta, he says.
One key sector facing more uncertainty than others is oil and gas. Not only is the sector dealing with the challenges of lower demand during the pandemic, the industry saw a price war between Russia and Saudi Arabia as well as negative oil prices in April 2020.
“The good news is we have seen global demand for oil go back up now that places like China are growing again. But it still depends on an expectation that the vaccine rollout in the United States, Canada and around the world is going to be effective, and things will normalize and oil demand will keep going up,” says Roach. Additionally, recovery for oil and gas requires that OPEC and OPEC+ continue to keep supply in check.
Of course there are wild cards to consider for the overall short-term economic recovery, adds Roach. The new variants could cause setbacks for lifting lockdowns while global vaccination delays could slow down inoculation program timelines.
“While it’s appropriate to worry, there is good news. Six months ago, we didn't even think we'd have a vaccine until much later, so that's the good news. This year will be a period of recovery, but likely slower than we want,” he says.
When it comes to that recovery, Roach says to expect it to be K-shaped.
“For people who have been able to work from home or who provide essential services, their employment was not disrupted and they will come out of the pandemic in relatively good shape. For this group, it might even seem a bit like the Roaring 1920s,” he says.
The lower prong of the K-shaped recovery will be those people who were already in the low-wage category and either lost their job or weren’t able to work as many hours. Also in this group are business owners who had to close their business or saw their revenues shrink. Government support staved off disaster for many, but once that support ends, they may not get hired back at their job or their business might not recover. This group will experience the recovery differently and will face longer-term challenges, he says.
"In charting the path to recovery it is important that consideration be given to providing supports to transition those groups most impacted by the job losses in the oil and gas and the pandemic to new employment opportunities. This will require collaboration from industry and government."
Partner, Consulting, MNP
Why addressing income inequality is important to Alberta’s long-term recovery
Alberta’s post-pandemic recovery will require us to address a trend that was in play before COVID and will get worse after it’s over—income inequality.
“We’ve got a growing income gap. There are fewer people in the middle class, more people at the lower end and more wealth concentrated at the higher end of the spectrum,” he says.
The lower-wage job losses from the pandemic will be compounded by job losses due to technology advances like automation, robotics and artificial intelligence. Consider fast food restaurants or grocery stores that are replacing staff with self-serve kiosks, says Roach.
“Those jobs will disappear and this will exacerbate the K-shape recovery in our economy,” he says.
One solution to help mitigate this long-term trend is education, he says.
“We have a highly educated population, but it’s now about life-long learning, training on the job, re-skilling and upskilling,” he says.
Areas industry leaders should consider for Alberta’s recovery
Industry leaders focused on both short-term and long-term recovery efforts should consider these five areas as opportunities to position their business for success in the post-pandemic economy.
Look critically at your technology and the skills needed to use it.
The pandemic has accelerated the digital transformation of our economy and that’s not going away. C Suite leaders should take a concentrated look at the technology they are investing in and determine if it’s the right choice for the recovery and beyond, says Roach. Beyond that, ensure that your employees have the training in place to actually use the tech effectively.
“Make sure you are paying attention to the technology but also the human capital to make it work,” he says.
Offer continuous learning for employees.
When the economy is tough, it can be challenging to provide additional training for employees. However, skills training and professional development is an important tool for attracting and retaining employees, says Roach. It can also contribute to the reskilling necessary to keep Alberta competitive and growing in the long term.
“While it’s not always possible, even small things, like subsidizing training, can put the destiny of those companies into their own hands a little bit more because you don’t have to wait for the right talent to show up,” he says.
Diversify Alberta’s economy as the energy transition continues.
Alberta’s oil and gas industry is changing as it’s gotten leaner and embraced technology in order to compete globally and survive the pandemic, says Roach.
“It’s going to be a huge asset for us for years and years to come. But it’s not going to be the same source of growth that it once was.” To plan for a more constrained future on this front, both the energy industry and Alberta’s wider economy, must continue to diversify, adds Roach.
Natural gas has a bright future as coal-fired electricity switches to gas and cleaner fuels are sought out around the world. In energy more broadly, Alberta is a leader in alternative energy and renewables, including wind, geothermal and hydrogen energy.
Outside of oil and gas, Roach says there are a number of sectors with opportunity for significant growth, such as agrifood and technology. For example, Vancouver-based mCloud Technologies Corp—which uses artificial intelligence to measure and mitigate energy waste—is moving its headquarters to Calgary in 2021 and plans to double its staff. It will be joining a number of dynamic tech companies (including Attabotics and Benevity, to name a couple) that already make Alberta home.
While no one sector can replace the massive contribution of the oil and gas industry to the economy, growth across a range of sectors will add diversity and make Alberta’s economy more resilient in post-pandemic years.
Consider global for growth. “The global middle class is growing and looking for products and services that Alberta can provide,” says Roach. While taking a business global is not something to be underestimated, Canadian business leaders are not always as aggressive as other countries’ leaders when it comes to tapping into international opportunity. Now is the time to consider it.
“We’re a global trader and we need to remind ourselves there is a market of 7.6 billion people on top of the 4.3 million here in Alberta,” he says.
Roach acknowledges the international market is a bit more hazardous with things like Brexit, our tense relationship with China and rising protectionism. However, Canada has comprehensive trade agreements with Europe, Asia-Pacific, the U.S. and Mexico.
“We need to maximize those as much as we can and build relationships internationally because that’s where the biggest market is,” he says.
Prioritize environmental, social and governance (ESG) policies
Whether you’re a small, mid-size or large company, Roach says now is the time to prioritize your company’s ESG policies.
“I think we can over emphasize how much investors focus on this, but there is a movement toward higher expectations regarding ESG,” he says. “Alberta businesses that are already on top of this need to keep going and figure out how they take advantage of it. There is an economic payoff and our competitors are certainly thinking about it so we want to keep working on that.”
Roach says one area where Alberta must continue to lead on at an industry level is creative discussions around carbon reduction and going green.
The social aspect includes being more supportive of workers and potential workers who are responsible for caring for family members. These roles tend to fall to women and we have seen how the pandemic has created additional challenges for women in this respect.
Despite the short-term challenges, Roach is positive about Alberta’s recovery.
“We are one of the best kept secrets. We’ve been struggling compared to where we were during the boom, but we are still an economic powerhouse,” he says.