06 November 2013

A failed petrostate? Look closer #nlpoli #cdnpoli

Andrew Leach at macleans.ca took issue on Monday with the idea Canada’s economy is overly dependent on oil production.

Leach notes that both the oil industry and oil industry critics tend to over-estimate the share oil represents of the value of all goods and services produced in the country during the year. These people will estimate that oil makes up about 30 to 40 percent of GDP, in other words.

The reality is more like 10% today, down from 12% in 1997.

Leach goes through a raft of other measurements that support his position.

Fair enough.

But what about particular parts of the country?

Leach looks at Alberta.

The story is similar in Alberta with respect to royalties – resource royalties as a share of government income were over 40% when Prime Minister Harper took office, and are around 30% today – still important, of course, but not increasing as you might have been led to believe. 

Similar story:  share going down, not up.

Note that range in the sentence:  30 to 40 percent of government income.  Experts who study the impact that resource revenues have on how government operates think that is a critical set of numbers for defining the kinds of states (countries, provinces, and so on) that become overly dependent on resource revenues.

Leach doesn’t look at Newfoundland and Labrador for some reason.  If he did, Leach would have found something different.

In order to get a clearer picture of resource dependency, you have to actually look at the value of non-renewable resources as a share of GDP.

  • In 2007, oil and minerals accounted for $12.5 billion of a $26 billion economy. (48%) 
  • In 2009,  oil and minerals accounted for $8.0 billion of a $23 billion economy (34%).
  • In 2010, they were $10.2 billion of a $26 billion GDP. (39%)
  • In 2011, GDP was about $32 billion. Oil and minerals accounted for $13.6 billion or around 43% of the province’s GDP.

In other words,  oil and minerals were almost half of the province’s GDP in 2007.  That dropped during the recession but climbed back up to sit at 43% in 2011.

Then you can look at the share of provincial government revenue oil and minerals money makes. The gap between the blue line (total government spending) and the red line (non-oil revenue)is oil and minerals money.

Oil and minerals money made up a larger share of government spending in 2012 than it did in most previous years. 

Newfoundland and Labrador is the closest thing in Canada to a petrostate.  It shows, if you look.