British Columbia has lost 12,400 manufacturing jobs since 2017, and the lack of investment in the sector is “nearing crisis levels,” warns the Canadian Manufacturers and Exporters (CME).
In a special report released today, the CME points to a worrisome decline in investment in manufacturing in B.C.
In 2000, manufacturing accounted for 9.5 per cent of B.C.’s GDP, the report notes. In 2023, it had dropped to just 5.7 per cent of GDP. In 2023 alone, it declined by 4.6 per cent.
“As a province we can no longer ignore the negative trends we have seen over the past several years,” said Andrew Wynn-Williams, the CME’s divisional vice president for B.C. “We still have tremendous potential, but we have to reverse the declining investment if we want the industry to contribute on the scale it has in the past.”
In B.C., manufacturing is dominated by wood product manufacturing (lumber, engineered wood products, pulp and paper), followed by food processing, machinery, and fabricated metal products.
Given the decline B.C.’s forestry sector has experienced in the last few years, it’s perhaps not surprising to see the sector’s numbers plummet so dramatically. But it’s not just wood manufacturing that is ailing.
“We did identify that that the drop in the forest space is a key factor,” Wynn-Williams told BIV News. “But when I look at manufacturing in the Lower Mainland, a number of them have nothing to do with the forest space, and they’re equally challenged.”
The CME conducted a series of round tables with manufacturers around the province to try to identify the barriers to investment. Taxation, red tape and industrial land costs are among the top concerns.
“The business environment is deteriorating due to escalating regulatory and tax burdens,” the CME report states.
“Innovation investments are dwindling, resulting in fewer new product developments. B.C. is importing more value-added goods than it is exporting, significantly limiting sales and growth prospects. Consequently, the province risks falling behind, potentially becoming too costly and lacking the necessary technological advancements and innovation to compete effectively in the global marketplace.”
Manufacturing is still an important part of B.C.’s economy, the CME notes. In 2023, B.C. manufacturers exported over $30 billion worth of value-added goods, accounting for more than half of B.C.’s exports.
Wood product manufacturing is the largest manufacturing subsector, generating $2.5 billion in real GDP in 2023 and accounting for 14.3 per cent of the province’s total manufacturing GDP.
“When considering the sector’s direct, indirect, and induced impacts, its total contribution rises to 12.9 per cent of B.C.’s economic activity,” the report states. “Furthermore, the industry directly employs 171,800 British Columbians and supports an additional 220,600 jobs through supply chain activities and employee spending, making it a vital contributor to communities across the province.”
In 2017, the sector employed 184,200 people directly.
B.C. manufacturers interviewed for the CME report pointed to ever-increasing layers of regulations, taxes and other financial burdens that make it harder to thrive and grow in B.C.
One food processor in Richmond listed 12 new or updated regulations that add costs to the food processing business, from the new Modern Slavery Act and front-of-package labelling requirements to single use plastics bans.
One Surrey manufacturer with 80 employees estimated that increases to minimum wage, added sick days, an additional statutory holiday, the health employer tax, increased property taxes and increased insurance combined to add $500,000 in additional direct costs to his business annually.
“The challenge is amplified as the new holiday and sick days decrease production causing an estimated additional revenue loss of $200,000,” the report adds.
B.C. manufacturers compete with other jurisdictions, including the U.S., which has been rapidly expanding its industrial plant, in an effort to reshore manufacturing capacity lost to China over the past couple of decades. The report notes that per-worker investment in B.C.’s manufacturing sector is just one-third that of the U.S.
“Specifically, in 2022, manufacturing investment per worker was $49,500 in the U.S., compared to only $13,800 in B.C. This low capital intensity signals potential challenges for B.C.’s future productivity growth and economic prosperity.”
The U.S. is experiencing a “factory-building boom” driven by incentives under the Inflation Reduction Act (IRA) and the CHIPS and Science Act.
“Manufacturing construction has surged dramatically, nearly tripling over the past three years, as the sector expands capacity, driven by industrial policy and a strong push to reshore production,” the CME says of the American manufacturing boom.
The report notes that, while the federal government in Canada has introduced clean-tech manufacturing incentives, they don’t come close to what the U.S. offers. This may explain why Ballard Power Systems (TSX:BLDP) is looking to build a new fuel cell manufacturing plant in Texas, rather than B.C.
“Moreover, U.S. companies are not burdened by the escalating carbon price or the increasing stringency of the Output-Based Pricing System (OBPS) or equivalent provincial policies,” the CME report notes. “As a result, Canada and B.C.'s manufacturing sectors risk falling behind in the global race to develop and deploy clean technology.”
Land costs are another serious challenge, especially for industries in the Lower Mainland, where a shortage of industrial land prevents expansions.
“In Richmond, for example, a report to the city in August of 2023 noted the average cost to lease industrial land was $21.31 per square foot. This was an increase of nearly 220 per cent over the fall 2018 average cost of $9.69 per square foot.”
One of the problems the CME has identified is B.C.’s manufacturing strategy – it doesn’t have one.
“There is no concerted strategy,” Wynn-Williams said. “We’ve been asking for a strategy for a while.”
The CME’s report concludes with 17 recommendations for addressing B.C.’s poor investment and operating climate for manufacturing, including:
- adopting a manufacturing strategy with measures to support the sector;
- matching the Alberta government’s commitment to reduce regulations by one third;
- reviewing, modernizing and simplifying the tax system, in coordination with the federal government;
- introducing a shared federal-provincial manufacturing investment tax credit capital investments in new buildings, machinery, equipment and software; and
- modernizing Canada’s immigration and temporary foreign worker programs and ensure manufacturers have access to a talent pool with the necessary skills to work in manufacturing.
