Locke - Appraisal Institute of Canada
Locke - Appraisal Institute of Canada
Locke - Appraisal Institute of Canada
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The Role <strong>of</strong> Oil and Gas inTransforming Newfoundland andLabrador’s EconomyA Presentation to the <strong>Appraisal</strong> <strong>Institute</strong> <strong>of</strong> <strong>Canada</strong>Conference: Valuation, Just the Tip <strong>of</strong> the IcebergSt. John’s, NLWade <strong>Locke</strong>, Ph.D.Department <strong>of</strong> EconomicsMemorial UniversityJune 5, 2008
Demographics
7006005004003002001000NL Population(000's <strong>of</strong> People)19491952195519581961196419671970197319761979198219851988199119941997200020032006Decline from peak <strong>of</strong> 580,000 in 1993 (just after cod moratorium)to 506,000 currently
20-2-4-6-8-10Out-Migration NL(ooo's <strong>of</strong> People)196119631965196719691971197319751977197919811983198519871989199119931995199719992001200220042006The last two quarters there has been positive in-migration& should expect dramatic turn around in next five years.
DEMOGRAPHICS• Population declining since cod moratorium, drivenprimarily by out-migration• This past year there appears to be a slight turn around– positive in-migration in last two quarters• Having an aging workforce is a constraint on futureeconomic developments• Province’s business also having to compete withopportunities in Alberta, which make use <strong>of</strong> the sameskills that will be needed here• With anticipated demand for labour, should seeperiods <strong>of</strong> high in-migration in the next five years
Fiscal Circumstances
$14$12$10$8$6$4$2$0NL Provincial Debt LevelsBillion <strong>of</strong> Dollars1994-19951995-19961996-19971997-19981998-19991999-20002000-20012001-20022002-20032003-20042004-20052005-20062006-20072007-20082008-2009While things are improving, NL still has the highest debt percapita in the countryNet Provincial Debt
NL Provincial Debt as % GDP80%70%60%50%40%30%20%10%0%Debt relative to ability to pay is improving & will continue to improveDebt as a % <strong>of</strong> GDP1994-19951995-19961996-19971997-19981998-19991999-20002000-20012001-20022002-20032003-20042004-20052005-20062006-20072007-20082008-2009Debt as % <strong>of</strong> GDP
Debt Expenses as a Percent <strong>of</strong> Revenue30%25%20%15%10%5%Debt servicing less <strong>of</strong> a burden that will be reduced furtherwith credit rating upgrade and further debt retirement0%2008-091995-19961996-19971997-19981998-19991999-20002000-20012001-20022002-20032003-20042004-20052005-20062006-20072007-2008
$1,500$1,000$500$0($500)($1,000)Government DeficitsMillions fo Dollars1994-19951995-19961996-19971997-19981998-19991999-20002000-20012001-20022002-20032003-20042004-20052005-20062006-20072007-20082008-2009Consecutive budget surpluses, first in our history andwill continue to improve in near and medium term.
NL Equalization Entitlements –1957-2008$1,400$1,200$1,000$800$600$400$200$0Millons <strong>of</strong> Dollars195719601963196619691972197519781981198419871990199319961999200220052008$25.2 B over life <strong>of</strong> programNL will be “have” province by 2009-10.
14.00%12.00%10.00%8.00%6.00%4.00%2.00%0.00%NL’s Share <strong>of</strong> EqualizationEntitlements – 1957-200819571959196119631965196719691971197319751977197919811983198519871989199119931995199719992001200320052007
Fiscal Circumstances• Should have a period <strong>of</strong> prolonged surpluses• All the financial indicators going in the rightdirection• NL is in line for credit rating upgrade• With anticipate revenues coming to theprovince in the medium term, it is possible, butnot desirable, to pay <strong>of</strong>f debt completely• Get debt to manageable/sustainable level $5B
Other Economic Indicators
GDP Per Capita NL and <strong>Canada</strong>$70,000$60,000NL GDP/POP now exceeds national average.$50,000$40,000$30,000$20,000$10,000$0GDP/POP2006196119641967197019731976197919821985198819911994199720002003NL GDP/POP CAN GDP/POP
GDP Per Capita NL Relative to <strong>Canada</strong>140%120%100%80%60%40%20%The relative growth in NL started after1997, start <strong>of</strong> production <strong>of</strong> Hibernia0%1961196419671970197319761979198219851988199119941997200020032006NL as a % <strong>of</strong> <strong>Canada</strong>
Personal Income Per Capita NLRelative to <strong>Canada</strong>Personal Income/POP$40,000$35,000$30,000$25,000$20,000$15,000$10,000$5,000Improvement not as dramatic as GDP/popbecause <strong>of</strong> corporate pr<strong>of</strong>its$01961196419671970197319761979198219851988199119941997200020032006NL Personal Income/POPCAN Personal/POP
Personal Income Per Capita NL100%90%80%70%60%50%40%30%20%10%0%Relative to <strong>Canada</strong>NL as % <strong>of</strong> <strong>Canada</strong>196119631965196719691971197319751977197919811983198519871989199119931995199719992001200320052007Definitely an improvement, but not as dramatic as GDP/pop
Unemployment Rate <strong>Canada</strong> and NL2520151050Improvement occurring throughout <strong>Canada</strong>, but NL improving relativeto <strong>Canada</strong> in most recent years.196619681970197219741976197819801982198419861988199019921994199619982000200220042006% <strong>of</strong> Labour Force UnemployedUNRATE NL UNRATE CAN
Ave. Weekly Wages NL Relative to <strong>Canada</strong>96%92%88%84%80%76%72%Wages starting to increase relative to Canadian average and this willstart to accelerate in the short to medium term.1997M011997M061997M111998M041998M091999M021999M071999M122000M052000M102001M032001M082002M012002M062002M112003M042003M092004M022004M072004M122005M052005M102006M032006M082007M012007M062007M112008M04
2,5002,0001,5001,0005000Housing Starts - NLNumber <strong>of</strong> Housing Starts195519571959196119631965196719691971197319751977197919811983198519871989199119931995199719992001200320052007After years <strong>of</strong> relatively slow growth,starting to increase again
Average Annual MLS Sales Price$180,000$160,000(St. John’s CMA)Notice: Hebron Bump in 2006$140,000$120,000$100,000$80,000$60,000$40,000$20,000$01980 1984 1988 1992 1996 2000 2004 2008Q
20016012080400New Housing Price Index – <strong>Canada</strong>and Newfoundland and Labrador(1997=100)1986M011986M121987M111988M101989M091990M081991M071992M061993M051994M041995M031996M021997M011997M121998M111999M102000M092001M082002M072003M062004M052005M042006M032007M022008M01Price changes similar until 2006, slight deviation. In recent period NLgrowing faster than <strong>Canada</strong> and that should be expected to continue.<strong>Canada</strong> NL
Average Annual Growth Rate MLS12.0%10.0%Sales Price (St. John’s CMA)Notice: Hebron Bump in 20068.0%6.0%4.0%2.0%0.0%-2.0%-4.0%198019821984198619881990199219941996199820002002200420062008Q1
Vacancy Rates for Class A (Downtown )and Non-Class A Properties12.00%10.00%8.00%6.00%4.00%2.00%0.00%May 98Jan 99Jul 99Apr-00Nov 00Jun 01Nov 01Mar 02Oct 02Apr 03Oct 03Apr 04Jul 05Jan 06Oct 06Dec 07Vacancy Rate Class A Property Vacancy Rate Non-Class A Property
Take-up <strong>of</strong> Industrial LandAcres40353025201510501995 1997 1999 2001 2003 2005 2007
Other economic indicators• All <strong>of</strong> the economic indicators point to aeconomy that Is improving• The future economic circumstances arebright• Confidence is at an all time high
Oil and Gas and the Future
Vic Young Royal CommissionOil and Gas Revenue Estimates$3,500$3,000$2,500$2,000$1,500$1,000$500$0Millions <strong>of</strong> Dollars2003-042004-052005-062006-072007-082008-092009-102010-112011-122012-132013-142014-152015-162016-172017-182018-192019-202020-212021-222022-23$6.6 billion Oil RevenueNet Provincial Revenue Equalization Losses
Current Government RevenueEstimates ($100 US/bbl)–Excl. Hebron$3,500$3,000$36.7 Billion$2,500$2,000$1,500$1,000$500$01997-981999-002001-022003-042005-062007-082009-102011-122013-142015-162017-182019-202021-222023-242025-262027-282029-30Millions <strong>of</strong> Dollars
Comparison <strong>of</strong> Government Revenue$100 US/bbl Vs Young Commission$3,500$3,000EstimateThings Have Changed!$2,500$2,000$1,500$1,000$500$01997-981999-002001-022003-042005-062007-082009-102011-122013-142015-162017-182019-202021-222023-242025-262027-282029-30Millions <strong>of</strong> Dollars
Oil Prices – A Brief HistoryUS $/bbl WTI$140$120$100$80$60$40$20$0A 860% increase within ten years and 400%increase within five years1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
NL Equalization Entitlements:1957-2020$1,400$1,200No need for equalization in 2009-10 and should last until at least 2020$1,000$800$600$400$200$01957196019631966196919721975197819811984198719901993199619992002200520082011201420172020
Employment Expectations – Medium Term16,0008%14,00012,00010,0008,0006,0004,0002,0002008 Q12008 Q32009 Q12009 Q32010 Q12010 Q32011 Q12011 Q32012 Q12012 Q32013 Q12013 Q32014 Q12014 Q32015 Q12015 Q32016 Q12016 Q32017 Q12017 Q32018 Q12018 Q3Increase in Employment% Increase over Current Levels7%6%5%4%3%2%1%00%Increase over current Levels <strong>of</strong> Employment (220,000) Employment
Oil and Gas and the Future• Huge revenues coming to NL, even at oil prices muchless that current price levels• Will need to import labour• Sufficient revenue to pay <strong>of</strong>f debt by 2020, but notdesirable to do so• NL about to be transformed, fiscally and economically• Will be a “have” project until after 2020• Need to plan for prosperity to enhance the positives andminimize the negatives– Drugs, prostitution, crime, growing rural/urban divide anddisenfranchisement• NL will be a province <strong>of</strong> opportunity, but we have to worktogether
Conclusion• To quote Timbuk3: “The Future’s is soBright I Gotta to Wear Shades”• Thank you and I would be happy toanswer any questions
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