Adding to the cost of doing business doesn’t help manufacturers and makes attracting investment to the province even more difficult.
When Canada’s energy industry was in investment freefall thanks to the plunging global price of oil, Ontario Premier Kathleen Wynne made the rather heroic declaration that the province would save the day with a resurgent manufacturing sector. The loonie was cooling (good for exports), the US manufacturing sector was expected to power up and Canada had a free trade agreement with the European Union in the bag. So how are things going for Ontario manufacturing just past the year’s halfway mark?
Not so good.
The latest manufacturing stats show the fourth sales decline of the year. More troubling, though, are the longer-term prospects for manufacturers that must contend with tough competition from the US and Mexico for North American business.
Adding to the cost of doing business doesn’t help them, and it will make attracting investment to the province even more difficult. Yet the Wynne government appears to be stumbling in that direction with its high electricity rates, a proposed provincial pension plan and a cap and trade regime to reduce greenhouse gas emissions.
Let’s start with electricity. The Ontario Chamber of Commerce issued a report calling on the government to curb the price of power, which has risen 16% for industrial users since 2013. The report says the rates are among the highest in the country.
They’re projected to rise another 13% over the next five years, and will continue to rise over the next 20 years. Of concern is a poll that revealed one in 20 businesses expect to shut down over the next five years because of soaring rates.
Yes, there are programs to help reduce power use and many manufacturers aren’t making use of them, but the report contends more disclosure about peak and off-peak times is needed to reveal how electricity costs are calculated so businesses can better adapt their management efforts.
The automotive industry, responsible for about 3% of Ontario’s GDP, is especially sensitive to cost issues. Ontario is an expensive place to make vehicles. There has been no new auto capacity investment in Canada (Ontario) in four of the last five years, while Mexico has scored seven new assembly plants. Ontario has picked up about $4 billion of investments in existing plants after a couple of fallow years, but missed out on a $2 billion Ford engine plant destined for Windsor that ended up in Mexico. And GM (iffy about its commitment to the Oshawa complex, pending contract negotiations with Unifor) has moved Camaro production to the US. So when Sergio Marchionne, CEO of Fiat Chrysler Automobiles, advises Wynne that cap and trade and a provincial pension plan reduce the industry’s competitive position even more, she should listen.
What those costs will be are not known yet, but the pension scheme in particular is raising a red flag. The Wynne government’s plan should be aimed at those who have trouble saving for their golden years on their own or through their employment. But it appears people who already have workplace defined contribution plans, or workplace RRSPs, or TFSAs, will be forced to participate in the Ontario Retirement Pension Plan too. This makes little sense for a company such as Fiat Chrysler, where workers are already participating in a defined plan.
Environics Research found 66% of Ontario companies are looking at eliminating existing group retirement plans and 78% are likely to reduce contributions to workplace plans….so mission not accomplished.
The national economy will find little relief from Ontario if Wynne continues with policies – executed in a manner that’s reminiscent of her bungler predecessor – that add to manufacturers’ costs and their angst.