‘There’s just so many unknowns’: Business investment forecast to fall $1 billion as companies struggle to survive
Posted on January 17, 2017 in In the Media
After recording a sharp decline in profit last year, Arlen Hall and his business partner plan to spend 2017 working to keep their electrical contracting business alive amid the ongoing economic downturn.
“We’re not taking anything over and above a meagre wage,” said Hall, a veteran contractor from Lanigan who formed Age of Electric Ltd. with Evan Demers in 2013. “Our profit was, I don’t know, maybe an eighth of what it was the prior year.”
Age of Electric is far from the only local company affected by collapsing resource prices, the effects of which have dampened spending across the broader economy as employers look for ways to reduce costs.
Last year alone, Saskatchewan shed more than 10,000 full-time jobs — of which 4,800 were in the construction sector — and saw its government deficit climb above $1 billion, largely due to drastically reduced resource royalties.
“I think (2016) was a pretty tough year for everybody,” Hall said, adding that he and Demers plan to scrimp as much as possible this year, in the hope of surviving long enough to benefit from a rebounding economy.
“You lower your margins on what you’re making in labour and materials … We’re basically in a situation right now where longevity is the key to success: The longer you can stay open, the more clientele you’ll have and the more often the phone rings.”
The problem facing Age of Electric is reflected in the Business Development Bank of Canada’s (BDC) latest investment projection, which estimates that Saskatchewan-based businesses will cut spending by $1 billion in 2017.
While small- and medium-sized firms in the province are optimistic about an economic recovery this year, they plan to slash investment in growth and productivity by an average of $50,000, the BDC said in its latest outlook.
The forecast decline in investment to $2.9 billion from the $3.9 billion last year stands in stark contrast to the national economy, where total business investment is projected to climb by more than $1 billion, to $96.6 billion in 2017, the BDC said.
“The last two years, the Saskatchewan economy has been slowing down because of oil, and also because of potash,” said BDC chief economist Pierre Cléroux, noting that diversity has shielded the broader national economy from the effects of weak resource prices.
Cléroux said that while the forecast drop in investment is “significant,” he is optimistic that climbing resource prices will drive investment by Saskatchewan-based companies back up to pre-2017 levels by the end of the year.
North Saskatoon Business Association (NSBA) executive director Keith Moen said the projected drop in investment is likely economic uncertainty around the energy and resource sectors, which “doesn’t bode well for investment attraction or building confidence.”
While economic recovery is on the horizon, it is important to remember that small- and medium-sized businesses tend to be more cautious than larger firms, and often follow rather than lead the broader economy, Moen said.
“However, having said that, entrepreneurs by their very nature are risk-takers, calculated risk-takers, so it’s not like they’re going to be totally without any degree of confidence or optimism about what lies ahead.”