01 Jan 2016 The Year Ahead: Challenges and Opportunities
Content provided by The Vancouver Sun
In British Columbia’s tech sector, executives and entrepreneurs fret over finding enough talent to fill the jobs going wanting in a hot environment while in mining, consolidation and cost containment are the watchwords as they struggle to remain viable in a downturn now going on four years.
Looking at some of the province’s key industries as 2016 gets underway is indicative of its overall economy. Lying somewhere between boom and bust, B.C. is expected to be one of Canada’s leaders for economic growth, in a relative sense compared with Alberta and Saskatchewan’s slumping economies.
B.C.’s anticipated rate of economic growth, however — 3.6 per cent in 2016 by the Conference Board of Canada’s forecast, 3.1 per cent by RBC Economics’ projection — verges on robust with the anticipation that the province might see a bump from liquefied natural gas development, if a major proponent makes a decision to go ahead.
The Sun asked experts in six key industries, including tourism, mining, energy and high-tech to offer their assessments of what 2016 holds.
Bill Tam, president and CEO of the B.C. Technology Industry Association expects a shortage of talent to be the biggest risk facing tech companies in the coming year.
“I would say because things have been so hot for the last number of years, the last three or four years it has been on a rise, the single biggest issue for companies is finding people to fuel the growth of the business,” he said. “That combined with making sure there is adequate capital to grow the business.”
With global warming and environmental issues prompting more calls for action, Vancouver’s clean tech sector is poised to take advantage of the demand.
“I think there has been an increased awareness and heightened sense around climate change,” said Tam. “Technology companies that build remediation strategies are going to be at the forefront of that next wave. … I think we’re going to expect 2016 will be a very robust period for cleantech companies here in British Columbia.”
Big data, machine learning and the Internet cloud could also figure prominently in Vancouver’s tech scene.
“We have a number of companies that are working on next generation capabilities around that,” said Tam. “I think we are going to see some breakthrough stuff in that area as well.”
Tam also expects 2016 will see Vancouver’s gaming sector grow.
“I think we are going to see a resurgence in the gaming and digital entertainment side that we haven’t seen in quite a number of years,” he said. “A combination of factors, one being the improvements in relative exchange rates — we’ll probably see more studies and more activity happen here in Vancouver.”
The potential for a natural gas export business to Asia remains the energy’s sectors biggest opportunity in 2016.
However, it is also a victim of the sector’s biggest risk: a significant and now long-running slump in global oil prices. and to a lesser extent, a drop in natural gas prices in Asia, says Geoff Morrison, the Canadian Association of Petroleum Producers spokesman in B.C.
From 2001 into 2014, a barrel of oil traded in the $100 US range, but it has plummeted to $35, a result of a glut of supply and weaker demand.
Gas prices have followed a similar pattern in Asia. The LNG contract price in Japan dropped to about $8 from $16, starting in 2014.
The global energy heavyweights that lead proposed liquefied natural gas projects on B.C. coast — including Shell, Chevron and Malaysian state-controlled Petronas — have taken a revenue hit from the low oil prices in particular and as a result have cut their capital spending plans in the immediate future.
Across Canada, capital spending in the energy sector has fallen to $45 billion this year from $81 billion in 2014, according to figures provided by the CAPP.
“We have, clearly a world-class natural gas resource in B.C. and Canada. We have strong energy demand globally, particularly in Asia and that’s the sweet spot in B.C. and Canada here,” said Morrison.
“There is a lower price for natural gas in North America which is really challenging and there’s a lower price internationally for LNG — natural gas — which is also challenging — but there is still that opportunity there,” he said.
One of the biggest mistakes B.C. retailers could make in 2016 would be to fail to invest wholeheartedly online, Indochino CEO Drew Green said. The made-to-measure suit retailer started as a online-only store, but has since moved to omnichannel retailing.
“If you’re anywhere over $100 million in retail sales, you really should be at 10 to 20 per cent of your sales online,” Green said.
As for small businesses with limited resources, “if you’re going to compete overall, you almost have to lead with online,” Green said.
It’s “almost key critical” that B.C. retailers continue to focus on and invest in online operations, Green said. Seventy per cent of Indochino’s sales are online.
“We continue to see consumers in Canada gravitate toward online shopping and we have a pretty unique dynamic in Canada where the majority of Canadian spend online is actually done with U.S. businesses.”
Sixty five per cent of all online purchases done in Canada are done on U.S. sites, he said.
It’s important that B.C. retailers find ways to serve American consumers. “We need to be just as aggressive in serving customers outside our borders,” Green said.
Although B.C. has some of the best retailers in North America, Canadian retailers’ online efforts lag behind their American counterparts, so Green sees international expansion as one of the greatest opportunities for 2016.
Indochino is looking at further expansion into the U.S. as well as Europe and Asia, he said.
When it comes to real estate in 2016, “Interest rates are going to be the driver, and that’s the big opportunity,” according to realtor Faith Wilson, principal of the Faith Wilson Group.
In light of the struggling Canadian economy and declining Canadian dollar, it’s unlikely interest rates will rise in the next year — and they may fall yet again. “If you were looking at the options to rent, when you’re looking at $2.75 to $3 a square foot for rental property, if you can get that deposit together, it would make sense for someone to be purchasing right now,” Wilson said.
But there’s very little inventory available on the market in Vancouver, a factor that will continue to drive prices upward. Wilson doesn’t see that changing within the first five or six months of the new year. “I think we’re going to have a little bit of a flurry in the spring market,” she said. “I’m not going to be the only realtor that does have some properties that I’m preparing now to put to the spring market.”
The federal government’s new mortgage regulations, which mandate a 10-per-cent down payment for insured mortgages for properties priced at between $500,000 and $1 million, could also be a challenge.
Though it had a few bright spots, B.C.’s mining industry ended 2015 in the grips of the withering downturn in global commodity markets. And cost containment will remain the theme looking into the year ahead, said Karina Brino, CEO of the Mining Association of B.C. “We’re not expecting 2016 to be any easier.”
“What we’re looking at in 2016 is a readjustment of the markets. The downturn has been prolonged, therefore it’s really requiring a new look at how we continue to have a mining industry in B.C.,” Brino said.
“Most of our operators are looking at entering into partnerships with their workforces, with lenders, with government in terms of how do we best weather this storm so we can keep these (existing) operations going, waiting for the markets to turn.”
However, B.C. does have a core of well-established mines, such as Teck Resources Ltd.’s Highland Valley copper mine and coal mines in southeastern B.C.
“One of the advantages we have is that most of our (mines) have been in operation for a long time and we have projects in the queue ready to pick up and get going on construction.
“We’re definitely looking (forward to) the Red Chris mine — it opened up in the last six months of 2015 — so (watching it) go into full operation and being a strong contributor in the northwest. We’re also looking at (Pretium Resources) Brucejack project continuing to move into construction.”
Tourism and travel
Vancouver’s travel and tourism sector will benefit from a bevy of new flights set to arrive in the city in 2016 which will play a role in driving the market, industry officials said. However, destinations and airports throughout North America — especially those in close proximity to Vancouver that offer some similar attractions and advantages — are also gaining steam.
Don Ehrenholz, Vancouver Airport Authority’s vice-president of engineering and environment, said YVR surpassed 20 million in annual passenger count for the first time in 2015. This is after two consecutive years of passenger growth of more than one million, and Ehrenholz said he expects the growth in 2016 to be on a similar scale due to new direct flights to Dublin, Brisbane, Chicago, San Diego and San Jose next summer.
“We have a number of new (European and Australian) flights that’s been announced … there’s lots of growth there,” he said, noting the recently expanded air transport agreement with Australia will bring even more tourists to Vancouver, and a similar deal with China will likely drive some additional growth. “We have some tremendous growth in the U.S., and of course, China is growing rapidly. We are hoping to announce some new flights early in the Spring that will be added-capacity there.”
But Ehrenholz also said destinations like Seattle and Calgary have aggressive plans to attract more flights and tourists, and with aircraft now able to cover longer distances, even Eastern cities like Chicago and New York are increasingly within reach for visitors from Europe and Asia.
“They all want to attract more flights from Europe and Asia, so we have to be very, very competitive to attract new flights to Vancouver,” he said.
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