Tourism, Education, and Exports: Nova Scotia in the Context of Cheaper Energy and a Weaker Dollar

In recent months, oil prices have fallen dramatically and the Canadian dollar has weakened, which has led to speculation that Canada’s economy could be on the verge of an economic crisis. Yet, despite the obvious drawbacks of these developments, they could yield serious economic benefits for Nova Scotia, particularly for firms that export their goods and services to other jurisdictions. On the contrary, however, the cost of imports could rise and harm those consumers who rely on imported goods and services.

Nova Scotia’s economy relies heavily on education, exporting goods and services, and tourism, all three of which could benefit from lower energy prices and a weaker dollar. In fact, these two developments could help the province achieve the recommendations featured in the OneNS report, i.e. doubling the revenue from tourism in the next ten years, expanding the province’s export industry to meet the demand of the global economy, and developing a strategy that would help retain international students in Nova Scotia after they graduate.

Most projections anticipate that the Canadian dollar will remain relatively weakened in the coming months, which could bring enormous benefits to the province’s tourism industry and the estimated 24,000 individuals working in it–one person for every twenty living in communities across the province. In Nova Scotia, 1.9 million tourists traversed the province in 2014 and hotels sold 250,800 rooms, which generated $285 million in economic activity. There are also spillover benefits that help indirectly stimulate the local economy. Essentially, as the Canadian dollar weakens relative to other currencies and exchange rates fall, visiting Canada will become more attractive to foreigners and those who have already planned their vacations will have additional money to spend.

A weaker Canadian dollar might also encourage international students to pursue an education in Canada and postsecondary institutions in Nova Scotia could be among the primary beneficiaries. Furthermore, it would also make housing more affordable for international students who benefit from a lower exchange rate, which could dissuade students from choosing schools in Europe or the United States. Lastly, an influx of international students would increase the demand for local goods and services, resulting in additional economic activity and generating more revenue for local and provincial governments.

In his keynote speech at the Institute’s “For the Love of Nova Scotia, Let’s Focus on the Economy” event on February 11th in Halifax, Oxford Frozen Foods President John Bragg argued that Nova Scotia’s export industry should expand to the global market. Fortunately, these exporters will benefit from lower energy costs and a weaker currency and the time is ripe for those firms to expand their marketing efforts to countries in Asia and Europe wherein demand for the goods and services that Canadian firms offer is high. In fact, Clearwater Seafood Incorporated reported $444.7 million in earnings in the 2014 fiscal year and international sales have been rising in recent months. As Roger Taylor put it in the Chronicle Herald, “Product has a lot to do with it, but Clearwater is proving that being based in Nova Scotia is no impediment to successfully doing business around the world.”

To clarify, falling oil prices and a weakening currency has some clearly negative effects, particularly for Canadian firms in the western region. In Nova Scotia, however, those two developments could bring tremendous economic benefits to the province by encouraging tourism in the region, enticing international students into attending one of Nova Scotia’s premier postsecondary institutions, and making Canadian exports more affordable to international consumers.

Rinzin Ngodup is an AIMS on Campus Student Fellow who is pursuing a graduate degree in economics at Dalhousie University. The views expressed are the opinion of the author and not necessarily that of the Atlantic Institute for Market Studies

Nova Scotia’s Tourism Ferry Tales

Nova Scotia has historically relied on sound marine infrastructure to move goods, services, and people around the province, the country, and other countries. Travel and transportation from Nova Scotia to the United States and other jurisdictions in Atlantic Canada is quicker by sea than by land and investing in such infrastructure is useful, but sometimes politically motivated.

Such is the situation surrounding the Nova Star Cruises in Yarmouth, Nova Scotia

First and foremost, the provincial government has invested millions of taxpayer dollars into the ferry despite several problems plaguing it since the 1970s. Moreover, negotiations surrounding it have not been transparent and elected officials who support the ferry, which connects Yarmouth to Portland, Maine, more than likely do so for political, rather than economic, reasons.

Initially, the Nova Scotia government approved a seven-year $21 million subsidy to the ferry operator, Nova Star Cruises, which that company spent wholly in its maiden season. Following the initial subsidy, the provincial government forwarded to Nova Star Cruises an additional $5 million to cover expenses, and shortly after, it sent another $2.5 million for staffing fees and transportation costs.

It remains unclear why, or how, Nova Star Cruises spent $21 million that was meant to last for seven years and it is possible that the provincial government has given the ferry operator additional funds that have not been disclosed publicly. Economic and Rural Development Minister Michel Samson, for example, initially and unequivocally stated that the provincial government had only paid out a total of $26 million, but later, following a government report on the ferry expenses, it forked out an additional $2.5 million, raising the total to $28.5 million. This discrepancy may appear minor, however, the fact that Nova Scotia’s government is mum about these expenses is concerning.

Aside from issues of transparency and government accountability, investing in the ferry service seems to have been misguided. The Nova Scotia Tourism Agency, for instance, attempted to quantify how impactful the ferry has been on the Nova Scotia economy and found that it may have contributed to an $11 million increase in hotel revenue. In other words, for every dollar the government spends to use the ferry as a means of attracting tourists to the province, they get less than half of a dollar in return, which even Keynesians would agree is a terrible multiplier.

The provincial government will announce its plans for the 2015 Nova Star Cruise ferry service within a few days, and although I suspect the announcement will include additional subsidies for the ferry operator and a “feel good” plan to attract more tourists, the provincial government should rethink its tourist strategy in southwest Nova Scotia. Tourism numbers have been increasing steadily in Nova Scotia recently and it is doubtful that the ferry service is having a large enough effect on the local economy to warrant such large cash injections. Moreover, the operator employs only 20 individuals from the province.

Instead, the government should focus on increasing the presence of short-distance ferries for transportation. One major problem facing local fisherman and processors is not having the ability to transport their fish to markets outside of Nova Scotia at a low-cost and before their product expires. Reefer trailers, which fishermen use to transport their product from the point of processing to consumers in other jurisdictions in Canada and the United States, are costly and time-consuming; increasing ferry capacity for trucks and trailers transiting to Portland and New Brunswick would better service the community than focusing solely on tourism.

Provincial governments in Nova Scotia focus on promoting tourism because residents in that province have bought into the idea that it is a tourist destination constrained by a lack of accommodating and appealing services, i.e. if the provincial government simply invests in tourism infrastructure, Nova Scotia will shine as a tourist destination. This perception of the issue compels elected officials to lobby for projects that do not necessarily provide real benefits to Nova Scotians. A fair compromise would be to follow the Marine Atlantic approach in Newfoundland and Labrador, which is to ferry passengers and transport goods and services.

In the end, this issue is another example of how government can mismanage an issue that has a clear and simple solution.

Corey Schruder is an AIMS on Campus Student Fellow who is pursuing an undergraduate degree in history at Cape Breton University. The views expressed are the opinion of the author and not necessarily that of the Atlantic Institute for Market Studies