The Economic Impact of Canada s Arctic and Offshore Patrol Ship Program.

Transcription

1 The Economic Impact of Canada s Arctic and Offshore Patrol Ship Program. AT A GLANCE The National Shipbuilding Strategy (NSS) is a long-term initiative to renew Canada s fleet of combat, patrol, and other vessels. Through the NSS, the federal government is reinvigorating Canada s shipbuilding industry. This report quantifies the economic impacts of building 6 Arctic and Offshore Patrol Ships and includes the impacts of the Halifax Shipyard s facility modernization. Building the 6 vessels will increase jobs by an average of 4,230 per year over the core AOPS build phase. Employment is forecast to peak in 2018 with 4,770 jobs. Real GDP will rise by $3.42 billion from 2013 to 2022, boosting economic activity in manufacturing, construction, and many other sectors across Canada. All three levels of government will benefit as the lift to economic activity boosts tax revenues by $836 million. $ $ $ OUTLOOK JANUARY 2018

2 THE ECONOMIC IMPACT OF CANADA S ARCTIC AND OFFSHORE PATROL SHIP PROGRAM Securing contracts over a long time horizon is meant to reinvigorate Canada s shipbuilding industry. The National Shipbuilding Strategy Canada has by far the longest coastline of any nation, and global warming is opening new Arctic maritime routes, upping the need for patrol ships and other vessels. In 2010, the federal government announced that it would replace the current fleets of the Royal Canadian Navy and the Canadian Coast Guard through the National Shipbuilding Strategy (NSS). Through competitive bids, the federal government awarded long-term contracts to two Canadian shipyards Nova Scotia s Halifax Shipyard is mandated to build Arctic and Offshore Patrol Ships (AOPS) and Canadian Surface Combatants (CSC) for the Royal Canadian Navy, and B.C.-based Seaspan Shipyards will build non-combat ships, including the navy s joint support ships, the Canadian Coast Guard s offshore science vessels, and the new polar icebreaker. With a 30-year plan for fabrication of the national fleet, the NSS provides predictability to the industry eliminating the boom-and-bust effects of previous procurements. Securing contracts over a long time horizon is meant to reinvigorate Canada s shipbuilding industry by encouraging workforce training and capital investments. The federal government will also be awarding contracts for smaller ships, including tugboats, search and rescue, and research and science vessels. AOPS and Facility Modernization This report quantifies the economic impacts of the modernization of the Halifax Shipyard s facilities and the building of six Arctic and Offshore Patrol Ships. The economic impact analysis is produced over a 10-year period, from 2013 to 2022, incorporating upfront shipyard investments and the AOPS building phase over Starting in 2013, the Halifax Shipyard has invested over $350 million to modernize its facilities in Halifax and Dartmouth. Launch of the first AOPS vessel, to be named HMCS Harry DeWolf, is scheduled for Find Conference Board research at 2

3 The Conference Board of Canada. All rights reserved. Please contact cboc.ca/ip with questions or concerns about the use of this material. The Conference Board of Canada Industrial and Technological Benefits Policy $2.5 billion in ITB obligations Most large Canadian defence procurement programs require the prime contractor and its suppliers to spend an amount equal to the value of the contract in the Canadian economy. The Industrial and Technological Benefits (ITB) policy is meant to encourage Canadian content in the production process mirroring similar policies that exist in many countries around the world. In the case of long-term contracts as issued in the NSS, the ITB policy will help reinvigorate Canada s shipbuilding industry by encouraging the prime contractor and suppliers to increase their Canadian capacity. If a portion of the work is not actually performed in Canada or inputs are imported, the prime contractor and suppliers need to undertake business activities in Canada to compensate for the work performed outside the country. In other words, the prime contractor must ensure benefits to Canada that are equal to or greater than the value of the contract won. These offsets can take different forms, such as investments in machinery, equipment, and structures; investment in research and development; or the purchase of goods and services not related to the contract. Innovation, Science and Economic Development Canada (ISED), the agency responsible for administering the ITB policy, tracks business spending associated with government procurement. For the six AOPS, ISED requires close to $2.5 billion in ITB obligations. 1 The Halifax Shipyard has provided The Conference Board of Canada with details of spending on ITB obligations, by type of spending, for itself and for its many suppliers. These offsets were included when estimating the economic impact of the AOPS program. 1 Innovation, Science and Economic Development Canada, Arctic Offshore Patrol Ship, last modified May 2, 2017, Find Conference Board research at 3

4 THE ECONOMIC IMPACT OF CANADA S ARCTIC AND OFFSHORE PATROL SHIP PROGRAM Assessing Economic Impact $3.17 billion in spending between 2013 and 2022 The economic impact analysis quantifies the economic impacts of work at the Halifax Shipyard, but also the full supply chain across Canada. The shipyard modernization, shipbuilding activity, supplier contracts, and ITB obligations throughout Canada generate an estimate of over $3.17 billion in spending between 2013 and Economic impacts were quantified using our dynamic model of the Canadian economy, which incorporates Statistics Canada s input-output tables. The analysis evaluates the combined direct, indirect, and induced economic impacts: Direct impact measures the value added 3 to the economy from the shipbuilding and repair industry that is attributed directly to the sector s employees, the wages earned, and the firms profits. Indirect impact measures the value added that the direct impact firms generate within the economy through their demand for intermediate inputs or other support services. For example, activity in the shipbuilding and repair industry creates demand for architectural, engineering, and related services industries. Induced impacts are derived when employees of these industries spend their earnings and owners spend their profits. These purchases lead to more employment, higher wages, and increased income and tax revenues, and can be felt across a wide range of industries. 2 These figures, as well as economic impact results, are presented in constant 2017 dollars. The amount assumes that six AOPS are built and is based on: i) the Halifax Shipyard s actual and forecast labour and investments with Canadian companies for AOPS and facility modernization; ii) the Halifax Shipyard and major AOPS subcontractors forecast and actual indirect ITB investments these investments offset the value of any foreign labour and materials used to build the AOPS and ensure that all of the value of the contract is spent in Canada; and iii) the Halifax Shipyard s actual and forecast value proposition investments these investments represent the Halifax Shipyard s commitment to invest 0.5 per cent of the value of the AOPS contract in the greater marine industry. 3 Value added is the difference between total revenue and the sum of expenses on parts, materials, and services used in the production process. Summing the value added across all industries in a region will yield the GDP in that region. Find Conference Board research at 4

5 The Conference Board of Canada. All rights reserved. Please contact cboc.ca/ip with questions or concerns about the use of this material. The Conference Board of Canada Real GDP will be lifted by $3.42 billion from 2013 to As such, increased demand for the products and services of a specific industry will not only have direct impacts on the economy, but will also spread through the economy through a series of multiplier effects. Indirect effects are first felt through an increase in demand for products and services from industries that are direct suppliers. Second-round induced effects produce a widespread impact on all sectors of the economy, largely through a general increase in consumer spending. Real GDP will be lifted by $3.42 billion from 2013 to 2022, boosting economic activity in manufacturing, construction, and many other sectors across Canada. (See Table 1.) Table 1 Economic Impacts Yard, AOPS, ITBs Including Research (2017 $ millions) Construction 201 Manufacturing 1,389 Other goods 130 Wholesale and retail trade 357 Transportation and warehousing 84 Information and cultural services 94 Finance, insurance, and real estate 439 Professional, scientific, and technical 464 Other business services 156 Public sector 104 Real gross domestic product 3,418 Source: The Conference Board of Canada. Find Conference Board research at 5

6 THE ECONOMIC IMPACT OF CANADA S ARCTIC AND OFFSHORE PATROL SHIP PROGRAM For Households We expect that Canada s employment will increase by an annual average of 4,230 jobs during the core AOPS build phase. As illustrated in Chart 1, job creation will peak during the core AOPS build phase of It should be noted that this analysis does not include the impacts of the Canadian Surface Combatant (CSC) program. 4,770 jobs during peak employment in 2018 The lift to employment will generate about $2 billion in employment income between 2013 and 2022 a portion will be taxed and a portion will be added to savings. The balance will add about $1.1 billion to consumer spending and $166 million to residential investment in the form of new home purchases and renovations or repairs. Chart 1 Job Creation to Peak in 2018 (jobs) 5,000 Forecast 4,000 3,000 2,000 1, f 18f 19f 20f f = forecast Notes: Job figures are based on an average of approximately 33 hours worked per week. Source: The Conference Board of Canada. Find Conference Board research at 6

7 The Conference Board of Canada. All rights reserved. Please contact cboc.ca/ip with questions or concerns about the use of this material. The Conference Board of Canada Total private investment will be bolstered by over $850 million between 2013 and For Business Businesses directly and indirectly involved in the AOPS supply chain will benefit from the additional demand generated by the federal government s investments. Many more businesses across Canada will benefit from the economic activity associated with increased household spending. The additional demand for goods and services, along with a $489-million lift to profits, will prompt additional private investment. Specifically, the Halifax Shipyard modernization, the construction of the AOPS, ITB commitments, and knock-on induced investments will bolster private investment by over $850 million between 2013 and For Government Federal, provincial, and local governments will benefit from the additional economic activity. In total, $836 million in taxes will be collected by all three levels of government between 2013 and Personal income taxes and indirect taxes (such as sales taxes) will generate the largest returns for the federal government and aggregate provincial governments. Still, aggregate municipal governments will also benefit from an additional $145 million in revenues. (See Chart 2.) Chart 2 Impact on Government Revenues (2017 $ millions) Personal income taxes Corporate income taxes Indirect taxes Total tax revenue Federal Provincial Local Source: The Conference Board of Canada. Find Conference Board research at 7

8 THE ECONOMIC IMPACT OF CANADA S ARCTIC AND OFFSHORE PATROL SHIP PROGRAM Acknowledgements Funding for this research was provided by the Halifax Shipyard. Find Conference Board research at 8

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10 Insights. Understanding. Impact. The Economic Impact of Canada s Arctic and Offshore Patrol Ship Program January 2018 The Conference Board of Canada To cite this briefing: The Conference Board of Canada. The Economic Impact of Canada s Arctic and Offshore Patrol Ship Program January Ottawa: The Conference Board of Canada, The Conference Board of Canada* Published in Canada All rights reserved Agreement No *Incorporated as AERIC Inc. An accessible version of this document for the visually impaired is available upon request. Accessibility Officer, The Conference Board of Canada Tel.: or accessibility@conferenceboard.ca The Conference Board of Canada and the torch logo are registered trademarks of The Conference Board, Inc. Forecasts and research often involve numerous assumptions and data sources, and are subject to inherent risks and uncertainties. This information is not intended as specific investment, accounting, legal, or tax advice. The findings and conclusions of this report do not necessarily reflect the views of the external reviewers, advisors, or investors. Any errors or omissions in fact or interpretation remain the sole responsibility of The Conference Board of Canada. 255 Smyth Road, Ottawa ON K1H 8M7 Canada Tel Fax Inquiries conferenceboard.ca PUBLICATION 9299 PRICE: Complimentary