State of the Island Report: examining the effect of the pandemic on our economy

Q&A with MNP’s Susan Mowbray.

aerial view of log booms in Campbell River

Susan Mowbray authors VIEA’s State of the Island Economic Report, which is released each year at the culmination of their Economic Summit. A Partner at MNP, which sponsors the report, she talked to Douglas about her findings for 2020 and reflects on the shortfalls, challenges and opportunities the report reveals.

When you do first start compiling the report, and what’s the process of producing it?

The first data for the previous year is available in early summer, which triggers interviews and discussions with stakeholders based on those findings. The data and research is refined over the next few months, and in September, just before it goes to press, we update numbers and ensure they reflect the current conditions. Things, as we’ve all learned, can change so quickly, so it’s good to have that space – and then again, things could have changed again by the time it’s released at the Summit.

The Report both provides data for the previous year and provides a conservative forecast for the next six to 12 months. Everything you predicted in 2019 for 2020 would have been thrown out the window given the unexpected pandemic-induced recession. That must have been an interesting experience to look back on when you compiled the 2020 report.

Economics is really good at looking backwards and figuring out what happened. We’re not always really good at looking forward because you can never truly predict what will happen. Supply chain disruptions were expected but it is their persistence that is the challenge. The labour shortage crisis was the most surprising event, given the extent of it.

Why do you think that happened?

It’s a combination of a number of things. A shifting workforce with people who lost their jobs in retail and hospitality, for instance, transitioning to new jobs. Through a pandemic-induced economic pause, there was also the opportunity for people to step back and ask themselves, do I really want this career or should I find another? Then there are the folks who don’t want to be in public-facing jobs because they’re afraid of being exposed to COVID-19. Childcare is another issue. Women left the workforce to take care of their families during the pandemic – and we’re still facing issues of affordability around childcare, which prevents their return.

I think the pandemic really highlighted the cracks in our system that we knew about but hadn’t really acknowledged the importance of, or paid attention to.

Susan Mowbray
Susan Mowbray, Partner and senior economist at MNP. Photo supplied.

In 2019 it felt as though our economy had become more buoyant, which is why many have talked about “the bounce back.” Do you feel that’s happening? Do you feel we were in a buoyant economy going into the pandemic?

We had come through a period of sustained economic expansion, and though things had slowed down, there was still incremental growth, especially in construction. We are experiencing a bounce back, but it’s been very sectoral and we’re still experiencing many adjustments in our economy as we continue to feel the effects of the pandemic. There are industries that have shrunk and others that have grown.

Construction has still continued and we’re seeing significant investments in construction, but other sectors have really been hard hit. The agriculture sector for instance has been horribly affected by the lack of labor because they rely a lot on immigration and temporary foreign workers, which really slowed during the pandemic. This past summer’s heat dome caused all sorts of problems for food producers. Food security has become a huge issue for Vancouver Island. Similarly, high demand and lack of supply ran up the price of lumber. And now those prices are starting to fall back down, but our producers, because we had limited timber supply, weren’t really able to expand production significantly.

We all know that for the hospitality and tourism sectors, it’s been absolutely devastating. We haven’t had international visitors. We certainly do see domestic travelers this summer and while they made up some of the numbers, it still wasn’t anywhere near what we would have had if the borders were fully open. Now we’re heading into winter, so those businesses will continue to suffer.

What other cracks, or challenges, did the pandemic expose?

I think one of the sectors where we still don’t understand what the long term impact of the pandemic will be is commercial real estate. What will happen to office space in urban centres like Victoria or Vancouver? As workers have shifted to remote work many companies have adapted hybrid models. How will that affect the market for commercial property?

What lessons do we take from the pandemic in becoming more self-sufficient as an Island?

As we said before, food security is an issue for Vancouver Island because we are dependent on things being brought in from outside for the most part. Take the aquaculture industry for example. A lot of their fish get shipped by air to restaurants and air capacity went down. So the cost of shipping went through the roof, and in some cases there wasn’t transportation.

We’re also looking at continued impact with supply chain shortages affecting everything from buying a car to what’s on the menu at your local restaurant. We all assume the supply chain is disrupted because it’s coming from China – but we don’t think about what happens when a processing plant in Ontario shuts down because of the COVID-19 outbreak. We don’t realize what effect it has here in BC.

It does feel as though we had a big earthquake economically speaking. But in shaking things up, there are opportunities that present themselves. Do any come to mind for you?

One of the big opportunities the pandemic provided is to look at how we utilize our workforce. We can automate a lot more tasks and processes, creating higher value jobs for the workforce. We can invest in technology because we’ve seen so much technological disruption through this. People were forced to reckon with the idea that, actually, no, we don’t all need to be in the office for productive work to get done, we can sell online, we can conduct meetings online. If we can address some of these shortages that we’re seeing through technology, that will affect our economy in a very positive way. It may also create opportunities to invest in more food production locally.

The pandemic has also spurred discussions around living wages and eliminating toxic workforces, perhaps paving the way for a more equitable, engaged employee/employer relationship and keeping people here.

Absolutely. For instance, we’ve been talking about universal childcare for the last few years and the pandemic really exposed the need to have accessible childcare and now, finally, we’re seeing policy changes. There are business leaders promoting a living wage, we have employers understanding their workers need more support through benefits and training.

Are there any highlights from this year’s State of the Island Report we should look out for?

I think it will highlight the changes we need to implement to not only ensure a healthy economy, but one that continues to grow. We need to start thinking about what it means to have remote workers, workers who want a work/life balance, workers moving into different sectors. Economic development strategies for communities and cities will morph from a business attraction strategy to a workforce attraction strategy. And the question becomes, how does that fit in with things like affordability and infrastructure? And if your rural community is now home to workers whose employers are in another province or city, and you’re providing the infrastructure for them, do you have a tax base to support it? Municipalities are going to have to look at the way they tax business and people to adjust to a new working model.

The effects of the pandemic will reverberate for a while. How long, do you think, will we feel the pain of the adjustment?

We can’t go back to the way we were, so this economic pain is with is for the foreseeable future. And it’s something governments are going to continue to grapple with. They are going to have to examine the way they fund provinces, municipalities, organizations in the ‘new normal.’ We are definitely going through a generational change, a lot of which we don’t truly understand the magnitude of yet.

Does it feel on an economic scale like we’ve come through a world war – and maybe we’re still in it?

I think it’s certainly one of those transformative events. And when we emerge from those transformative events, we have to do things differently. There are usually benefits that come out of it, for sure. There are winners always. But there are losers too. And I do think that the pandemic is going to force us to rethink our trading relationships as well and how those supply chains operate so that we can have a few more redundancies in them.

Do you think it will make us more nationalist? In other words, we’re going to try and do more within our borders as opposed to bringing things in?

I think there may be some push for that, but I would hope that it doesn’t go that way because I do believe that open borders and trade are important, not just for Canada, but for the world. Brexit exposed the kinds of problems that happen when you close your borders. You experience people shortages, fuel and supply chain shortages. You need to keep the borders open for a flowing economy where countries give and take, and create abundancy.

Is the economy on Vancouver Island diverse enough to withstand these kinds of economic shocks in the future? Or do you feel that there’s more we can be doing to be more diverse?

We’ve made progress, and continue to make progress. The shifts in the forest industry as we went into timber supply constraints was a catalyst for having to develop other industries. There are a lot of small industries and manufacturers on Vancouver Island. We’re also growing and attracting new industries, for instance in the ocean economy on the South Island. There are distribution centers being built in Parksville to support local logistics chains. We have a very collaborative business community on Vancouver Island, and that spirit of collaboration, of helping each other to grow, is the key to our future success and to being able to withstand crises.

Where do you see the Indigenous economy fitting into the opportunities or challenges that we have as a collective community on Vancouver Island?

If you were to look at the contribution that Indigenous people make to Vancouver Island, it’s really quite large. All of the communities are providing services and they’re buying things. They’re bringing income into the region with tourism, fishing, agriculture and more. So they’re already making a big contribution, but there’s still a really big gap between Indigenous businesses and the incomes of Indigenous people and businesses and incomes of non-Indigenous people. We want to close that gap. I see the Indigenous economy as having huge potential. And when we imagine a resilient and diverse economy, is it reflective of a resilient and diverse workforce? Yes it is, and that’s where we need to focus our work.

Participants in this year’s VIEA Economic Summit have access to the 2020 report. Previous years’ reports are available here.