In the space between an unprecedented economic boom and COVID’s pandemic panic, Islanders strive for balance

If there was a competition for the title of Prince Edward Island’s most positive person, Shawn McCarvill would be a serious contender. Reached by phone in the midst of a global pandemic that’s triggering a worldwide economic crisis, the president of Slemon Park Corporation repeatedly said he had much to be thankful for.

Topping his list of ‘gratitudes’ is the federal and provincial governments’ management of COVID-19. “Yes, we’ve had to wear masks and socially distance, but there aren’t many people in the world whose lives have been as minimally affected as ours have been here,” he said. As of December 14, there had been no hospitalizations or deaths on the Island related to the coronavirus.

The province has done so well in fact, that two of McCarvill’s daughters—one’s a physician and the other’s a CPA—relocated from highly-infected Ontario to the safety of P.E.I. They didn’t come empty-handed either. The doctor brought her doctor-husband with her, along with their four children, which goes a long way to explaining the smile in this grandfather’s voice.

Still, it’s hard to imagine what would inspire that positivity in Shawn McCarvill’s professional life. The economic development crown corporation he leads is essentially a property management organization renting space to commercial and residential tenants. Those commercial tenants include manufacturing companies, public safety training organizations and P.E.I.’s aerospace industry.

That’s right, aerospace—a sector that has been all but grounded by the travel restrictions necessitated by COVID-19. Last May, passenger traffic at the Charlottetown airport was down 97 per cent compared to the same month in 2019. It decreased a further 94 per cent between April and November 2020. On the day this article was written, there was exactly one flight coming into YYG and one flight going out. Surely McCarvill must be weighed down with concern for his clients, specifically StandardAero and Honeywell… except, he isn’t. Concerned? Yes. Weighed down? Not so much.

According to McCarvill, P.E.I.’s aerospace industry isn’t in the commercial airline business; it’s in the MRO business (that’s maintenance, repair and overhaul, in case you were wondering). Yes, he confirmed, there have been some layoffs and those have been both significant and unfortunate for the families affected. And yes, he acknowledged, the long-term implications could be devastating (“Making sure we have a strong commercial airline industry when this is all done is an important thing for governments to manage and support.”), but…

But, he contended, even now, planes are flying—“Cargo still needs to get from here to there”—and as long as there are planes in the air, he said, there will be a need for the Island’s MRO services.

What about the residential arm of Slemon Park’s operations? Hasn’t that been hurt by the pandemic? “Our homes are filled,” he said. “And the real estate market on PEI has been really strong this year as well.”

He finally admitted to worry when pressed about the travel and tourism market; Slemon Park administers a hotel with restaurant and meeting/banquet facilities. “A lot of that industry is pretty marginal to start with. Let’s just say I wouldn’t want to be reliant on our food and beverage operation to be paying the bills right now.”

In that, he truly is fortunate.

Dimming the lights
In the six years B.C. (before COVID), Prince Edward Island recorded record gains in its tourism industry. A statement issued by the Department of Economic Growth, Tourism and Culture on November 26, 2019 noted tourism accounted for “over 8,500 full-time equivalent workers and contributes more than $486 million to the provincial economy.” Simply put, tourism is one of the main actors on P.E.I.’s economic stage.

That main actor was reduced to a bit part in 2020. A Q4 Tourism Indicators report identified significant traffic declines across all areas compared to 2019: bridge traffic, -52.3 per cent; air, -80.5 per cent; cruise, -100 per cent. As night follows day, so too did fewer travelers result in fewer accommodation bookings. Fixed-roof accommodations (hotels, motels, resorts, inns, cabins/cottages, B&Bs, tourist homes, trailers and hostels) saw a 65.6 per cent decline.

According to Penny Walsh-McGuire, CEO of the Greater Charlottetown Chamber of Commerce, the mass work-from-home transition exacerbated the problem. When COVID crashed onto Atlantic shores back in March 2020, governments across the region put physical distance rules in place and ordered the closure of non-essential business premises. Those that could operate with home-based staff, did—many continue to do so as they wait for things to return to normal.

Always a conduit between governments and its business members, Walsh-McGuire’s association has been especially active during the pandemic. They communicated business needs to policy makers and, in turn, kept their members informed about rapidly-changing policies and programs. “Taking the volume of concerns and really emotional conversations we were having with our members, then condensing it into something that government could action in terms of timely and effective policy was one of the biggest roles the chamber played. I’m really proud of that,” she told Atlantic Business Magazine.

Among the things they learned along the way was that while working from home kept people safe and enabled many businesses and governments to continue operations, “the impact on our downtown, on our main street, has been significant,” said Walsh-McGuire.

She explained that downtown areas depend on the business from daytime commuter and foot traffic—think office workers stopping into a restaurant for lunch or shopping at a retail boutique. When those workers were forced to stay home, their consumer spending locked down with them. “Businesses that rely on that traffic are struggling,” Walsh-McGuire said. But…

But, she added, it could have been worse. The Atlantic bubble, which allowed people to travel throughout the region without having to quarantine, helped offset the loss of traditional markets. So, too, did the support for local businesses from local consumers. Walsh-McGuire said people really turned out to show their appreciation for the companies that support them as a community, recognizing that “local business is the backbone of our economy.” And while January is usually a tough time for the tourism industry and the hospitality sector in general, she’s hopeful that Islanders will continue to get out and support their own over the winter months.

The difference a year makes
It could be argued that much of P.E.I.’s glass-half-full attitude is due to the strength of its economy heading into the pandemic. “We were on a positive trajectory, which has helped us to weather this storm,” said the Chamber’s Walsh-McGuire. She’s not wrong. Looking at its 2019 Provincial Economic Update, P.E.I. led the country across a number of key fiscal indicators.

Recording a 2.2 per cent increase over 2018, population growth was the fastest among all provinces. Its labour income was also a national frontrunner, growing 4.7 per cent from 2018 to 2019 (the national average for the same period was 3.9 per cent). In fact, Prince Edward Island led the provincial pack for retail sales growth (3.0 per cent higher than the year before), housing starts (up 50 per cent), seasonally adjusted manufacturing shipments (plus 22.1 per cent) and international exports (a 10.6 per cent increase).

Even in areas where it didn’t lead the country, P.E.I. still posted impressively positive gains in 2019. Total overnight stays? Up 2.8 per cent, according to the Department of Economic Development and Tourism. Employment, too, saw a 2.1 per cent increase with average weekly earnings up 2.6 per cent. Motor vehicle sales grew in value (9.3 per cent) and volume (3.7 per cent) while private sector forecasts (read: non-government sources) predicted an average real GDP growth of 2.2 per cent.

Things were so good that the newly-elected Progressive Conservative government did something that might actually be unprecedented in Canada: in their inaugural 2019-20 Budget Address, they commended the previous Liberal administration for having bequeathed them a sound economic environment. “Responsible bottom lines, as well as strategic investments over the past four years have ensured that our province is in a position of relative strength.”

The province was on an historical high. Backed by anticipated GDP growth via immigration-driven population increases, Premier Dennis King’s good-news budget promised to lower taxes while increasing spending for healthcare, education, infrastructure, affordable housing and to combat climate change. The extra expenditures totaled $117.6 million, an amount that still allowed for shrinkage in P.E.I.’s net debt to GDP ratio, from 31.3 per cent in 2019 to 29.1 per cent in 2021-22.

But just when it seemed like nothing could slow P.E.I.’s forward momentum, a TD Economics report from June 26, 2019 was frighteningly prescient: “With the global backdrop growing increasingly uncertain, downside surprises to P.E.I.’s growth outlook are a palpable risk.”

By the end of September, 2020—a mere six months into the pandemic—P.E.I.’s employment had declined 2.1 per cent, food and beverage sales were down 24.3 per cent for the year-to-date and GDP was forecast to contract by 3.9 per cent.

When metrics don’t tell the whole story
One Islander who wasn’t taken off guard by the quick downturn is Jim Sentance, associate professor of economics at the University of Prince Edward Island. He agrees that P.E.I. was “pretty well firing on all cylinders” and leading the rest of the country across a number of growth indicators, but—there’s always a but in this story—at the same time, he said it was still one of the poorest provinces in the country. The value of products and services produced, otherwise known as GDP, doesn’t take population numbers into account, said Sentance. “If you look at growth in GDP per capita, I imagine we would have been closer to the middle of the pack.”

In actual fact, according to Statistics Canada data, P.E.I. had the lowest per capita GDP in the country in 2018 ($45,439). They were followed by Nova Scotia ($46,226), New Brunswick ($47,950) and Quebec ($52,384). Next in line were Manitoba ($53,708), British Columbia ($59,066) and Ontario ($59,879). The top GDP producers included Newfoundland and Labrador ($63,243), Saskatchewan ($69,373), Yukon ($75,002), Alberta ($80,175), Nunavut ($89,698) and Northwest Territories ($105,214).

“I guess,” Sentance explained, “when you’re that far behind, any kind of economic growth seems larger.”
It’s true. In a province the size of P.E.I., with a record-high population that’s barely equivalent to an average- size town in many parts of the world, it doesn’t take a lot to move the needle in a big way. P.E.I.’s population had settled around the 130,000 mark for roughly a hundred years. It climbed slightly to 140,000 in the early 2000s, then jumped over 20 per cent from 2010 to 2020, but that still put it just shy of 160,000.

What happened to push the Island’s economic metrics so far, so fast? Sentance believes the HST played a role (in 2013, P.E.I. became the last province in the country to adopt the Harmonized Sales Tax). “From a tax point of view, that really was a disadvantage for a lot of our businesses, not being able to claim the tax on inputs to the same degree as you can under the HST. You look at the period in which we’ve been doing really well and it’s post the adoption of the HST.”

The tax transition’s impact as an economic driver has dwindled in recent years, but the boom has continued. How, then, does Sentance explain the current prosperity?

“Construction.”

Why is there so much construction?

“Immigration.”

According to Sentance, Prince Edward Island is one of the fastest places in the country for immigrants to obtain permanent resident status. Permanent residency is an essential precursor for Canadian citizenship. He said he’s noticed that P.E.I. is particularly popular with academic immigrants. In 2019-20, for example, UPEI had 1,426 international students from over 93 countries. All of those new student residents require housing, which is why real estate, rental and leasing was the Island’s largest GDP contributor in 2019 at 12.26 per cent. That, combined with construction at 7.02 per cent, made up a full fifth of Island economic activity.

Now that COVID restrictions have slowed immigration to a trickle, Sentance is concerned about what that means for the construction industry. “As the population pressure eases, it won’t be driving the building of apartments and houses the way it was. There’s going to come a point when construction eases off.” That point may not be too far into the future: P.E.I.’s fall 2020 Economic Update noted that while housing starts were up 13 per cent, housing completions had increased 90.4 per cent.

What happens to the Island economy when the number of homes matches market demand? “There’s reasons why we’re one of the poorest provinces in the country—our size, resources, power rates, transportation costs—and those reasons aren’t going to go away.”

But, he countered with predictable P.E.I. panache, “we’re not in a bad place.”

Rebuilding blocks
Outside of tourism and hospitality, Sentance noted that a comforting number of sectors on the Island have been holding their own during the pandemic.

There are a fair number of federal government workers in P.E.I. —public administration makes up 11.82 per cent of GDP—and while that’s not a growth sector, it hasn’t declined either.

P.E.I.’s food brand and products have grown figuratively and literally, with farm cash receipts for Q2 of 2020 up 16.3 per cent over the same time in 2019. “We’ve really established our agriculture sector as more of a brand—P.E.I. potatoes, mussels. When Martha Stewart cooks mussels, she uses P.E.I. mussels. We’re getting recognition and that’s been to our benefit,” said Sentance.

He’s also impressed with the manufacturing sector, identifying the production of Paderno cookware and micro-brewery machinery as positive indicators. Biotech, too, received his nod of approval. “The university is producing a lot of people with expertise in that industry,” he said.

Slemon Park’s Shawn McCarvill finds inspiration in the Island’s capacity to fight climate change through sustainability, referencing the efficiency of P.E.I.’s waste management regime for keeping more waste out of landfills per capita than anywhere else in Canada.

He also applauded the Island’s lack of fossil fuels because it encourages reductions in energy consumption as well as investment in alternative power sources like wind and solar. While P.E.I. has to import most of the energy it uses, 98 per cent of all energy produced on the Island comes from wind. And in September 2020, the provincial government approved a 30-megawatt expansion at its Eastern Kings wind farm. “In fact, P.E.I. Energy Corporation is doing a major solar installation here at Slemon Park in 2021,” said McCarvill.

If you’re keeping track of wins, said Penny Walsh-McGuire of the Charlottetown Chamber of Commerce, “in August, we had the highest retail growth in the country.”
All of which is to say, yes, P.E.I. has been thrown off track by COVID, but the foundations for economic stability are still in place.

Forecasting the future
Few could have predicted that 2020 would be an international year of crisis. Or that surviving that crisis would depend on reactionary ad hoc decision-making. After a year of circumstances beyond its control, P.E. Islanders are determined to have more control over their future.

The newly formed Partnership for Growth (PFG) was founded, not by government, but by 21 business and industry associations representing chambers of commerce, real estate, construction, agriculture, tourism and more. After consulting with more than 200 individual, organizational and public sector stakeholders, PFG organizers are crafting an economic action plan for 2021 and beyond. They plan to present their plan to government in the new year, in the hopes that it will be seen “as a roadmap to support economic recovery.”

The organization’s vision, as outlined in its consultation document, notes that “Prince Edward Island is a leader in entrepreneurship and sustainable economic growth—attracting people, technology, and capital to a growing economy where businesses and all Islanders can succeed. Where the health and well-being of our people, economy, and environment are all important for long-term sustainable growth.”

Atlantic Business Magazine doesn’t know what Premier Dennis King thinks of the initiative; despite a number of requests between November 9 and 25, we weren’t able to secure an interview. But it’s fair to say the topics raised will be brought to his attention, not just by PFG members but also by the Leader of the Official Opposition, Peter Bevan-Baker.

Asked to share his vision for Prince Edward Island’s ideal future, the retired-dentist-turned-Green Party leader echoed the language of the PFG’s vision document. He sketched an enviable image of an advanced society rich with cultural diversity, built to complement P.E.I.’s rural scale, hosting remote workers in pastoral security, powered by a green economy and supported by a mutually beneficial social safety net. “I would love to see a community which is progressive, compassionate, is more equitable and where we have a distribution of the wealth that’s produced in our economy so that nobody gets left behind.”

Poetic dreamer though he is, Bevan-Baker is also a pragmatist. The first obstacle to his idyllic vision is what he bluntly describes as “shitty Internet service” (we lost our connection twice during a half-hour interview). “If we want to attract entrepreneurs and families to come to P.E.I., there needs to be basic services to support them when they get here, like reliable communications, accessible healthcare and education.”

Pressed for answers on how his small province can afford to pay for those services, Bevan-Baker said there are opportunities to be had through a regionally-managed and regionally-based economy. He’s not advocating P.E.I. step out of the global marketplace—“I’m not a protectionist politician”—but he does think it wouldn’t hurt the Island to become more independent. “I think we’ve seen how vulnerable one can be if you’re too dependent on the global community. There are reasons to become more independent, more self-sufficient, more regionally developed here.”

The City of Summerside is an apt example of how small-scale local projects can work on P.E.I.—46 per cent of its electricity comes from wind power generated by the city’s own utility company.

Bevan-Baker’s ultimate dream would be to see Prince Edward Island join the ranks of the so-called “have” provinces, those that don’t need the support of federal transfer payments. He acknowledged it wouldn’t be easy, but he believes it could be accomplished with “some very targeted and determined efforts to grow small businesses here.”

That’s a high level and far-reaching ambition indeed. The more immediate question is this: can P.E.I. rebound to its pre-COVID economy?

Sentance believes a return to the pre-boom normal is more realistic. “I didn’t see the rate of growth as being sustainable in the long run,” he said.

Penny Walsh-McGuire, meanwhile, is cautiously optimistic. “Though I think we will get back to where we were, our economy won’t look like it did, nor will every business look like it did. There will be some businesses that don’t make it through. We know that.”

But?

“We have a fantastic entrepreneurial and innovative spirit here. We have a diverse economy and COVID-19 didn’t change that.”

But?

But nothing.