Oct. 24 (Bloomberg) -- A C$25 billion ($24.9 billion) contract landed last week by Irving Shipbuilding Inc. is the first of three developments that will secure Nova Scotia’s economic future, the province’s finance minister says.
Revenue from the agreement to build warships for Canada’s navy, announced Oct. 19, will boost the eastern Canadian province’s C$34 billion economy by more than 2 percentage points a year, an economic development agency study shows. Projects to transmit hydro-electricity from the Lower Churchill River in Labrador and to generate tidal power from the Bay of Fundy will bolster revenue further in later years, Graham Steele said in an Oct. 19 interview at his Halifax office.
The three projects “are the major items on the economic horizon for Nova Scotia,” said Steele, 47. “Now one of them has actually happened.”
Irving won the contract to build 15 warships and six patrol boats, the federal government said last week, beating out shipyards in British Columbia and Quebec for the biggest chunk of the C$33 billion procurement program, the largest in Canadian history. The announcement sparked optimism that the province can reverse its economic fortunes after the collapse of the fishing industry more than a decade ago.
“I cannot think of another example of such a sustained, large boost to the Nova Scotia economy,” said Steele. “That’s going to have positive results in every conceivable way.”
Revenue, Restaurants, Vehicles
The project will boost Nova Scotia’s economy by an average of C$661 million annually over two decades, according to the report by the Greater Halifax Partnership, creating 11,500 direct and indirect jobs. It will generate more than C$250 million in tax revenue over its lifespan, said the report, which also forecast C$11 million in additional restaurant sales and the purchase of 750 new vehicles.
Nalcor Energy and Nova Scotia’s Emera Inc. agreed in November to invest C$6.2 billion in a hydroelectric project to ship power from Labrador’s Lower Churchill River to customers in eastern Canada and New England. The companies will also build transmission cables linking Labrador with the island of Newfoundland and Nova Scotia at a cost of C$3.3 billion, Emera said in a statement.
Nova Scotia Power is also developing tidal power using a 10-meter, one megawatt tidal turbine in the Bay of Fundy’s Minas Passage. The Bay of Fundy has the world’s highest tides.
Nova Scotia, Canada’s fourth-smallest province by population, will have a debt-to-gross domestic product ratio of 35.4 percent this fiscal year, the fourth highest after Quebec, Ontario and Prince Edward Island, according to a report this month by DBRS Ltd. The average ratio across all 10 provinces is 31.4 percent, according to Bloomberg calculations on the data, which is based on this fiscal year’s forecasts.
“Up to now we’ve been working mainly on containing the debt,” said Steele, a member of the provincial legislature since 2001 who became finance minister in 2009 when his New Democratic Party took power. “Now suddenly we have a major event that will help us on the other side of the equation, which is boosting GDP. This will help us with our target of having our debt-to-GDP ratio continually decline.” He wouldn’t give a forecast for the ratio.
Steele, a Rhodes Scholar who graduated from Halifax’s Dalhousie University’s law school in 1989, predicted in a budget update last month that the province’s deficit would be C$319 million in the fiscal year ending March 31, or about C$70 million less than an April forecast, as spending reductions outweighed a decline in revenue. Nova Scotia’s net debt was C$13.1 billion on March 31, according to budget documents.
Steele left the province’s growth outlook unchanged in the update at 1.9 percent this year and next, following 2.1 percent growth in 2010. While another update will be issued before the end of December, Steele said any downward revision to the growth forecast would not be “very substantial.”
The initial revenue gains from shipbuilding will be tempered by losses from the closure of NewPage Port Hawkesbury Corp., a unit of bankrupt Miamisburg, Ohio-based NewPage Corp., the largest North American maker of coated papers. The Port Hawkesbury mill stopped operating last month, throwing about 600 people out of work in the northern part of the province.
“To a certain extent, at least in the short term, the increase in GDP would only go to make up what we just lost,” Steele said. “It’s really important to us to continue working with potential buyers to get that plant reopened in some form or another.”
The Halifax shipyard, which was rebuilt after being destroyed in the city’s 1917 explosion, has been operating for more than a century. Nova Scotia’s shipbuilding history includes being the birthplace of Sir Samuel Cunard, founder of the Cunard Line. The Bluenose, a schooner whose image now adorns the nation’s 10-cent piece, was built in Nova Scotia in 1921.
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