Private Sector Must Lead Economic Development

On July 17 Economic and Rural Development and Tourism Minister Michel Samson revealed more detail on the way government support programs are to be managed. They eliminated duplications by focusing incentive programs at Nova Scotia Business Inc (NSBI) and early stage venture capital at Innovacorp. NSBI will be more independent and more transparent. Exactly what Invest Nova Scotia (the replacement of the badly managed Jobs Fund) will do is still to be revealed. Subject to a sensible outcome with Invest Nova Scotia this is a good package.

That direction will need to be followed when responding to recent developments in Cape Breton. This is the overall philosophy as expressed by Minister Samson:

“Politicians should not be picking winners and losers in the economy. Instead, government will focus on broader economic objectives, like workforce, sector and regional development, as well as having the right policies, laws, and accountability measures to foster private-sector growth.”

The key theme is leadership by private sector initiative in a supportive policy environment.

The Cape Breton railway moves 500 railcars per year, or about 10 per week. It needs 20 times as many to break even. The operation has been kept alive by a subsidy of $2 million per year—that is, about $4,000 for each rail car that gets moved. The operator has applied to discontinue the service when the subsidy runs out in September. CBRM mayor Cecil Clarke has called for the government to keep the line open while efforts are made to rebuild traffic.

A railway connection to the rest of North America can be very valuable if there are enough containers and bulk cargo to keep it busy. But it clearly makes no sense to subsidize the movement of rail cars at a cost of $4,000 each.

In early 2012 the dredging of Sydney harbour was completed. The $37 million cost was largely financed by the federal and provincial governments. The theory was that this would set the stage for development of a container pier. The business case for doing this, with no container port developer in sight, was not disclosed at the time. It is just one and a half pages long and argues that the advent of much bigger container ships will drive much more traffic to deep water ports such as Sydney.

Two and a half years later the dredging has had no discernible impact on cargo activity at the Port of Sydney. The advocates for dredging argued that it would result in 6,500 new jobs. None of those jobs is in evidence today.

Likewise a $35 million expansion of the south-end container terminal, operated by Halterm Container Terminal Ltd., has not increased business at the Port of Halifax. It turns out that the larger ships that it can now accommodate two at a time are all going to the Ceres terminal in Fairview Cove. Container traffic in Halifax in 2014 is unlikely to exceed the number in 2010.

Mayor Clarke tells us that there are four proposals for expanding the port, each of which would need a rail connection. Beyond that there are few details. Are the proponents serious players with plenty of their own money to spend? Will they be looking for further subsidies from government? Why the need to be secretive about who they are?

In 2007 the Port of Sydney Master Plan estimated a cost of $302 million; that would likely translate to about $400 million today. Let’s suppose for the sake of argument that a well financed and knowledgeable operator wants to build such a container port.

Given the need for finalizing agreements, arranging financing, designing the space, environmental approvals, and construction it could easily be five years or more before the first container is put on a rail car. If, as often happens, the project needs money from other levels of government it could be quite a bit longer.

What is conspicuously absent from this discussion, as was the case for the dredging, is one or more visible and credible private sector players.
Transportation Minister Geoff MacLellan has wisely said that the province can’t afford to take over the railway line. Any boost to rail traffic from the port is many years away at best. The right decision is to leave the line in place but allow the service to lapse until the prospects for traffic substantially improve.

Statistics Canada reported at the end of June that the number of employed Nova Scotians was 10,200 less than a year earlier. That is an alarming number, particularly for Cape Breton which experienced the worst hit.

No part of the province is more in need of economic development. But it has to be led by credible private sector initiative. The potential for the Port of Sydney should be viewed cautiously until that leadership is evident.

Meanwhile lots of attention should be given to other possibilities—perhaps specialty lumber, aquaculture, and resource extraction. One of the most useful roles government can play is to implement clear and up-to-date regulations that enable investors in those industries to confidently move forward.

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