Verdict is still out on whether the sky is falling in N.S. or province has turned an economic corner
By PETER MOREIRA
The Chronicle Herald - November 15, 2005

LET’S START WITH a simple question: how optimistic are you about the prospects for the Nova Scotian economy?

Me, I’m going to give a complicated answer: it depends on whether it’s a top-down or bottom-up analysis.

These terms are drawn from the lexicon of analysts, economists and investment strategists when they are evaluating what proportion of their investment portfolio should be placed in a specific jurisdiction.

For example, pretend you run a European investment portfolio. If you’re a top-down investor, you look at the overall economies first.

You’d probably conclude that Britain, Ireland and Poland have the strongest economic prospects, so you’d place more of your money there than in other countries.

Then you’d look at industries in those countries and figure out what sectors are attractive. Then you’d pick the strongest companies in those industries.

A bottom-up investor does it the other way around. You span the continent looking for companies that offer strong growth prospects, or inexpensive shares, or preferably both, and you build up your portfolio based on the strength of these individual companies.

I’m not talking about buying shares here, but let me say Nova Scotia is a pretty dismal top-down story but a more encouraging bottom-up story.

Take a look at the numbers. In 2004, Nova Scotia’s gross domestic product grew by 1.4 per cent, while the figure for Canada overall rose by 2.9 per cent.

The Conference Board of Canada has estimated Nova Scotia’s economy will rise by 1.8 per cent in 2005, the weakest in the country and well below the 2.5 per cent for the country as a whole.

There’s no evidence yet that the province’s population decline has been reversed. The cod fishery is unlikely to return. Exploration for offshore gas has declined. We are $12 billion in debt and boast — maybe "claim" is a better word — the highest debt per capita in the country.

Proportionally, Nova Scotia receives more federal funding than any other province. Our taxes are among the highest in the country.

If the folks at Walt Disney hadn’t used computer animation to make Chicken Little, they could have filmed it in Nova Scotia, for it sure seems like the sky is falling here.

The bleakness of our outlook came crashing home two weeks ago when NovaKnowledge, the not-for-profit organization established to promote the knowledge economy in Nova Scotia, released its annual report card. It was one of those report cards like I always got, where the marks are generally mediocre-to-bad and the teacher writes at the end, "Could do better if he’d work harder."

Case in point: Nova Scotia is third in Canada in research and development as a percentage of GDP, exceeded only by Quebec and Ontario. But the lion’s share is being done by schools and governments. In private sector R&D, which really drives economic innovation, we’re fourth from the bottom, leading only our Atlantic Canadian peers.

Case in point: Nova Scotia has the third-lowest productivity in Canada, exceeding only New Brunswick and P.E.I.

Case in point: Nova Scotia attracted $7 million of venture capital investment in 2004. To put that in perspective, the San Francisco-Silicon Valley area produced US$115 million in venture capital investments — just last Wednesday.

I know it’s unfair to compare Nova Scotia to Silicon Valley, but $7 million in venture capital funding in a year is pathetic. Nova Knowledge, which has set a target of $30 million in venture capital funding in 2006, says the first half of 2005 is showing improvement.

There’s the top-down story, but there is an exciting bottom-up story to tell in Nova Scotia.

If you take a look at some of the growing companies in the province, it’s difficult not to be impressed with what is going on here.

In the empire of John Risley, for example, Clearwater Seafoods’ problems have been well documented, but Clearwater is still a profitable company and is expected to remain profitable next year. The really interesting Risley business is Ocean Nutrition Canada, which develops nutritional ingredients like Omega-3 from marine plants and animals and has been doubling revenues each year. Risley has invested $75 million — a decade of official venture capital investments at the 2004 rate — into the business and its executives are pondering further equity investment.

Then there is C-Vision, an Amherst company than manufactures lead-free circuit boards and sells them mainly in Europe. And Thermo Dynamics of Dartmouth is selling solar-powered water heating systems locally and internationally.

Just in the past week, I’ve spoken with entrepreneurs in the province who are doing remarkable things. Fred George, the president and CEO of Gammon Lake Resources of Dartmouth, was telling me about his plans to begin production at the largest gold mine in Mexico in 2006.

And in Grand Pre, Swiss native Beatrice Jurt sat in her charming Swiss restaurant, Le Caveau, at the Domain Grand Pre Winery, and spoke of how her family has developed the winery and restaurant. The investment that has gone into — and continues to pour into — the hospitality industry in Wolfville is incredible.

So am I an optimist or a pessimist about Nova Scotia? I’m neither. I’m left scratching my head and wondering whether the bona fide entrepreneurship developing here will improve growth stats and attract immigrants. Or will the weak overall economic climate overwhelm the small investors and demonstrate that this is just too difficult a climate for a broad range of businesses to succeed in?

Peter Moreira is a freelance writer living in Glen Haven.
Copyright © 2005 The Halifax Herald Limited