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Oil sands sparked 'uniquely Canadian strain' of Dutch Disease: report

A new report by the Pembina Institute argues that Alberta's oil sands boom has given other parts of the country a dramatic case of the Dutch Disease or what it calls "oil sands fever."

Over the last decade the rapid growth of bitumen production from 800,000 barrels to nearly two million barrels has changed the nature of Canada's currency and economy by giving the country a "uniquely Canadian strain of the Dutch Disease," says the report.

After the Netherlands developed its offshore gas reserves in the 1970s, its manufacturing and agricultural sector temporarily struggled with a stronger guilder and the Economist magazine dubbed the malaise "the Dutch Disease."

While Canada's energy exports have thrived in recent years, the Pembina study shows that their profitability "has masked a considerable drop in exports from the machinery and equipment, automotive and consumer goods and forestry sectors."

Between 2004 and 2010 Canada's manufacturing sector, largely located in Ontario and Quebec, has lost more than 500,000 jobs for a variety of reasons.

But even an Industry Canada funded study attributes approximately a third of these job losses to Canada's petro dollar and the rapid development of bitumen mining.

Echoing findings by the International Monetary Fund and the Organization for Economic Cooperation and Development, the Pembina study concluded that the federal government's radical drive "to expand the oilsands is creating significant regional imbalances with respect to GDP growth, employment, inflation and competitiveness."

In recent weeks three different western premiers have denied the existence of  the well defined and studied economic phenomenon which at one time or another has affected nearly every major oil exporting nation from Venezuela to Russia.

After NDP Leader Thomas Muclair noted that the $200-billion mega-project had directly impacted both the currency and the nation's manufacturing sector, he was attacked by several conservative politicians. All deny its existence.  

Saskatchewan Premier Brad Wall, whose province receives approximately one-third of its revenue from hydrocarbon and potash sales, criticized Mulcair's comments as "divisive." Yet according to Statistics Canada Saskatchewan's oil boom, driven in part by low royalties, has diminished the province's manufacturing sector by 16 per cent since 2007.

Alberta Premier Alison Redford, whose province receives one-third of its revenue from oil and gas revenue, described Mulcair's comments as "wrong and misinformed." Yet the oil sands boom has demonstrably weakened the province's forestry and agricultural sectors according to a 2009 report by PricewaterhouseCoopers.

B.C. Premier Christy Clark, whose government receives about one-tenth of its income from shale gas development, also denies the existence of the Dutch Disease (she called it "discredited" theory), even though the Business Council of British Columbia noted in a 2008 presentation that every one cent rise in the value of Canada's petro dollar subtracted $150 million from the province's forestry sector.

A 2006 report by the Parliamentary Information and Research Service concluded that "Canada does appear to have some symptoms of the Dutch Disease, as can be seen in the relatively high value of the Canadian dollar and manufacturing job losses." It called for the saving of oil and gas revenues as well as the creation of wealth funds to stabilize Canada's volatile petro currency.

The Pembina report makes similar recommendations including a federal savings fund for oil and gas revenues and the end of subsidies for the world's most powerful energy sector.

Jeff Rubin, former chief economist for the CIBC, one of Canada's largest banks, says the Dutch Disease was a mild affair compared to the regional disparities and currency problems caused by rapid bitumen development. "In the years ahead they will be calling it the Canadian disease."

Award-winning journalist Andrew Nikiforuk writes about energy for The Tyee and others.

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