Ships will start here (eventually)

For the last eight months, Halifax has been crackling with the kind of excitement not seen since fictitious promoter Lyle Lanley rolled into Homer Simpson’s Springfield. It seems like every appearance by every provincial or federal minister hums with a similar electricity as the province embarks on a plan sure to change the region forever. That’s because last October, Halifax’s Irving Shipyard won the contract to build a genuine, bona fide, electrified, six-car monorail – er, sorry, the contract for the federal government’s 30-year, $25 billion ship procurement program.

Irving Shipbuilding will take the lead in constructing Canada’s next generation of combat vessels. In all, more than 20 frigates, destroyers and patrol ships will be built in Halifax and promoters say the riches will extend across Canada via the supply chain. Nova Scotia’s government predicts that will translate into a $600 million boost to personal incomes in peak years and create a 2.4 per cent jump in the province’s GDP.

“This has been described as a once-in-a-lifetime opportunity for Nova Scotia. The fact is, some people never live to see an opportunity like this,” Premier Darrell Dexter boasted when Irving won the bid. His government had campaigned hard to win the deal under the Ships Start Here banner.

But the big announcement was followed by big layoffs at Irving and the revelation that the province gave Irving $300 million in “loans,” most of which was forgivable.

So, will the procurement change Nova Scotia? How will it affect New Brunswick, P.E.I. and Newfoundland and Labrador? NRM spoke to leading experts in a range of fields to assess what impact it will have on Halifax and the entire Atlantic region

Irving
The biggest winner is clearly Irving Shipyard. It will be the heart of the “centre of excellence” and the place where the ships are built. To that extent, it invested $90 million between 2006 and 2011 to build up its skills, infrastructure and the technology used in its yard, and it continues to upgrade its facilities.

Spokeswoman Mary Keith says negotiations for the contract are underway with the federal government, so work has not started. Much of the work between 2012 and 2014 will be low-profile capital investment to upgrade the shipyard, reaching procurement deals and assembling workers. The steel cutting will start in 2015. After that, the first ships built will be the Arctic offshore patrol vessels, followed by the combat vessels.

But the big win has not been without controversy. In March 2012, it came out that Irving would receive $304 million from the Nova Scotia government. The “assistance package” comprised a $260 million forgivable loan and $44 million repayable for human resources. And then in April, Irving laid off 83 iron workers and welders. In May, 44 workers were sent home. “Ships start here, but the jobs don’t, apparently,” muttered one disgruntled tradesman.

But Keith says that’s exactly the problem the shipbuilding contract will solve. “We have this cycle of temporary layoffs that occur until some new work comes into the shipyard. That’s what we want to avoid,” she says. “That’s the opportunity, to have this 30 years of sustained work. This is about building careers.”

As of late spring, 12,000 people had applied to participate in the shipbuilding. That ranges from tradesmen to engineers to potential suppliers. Keith urges anyone who wants to get involved to register at Irvingshipbuilding.com.

CEO Jim Irving has robustly defended the $260 million provincial investment. “We’ve been here a long time and we didn’t always make money in the shipbuilding business, I can tell you that. The business was tough, but we stuck with it,” he told reporters at the time.

Keith says they appreciate the public interest and support and that Irving will be accountable through annual updates on job creation and usage of the loans. Irving has not yet touched any of the federal or provincial money.

Irving argues the benefits of the shipbuilding contract will extend beyond the 30 years. The shipyard will have enhanced capabilities and the province’s workforce will be enriched. Keith points to Norway, which went from harvesting its offshore resources to developing offshore expertise it sells to other countries. Nova Scotia could remain a global centre for excellence in shipbuilding long after the last ship is launched.

“That’s the lasting legacy,” she says.

Workforce

When Nova Scotia’s NDP government was running its Ships Start Here campaign for the contract, it predicted the work would create 8,500 jobs annually over the 30 years, with a peak of more than 11,000 jobs. The Nova Scotia Community College will play a major role in training those workers, but it will also tap into its Applied Research office to produce new ways of doing business and help develop technologies.

Wayne St-Amour, the college’s director of applied research, says NSCC will ensure pure research moves from the lab into the dockyard to solve problems as they arise. “In applied research, the problem of study originates with a company, a community or a hospital, for example,” he says.

In this case, the problems will come from Irving. NSCC will work with the 19 east coast colleges and universities that form Springboard Atlantic to find fixes.

“Together, we are just stronger and better. Really, that’s the definition of innovation: applying knowledge from a diverse source into different contexts,” St-Amour says. “In the case of shipbuilding, NSCC’s research agenda is very much premised on the idea that we’re there to help shipbuilding discover solutions to real-world problems.”

St-Amour foresees improvements to the ships’ sensory devices, navigation and propulsion systems, electronics and other areas. NSCC is also looking at biofuels and marine architecture to make more efficient vessels. Senior students will get to do hands-on work on the project as part of their curriculum.

“It’s actually a graded activity. It provides them with a chance to solve a real problem in the work place. It gives the student an opportunity to get experience and allows the employer an opportunity to observe the student,” says St-Amour. “There is a great foundation in Nova Scotia to build upon and also opportunities to create upskilling.”

Wider economic impact

The shipbuilding boom will benefit not just Nova Scotia, but most of Canada. Somewhat surprisingly, the rest of Atlantic Canada will likely earn the least amount from the supply chain feeding Halifax. According to a 2011 Conference Board of Canada report, for every $1,000 spent on procurement, Nova Scotia will see a $799 increase in real GDP. Ontario will see a rise of $196, British Columbia $108, Quebec $89, and the Prairies $82. But the other three east coast provinces will see a collective increase of just $20 per $1,000.

David Campbell, an economic development consultant with Jupia Consultants in Moncton, says placing the main action in Halifax will stretch the supply chains across the country. Ontario, for example, will provide much of the steel, technology companies and specialized equipment, while B.C. will likely be contracted out to do maintenance work that goes beyond Halifax’s capacity. Had the deal gone to Quebec or Ontario, it is unlikely any work would have drifted east.

The low boost to Newfoundland, P.E.I. and New Brunswick is because “there aren’t a lot of supply chain elements,” Campbell says. “What the conversation now is, can you build a deeper supply chain?”

The stable time horizon and inf low of money could build a cluster related to shipbuilding fabrication in the region. Irving already has about 630 suppliers in Nova Scotia, including small metal fabrication companies, engineering support, service companies and language translation for technical manuals. Ideally, that chain would grow in Atlantic Canada to increase the east coast’s take for the contract.

“Maybe a local supplier could step up and buy that equipment and take on that project for the shipyard. In a perfect world, they could then sell those products far and wide,” Campbell says.

He points to CLS Lexitech in Moncton, one of the world’s leading suppliers of translation services, which started with a frigate contract in Ontario in the 1980s. It now employs hundreds of people locally and 600 people worldwide.

In a best-case scenario, the contract will add $1.5 billion to the national GDP. Canada could have hired a South Korean company to build the ships and it likely would have been faster and probably cheaper. That’s the free-trade approach Canada is taking with its new line of fighter jets, the F-35s. But outsourcing the work wouldn’t have generated jobs, tax revenues and advanced expertise in Canada. “The reason to do it in Canada is to get these broader benefits,” Campbell says.

It’s the “buy local” philosophy on a grand scale.

The contract stipulates that there will be industrial regional benefits, or IRBs, so that for every dollar Irving spends abroad on the contract, it must spend the same money in Canada. If it imports $100 million worth of weapons technology from Germany, it must spend $100 million in Canada. “It could be in forestry, universities, or any other sector they do business in,” Campbell says. “It’s an interesting side benefit to the deal.”

He says the impact on Nova Scotia will be obvious and very large. “It would be like a community attracting a very large auto plant, or an airplane manufacturing plant. Those are the only things that are similar in terms of scale,” he says. “It’s something that in Nova Scotia will be very visible, the rest of Canada less so. It’s a once-in-a-generation project.”

Social impact

It’s estimated the workers and their families will add 20,000 people to Halifax. That’s a five per cent increase over the city’s population today. Where those newcomers settle is critical.

It would be very expensive if they moved into new homes in suburban and ex-urban areas on the outskirts of the city, which is how Halifax has grown over the past few decades. The expanding sprawl would stretch the city’s network of schools and recreation centres and add pressure on services like trash collection and public transportation.

Instead, the strategy is to encourage population densification in the downtown areas to make better use of existing facilities and services. As such, HRM wants to grow the population of peninsular Halifax and Dartmouth inside the Circumferential Highway by 25 per cent. The plans are outlined in Halifax Regional Municipality’s recent five-year regional review of its proposed services growth over the next 20 years.

“The impacts of the shipbuilding contract will change our city. More homes, facilities, services and programs will be needed to meet the needs of the 8,000-plus people employed directly and indirectly for the contract and its spin-offs, and their families. HRM is preparing for these impacts,” the report says.

“Growing the regional centre enables us to tap into an existing infrastructure of roads, utilities, stores, services, schools, among many other things.”

It’s cheaper and greener to thicken the urban areas. “Smart growth creates sustainable communities, where there is less sprawl, fewer cars on the road, and attractive and vibrant areas where people can live, work and spend leisure time,” the report says.

Andy Fillmore, HRM manager of urban design, says a population boom is exactly what the municipality needs.

“It’s perfect timing. We can make some adjustments to the regional plan to accommodate this incredible opportunity,” he says. “HRM has very slow growth, the province has slow growth, and when you make a policy change … it’s hard to steer that ship. This kind of growth gives the municipality steerage. We have enough momentum now that when we make a policy change, we can actually see the result.”

In the long term, that will alleviate some of the challenges posed by Nova Scotia’s aging population by retaining more young workers.

Effect on the rest of the population

While there is little doubt the contract will bring jobs for those directly and indirectly involved in shipbuilding, less clear is the impact it will have on the rest of Halifax. The oil boom in Alberta drives up wages for a wide range of workers, including servers at places like Tim Hortons. Despite an official minimum wage of $9.90 an hour, most “minimum wage” jobs near the oil centres have to pay more than that to avoid constantly losing workers. Calgary coffee shop workers were offered signing bonuses and earning almost $20 an hour a few years ago.

Alberta has the hottest economy in Canada, boasting average weekly earnings of $1,052.53. Nova Scotia sits near the bottom at $779.43. The shipbuilding contract is too small to change that, according to Sonya Gulati, an economist with TD Bank. Her November 2011 study of the impact of the shipbuilding contract on Nova Scotia’s economy predicts those directly involved in shipbuilding will do well.

“If Irving can pay twice as much as another manufacturer, you’re going to have all of your labourers go to [Irving] and you won’t have anyone left for the other guys,” she says.

If the others want to stay in the game, they will have to increase wages. Manufacturing, construction (especially residential) and industries related to sub-sections of shipbuilding can anticipate a wage rise. That will trickle through to other sectors because if the manufacturing businesses are doing well, they’ll need more accountants and consultants.

But the retail sector likely won’t benefit. If a shop loses a few staff to better jobs, it will likely recruit more from the ample workforce, or make do with a smaller staff. In fact, higher wages for some will drive up real estate and the cost of living, meaning other workers could find themselves falling behind.

So will the shipbuilding contract change Nova Scotia forever, or will Main Street remain cracked and broken, as Marge Simpson feared?

It’s not the Alberta oilsands, a red-hot economic engine transforming the region. But it will create a lot of work for a lot of people. Scientists and engineers will get a chance to shape the future of Canada’s navy. Tradesmen won’t go through the cycle of work and layoffs. Side industries like home construction will prosper. And Nova Scotia, a province with a flat-lining population and a perpetual problem with young people going west, will hold onto more of the next generation.

3 The province has a long, proud shipbuilding history, from the Age of Sail to the Bluenose. The 30-year federal shipbuilding contract opens a new chapter in the long book about Nova Scotia, Canada’s workyard.

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