Directwest May 2020
Features

Saskatchewan’s Infrastructure Challenge: Building the Foundation for Tomorrow’s Economy

Infrastructure, from the Latin infra meaning below, refers to the underlying structure or foundation of an organization, society or economy.

Indeed, the 115-year history of Saskatchewan has been, in many respects, the history of its infrastructure projects.

The province’s first infrastructure project was the railroad, which brought settlers from other parts of Canada, the U.S. and Europe, who cleared the land, grew crops and raised livestock, making agriculture the province’s dominant industry for decades.

In fact, railway branch lines provided the template for the settlement of the province as train stations and grain elevators sprang up every seven or eight miles—the distance a farmer and a team of horses could travel in a day.

Construction of roads and highways soon followed, as motor vehicles quickly outgrew the old horse and cart trails of bygone years, necessitating the building of roads, bridges and ferries.

Telephone service was the next big infrastructure project, as the Liberal government of Premier Walter Scott bought up the long distance facilities of existing telephone companies and formed a government telecommunications enterprise in 1909 that exists to this day.

Electrification came later as municipal electrical utilities were brought under control of the Saskatchewan Power Commission (later Saskatchewan Power Corporation), which also took over the distribution and sale of natural gas in 1948.

The following year, the rural electrification program began with 1,100 farms connected to the power grid. By the province’s 50th anniversary, 7,500 farms were supplied with electricity in 1955 alone, according to John Archer’s Saskatchewan: A History.

Perhaps the single largest infrastructure project in the province’s history was the construction of the Gardiner Dam and related dams, irrigation canals and pipelines, which were part of the South Saskatchewan River Project.

The massive project—which included building the largest earth fill dam in Canada, the largest lake in southern Saskatchewan, Lake Diefenbaker, and the 186-megawatt Coteau Creek hydroelectric station—begun in 1959 and completed in 1967 at a cost of $196 million.

Since the 1970s, economic diversification has been the “key priority for Saskatchewan,” driving demand for new infrastructure, according to University of Saskatchewan economist Peter Phillips.

“Given the international orientation of the provincial economy, the primary and secondary export industries are forced to remain globally competitive, which leads to new capital infrastructure…,’’ Phillips wrote in The Encyclopedia of Saskatchewan in 2005.

As a result, many large-scale infrastructure projects, like pulp and paper mills, heavy oil upgraders, pipelines, telecommunications networks and power stations, have been built in the last 50 years.

In helping to diversify the economy, infrastructure projects have also made our economy more efficient and capital-intensive, less volatile and labour intensive. But, as Phillips notes, despite the improvement in productivity in the last few decades, “the gains from diversified production have barely been enough to offset the jobs lost in agriculture.”

Since Phillips wrote those words 15 years ago, Saskatchewan’s economy has gone through an extended commodity-led boom from the mid-2000s to mid-2010s, a recession during the mid-2010s, a mini-resource boom that ended in mid-2014, and slow but steady growth up to 2019.

The recent slump in oil prices, combined with the pandemic-induced lockdown in the first half of 2020, has put Saskatchewan near or at the bottom of the pack in terms of GDP growth. Saskatchewan’s economic growth was dead last in 2019, with a decline of 0.8 per cent in real GDP, while 2020 could be even worse with an 8.2 per cent contraction forecast by TD Bank.

So, despite all our efforts to diversify the economy with infrastructure investments over the past century, Saskatchewan still finds itself dependent on its non-renewable resource and agricultural commodity sectors.

Does that mean our efforts to diversify the economy have failed? Does that mean that our huge investments in infrastructure have all been for naught? Does that mean we should stop trying to diversify the economy by building infrastructure?

The answer to all three (admittedly rhetorical) questions is, absolutely not!

First of all, our past diversification efforts have not failed. As Dr. Phillips has pointed out, the economy is much less prone to wild swings and gyrations than it was in the 1950s and ’60s when wheat was still king. “One benefit of the diversifying economy has been the moderation in the annual swings in economic activity,’’ Phillips said.

He noted that in the decade leading up to 1962, the economy posted annual swings of 14 per cent on average, with contractions of up to 27 per cent and expansions of up to 23 per cent.  By contrast, in the decade leading up 2003, the average change in economic growth averaged 2.5 per cent per year, with the largest contraction 0.8 per cent and the largest expansion 4.7 per cent.

Moreover, infrastructure projects, like refineries and food processing plants, allow us add value to the commodities and resources that Saskatchewan produces, like oil and gas, grains and oilseeds, livestock and pulse crops. That, in turn, generates more income for the province and its people.

“Infrastructure enables opportunity,’’ says Mark Cooper, president of the Saskatchewan Construction Association.

While Saskatchewan excels at commodity production and resource extraction for export markets, it doesn’t do as well at refining, processing and adding value to those commodities and resources here in the province.

“We’re great at extraction, but we need to get better at all of things along that value chain that can drive growth in the long term,” Cooper says.

Cooper says the province needs to build more infrastructure to attract the private sector investment required to take the economy to the next level, that is, beyond primary production and extraction to value-added processing and manufacturing.

“Real economic growth, sustained economic growth, requires private sector investment. The question becomes, what can government do to enable that? How do we use the dollars the government has to spend on infrastructure to create pathways for private sector investment?”

Cooper says projects, like the Global Transportation Hub (GTH) and Regina Bypass, are examples of “enabling infrastructure” that can attract private sector companies to invest in the province. Another example of enabling infrastructure would be the Diefenbaker Water Project, which would double the number of irrigable acres in the province, as well as improve water supply, flood control and drought-proofing in southeastern Saskatchewan at a projected cost of $4 billion.

But the province still needs to “up its game” in terms of investing in infrastructure, Cooper said. “The infrastructure deficit is fairly significant… We need to do better, in terms of four per cent of GDP target of ongoing and sustained infrastructure investment,” Cooper says, referring to the OECD target of spending four per cent of GDP on infrastructure.

CPRAIL Excavators Loading South Valley. Photo provided by SHCA.

Shantel Lipp, president of the Saskatchewan Heavy Construction Association, agrees that infrastructure spending in the province has not kept pace with the need for major infrastructure development. That need is particularly acute with the construction industry going through “tough times” during the past five to 10 years, Lipp adds.

“We peaked back in 2010-11. Since that point things have levelled off. We haven’t seen drastic drops in our infrastructure budget, but nor have we seen any great gains or any real robust investment into the heavy (construction) sector until this fall.”

While she applauded the province’s capital budget of $3.1 billion for 2020-21—part of a two-year, $7.5- billion capital plan, which included a $2-billion “booster shot’’ announced in May—Lipp said the province should have increased capital spending following the collapse in oil prices in mid-2014.

“We should have been seeing this type of investment two or three years ago,” Lipp says. “If you want to boost the economy, you start building things.”

Lipp says the heavy construction industry has the capacity to undertake large infrastructure projects, but with an election looming and long lead times required for regulatory and environmental approvals, it could be months before work can start.

“Going into an election year, we’re going to lose some valuable time once the writ drops later this month (in September),” she says. “To lose a full month of contract awards really sets us back.”

That’s why the SHCA is lobbying the province to devise and implement a long-term plan for infrastructure development that goes beyond one or two years. “That’s something we continually ask for,” Lipp says.

Lipp says the government should be using “data modelling” to determine where infrastructure investment needs to be made to support the province’s future economic growth.

“That’s a very valuable piece of the puzzle: what type of growth we’re going to see in the next three, five, 15 years even, and where that growth is going to take place. Is it going to be in the ag sector, oil and gas, resources? It allows them to hone their investment on those specific sectors and those specific locations to be able to adapt (their infrastructure spending) for the growth.”

SaskPower Coronach. Photo provided by SHCA.

SaskPower Coronach. Photo provided by SHCA.

The SHCA developed a comprehensive policy paper on infrastructure in 2018 called A Better Way to Build. One of the paper’s recommendations was to create the Saskatchewan Infrastructure Development Trust, public-private partnership that would develop and implement a 50-year rolling infrastructure plan.

“If we know what they’re planning on building and where they’re planning on building it, (construction companies) will eventually ramp up, they’ll find the labour, they’ll start sourcing material, they’ll start purchasing equipment, which all has spinoff effects to keep the economy going.”

For example, she says the Diefenbaker Water Project “ticks off a couple of boxes” by providing economic stimulus, expanding crop production and value-added processing, and improving environmental control and protection.

But the project’s announcement on July 2 also took many in the construction industry by surprise, including the SHCA, which had been lobbying for the project years. Coming hard on the heels of the province’s capital budget announcements in June, the flurry of capital project announcements had the industry scrambling to respond.

“That’s one of the challenges we’re going to face going into the next construction season,” Lipp says. “As grateful as we are for the stimulus money and as much-needed as it is, right now our sector is challenged in that we’ve got a ($400 million-plus) announcement just from the (Highways and Infrastructure) ministry and now the Diefenbaker project and other irrigation projects in the works, then we’ve got 100 RM bridges and roads…

“So one of the discussions we’ve been having with government, whether it’s SaskBuilds, Ministry of Highways, Water Security Agency, is to make sure that the work that is coming out on the market (for tender) is being sequenced properly, hits the market in a nice staggered approach, contracts are awarded quickly to ensure that contractors aren’t waiting to see which jobs they have and which ones they don’t. That’s going to be critical to the industry’s ability to deliver.”

More importantly, long-term planning is required to take full advantage of the dollars invested in infrastructure projects. As A Better Way to Build points out, “long-term infrastructure plans cannot be seen… as a series of individual projects, but rather as elements in the infrastructure and development platform for the next generation of economic growth.”

Once again, the South Saskatchewan River Project is a case in point. The dams, canals and irrigation equipment built by the SRRP were “not only a drought response to the climatic and economic hardships of the Dirty ’30s, but were also a major advance in the province’s water infrastructure,  seen at the time as the water ‘heart’ to provide water ‘arteries’ throughout the dry south and centre of Saskatchewan.”

“Over time only some of these arteries were built. Thus the incomplete water infrastructure of the past has limited the full social and economic benefits of the original infrastructure investment,’’ including reduced rural depopulation, increased on-farm and food processing investment, increased tourism and economic output, the policy paper said.

As the province looks to embark on the Diefenbaker Water Project and other multi-billion-dollar capital investments, it would do well to remember that infrastructure projects are not just make-work projects to stimulate the economy, but building blocks for the foundation of our future economy.

More importantly, long-term planning is the best way to ensure that those infrastructure projects get built in a timely and cost-effective manner and, as a result, achieve their full potential.