The Alberta election on April 16 is top of mind for Terry Steinkey, co-owner of Map Town in downtown Calgary. Like many small businesses in Alberta, the travel store has struggled since prices for Western Canada Select crude oil plummeted to about US$30 per barrel in 2015, pushing the provincial economy deep into recession.
In order to keep Map Town’s doors open, Steinkey has reduced the number of employees to two full-timers and three part-timers from 12 full-timers when he purchased the business in 2011, increased prices and expanded an online presence. He has also stopped paying himself.
Big picture, according to Steinkey: “We need to get investment back in Alberta. Whichever party wins the election needs to focus on policies that will get American companies wanting to drill in Alberta again. That’s what will help small businesses.”
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Small-business owners in Alberta are all too aware that the oil and gas sector is the largest driver of the provincial economy and nearly 90 per cent say the sector is critical for the health of their own business, whatever industry they’re in, according to a survey by the Canadian Federation of Independent Business (CFIB), Canada’s largest non-profit organization supporting and advocating for small business.
Consider what’s happened in the past four years in Alberta. The drop in oil prices led to company closures, a slew of mergers and acquisitions, job reductions, growing office space vacancies and an overall drop in demand for just about everything. (The one somewhat bright spot: a tech ecosystem is emerging. Still, it’s small and not enough to fill the gap left by the losses in oil and gas.)
Oil prices have recovered to some degree, but the differential price Alberta oil and gas producers receive for crude oil is significantly discounted from global market prices. As a result, many energy companies have not returned to the higher cost structures they had in place when times were better. They are leaner and a lower level of spend has crept into the overall Alberta economy. Many small businesses, both B2B and B2C, are trying to accommodate for that change, but it’s not easy.
“When times are tough, big oil and gas companies have latitude to cut back operations, lay off staff, reduce their footprint. Small business owners do not,” said Richard Truscott, CFIB’s vice-president for Alberta and British Columbia, from his office in Calgary. “They need to hold on to their people because they know when the economy picks up, it’s hard to find qualified people. They have to try to see their way through it.”
But keeping employees through lean times is easier said than done.
“Small businesses here are becoming mom and pop shops again because they can’t afford to keep staff,” Steinkey said.
The doom and gloom is not just because of lower oil prices. In tandem with the recession and dramatic drop in demand, the federal, provincial and municipal governments have made the cost of business more expensive by implementing higher corporate taxes, a multi-billion-dollar carbon tax, a more onerous employment code and a minimum wage increase to $15 per hour, now the highest in the country.
In downtown Calgary, high property taxes have helped close some businesses and pushed others to leave, putting pressure on businesses elsewhere in the city.
“The revenue lost from those commercial spaces will have to be made up by business owners outside the core and they are now facing a property tax increase of 10 per cent or more,” Truscott said.
Adam Legge, director of the Global Business Futures Initiatives at the University of Calgary’s Haskayne School of Business, points out costs were growing while economic growth was slowing.
“There was a cumulative impact on business. Suffering from lower demand and higher costs made it extremely difficult to continue to operate. Many businesses have closed, scaled back, cut staff, cut hours,” he said. “You just need to walk down Stephen Avenue in downtown Calgary to see it. All of this has led to a much different business dynamic in the province.”
It’s a dynamic Steinkey is experiencing firsthand. Fewer people are coming into the store and retail sales are down between 20 and 25 per cent over the past four years.
“Recently, we have friends who decided enough is enough,” he said. “One stepped down from his president position of a small business in the electrical energy business, and the other from a very good job in oil and gas. They decided to move their young family to New Zealand in search of a better life with more opportunities.”
Is Alberta a cautionary tale for the rest of Canada?
“You bet it is,” Steinkey said. “You hear about household debt, but nobody talks about corporate debt. What do these companies have for lines of credit and how close are they to tapping out? Governments need to start looking at this and seeing how they can address it. We need to see some action.”
The CFIB has recommended 10 policies that the next Alberta government could adopt to help small businesses, including: apply a small-business lens to all new government policy, reduce small-business tax, control spending, rebalance labour laws and freeze minimum wage/create a training wage.
“We’re at a crossroads in Alberta and more broadly in the country,” CFIB’s Truscott said. “Whichever party is elected on April 16 needs to do a better job of creating policy that supports entrepreneurs and job creators or else we’re going to see more difficult times ahead and we may do so much damage to the SMB sector it may not come back in the way it has in the past.”