Is New Brunswick’s IT trade deficit limiting GDP potential?

Herb Emery offers another insightful column today questioning why we haven’t seen much growth in ICT (information and communications technology) GDP despite all the hype.  He contrasts New Brunswick with Nova Scotia and PEI and doesn’t find a favourable trend.

One of the obstacles in analyzing the ICT industry is the ‘C’ which accounts for at least 65 percent of total ICT GDP.  The ‘C’ is communications – or telecommunications – which is mostly a local service (your phone, cell phone, etc.) so that very large component is basically correlated to general population growth (and the industry’s ability to sell us more and more services, my ‘phone’ bill now is $355/month and includes a landline, high speed Internet and it seems 5,000 TV channels on demand.

But even with telecommunications removed, IT GDP growth in New Brunswick has been very weak in recent years.

I think the import/export data for the sector tells a big part of the story.  We only have interprovincial and international import/export data through 2016 but it still helps illuminate something that is going on.

The value of New Brunswick IT exports* has been on the rise – 2016 seems like an outlier but the total value was $321 million up from $193 million in 2010.  That is a 67% growth rate between 2010 and 2016 (if the 2016 export level holds in subsequent years it does look like exports are rising).  This is comparable to Nova Scotia but less than PEI.

The challenge is that IT imports are dragging down GDP potential in New Brunswick.  The increase in the value of IT imports was much faster than IT exports and now the value of IT imports is more than double the value of IT exports leaving a $339 million trade deficit in IT.

New Brunswick imported $79 million worth of general purpose software, $90 million worth of data processing, hosting, and related services, $165 million worth of custom software design and development services and a whopping $326 million worth of computer systems design and related services (except software development) in 2016.

Compared to Nova Scotia New Brunswick has a much larger IT trade deficit (NB has 49 cents worth of IT exports for every $1.00 of IT imports compared to 60 cents in Nova Scotia).

This shows you the complexity of economic development.  Even the IT industry is highly trade exposed.  Strong growth in IT exports that doesn’t outpace the growth in IT imports will still lead to weak IT GDP growth – and all the economic value that comes from that (high wage jobs, income, taxes, consumer spending, etc.).

What’s the right response?  Well if we had the capacity to properly analyze our economy, we would try and figure out what is actually in that $660 million worth of IT imports and see if there is any potential for a) NB firms to address that market opportunity or b) attract national and international firms to do the work here.  Please note I am not suggesting we offer subsidies to IT firms to do the work here.  I’m just suggesting if we knew what was in the $660 million (or the $300 million increase since 2010) we would at least have the right data for a potential response.

Because of the rising IT wages in New Brunswick and the tightening IT labour market it may now be cheaper to import IT services than to use local suppliers.  If, and I emphasize if, that is the case, wouldn’t you like to know?

By the way, a friend of mine recently noticed the Rogers installation guy’s truck had an Ontario license plate so he asked the guy about it.  Rogers hired a team of installers from Ontario to come down to the region to do the work.

If there aren’t enough local workers to do basic cable and Internet installs, that should make us stop and think.

 

*IT exports includes:
General purpose software [MPS511200]
Data processing, hosting, and related services [MPS518000]
Custom software design and development services [MPS541501]
Own-account software design and development services [IMS541502]
Computer systems design and related services (except software development) [MPS541503]

Source: Statistics Canada. Table 12-10-0101-01 Interprovincial and international trade flows.

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