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AANO Committee Report

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1. OVERVIEW

1.1       Land and People

The northern territories comprise roughly 40% of Canada’s total landmass,[1] with a sparsely distributed population of less than 110,000 inhabitants.[2] Most northerners live in the territorial capitals, with the remaining population spread out over some 140 small, isolated communities.

Overall, about 55% of northerners are Aboriginal peoples of First Nations, Métis or Inuit ancestry,[3] the rest being people who arrived in Canada at different points in time. Nunavut has the highest concentration of Aboriginal peoples, at 85%, followed by 50% in Northwest Territories (NWT), and 25% in Yukon.[4]

1.2       Key Industry Sectors[5]

The economy of the North is very much dependent on its natural resources. Although the North has an abundant supply of such things as precious metals and minerals, oil and gas, and forestry, development of these resources has historically been limited due to climate, distance from markets and a lack of infrastructure.

Since natural resource development activity is determined in large part by the global demand for metals and minerals, wide swings in this demand cause volatility in mining activity in the North. The North is also home to a relatively large public sector, which administers government and provides health, education and social services to those in the city centres as well as in isolated communities. In contrast with the volatility in natural resource development, the public sector serves as a stabilizing factor, providing relatively secure jobs with high-paying wages and salaries. Retail and commercial services, which support both mining industries and the public sector, also comprise a significant share of total economic activity in the North.

Aboriginal peoples are, in addition, starting to link themselves with the modern economy in the North. For example, many Aboriginal-owned development corporations have operations in northern development through activities such as transportation and construction, tourism, as well as through part-ownership in oil and gas development projects.

The traditional practices of Aboriginal peoples also play a significant part in the northern economy, through hunting, trapping, fishing, and arts and culture. Aboriginal peoples conduct these activities mainly to provide sustenance for their communities, but can also use these skills as a means for commercial trade. As such, traditional activities allow for a certain measure of protection for Aboriginal peoples from the more volatile mining sector.

Although the value of production in the territories, measured by the real Gross Domestic Product (GDP), is higher on a per capita basis than for Canada on average ($55,777 vs. 36,441, respectively)[6], northerners tend not to benefit fully from economic activity in the North. For example, although local communities may benefit from increased employment through a mining project, and territorial and Aboriginal governments may benefit from increased tax and royalty revenues, witnesses expressed that most of the proceeds of these activities flow to large southern-based corporations in the form of profits; to southern-based workers in the form of wages and salaries; and to the federal government in the form of royalties. As stated by Elisapee Sheutiapik, Mayor of Iqaluit and President of the Nunavut Association of Municipalities:

The resource curse is integral to northern resource development history. Profits go to outside investors, business goes to outside service and suppliers, wages go to outside labour, public revenues go to central governments, and the vast majority of local people are barred from participation by poor education, poor infrastructure, and inadequate services.[7]

The Conference Board of Canada provides estimates and forecasts of economic activity in the northern territories through its Territorial Outlook series. According to the latest version released in July 2010, the Conference Board of Canada states that:

Canada’s territories did not escape the effects of the 2008-2009 recession and its aftermath. The fall in metal and mineral prices that occurred at the end of 2008 had a devastating impact on mining production and exploration across the northern territories.[8]

The reduction in mining activity impacted each territory in a different way, however. In contrast to the rest of Canada, Yukon’s GDP actually grew by 1.4% in 2009 over the previous year, while NWT’s GDP dropped by 5.9%, and Nunavut fell sharply by 10.6%. The relative strength in Yukon is due in part to its relatively low dependence on mining projects, coupled with its large public and private services sector. The effects of the economic downturn were felt more severely in NWT and Nunavut due to falling diamond prices and the end of construction for the Meadowbank gold mine, respectively. As Table 1.1 indicates, the Conference Board of Canada expects that economic activity will resume across the territories in 2010 along with global demand.

Table 1.1: GDP by Selected Industry, 2010 (real per capita dollars, 2002)

 

Yukon

NWT

Nunavut

All Territories

Total

44,606

(4.0)

79,187

(4.8)

36,321

(11.2)

55,777

(5.6)

Mining

3,385

(55.9)

29,244

(19.3)

3,419

(1,180)

13,589

(29.6)

Metals

2,441

(90.4)

488

(-20.9)

3,141

(…)

1,879

(193.4)

Non-Metals

0

(…)

22,970

(25.9)

0

(…)

9,054

(25.0)

Oil and Gas

91

(-4.0)

4,124

(-1.5)

0

(…)

1,654

(-2.3)

Utilities

1,068

(1.6)

1,297

(1.8)

654

(1.8)

1,035

(1.6)

Construction

3,844

(4.3)

6,122

(-24.8)

5,810

(7.5)

5,326

(-10.6)

Transport1

2,788

(1.4)

7,724

(3.5)

1,911

(2.6)

4,473

(2.6)

Services

Private2

Public3

17,021

( 2.5)

15,850

(-0.3)

19,198

(2.2)

17,009

(1.2)

9,945

(3.9)

14,798

(-0.8)

15,777

(2.5)

15,995

(0.2)

Source: Calculations using data from Conference Board of Canada, Territorial Outlook, July 2010; bracketed number represents percentage change from previous year.

Notes:

1.     Also includes less significant contributions through warehousing, information and cultural industries.

2.     Includes: wholesale and retail trade; finance, insurance and real estate; and miscellaneous commercial services.

3.     Includes public sector services for health care, education and social programs; and public administration.

Yukon

In Yukon, public and private services accounted for almost three-quarters of all economic activity in 2010, while mining focused almost exclusively on metals. The Conference Board of Canada expects that, along with a recovery in global economic activity in 2010, metal mining for Yukon will grow by 90% over the previous year as a result of three hard rock mines in commercial operation—the existing Minto copper-gold mine will be joined by the Wolverine zinc mine and the Bellekeno silver mine. Construction activity is also expected to grow significantly through non-residential projects associated with the increase in mining activity. Likewise, commercial services and retail trade are expected to resume growth following reductions during the recession.

A major hydro-electric construction project is also being undertaken by Yukon Energy Corporation in relation to the Mayo B hydro expansion project, which is expected to lower the territory’s reliance on non-renewable energy. The $160-million project involves building a new powerhouse that can generate twice the amount of energy from the Mayo River, along with the second stage of the Carmacks-Stewart transmission project, which will connect Yukon’s two established hydro-based grids.

Along with the downturn in U.S. economic activity, tourism has been struggling over the last few years, such that there were 282,874 border crossings in 2009, a decrease of 5.7 % relative to the previous year. As such, the port of Skagway, Alaska, is expected to welcome significantly fewer cruise ships this season, leading to a possible decline in the number of same-day excursions to Yukon. Yukon tourism through Skagway, is also affected in general by a Canada Border Services Agency regulation that restricts Canadian tourists from renting a car and entering Canada from the U.S for tourism purposes.[9]

Northwest Territories

Mining is expected to account for over one-third of all industrial activity in NWT in 2010, due mainly to diamond mining. Although the market for diamonds has been depressed over the last few years, a recovery is expected for 2010 along with increasing prices and expanded operations at the Diavik and Snap Lake mines. With activities at the territory’s sole metal mine—the Cantung mine—temporarily suspended, metal mining is set to drop in 2010 for the fourth consecutive year. Construction is expected to contract over the near term, due in large part to the completion of the $565-million Diavik underground expansion.

Over the longer term, The Mackenzie Gas Project (MGP) has the potential to result in a transformation of the NWT economy. If approved by the National Energy Board (NEB), whose final ruling is expected this fall, the construction of the MGP could occur over a four-year period from 2017 to 2020, adding an estimated $16.2 billion to the territorial economy; roughly three times the current value of the NWT’s economy. Pending the decision by the NEB, and given that the market for non-renewable natural resources has yet to recover fully from the effects of the recent recession, the timing and feasibility of the MGP remains in question.

Nunavut

Nunavut’s economy is subject to large fluctuations due to the volatile and relatively thin mining sector, but its large government sector helps provide some stability to GDP growth. Fully two-fifths of total economic activity is expected to be derived from public administration and government services in 2010.

In 2010, there is expected to be only one active mining operation in Nunavut—the Meadowbank gold mine at Baker Lake—although the Conference Board of Canada states that “[t]he territory’s largely untapped mineral resources provide much opportunity for the economy to expand.” Commercial production of the Meadowbank gold mine began on March 1, 2010, with average production expected to reach 350,000 ounces per year. The strong employment growth is also expected to benefit the service and retail sectors of the Nunavut economy.

While residential investment is expected to increase this year, growth in construction activity in Nunavut is expected to be driven by the non-residential sector. In support of this, the Conference Board of Canada quotes a Statistics Canada survey indicating that investment intentions are up by 28% over the previous year. Contributing to the positive outlook for construction in Nunavut is the $11-million in federal government funding for the overhaul of the Nunavut Research Institute.

1.3       Barriers to Economic Development

Economic development in the northern territories is increasingly becoming an area of focus for government policy makers, northern communities, Aboriginal peoples and businesses in Canada. With an abundance of untapped natural resources, Canada’s North has the potential to play an important role in servicing the long-term global demand for energy and minerals. Despite this potential, the North faces many barriers to its active participation in economic development. As explored in detail within sections 4 to 8 of this report, through evidence provided by witnesses during the course of the Committee’s study, the most significant barriers to economic development in the northern territories include: lack of infrastructure to support development projects and to link with southern markets; skills shortages and low educational attainment; health, living costs and standards of northern communities; and governance issues.

In terms of infrastructure, there is a perceived lack of available means for transportation across the northern territories, owing to the prohibitive costs to develop such systems in these remote regions. This infrastructure deficit serves as a disincentive to private investment in development projects across the North. The availability of transportation infrastructure differs by territory, however: Yukon has the most developed permanent road system; while communities in NWT are accessible through a system of all-weather roads, winter ice roads, and various water transportation systems.[10] Nunavut is the least developed territory in the North, as most travel between communities within the territory and to external locations is by air transport. The lack of a road network in Nunavut necessitates the shipment of vital goods and cargo through annual sealifts from the South, which occur during the summer months when navigation by sea is possible.[11]

Power generation infrastructure is another factor that influences the capacity to initiate development projects in the North. Although limited current hydro-electric power developments presently exist in the North, they account for most of the power generation for Yukon and NWT. Diesel generators are more common in remote areas of the northern territories, and are currently the only source of power for communities in Nunavut. Due to the high costs involved in the maintenance of such systems, and the negative impacts they can have on the environment, the development of cleaner, renewable power sources is being explored by northerners—such as biomass, wind and solar power, etc.—although these forms of power generation remain in their infancy in the North.

Skills shortages and lower levels of educational attainment are apparent across the North, especially in Nunavut. Compared with the rest of Canada, residents of the northern territories, especially Aboriginal peoples, lag behind in terms of literacy, high school completion and university degree attainment. In relation to post-secondary education, there is a limited availability of local university courses for northern students. In general, witnesses note that these students, especially those from remote Aboriginal communities, tend to be either unwilling or unable to leave family to travel to attend university in the South. Even for those who do attend southern universities, some witnesses note that a significant portion either remain in the south upon graduation to gain higher paying stable employment, or they experience difficulties in integrating into the southern culture and eventually drop out of school. At the primary and secondary education levels, some witnesses note a lack of engagement by Aboriginal northerners, for such reasons as a stated preference to engage in the wage economy or to practice traditional activities, or as a result of a school curriculum that tends to lack relevance in terms of traditional culture and language. For those northerners who do attain higher levels of education, and who choose to remain in the North upon graduation, private businesses, government agencies and land claims management organizations tend to note that they must compete against each other to attract skilled workers from the limited selection pool.

Health and living standards are lower in the northern territories due mainly to rapid social change, as Aboriginal peoples have generally struggled in the transition away from traditional activities towards southern-based ways of living.[12] This struggle to adapt to the influence of modernization in the North has generally resulted in high educational dropout rates, poverty and unemployment, and difficulties in coping with the relatively high cost of living in the North.[13] The social problems inherent in many northern communities, especially those that are more isolated, manifest themselves through high crime and suicide rates. As well, the lack of sufficient housing in the North has resulted in overcrowded homes, especially in Nunavut. Overcrowded housing can, in turn, have a negative impact on the health status and educational attainment of northerners.

Governance issues, in relation to disputes among federal-territorial and Aboriginal governments on the establishment and implementation of land claim agreements, are also seen as a barrier to economic development in the northern territories. Many challenges exist in relation to the capacity of regulatory co-management boards to conduct appropriate land use planning in the North, as some boards may lack sufficient support and training to effectively carry out their duties.

Another factor related to the concept of governance is the process of devolution and resource revenue sharing. Currently, Yukon is the only territory with a completed agreement on the devolution of responsibilities for the use, management and benefit of its resources, including non-renewable natural resources. Both NWT and Nunavut, meanwhile, have yet to settle similar agreements for their jurisdictions.