The Nova Scotia Legislature

The House adjourned:
October 26, 2017.

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HALIFAX, WEDNESDAY, MAY 1, 2002

STANDING COMMITTEE ON PUBLIC ACCOUNTS

8:00 A.M.

CHAIRMAN

Mr. William Estabrooks

VICE-CHAIRMAN

Mr. James DeWolfe

MR. CHAIRMAN: Good morning. I would like to call this meeting of our Public Accounts Committee to order. I would remind members that in addition to our witness this morning, we have an item of business which we would need some clarification on at the end. So I'm going to allot 10 minutes of time for that discussion and hopefully we will be able to stick to that timeline this morning. Before we turn to our witness from Nova Scotia Business Inc., I would ask that the members of the committee introduce themselves, beginning with my colleague, the member for Halifax Fairview.

[The committee members introduced themselves.]

MR. CHAIRMAN: I'm Bill Estabrooks, the MLA for Timberlea-Prospect and I have the privilege of being the Chairman of the Public Accounts Committee. We welcome you here, sir. Mr. Morley is here as a Senior Manager of Research from Nova Scotia Business Inc. Before we begin our session, I mentioned to Mr. Morley that he had received the notification of the statement that is faxed, mailed, hand delivered in advance, and he is aware, so there is no need to read that statement out this morning. Our usual procedure, sir, is that we allow you, I permit 12 minute to 15 minute introductory comments and then we go to the members for 20 minutes each, with the remaining time divided equally among the caucuses and we allow for a wrap-up at the end of the session. So I welcome you to the Public Accounts Committee. You may begin.

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MR. FRED MORLEY: Thank you. It's great to be here. This is actually my first time in this room, other than being in the gallery. So this is quite a privilege. Thank you. I have some presentations and some material to hand out. What I have here are - actually I should get one back to read from, I guess - summary copies of the KPMG report and a few slides just to, I guess, summarize the kinds of things that are in the report and what the report has tried to do. So, without further ado, what I will do is I will start with the loose page and I will move to the booklet.

The booklet contains the summary of the report. The actual report is fairly lengthy, so I saved a few trees by not copying that for you folks. This report covered 115 cities in nine different countries around the world. All of the G-8 was covered by this report. It looked at 27 different cost factors for each centre, for each city in the survey. It profiled 12 sectors of the economy, mostly manufacturing, but also service sector elements. So, in all, there are over 30,000 individual cost factors that were looked at. As I was reviewing and studying this last night, I was pretty sure that given that there's 30,000 different cost factors that I would get one or two questions I wouldn't know the answer to today. I'm kind of prepared for that.

Flipping to the next page, the KPMG study is a study about information that's provided to companies that are interested in finding the next best site for them to locate their plant or their operation. The next slide gives some indication of various site selection factors by indicated importance. This was a survey done last year, actually not too long ago, in December. The top site location factor on the list is availability of labour. The second most important thing on the list is labour costs. Labour force is a critical issue, and I will show that as I get a little further into the report.

Other important issues are highway accessibility, energy availability and cost - very much at the high end of importance - availability of telecommunications, tax issues are very important, construction costs, state and local incentives, and proximity to markets is a little way down the list.

If you flip to the next page where it says key site location factors, these are the whole spectrum of factors that influence a site location decision. There are issues of business costs, business environment, cost of living, quality of life. They are all part of the puzzle. The one the KPMG study deals with is business cost, the one in the upper left-hand corner of this little diagram. It's issues like land, building, labour costs, utility costs, financing, taxes, these kinds of things. These are the issues KPMG deals with. They don't deal, as such, with other factors, like business environment and so on.

The last one that I thought was important to kind of throw out there this morning was exchange rates. The exchange rate is a big factor in Canada's cost competitiveness right now. It has certainly made us much more competitive against the U.S. in the last number of years; in the last three years the U.S. dollar has appreciated by about 3 per cent, and it currently gives us a cost advantage, according to the KPMG study, of 14.5 per cent. Our products and

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services have that kind of cost advantage right now over the U.S. It's important to point out that even if the exchange rates were to increase dramatically, by 20 per cent, which would be unheard of, we would still retain a 5 per cent cost advantage in the U.S., according to this study.

This piece of work is really quite a valuable tool for us in promoting Nova Scotia. If you look at the blue booklet, the first slide there, the KPMG Nova Scotia, it says simply that timely and accurate information is the most important thing in site selection, in investment and recruitment. It's all about information. Businesses today that are looking at new locations are driven by the bottom line, they're looking for the best location where they can get the highest return, and any information that they can get that demonstrates that is very valuable to them.

In Canada we had 14 major centres surveyed in this report. One of the major centres is in Nova Scotia, of course it's Halifax. There were also 29 smaller jurisdictions that were looked at as part of KPMG, smaller Canadian jurisdictions. Two of those are in Nova Scotia - Truro and Sydney. It's very interesting, and why this KPMG study is proving so valuable to us is that it's showing that Nova Scotia is pretty much the most cost-effective location anywhere measured in this study. Truro, for example, tops Atlantic Canada in terms of cost effectiveness, Halifax is in the top five of the major centres in terms of cost effectiveness, and Sydney is cost effective across a range of sectors.

This is giving us a very important tool to demonstrate the kind of business case that we have in Nova Scotia to incoming investors who are simply looking for a good place to do business. I'm not going to go through all of the slides here, but I think it's useful to point out, for example, looking at Halifax and where its competitiveness lies. In the study, again, of 86 major centres, Halifax finished third in terms of cost-effective pharmaceutical location, second for specialty chemicals, and on down the list, second for corporate services - that's the call centre kind of operation - so it's very cost-effective across a wide range of different industries.

It's a little different in manufacturing. We still retain a high degree of cost-effectiveness across most manufacturing areas, but in areas of distance to markets, bulk issues or shipping bulk commodities, we become a little less cost-advantageous. But we're still in the top tier in terms of cost-effective locations, regardless of which sector we're looking at. The sectors that are most interesting; and where Halifax finishes first, are areas related to R and D, biomedical research and development operations, and electronic systems R and D operations. Nova Scotia and Halifax finished first in the survey, the most cost-effective place in the world to do business in those sectors. Very interesting.

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The rest of the slides here just go into a little depth in terms of looking at Halifax, Truro, and Sydney compared to other locations across a range of sectors. I'm not going to go into that detail here, but it basically demonstrates the kind of capability we have now, because of this study, to demonstrate the cost-effectiveness of three significant Nova Scotia centres and how they stack up compared to the rest of the world, which is very well. It gives us quite a lot of flexibility when we're dealing with clients coming in, and a lot of credibility as well because of the name and brand of KPMG; its name is recognized worldwide and the report itself has a high degree of credibility because of that. I think I will stop there and ask for questions.

MR. CHAIRMAN: That's great. Thank you, sir, for sticking to the guidelines. Your introductory comments, I'm sure, will provoke a few comments. It's 8:13 a.m., and the next 20 minutes belong to the members of the Official Opposition.

MR. GRAHAM STEELE: Mr. Morley, thank you for that presentation. The members of the committee had previously received a copy of the full report, so I think we know some of the details of the report. I did want to note at the outset, of course, that this is the Public Accounts Committee of the Legislature, not the Economic Development Committee of the Legislature. The Public Accounts Committee, by its nature, is somewhat backward-looking to make sure that the public money is properly spent and accounted for, so that's going to be the focus of most of my questions.

I did want to start with an open-ended question about this particular KPMG study, which shows that, all things considered - transportation costs, proximity to markets, labour costs and a variety of other factors - Halifax, and in less detail, Truro and Sydney are highly cost-effective locations in a variety of industries, compared to a large number of other possible locations in the G-7 countries. If we have this big cost advantage, why are we not already an economic powerhouse?

MR. MORLEY: I think some of it is - demonstrating cost advantage is not a sufficient condition for economic development to happen. I think there are a couple of issues. The world has to know about how good Nova Scotia is and so the message has to be out and around and this kind of report helps us do that.

[8:15 a.m.]

The other issue, I guess, is there are certain barriers to overcome with investors. Even though an area might be one of the best places to do business, even though Canada might be the best country in the world to live, there's still a job to convince investors that, hey, we're worth a look. We're worth taking a shot at. You can make money here. You can create jobs here. So there's a job to be done to communicate the results of this kind of study. So just having a pretty good situation is not in itself, I guess, in my opinion, a reason that economic development will take off.

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MR. STEELE: In your opinion, Mr. Morley, what are the top three things that are holding Nova Scotia's economy back?

MR. MORLEY: Well, I think there are a number of critical issues. One is, as I mentioned, getting the word out about how good a place this is to live and to do business. I think that's near the top. Getting that word around is critical. I think one of the things we're missing in some sectors is a sense of critical mass. Even though we've got some cost competitiveness in areas like biotechnology and so on, we need to build a critical mass in those sectors. Companies like to locate where other companies of similar types are already. It's why companies locate in Silicon Valley and Route 128 in Massachusetts and so on. They like to be around companies of their own kind. Building that critical mass is a critical element.

I also think a sense of being open for business as a province is very important as well. I think those are some of the top issues. If you wanted to look at others on the list, you would look at what other places are doing, places that are very successful, that are blowing the doors off in terms of investment attraction, places like Quebec and Ireland and so on that have very large and intensive efforts at business attraction and indeed growing the existing business. That's an issue as well.

MR. STEELE: According to Nova Scotia Business Inc.'s own analysis, it says that studies show that up to 80 per cent of new jobs derive from existing businesses. If that's true, then this KPMG study and studies like it are all very interesting, but the fact is that job growth is not going to come from somebody riding in from outside with a whole bunch of jobs. That's not my analysis. That's Nova Scotia Business Inc.'s own analysis. So I would have thought that if that's true, that 80 per cent of all jobs come from existing businesses, that Nova Scotia Business Inc. would be very much focused on helping existing local companies to grow. What exactly is Nova Scotia Business Inc. doing in that respect?

MR. MORLEY: Well, it's very true. The way economic development happens is it's a mix of existing business growth and incoming investment. It's having a healthy mix of both of those things. Yes, existing businesses are vital to Nova Scotia. Our records show that we have something over 50,000 registered businesses in Nova Scotia and many of them are very active in job creating and doing important work in the province. Nova Scotia Business Inc. has a very comprehensive program working with existing business that we call business retention and expansion that focuses exclusively on existing businesses. It's the program I run. We have seven offices across Nova Scotia and people in those offices whose exclusive job is dealing with existing business and working with these existing businesses to identify red flag issues, issues of importance to the business, whether it's a problem or an opportunity, and to work through those issues with the business. What I tell my folks out there is that our first job is never to say, that's not my job. It's to work with the business to assist them in getting to where they want to go and whether that program is something NSBI can do for them or something some other government agency can do, or something some other government can

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do, that's the job of those people, to lead an existing business in Nova Scotia to solutions to its problems and opportunities.

MR. STEELE: I know the government likes to say that Nova Scotia Business Inc. is going to be different. I think we all know that this model of having the Economic Development Agency led by people in private business has been tried before. It happened before, Robert Stanfield set it up as Industrial Estates and it had some successes and it had some spectacular failures. In fact, many people say, many political historians say that the Industrial Estates was one of the millstones that eventually dragged down the Conservative Government and was responsible, at least in part, for the defeat of the Conservative Government in 1970. After that, this model of having people in the private sector direct economic development was abandoned in favour of a different model of doing it within government. You know that because you were involved within the former Department of Economic Development and its various incarnations. Now the pendulum has swung again and the government is abandoning that model and going back to the one that's been tried before.

Certainly I, and I know lots of other people say, what exactly is going to be different about Nova Scotia Business Inc.? So I would like to put that question to you and I would like to ask you to be very specific. What exactly is Nova Scotia Business Inc. going to do that's going to be different from either the Department of Economic Development, in its various incarnations or, for that matter, Industrial Estates Limited? What is going to be different, exactly?

MR. MORLEY: First of all, I think it was important that a change occurred because I think the economic development effort in Nova Scotia did have to become business focused. We're focused on working with business, with existing business in Nova Scotia. We're focused on business attraction. We're focused on trade development. It was important to have a group that understood and worked with business and what better way than to have an organization that is business driven and has a board of directors, a board of governors that are business people in Nova Scotia with long experience in doing business here.

I think the specific difference has to come in a number of areas for NSBI to be successful and I think the organization is still new and is still growing and evolving. But what certainly has to happen with this organization to ensure that it's different and effective is that it has to be able to move quickly. It has to be able to work at the pace of business to make decisions quickly when it comes to a lending program, when it comes to working with an inward investor. We can gain an advantage over our competition, and there's a lot of competition out there, over 9,000 jurisdictions like ours that are looking for investment, we can gain an advantage by being quick, by being nimble, by working at the pace of business. I think that is probably the most important thing that has to change or should change with NSBI. I think, as well, the thing that is most important, and I hope this stays, is that there's a need for consistency. There has been quite a lot of change in economic development

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activity, departmental names and so on. I've only been around for seven years, and I think I've had about six different names in about that length of time.

What we learned by looking at other jurisdictions was that consistency was vital to successful economic development. If you look at Ireland, they went at it consistently with a range of different leadership in government, they went at it consistently for two decades. If you look at Quebec, the same kind of thing, consistent effort. If you look at the State of Michigan, the same kind of thing, consistent effort. That's an element in success where economic development activity is at it's best, it's that level of consistency. Those are two things that I think are quite vital, two specific things that are very important.

MR. STEELE: Well, all those things are interesting, although I suppose if I reflect on it the implication is that what we had before wasn't business focused, it was being done by people who didn't understand business, in a group that wasn't able to work quickly and in a manner that wasn't consistent. That's all a little vague, and I'm still not convinced that Nova Scotia Business Inc. is going to be any different than what came before. The faces are new, the names changed, but when I actually press - this is not the first time I've done it - to find out what exactly is going to be different, I get answers that I consider rather vague, like well, we're going to be more nimble or we're going to be more business focused.

Is the implication that economic development under the last government was not business focused, was being done by people who didn't understand business? I think some of the people who were involved at the time, including yourself, would be surprised if that was what people said about the economic development effort at that time. NSBI is so new, I guess the jury is still out. In fact, it's so new that there are a lot of questions, really basic questions I still think it's difficult to find answers to.

I've looked through all the NSBI financial statements, and I've read the business plan, I've read a thick binder of material, and there's one very basic question that I still don't know the answer to, and that is, how much money, exactly, does Nova Scotia Business Inc. have at its disposal? There's reference to something called the Nova Scotia Business Fund, and there's reference, vague reference, to other strategic investment funds with no dollar amounts attached. I wonder if you could let the committee know exactly how much money does Nova Scotia Business Inc. have at its disposal?

MR. MORLEY: I would have some difficulty doing that today. I came prepared to talk about the KPMG study. I didn't bring the books of the corporation with me. I can't give you the exact numbers, but I think it is on the public record.

MR. STEELE: I've looked and I can't find it. I can't find any analysis or any statement of exactly how much Nova Scotia Business Inc. has available to it.

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MR. MORLEY: I can certainly send that to you when I return, but I just don't have the numbers with me.

MR. STEELE: Back in February, the people of Trenton and surrounding area were thrilled to find out that their parent company had decided to award a contract to Trenton Works, because, needless to say, Trenton Works is a huge employer in that area, and the Municipality of Trenton kind of goes up and down with the fortunes of Trenton Works. The province, as a way of assisting Greenbrier in making that decision, offered a loan guarantee of $10 million. Mr. Morley, am I correct in thinking that Nova Scotia Business Inc. had no involvement with that particular matter?

MR. MORLEY: To my knowledge we weren't involved in the loan guarantee, no.

MR. STEELE: That surprises me, because I thought that the new model was that all economic development, all of these big incentives were going to be funnelled through Nova Scotia Business Inc., because that was supposed to be the big change, because they say, well, politicians didn't know how to do it or didn't know how to do it right or something. One of the big changes was supposed to be this new model. Then we find out that the government still has money somewhere where they're carrying on what seems to be a parallel economic development program to Nova Scotia Business Inc., where they offer loan guarantees and other incentives. What do you know about this parallel system of economic development that seems to be out there now?

[8:30 a.m.]

MR. MORLEY: I know there isn't a parallel economic development system out there. I think legislators are always going to want the flexibility to act in certain instances that they see are in the provincial interest, I guess. That would be my explanation, but it's not something that NSBI has been involved in.

MR. CHAIRMAN: Mr. Steele, you have under two minutes.

MR. STEELE: Thank you. Is this of concern to you, that Nova Scotia Business Inc. has set up their new offices with brand new stuff, brand new people, brand new salaries and brand new incentive contracts, which I guess is a topic for another day? Everything new, supposedly different and then we find out that the government is still offering incentives in which Nova Scotia Business Inc. isn't involved at all, even incentives to the tune of $10 million. Is that of some concern to you?

MR. MORLEY: There are a lot of elements involved in economic development activity other than the ones that are directly controlled or related to Nova Scotia Business Inc. We have no sway with the university system or the training system in Nova Scotia, and labour is the most important thing. People are the most important thing in terms of growing existing

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business and attracting new stuff. We have no control over that, so there are a lot of things that Nova Scotia Business Inc. has no control over. By our nature, we're a small organization. Also, to address your previous question, does that mean things in the past weren't working? No, it doesn't mean that. What it means is that there's a desire to improve, to be as good as we can be in doing this, to adopt best practice models and to take it to the next level. That's what I think this province deserves, an economic development group that can be absolutely as good as it can be. It doesn't mean that the previous group wasn't doing a great job. There were barriers in its way that were holding things back. I think there's an attempt with this new organization to change that.

MR. CHAIRMAN: Thank you, Mr. Steele. Let's call it 8:34 a.m. The next 20 minutes go to the members of the Liberal caucus. The honourable member for Cape Breton West.

MR. RUSSELL MACKINNON: Mr. Chairman, we're going to share our time here. Through you, Mr. Chairman, to Mr. Morley, I was rather intrigued by the suggestion that Nova Scotia Business Inc. will actually be doing much better to meet some potential job creation targets. I noticed that one of the factors referenced is an anticipation that Nova Scotia's economy would grow at a rate of GDP above the national average over the next 10 years. That doesn't seem to be the case. So I'm just wondering why, given the fact that the growth is somewhere in the vicinity of around 3 per cent, has the bar been set so high?

MR. MORLEY: I think one has to set the bar pretty high. Everyone in Nova Scotia probably shares a desire to be less dependent on federal transfers, to be less dependent as a province. To do that it pretty much means that we have to grow as a province and we have to grow faster than the national average. If we don't grow faster than the national average, we're shrinking, in relative terms.

It's a critical objective, I think, to set a target that says hey, we're going to be making progress, we're going to be growing in relative terms, our economy is going to be getting larger relative to the rest of the country; I think that's an essential goal for anyone in economic development.

MR. MACKINNON: Mr. Morley, what I find a little perplexing though is the fact that the objective is to create 20,000 new jobs by the year 2005, correct?

MR. MORLEY: I think the report states 18,000 . . .

MR. MACKINNON: Okay, let's say 18,000. Let's be a little conservative, small "c".

MR. MORLEY: It's 18,000 jobs created and retained over that period of time.

MR. MACKINNON: If you look at between 1993 and 1999, there were 30,000 jobs created. One would think that the success rate of the Department of Economic Development

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on that side of the equation was far more successful than your anticipated plan of action. Why the reduction?

MR. MORLEY: Those are very good absolute numbers. That's what the economy as a whole has done. The numbers that you reference are numbers that relate specifically to initiatives of Nova Scotia Business Inc. In other words, those don't reflect natural growth or natural trends in the economy, they relate to specific initiatives of NSBI, whether it's in trade development or investment attraction, or working with existing business to help them retain the existing jobs and grow. That's what that refers to.

It's not the economy as a whole. Quite often, if you look at overall numbers, an organization - if the tide is rising on employment - you get to claim those numbers. We decided very early on that we wanted to be measured, not based on the rising and falling tide of the economy in general, but on the specific initiatives that NSBI was involved in.

MR. MACKINNON: I want to be clear. You're saying that the 30,000 jobs created weren't as a result of activity with the Department of Economic Development?

MR. MORLEY: As I recall, a significant portion of them were.

MR. MACKINNON: Do you know what portion?

MR. MORLEY: What was the time frame again?

MR. MACKINNON: From 1993 to 1999.

MR. MORLEY: I think probably at least . . .

MR. MACKINNON: It was the period of the greatest expansion in the province.

MR. MORLEY: I think probably at least, as I recall, about half of those probably dealt with initiatives that the Economic Development group was involved in.

MR. MACKINNON: What's your anticipated success rate of Nova Scotia Business Inc.? If you go back to Industrial Estates, the public record will show that the vast majority of the investments were made in Tory-held ridings - that's not me saying that, that's public record. You can go to the Legislative Library and find that information. It created quite a skew in economic development across the province, one area versus the other. What safeguards does Nova Scotia Business Inc. have to insulate itself from that type of political interference?

MR. MORLEY: I don't know if we really have or need insulation. I can tell you what's happening. Business is going where business wants to go in the province, where they

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best see an opportunity for growth. In the current environment, quite often what business is looking for is a labour force. If we can demonstrate an available labour force in a given area - and often we do this in partnership with community organizations and federal government as well - if we can demonstrate there's labour availability and good quality labour in an area, it helps us convince a company that this is a good place for you to locate. Those are the factors that seem to be at play at the moment. It's not picking areas as much as where is there a welcoming place for business, where is there a good place for the next expansion to take place. That seems to be the approach. It's business making those decisions, at the moment, based on business rationale. I'm sure we wouldn't have it any other way.

MR. MACKINNON: In terms of your granting the loans, Nova Scotia Business Inc. granting loans, is there a particular ceiling upon which there has to be government approval, or is there just a fund set up which the board of directors of Nova Scotia Business Inc. has sole discretion as to how to loan that money out, dispose of it, or however you would like to . . .

MR. MORLEY: Yes, I think there are various tiers of authority that are out there.

MR. MACKINNON: At what point does the government kick in?

MR. MORLEY: Well, the government kicks in when there's a significant public commitment at stake. I think that likely makes a lot of sense. It's public money that's involved here, so there is a level of accountability overall in Nova Scotia Business Inc. in terms of the performance that we have but, as well, not day-to-day accountability but accountability with respect to the lending functions of the organization as well when those loans get quite high or . . .

MR. MACKINNON: There would be regular consultation with the minister and his department?

MR. MORLEY: The process is basically, an application comes in, it's reviewed by staff, by the officers, it goes to an investment committee, at some point it may, indeed, go to the board. The investment committee is a committee of the board. It may go to the board for final approval, and if it's of a certain type, it may go on for final approval.

MR. MACKINNON: I just wanted to make a correction, I made reference to the 30,000 jobs between 1993 and 1999, in fact that was between 1996 and 1999. You can appreciate the success rate was much greater in that short time frame than the proposed action plan by Nova Scotia Business Inc. as you've described. I do apologize. (Interruptions) No, it wasn't to be difficult. At this point, I will turn it over to my colleague, the member for Lunenburg West.

MR. CHAIRMAN: The honourable member for Lunenburg West.

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MR. DONALD DOWNE: Mr. Morley, welcome this morning. The KPMG study, it's not the first time we've had a study that's been so positive about Nova Scotia. In fact, this is the second one since 1999. I believe there was one probably prior to that, I'm not quite sure of the exact date. Consistently we're being told that Nova Scotia is a community that clearly is ripe for investment by the private sector. You mentioned growing the economy at the rate of the GDP at the national level. Nationally, we're hearing 4 per cent to 5 per cent GDP, potentially; in the budget it's 1.8 per cent GDP. The forecasts for this year are somewhere around 3 per cent, if I recall, on some of the new, more optimistic numbers. Do you see the GDP of the province going up higher because of Nova Scotia Business Inc. this year?

MR. MORLEY: I think the efforts of the organization are beginning to kick in in full force, in terms of our business retention and expansion program. It's been up and underway in full force since January. We've visited over 120 companies over that period of time with our staff. That's in a ramp-up stage, and that's been growing each and every month. I expect April's numbers that are beginning to come in now from our field staff are going to show that we're probably going to be approaching 200 companies visited very soon.

With these companies, we're identifying issues and dealing with opportunities, and so on. So, we're going to grow in that way. There are a number of investment deals in the funnel that Nova Scotia Business Inc. is looking at. I think, yes, we will contribute substantially to that growth.

MR. DOWNE: Is Nova Scotia Business Inc. looking at the areas that are specifically to our advantage? The study clearly points out what you should be going after as far as potential new businesses. Is that the strategy of Nova Scotia Business Inc. at this point?

[8:45 a.m.]

MR. MORLEY: Yes, our long-term strategy is basically - as it turns out - our research seems to have been correct in helping us identify the sectors to focus on in this strategy. The sectors we are focusing on as it turns out are the sectors where we've got the greatest cost advantage in Nova Scotia.

MR. DOWNE: So the sectors of investment that you're going for now would be in the pharmaceutical, a specialty fee, chemicals, electronic assembly, well, precision components of some degree, specialized chemicals, advanced software, corporate services - those are basically the areas that you're going after?

MR. MORLEY: Yes, generally.

MR. DOWNE: And you are the only lending institution left within the government's wing of lending to start businesses in Nova Scotia.

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MR. MORLEY: The only Nova Scotia Government organization doing this, but we work in partner with numerous federal government organizations that also have significant capabilities in the province.

MR. DOWNE: Yes, right. Basically, it's BDC rolled over into Nova Scotia Business Inc.?

MR. MORLEY: On the lending side, yes.

MR. DOWNE: On the lending side.

MR. MORLEY: Yes.

MR. DOWNE: In the government's Speech from the Throne - it has been a few years since we've had a Speech from the Throne - I assume, I guess, it's the same vision that they had at that time, they talk about investing in rural Nova Scotia, talk about investing in the foundation, the pillars of economic growth for the Province of Nova Scotia and I'm not disputing your vision here, but your vision clearly talks about the new economy or new opportunities in the economy.

How does that fly, I mean does it fly in the face of what the government's original intention was to invest in rural Nova Scotia per se and Business Inc. which is the only lending institution of the province controlling the purse strings of where dollars go or moving into the new economies? What happens to the forestry sector, or the mining sector, or the tourism sector and things of that nature that are looking at growing the economy, or the small business community that represents, as we've all said many times in this room, the backbone of the economy of the Province of Nova Scotia? How does that fit into the historic businesses that are there with no ability to access funding from the province except with your organization and your organization is clearly focused on a whole new economy which I'm not disputing, but what happens to these companies? Do they fall through the cracks?

MR. MORLEY: No, they don't fall through the cracks. These kind of high growth sectors where we have a significant competitive advantage in our cross structure are a focus of Nova Scotia Business Inc., but they're not the exclusive focus. I can think of many, many of the clients of the lending group, existing clients, and things in the pipeline now are companies in so-called traditional sectors or in areas like tourism, or natural resources, and so on. So we're not - I guess there isn't a desire or intent to ignore those kinds of opportunities either. Most of the companies we're dealing with in our existing business line through our business retention and expansion program in our seven regional offices, most of those are in traditional sectors. They're small businesses, you know, five, six people sometimes. So that certainly continues to be a focus for Nova Scotia Business Inc.

[Page 14]

MR. DOWNE: On your overall lending, you have a number of dollars that you're working with, whether it's $30 million, or $40 million, or some figure around that. How much have you allocated? If we want to have 10 per cent of the money go into this area, 20 per cent into this area, 30 per cent into this area and 5 per cent into this area, have you done any allocation of that funding, or have you basically said, well, first-come, first-served kind of basis? How do you assess that?

MR. MORLEY: I think there have been some rough allocations, nominal allocations.

MR. DOWNE: Can you explain what those numbers are for us?

MR. MORLEY: Again, my expertise is on the research side, and I'm here . . .

MR. DOWNE: So what percentage, on the research side, with regard to the high level of the new economies, as some would call it, to the province, which are great - what percentage of the budget would be allocated for those?

MR. MORLEY: I kind of hesitate to throw out what those exact numbers are; we have set aside sort of a nominal distribution of funds but those are, I would suspect, rough targets. In practice you're also going to be, as an organization, driven by opportunity.

MR. DOWNE: Right, but what's a rough target?

MR. MORLEY: Really I don't have those numbers off the top of my head.

MR. DOWNE: Yet you're the expert in those particular areas, you know what the budget roughly is and you have enough - you know, is it 50 per cent, 60 per cent, 10 per cent, or 1 per cent?

MR. MORLEY: No, I would hesitate to throw out any number because, as I say, what you would want is the senior manager who is involved in the finance group to give you that read.

MR. DOWNE: Right, okay. Maybe you can provide that?

MR. MORLEY: Yes.

[Page 15]

MR. DOWNE: It would be interesting if we could have that. Mr. Morley, in regard to the budget - and you talked about the process. I would like to know, does the government have the final okay in regard to a particular proposal for any particular area or is it totally up to Nova Scotia Business Inc.? They are absolutely at arm's length of the government, and they are making the decisions and driving the economic engine for the province without any interference whatsoever by the provincial government? Does Cabinet have the final decision or is it Nova Scotia Business Inc. that has the final decision?

MR. MORLEY: I think it will depend on the project to some extent and, you know, it will also depend on the financial situation. Quite often, if there's a good opportunity that comes forward and perhaps we don't have the internal resources to handle this particular kind of project - sometimes these come around. You know, the once-in-a-lifetime type of project.

MR. DOWNE: Yes, I understand.

MR. MORLEY: Those are the kinds of things you want to take to your legislators and get their buy-in on that.

MR. DOWNE: Right. I'm trying to get a handle on whether or not the arm's-length process, as my colleague has mentioned about previous administrations and how they've developed strategies for economic growth based on the colour of the political representative, is going to be part of Nova Scotia Business Inc. or are they going to be totally independent of that?

MR. MORLEY: Yes, I think Nova Scotia Business Inc. is going to have a high degree of independence in this kind of thing although I can also speak personally in that in my seven years I haven't seen a heck of a lot of political interference either in the process. But NSBI certainly tends to solidify that approach a little more directly, I guess.

MR. CHAIRMAN: Thank you, Mr. Downe and Mr. Morley. It's 8:55 a.m. and the next 20 minutes go to the government caucus.

The honourable member for Sackville-Beaver Bank.

MR. BARRY BARNET: Thank you, Mr. Chairman, and thank you for presenting, Mr. Morley. Before I begin my questioning, I guess I find myself perplexed from time to time listening to the member for Halifax Fairview about economic development. He often compares Nova Scotia Business Inc. with Industrial Estates, and I have difficulty understanding exactly what Industrial Estates was all about. I was only nine at the time, I guess, so I didn't live that as a child at nine years old, somebody who was all that interested in what was going on.

[Page 16]

They're quick to compare Nova Scotia Business Inc. with Industrial Estates and they're quick to point out the flaws of Industrial Estates, but I suspect they don't talk often to the people who work for Michelin, the thousands of Nova Scotians who benefited from Industrial Estates, and I find it interesting that they can only think one way. I think, Mr. Chairman, this is probably the one area that defines us in our Party from them and their Party, the fact that we're able to think in a different direction and we know that there are things that we can do as government to help foster and grow the economy. That's why I guess the people in Nova Scotia get an opportunity to choose between us and them and they have never chosen them.

I want to go towards a particular part of the report and that is dealing with pharmaceuticals and research and development in the biomedical field. I recall in 1992, in 1993, and in 1994, there was a great deal of discussion and a great deal of optimism surrounding the Red Cross blood fractionation plant and if you drive by the proposed site now you will see a half-fallen-down sign, a road that really has never been driven on, a piece of land that sits vacant. I'm somewhat perplexed that the report actually speaks about our benefits and our strengths in the area of research and development, and it talks about the fact that we're an ideally suited place for pharmaceutical industries, but yet we have that asset that sits there unused, it is vacant. Millions of dollars of government money has been invested and nothing has happened.

Do you see this report as something that you can use to help further the assets that we have already developed there?

MR. MORLEY: I think what the report demonstrates is the decision that that company made to locate in Halifax as a cost-effective place to do business in this particular sector was well-founded. I think it also was an example of the kind of thing that we probably need to do, and that is look for some kind of anchor companies, anchor organizations in these critical sectors to put down some roots in Nova Scotia and help the rest of these particular sectors grow. Those kinds of anchor investments are probably as critical as anything to growth in these important new sectors.

MR. BARNET: It's interesting that you say that. In fact, I recall clearly in 1993, after first being elected to municipal council, an economic development group presented - and I can't recall exactly who it was - to Halifax County Council at the time and they spoke about the fact that the blood fractionation plant would be an anchor to spawn off a number of other businesses. They talked about the fact that we have a strong post-secondary education system and we have close proximity to the human resources, to the port, and to all of these things that would benefit this industry, and that the blood fractionation plant was seen and promoted at the time as being the anchor industry, as being the industry that would then bring in supporting industries and supporting businesses in that line.

[Page 17]

To me, as somebody who has watched the failure - and ultimately it has been a failure - of that project and, you know, I guess it's no fault of the provincial government; obviously there were issues surrounding the Red Cross, the parent organization. But to watch the failure, to see the ball be dropped in that particular sector, I can only imagine that there are thousands of people who now would be employed, had somehow, some way, that industry flourished and those jobs had been created. I suspect the growth that we've seen here in Halifax, particularly in that general area, would have been compounded and doubled maybe as a result of that industry being created. It's hindsight now, we can look back, point the finger and lay blame but, I guess, from my perspective what I would like to know is how we can take the strengths out of this report; the fact that we have some existing infrastructure in place, the land still exists, some of the infrastructure that was put in place specifically to deal with the blood fractionation plant is still there. I want to know how we can combine those two and create some sort of industry surrounding the assets that we have and we've paid for?

[9:00 a.m.]

MR. MORLEY: I think you make a very good point and in terms of the benefits that the blood fractionation plant would have brought I guess all one has to do is go to the community where it did eventually locate in the U.S. and you can see what the benefits are quite directly, and they have been substantial. In terms of swallowing hard and moving on to a new challenge to try to attract in a new anchor in that sector, that's something that NSBI intends to work on very intently. We intend to look at the companies in that sector that have a fit for Nova Scotia, like this company did, or that example did, that can fit the assets that are here now - the ones you mentioned and others - and present Nova Scotia's business case to them very aggressively and say this is a place where you can come and make money, this is a place where you can come and find what you need in terms of a cost-effective location. It is not just us saying that but it's one of the largest accounting firms in the world that looked at 115 different cities around the world in nine countries and said Halifax is the best place you can come to do this kind of work. So that gives us quite a lot of power and quite a lot of push when we go knocking on the doors of these organizations.

MR. BARNET: Mr. Morley, where in this report does it consider our access to energy and energy sources? I know that we've seen on the news, particularly issues along the New England States and in California, where there have been real and serious issues about their ability to provide their customers electricity. We've not experienced that in Nova Scotia, we have natural gas at our doorstep and a good network of energy distribution, particularly electricity, electrons. To me it would seem that it would be a natural advantage for Nova Scotia, the fact that we have that. I would expect that when you compare us to New York or Boston or other areas on the west coast, California, for example, that we would do favourably. Is that in this report and how do we compare it?

[Page 18]

MR. MORLEY: Yes, there is a section in the report and the report deals with all the major cost issues involved in business. As you were speaking, I was thinking of an ad I saw for Canada with respect to California that said you may have more oranges but we have more juice, which is pretty much the nature of the report. Canada is the lowest cost energy country among the nine in the report, so we stand up very well in that respect. It becomes quite an advantage for us. Nova Scotia currently is in about the middle of the pack when it comes to cost of energy for large companies. Overall, lower energy costs and the availability of energy, which, in the case of California, is perhaps as important as any; reliability of energy is critical to many industries, to every industry these days. We've got that. It's something we sell aggressively in Nova Scotia, that reliability. So on the energy side, currently, that's a plus.

MR. BARNET: Before I pass to the honourable member for Yarmouth, Mr. Chairman, there is just one quick thing. How do we get our known benefits and our assets to the decision makers? What is it that we're doing to try to get our strengths, and there are many of them, the report actually clearly identifies that we have some areas that we have a serious advantage over some American cities. I'm talking about our double-edged sword, our currency and our labour. How do we get those advantages to the decision makers so that they're able to look at us in a serious light and compare us to other jurisdictions? If the information in this report is accurate and correct, it would seem to me that all we have to do is simply show them and they will come.

MR. MORLEY: We can certainly show them the report, but I think we also have to demonstrate that we have the capability here to meet their needs. There are a number of cost-effective locations out there that a company can look at. Sometimes costs aren't the only factor. As I said, the cost is one quadrant of four that companies look at. It is a very important one, but it's only one of four, so the companies are looking at other issues as well. They're looking at issues like proximity to markets and all these kinds of things that we can't control We're 4,000 miles away from California, so a company that has its market basically in California is not going to be able to perhaps think of Nova Scotia.

In terms of how do we market this, how do we get this in front of people, the other part of your question. The great thing about getting involved with this KPMG study, or the great thing about this study is that the firm itself is marketing this. The federal government, who's a major contributor and partner in this, is marketing it through all their embassies and consulates around the world and we're marketing it. Then you think about all those partners who are marketing it, they're basically marketing something that says Nova Scotia is the best place to do business, which is great. We get that for nothing. We also have to take advantage of that ourselves as NSBI and identify and target the kinds of companies that can really benefit from the Nova Scotia business case and go after that and that's something NSBI is gearing up, as we speak, to do.

MR. CHAIRMAN: Thank you. We have just under seven minutes remaining in the government caucus's time.

[Page 19]

The honourable MLA for Yarmouth.

MR. RICHARD HURLBURT: Mr. Chairman, good morning, Mr. Morley and welcome to our committee. I would like to get some points on the report. Before I go to that, I would like to comment on a couple of my colleagues from the NDP caucus and the Liberal caucus and the first one is Industrial Estates. Did you know, Mr. Robert, or Bob, Manuge? He was a senior officer at Industrial Estates?

MR. MORLEY: I didn't know him personally, no.

MR. HURLBURT: He lives in the beautiful County of Yarmouth and he was very instrumental in bringing Michelin to Nova Scotia. I hear that there was favouritism maybe shown to some members of the Conservative Party where these companies were located. Well, this person happened to live in Yarmouth and I'm not quite sure yet, but I haven't seen any Michelin plant in Yarmouth yet. Michelin has contributed significantly to the Province of Nova Scotia through payroll and property taxes, creating a finished product. Am I correct?

MR. MORLEY: Yes.

MR. HURLBURT: And there are thousands of employees with the three plants around Nova Scotia?

MR. MORLEY: Around 35,000 employees and about $150 million in payroll every year.

MR. HURLBURT: There are 35,000?

MR. MORLEY: There are 3,500, sorry.

MR. HURLBURT: Okay, 3,500. Anyhow, I think that that's a success story of Industrial Estates and I'm sure that Nova Scotia Business Inc. is going to have their highs and they're going to have their lows. But you have to look at the success stories too, instead of just criticizing like some people like to do. I hear from the honourable member for the Liberal caucus; he's sort of flexing his chest here this morning that they created 30,000 jobs from 1993 to 1995. Was that correct, what I heard this morning?

MR. MACKINNON: It was 15,000 in three years.

MR. HURLBURT: It was 15,000 in three years? Oh, so we've dropped it from 1993 to 1999. Now it's 1995 to 1999. Is that what I'm being told this morning? Anyhow, my question is, how closely is Nova Scotia Business Inc. working with the local RDAs of the communities?

[Page 20]

MR. MORLEY: We're, I guess, working with them in a number of different ways. Certainly, our regional operations are tied in directly or closely with the RDAs. In virtually every case, we're co-located with the RDA, so there's a direct relationship there. I've worked with the RDAs in the past on investment attraction initiatives and worked very successfully with them. I find the RDAs to be very worthy and useful partners in promoting the province. As I look back over the last couple of years, the areas that seem to have done the best are areas where RDAs have shown a willingness to partner with a variety of organizations like ourselves.

MR. HURLBURT: Well, Mr. Morley, I don't think we need KPMG to tell us the job losses that we had in South West Nova from 1993 to 1999. Our local RDA, the South West Nova RDA, did its own survey from 1993 to 1999. I do not have that at my fingertips, but I have it at my office and I can show you documentation of the job losses from South West Nova, jobs that were transplanted from Yarmouth, Shelburne and Digby to Kentville and Bridgewater, putting community against community with the former government. This government and this member have been working very hard within our own community and with our RDAs to create jobs in our own communities and not to fight with other communities but to work with communities.

I'm a firm believer that what's good for Shelburne is good for Yarmouth and what's good for Yarmouth is good for Shelburne. It's good for all of Nova Scotia. We have created more jobs in the past three years than the former government did in the last seven years that they were in office. Register.com, a success story in South West Nova and it was the environment set by the community. The community set the environment. That's why, with the province's payroll tax rebate, we have Register.com in our community today. Last week they announced that they are going to expand already, and they've only been in our community for about a year to date. Able Clothing Gear Inc., another success story in our community that's happened since 1999 and with our communities working together. But I think Nova Scotia Business Inc. has to work with the regions all throughout our province and help create a better working environment.

MR. MORLEY: That's something that Nova Scotia Business Inc. is very anxious to do. We've had a couple of initiatives with the RDAs generally that have been, I think, very successful. One is Target Nova Scotia, which is a comprehensive information database somewhat similar to the information that's contained in KPMG, but it's based on the idea and the fact that companies, when they are locating, respond to good information. So we've worked with basically every single RDA to ensure that the information that's available in southwest Nova Scotia is equal and accurate in every way with information that's available in Halifax or Sydney. So it's equal across the province.

[Page 21]

[9:15 a.m.]

The other thing that's happened over the last number of years is in the customer care area. For example, three or four years ago, it was hard to get a company interested in any place anywhere that was under 0.5 million in population. What Nova Scotia has succeeded in doing in the last while is change the thinking of a lot of site selectors in a lot of companies to get them looking at smaller communities, places they wouldn't have normally looked at before.

MR. CHAIRMAN: Thank you, Mr. Morley, and thank you to the member for Yarmouth. I would like to take the next 30 minutes and divide it equally, 10 minutes each, allowing Mr. Morley a few moments for a wrap-up. It's just about 9:16 a.m.

The honourable member for Halifax Fairview.

MR. STEELE: Mr. Chairman, the Conservatives like to caricature what the Opposition is saying. I think we would all be a lot better off if we all listened to what each other was saying and dealt with what we were saying rather than turning it into some kind of cartoon. I would be the first one to agree, and have said nothing otherwise this morning than the fact that Industrial Estates Limited had a large number of successes. In fact, that was Bob Stanfield's defence to repeated and persistent Opposition attacks at that point from the Liberals against Industrial Estates. He said, yes, we've had some absolutely spectacular and costly failures but you're not talking about any of the successes. That's true. Industrial Estates had a lot of successes.

But then by the same token, so did all of the things that came after it, the different models set up by the Liberals and continued by the Buchanan Government. Sure, Michelin is one of the outstanding successes of attracting business from elsewhere, which is not easy to do and is not very common, especially that many jobs and that many well-paying jobs. If you're going to give credit to Industrial Estates, you have to give credit to the Liberal model as well which abandoned that Industrial Estates model, because they had their successes too, many successes. They also had their spectacular costly failures.

Mr. Chairman, the point that I'm making about Industrial Estates is not that it was bad, because it wasn't bad although it did have those spectacular failures, like the heavy water plant and Clairtone and the ones that people like to talk about. It's that the NDP has a healthy skepticism about whether Nova Scotia Business Inc. is truly different. What we're looking for is something to say yes, this is different from what the Liberals did, this is different from what the Conservatives did, that it's different.

Let's look at what people said about Industrial Estates. Here's Gerald Regan, who I'm not given to quoting very often, but nevertheless . . .

[Page 22]

MR. CHAIRMAN: May I ask what you're quoting from, Mr. Steele?

MR. STEELE: This is a book, a Geoffrey Stevens biography of Robert Stanfield. I'm going to read two short quotes, they're short. The first one is from Gerald Regan. He said, talking about Stanfield, "and if he had a weakness in government, he tended to be too much impressed by people in business, by the Frank Sobeys and so on and so forth, and to allow their . . ."

MR. BARNET: Mr. Chairman, on a point of order. I fail to see what this has to do with the competitive alternatives report . . .

MR. CHAIRMAN: I would like to cut you off there. I don't see that as a point of order. He has his 10 minutes, and it's a bit of history lesson. I'm going to allow him to continue.

MR. BARNET: After all, I was only nine years old at the time.

MR. CHAIRMAN: Well, you're getting a history lesson. Mr. Steele.

MR. STEELE: Thanks, Mr. Chairman. Anyway, Regan's point was that if Stanfield, " had a weakness in government, he tended to be too much impressed by people in business, . . ." Here's another quote, this time from a raving pinko lefty. This is somebody talking about Industrial Estates Limited. (Interruptions)

MR. CHAIRMAN: I wasn't in the Legislature at that time.

MR. STEELE: Now listen to this. This is somebody talking about Industrial Estates Limited, "The old mistakes of industrial development corporations were made by people whose entire backgrounds had been financial, . . . Just because you or I made seven million dollars because we inherited a buggy whip business does not necessarily make us the kind of adjudicators you need as to the type of industrial development a province should have. Look, who can be conned faster than a big industrialist?" That's the end of the quote.

That raving pinko lefty was the late Senator Finlay MacDonald, who is also a former president of Industrial Estates Limited, and his assessment of the Industrial Estates model was it just didn't work. That's his assessment. I don't think Robert Stanfield had a closer friend in government and maybe in life than Findlay MacDonald. That's his assessment of Industrial Estates.

The point is not that Industrial Estates was a failure because it had many successes, the point is rather, what exactly is it that's supposed to be different about Nova Scotia Business Inc. No matter how many times I ask the question, I don't get an answer to that. That's why I have a healthy skepticism about whether it's actually going to be different. One

[Page 23]

of the things about the old model which just didn't work was the way that multipliers were used. What the government would do is they would take a certain amount of money and say, okay, we spent this amount of money; they would use a mathematical formula and say that equals this many jobs. It often had absolutely no bearing on reality.

They would give a certain amount of money, for example, to Orenda Aerospace in Debert, and they announced, at the time they spent the money, that it equalled over 100 jobs. The problem is Orenda, as far as I recall, never hired more than 10. One real way that Nova Scotia Business Inc. could be different is to abandon the use of multipliers when it's making announcements about how many jobs have been created. Is that something that Nova Scotia Business Inc. is prepared to do, so that when it reports it reports on real jobs and not just fictional jobs? That's my question for Mr. Morley.

MR. MORLEY: A lot of the analysis that we do when we're looking at a particular opportunity is based on direct job creation. At some point in time we would bring the indirect aspect into it. My background is in economics. The impact analysis that is done by the Department of Finance - to defend them a little bit, they've been kind of doing it this way for years - is also done in the same way by New Brunswick, in the same way by Quebec, in the same way by pretty much every province.

It is a legitimate tool to measure economic impact, because when a person is paid a salary, $10 an hour or whatever, they go out and spend that, and it gets re-spent. The fact that it's re-spent creates jobs in other places. There is always more than the direct effect from that, and that depends on the industry. If an industry is in operation and it's highly integrated in the economy, it's taking in natural resources and producing final-end products from those natural resources, the impact on the economy is greater than if you're just digging stuff out of the ground and sending it out. The dollar amounts might be the same in both cases, but in the case where there's more value added taking place, there's clearly more jobs being created in Nova Scotia. It is a legitimate form of analysis but, having said that, a lot of our basic analysis on a particular opportunity is based on the direct job yield from that opportunity.

MR. STEELE: I think one of the reasons why the old model got discredited is because it became obvious to everybody that whatever job number was announced by the government was fiction. The fact that it was intended to serve mainly a political purpose was always proved by the fact that when jobs were lost, the government never, ever announced the multiplier effect. For example, when a call centre comes into downtown Halifax and they announce the creation of so many hundreds of jobs, then there's the multiplier, the fact that yesterday 250 people lost their job, I didn't hear the government announcing the multiplier effect of that or the multiplier effect of, say, shutting down Sysco. That never entered into any of their analysis.

[Page 24]

The only thing that is indisputable and true is the number of jobs that will actually be created. So what I'm asking, as a tangible, real change in the way economic development is done in this province is whether Nova Scotia Business Inc. is prepared when it makes announcements, to announce only the real, concrete jobs that are being created and abandon the resort to these fictional multiplier numbers, which are very subjective and very open to debate and dispute - and to manipulation, for that matter. Will NSBI start reporting real job numbers?

MR. MORLEY: I think the announcements that I'm familiar with to date have just reported direct job numbers, direct job creation. Quite often there will be a range or a ramp-up issue, that kind of thing, but I think the jobs that are reported in the press releases that I can think of have been the direct jobs to date. So I think that's a statement on the value that NSBI puts on that direct job issue. As I say, I don't discount the potential for indirect job creation out there by certain industries - a call centre also buys paper, printing services, taxi services, electric power and, because they're buying that, some job is created somewhere else, and there's no doubt of that. In our reporting and in our press releases to date we've reported direct jobs.

MR. CHAIRMAN: Thank you Mr. Morley. Thank you, Mr. Steele.

It's coming up to 9:27 a.m., and the next 10 minutes goes to the member for Cape Breton West.

MR. MACKINNON: I wanted to go back to your target projections, Mr. Morley, to kind of break it down a little more just for clarification for my colleague for Yarmouth - I think perhaps he missed some of the conversation. There were 30,000 jobs created in Nova Scotia in three years; you indicated approximately 50 per cent of that, 15,000, would have been through the Department of Economic Development and that works out to about 5,000 jobs per year. Now the projections of Nova Scotia Business Inc. would be 3,600 per year, which is a downscaling of job creation projections. I guess my question is with regard to the KPMG report. What substantive information is in this report today that the Department of Economic Development did not have prior to the birth of Nova Scotia Business Inc.?

I will give you the rationale for that. As I understand, Nova Scotia's Department of Economic Development had a very high success rate in its job creation, with the loans, a very low delinquency, failure rate, if you want to use that terminology. Obviously, they must have had a good business plan or a good action plan, good staff, and they seemed to have not only the resources but the knowledge to be able to make those decisions and attract businesses. So what is substantially different?

MR. MORLEY: Between what existed before and what exists now, I think if you look back at the job creation record over the past number of years - I'm one of the old faces that has been around for awhile, seven years in government - there was a pretty good record in

[Page 25]

that period of time. There were some good companies that came into the province. EDS came in, and a number of others, and a number of deals that were in the hopper at that time have come to fruition, so there was a pretty good consistent job creation record. I think what's different about NSBI, what is substantially different is that the organization is quite a bit smaller than it used to be. We've got about 60 people there - the difference there is that everyone in our organization is completely focused on business development, working with existing business or attracting new investment, whatever the case may be, but everyone is completely focused on business.

MR. MACKINNON: But isn't that what the other department did?

[9:30 a.m.]

MR. MORLEY: Well, the other department was kind of split between policy and policy development and administering federal cost-share programming and there were a whole bunch of things that were involved that perhaps one could argue split the focus of the organization a bit. NSBI is completely focused on working with existing business and working on business attraction. That's a big difference. We are smaller, we're smaller than the economic development effort in most other jurisdictions in Canada.

MR. MACKINNON: That would explain why your projections for job creation would be lower than the previous years then because if it's smaller and your figures show that you'd be only creating about 3,600 jobs per year as opposed to the previous set of figures, which are documented at 5,000 jobs per year.

MR. MORLEY: Our targets reflect our resources, they reflect the environment that we're in. It's also . . .

MR. MACKINNON: Are you suggesting then that perhaps the Nova Scotia economy is shrinking?

MR. MORLEY: Well, we're in an environment internationally - we went through an incredible doom period from the mid-1990s on to the end of the decade. Probably the greatest period of economic growth internationally that we've ever seen so jobs were being created everywhere. We went into a mini-recession recently, we've bounced out of it but getting on the growth path again is going to take awhile, it's not going to be as easy as it was in those years, no one's investments are making as much money now as they used to in those years so it's going to be a greater challenge and it's one of the reasons that I think NSBI had to be created in this time when this kind of business is going to get more challenging and more difficult. We had to become completely and totally focused on the job at hand.

[Page 26]

MR. MACKINNON: I'm a little disappointed to hear you say that's the reason that it was created because the government was prepared to throw in the towel because it wasn't able to meet the challenge. That's essentially what I'm reading between the lines. In fairness, Mr. Morley, you haven't been able to tell us what the budget is, you haven't been able to tell us the lines of authority in approving loans, you haven't been able to clarify that. My colleague asked about what percentage is going into certain sectors of the economy, you haven't been able to anser that. My impression is that there's a greater veil of secrecy now that Nova Scotia Business Inc. has been created. Anyway, that's my own impression. I will turn it over to my colleague.

MR. CHAIRMAN: Member for Lunenburg West, you have four minutes.

MR. DOWNE: Mr. Morley, in regard to companies trying to borrow money that are based on intellectual property - huge problem. Bricks and mortar have always been the basis - banks seem to want to lend on bricks and mortar and intellectual property is a hard one to go to. The only way they will lend is if the province will boilerplate a deal to the degree that you may as well take over the whole deal. What's the feeling with regard to Nova Scotia Business Inc. in regard to intellectual property and are we becoming the boilerplater for the banks in the province? In other words, are we the ones that are co-signing everything so that the banks have nothing but full security on everything that they deal with in the Province of Nova Scotia?

MR. MORLEY: I would like to, if I could, address the previous question or the previous statement as well. In terms of the areas where information is requested and I haven't been able to provide it, I came here today to talk about KPMG. I didn't bring the material I would need to speak to corporate governance issues of the organization, but I am very pleased to provide that after the fact.

In terms of the issues of loan guarantees, guaranteeing loans and so on, in the past and certainly in the current thinking, Nova Scotia has done very little in terms of very few loan guarantees, certainly compared to other provinces. I sometimes call them our competition. Sometimes they're our partners and sometimes they're our competition. If you look next door at New Brunswick or you look at Quebec, the vast majority of their financial transactions, financial instruments are in the guarantee form. In Nova Scotia, that's in the minority. We may still get into that kind of thing from time to time. I don't think you take any tools off the table, but in Nova Scotia those are not, I guess, currently it would seem, the tool of choice.

MR. DOWNE: We never have enough time in this committee to talk, and I appreciate where you're coming from. We were of the opinion that you were going to talk about the report and the fact that Nova Scotia Business Inc. is here, that you would talk about the company. I appreciate what you're saying and I appreciate you coming back with the information. With regard to your Web site, when you click it on it's basically BDC rewrapped in the new system. But when you target Nova Scotia, what comes up when you click into the

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map of the city showing and comparing is Halifax, but your organization is really provincial. Why isn't there subsections for Yarmouth or for Cape Breton? In fact, in Cape Breton, I don't even think we have a representative in regard to NSBI. There is no business retention expansion officer in Cape Breton, for example. Why is it so focused just on Halifax, which is obviously a huge hot spot in the province right now. What I'm concerned about is rural Nova Scotia. As I mentioned before . . .

MR. CHAIRMAN: Excuse me, Mr. Downe. I appreciate the fact. Could you go ahead and answer that question, Mr. Morley, please.

MR. MORLEY: Sure. With respect to the Web site, I agree. It's in rewrite right now, or redevelopment. The eventual target, as I understand it, is to have a window that flips into basically all the parts of the province and gets a little picture of that. In terms of Cape Breton, we have someone now based in Port Hawkesbury. We've identified industrial Cape Breton as a gap in our delivery of services outside of Halifax. I'm looking at a big gap and I'm looking at resumés right now to fill that position in industrial Cape Breton. I have, actually, been very anxious to do that for some time.

MR. DOWNE: Bridgewater would be good.

MR. MORLEY: We have someone in Bridgewater.

MR. CHAIRMAN: Thank you, Mr. Morley. Note that Mr. Downe did put his plug in for his hometown or suburban Wileville. It's 9:39 and the next 10 minutes goes to the government caucus. I recognize the honourable member for Kings West.

MR. JON CAREY: Mr. Chairman, Mr. Morley, I will try to stay on the Competitive Alternatives report. My understanding is you must think maybe you came to the wrong room or something because the questions have really not been directed to the report. I would hope maybe we could have you back at another time because these other questions are very interesting and I'm sure would be informative.

The report itself, when discussions and the research was being done, discretionary incentives that governments have been criticized - I would say it's fair to say, regardless of the government in power, when things didn't work out - how important or how significant, these grants and those types of things are to attracting business to areas?

MR. MORLEY: Well, I think the most important thing to attract a business is the basic business case. You don't want to talk to or even deal with a company that's driven exclusively by incentives. That's something that has been learned through bitter experience I guess by pretty much every jurisdiction in the world that's in this game. The fact is there are 9,000 to 15,000 jurisdictions in North America that are focused on business attraction. Many of them have some form of incentive that they put on the table so when a company decides

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on five or six short-listed locations, they're indifferent where they can do business, we can go here or we can go there, you know, the business case is the same in all of those places.

At that stage an incentive does become important to the company and it's not the prime driver of the business case but, you know, in our experience jurisdictions that don't have some form of incentive at their disposal will sometimes not get short-listed or not be considered seriously or as a serious contender by companies looking at relocation and it doesn't matter if they are Fortune 500 or Fortune five, they look at those kinds of issues. It doesn't matter if they're GM and Boeing or, you know, a customer care company that's looking around, they all look at the same issues. They're all bottom line driven. They look for the business case, but they also look for the good faith and sometimes the incentive that comes from a province or a state.

MR. CAREY: The incentives that are now in place or normally being used, I think there's some confusion with the public out there that the government or your organization just hands out a cheque or anything. To the best of my knowledge, this government has never handed out a cheque. They have given tax incentives and that type of incentive. Are these working or do you see them as workable - the best to protect both the taxpayer and to attract business?

MR. MORLEY: Sure, you know, a lot of jurisdictions do that. They hand out up-front money to companies and companies like that. They like getting the money up front and, you know, no strings attached. I mean who wouldn't, right, but in Nova Scotia some time ago it was decided that we're going to place the accountability on the companies to deliver before any money flows to that company. So, in other words, the jobs have to be created, the payroll has to be there for a year or so, and after that, if there's an incentive, that's when the money flows to the company and by our own rules or our own rules of thumb that incentive has to generate a net return to Nova Scotia before we'll provide it. So, in other words, if the Government of Nova Scotia or NSBI provides a payroll rebate to a company that wouldn't have come here otherwise, we're making money on that company.

MR. CAREY: The research that was done for this report, education, obviously, would be a factor, I expect a major factor. How does Nova Scotia fare from the education system and how people are looking at it today when it comes to attracting business?

MR. MORLEY: I think one of the major things we sell in Nova Scotia is the quality of our people here and, you know, we have 11 universities, we have 13 community college campuses. We've got 40,000 people in training in publicly funded organizations right now. This is something that's quite important for companies coming in - to see that level of commitment and it gives us a huge advantage with our competition. It's the kind of situation that has historically given Nova Scotia basically the best educated population in the country. This is how we sell Nova Scotia. We're the best educated, you know, more people with high school or better as a proportion of our labour force than people in any other province in

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Canada and that's a reflection of our consistent over-the-years effort in supporting our education system.

[9:45 a.m.]

MR. CAREY: So it would be fair to say that from the research done for the report, that education was a positive and that really the education system presently in Nova Scotia was not seen as a negative in any way?

MR. MORLEY: The report is focused exclusively, as I mentioned, on cost issues, on business cost issues. So it doesn't make any value judgments on the quality of the education system, merely on how many people do we have and questions like that.

MR. CAREY: As to Mr. Downe, the rural connection is important to me, being from a rural area, but we saw Halifax, Truro, and Sydney as the points that were considered in the report. What, if any, connections from those areas would the outlying areas, what factors would the outlying areas be, or would there be any factors involved . . .

MR. MORLEY: We often, especially now since we have a very good cross-section, previously in the KPMG report only Halifax was done, and this time around we convinced the folks who are doing it to add two more centres in Nova Scotia, and in fact we had more centres looked at than any other Atlantic Province. So that gave us better coverage, and I think in the past we used to make inferences, when using KPMG, that Halifax did well therefore Nova Scotia did well, but now we have better evidence or better information on a couple of other areas that show pretty good cost competitiveness as well. So now we can, I think, legitimately make the same kind of inference about a lot of different centres and a lot of parts of Nova Scotia, that when you look at it, on balance, we are very cost competitive no matter where you are in the province.

MR. CHAIRMAN: I would recognize the member for Yarmouth. You have one minute and 15 seconds.

MR. HURLBURT: Mr. Morley, I will go back to southwestern Nova Scotia. In southwestern Nova Scotia the biggest hurdle that we're having right now to attract new business, or maintain the business that we have, is transportation links. We do not have a highway completed from Halifax to Yarmouth yet, on either shore, and we've been lobbying the provincial government and the federal government to make sure that we could have a highway to Yarmouth. Then, as you know, the federal government has dumped the regional airports on the communities and we have a problem on our hands in Yarmouth, and I'm sure that Sydney has the same problem with trying to attract carriers to come into our airports, and I think there's a role that the federal government has here and they're turning a blind eye on these regional airports in communities, and it's essential that we have transportation links.

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I can go to the ports now. We used to have a ferry service 12 months a year. Southwestern Nova Scotia is known to be the capital of North America for the seafood industry and we do not have the mode of transportation today to get our product to market - our market is just across the pond in New England - our Christmas tree growers from southwestern Nova Scotia , all around the shore. That is something that we have to really look at and we have to look at it as a province - how can we persuade the federal government to work with this province for these regional airports and ports?

MR. CHAIRMAN: An excellent question.

MR. HURLBURT: If you could respond to that, I would appreciate it.

MR. CHAIRMAN: I appreciate that, Mr. Hurlburt. Could you respond to that, Mr. Morley, and then take a final wrap-up after that, if you would, please.

MR. MORLEY: Sure. If you look at the KPMG study, transportation is one of the critical cost factors in there. In that slide I put up - or I didn't put it up, but I showed you folks earlier - highway access is the third most important element in terms of site location - after the two labour components. After that it becomes highway access and this becomes extremely important, obviously, in the manufacturing sector. If you're in customer-care or a call-centre type of environment, you know, the phone lines don't really care where you are. You can do business from pretty much anywhere. So in those sectors, as measured in the KPMG report, transportation is not as big an issue. But in the manufacturing areas, it is very important. It's an area where Nova Scotia could be stronger, I think, where access and cost of access is something that probably has to be improved.

As I mentioned earlier, if you look at manufacturing industries that ship bulk products out of the province, those are areas where we are still very cost-competitive, but we're just not as good as we are in the service sector where our labour force gives us a big advantage and overwhelms any transportation issues. In manufacturing where transportation becomes important, we're still on the top rung, but it's an area that we have to work on.

MR. CHAIRMAN: In your wrap-up, I do remind you, Mr. Morley, that you made a commitment earlier during your comments to Mr. Steele and later to Mr. Downe to be forthcoming with some information and, I believe, statistics. I would ask you to forward that to the Legislative Committees Office and it will be distributed to all members.

MR. MORLEY: I would be pleased to do that.

MR. CHAIRMAN: Okay, so if you could wrap up with a few comments, I would appreciate it.

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MR. MORLEY: As I mentioned, this particular piece of work gives us a good snapshot of the capabilities of Nova Scotia for attracting business and in fact for doing business in the province. It says not only is this a good place to invest, but it also says that if you're a business here now, you're in a pretty good business environment. Your products are going to be more competitive because you're in that kind of competitive environment that Nova Scotia has. So it's a good news story, not just for investment attraction, but also for existing business in the province.

The other good news about this KPMG story is that it's something that's going to be marketed intensively by the Government of Canada across the world through special events and through various initiatives. Wherever that's done, it's in black and white that Nova Scotia is one of the best places in the world to do business. That's a big plus for us going forward. So, all in all, I think we've been very, I guess, fortunate to have this report at our disposal. We're fortunate that, through various partnerships, we've convincingly and with cajolery been able to add two more centres in Nova Scotia to this overall study. So now we have a broader cross-section of the province.

The last point is that there are some sectors in here that are clearly winners for Nova Scotia because of the cost competitiveness, because of the competitive advantage we have in some critical sectors like life sciences and IT and particularly with respect to the RND areas in those sectors. Those are sectors that Nova Scotia Business Inc. is going to be targeting, going after, going looking for anchor companies in those areas to bring into Nova Scotia, but also looking to grow those sectors within Nova Scotia. There are companies here now where we know there is strength, we are going to be looking to grow from within as well. So, as I said, KPMG is a very good news story for Nova Scotia, something that NSBI is going to be working hard with and I think it's going to show some dividends in the near future.

MR. CHAIRMAN: Thank you, Mr. Morley. I would like to take a quick recess for just a moment as Mr. Morley makes his way out and then we have one very quick item of business on the agenda that's been asked for by Ms. Stevens, so if we could just have a quick recess.

[9:55 a.m. The committee recessed.]

[9:56 a.m. The committee reconvened.]

MR. CHAIRMAN: Could we turn to a quick item of business, and I would like the expertise of the House, and perhaps a thesaurus, if it is available? We're looking for some clarification for when we have the water task force in. I believe, if the term is correct - and Mora, you can correct me on it - we're looking at whether we're having a hydrogeologist or a hydrologist. How did my pronunciation go? Mora, could you clarify this point for us.

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MS. MORA STEVENS (Legislative Committees Coordinator): A question came up when I was speaking with the people from Agriculture and Fisheries, who are actually on the water task group, which has been an approved agenda item. As Sherri and I looked through what the committee had approved, it had spoken about bringing in a hydrologist from the Department of Environment and Labour. What the task force has and what they deal with are hydrogeologists. The task force is actually looking at more of the drought and what's happening in those types of strategies, also the quality and quantity of water. I wasn't sure, because we had previously approved dealing with the water strategy and the Department of Environment and Labour, if somehow those had been combined.

As far as I could take from it, this was the Fisheries water task group. If there was going to be another meeting maybe sometime in the future on Environment and Labour and that aspect of it and that new strategy report. But there was a little confusion with the hydrologist versus - what they have - a hydrogeologist, who is actually seconded from the Department of Environment and Labour. They don't have anything to do with that department per se. I said I would come to the committee for clarification on that. They have many different aspects of the whole water and drought situation and they're very knowledgeable, but they just didn't want there to be a confusion.

MR. CHAIRMAN: Speakers to that point? Mr. MacKinnon.

MR. MACKINNON: Mr. Chairman, we're not going to quibble over too much detail there. Whatever is the will of the committee, a hydrogeologist is fine. If you want to expand the scope a bit, we're agreeable.

MR. CHAIRMAN: Thank you. Any other speakers? Agreed. Thank you for your consensus there.

I bring to your attention, there is no meeting of the committee next week. Our next meeting will be scheduled with the Auditor General, followed the week after that by the water task force.

Can I have a motion for adjournment? It's appreciated. Thank you. Have a good day.

[The committee adjourned at 9:58 a.m.]