On an even keel, Manitoba's miracle takes shape

The last time the world was racked by financial upheaval, Manitoba was a relative haven of stability.

Through the worst of the 2008-09 meltdown, the provincial economy was as flat as its prairie landscape – which is a very good showing in calamitous times. Its once meteoric neighbours, resource-dominated Alberta and Saskatchewan, fell off a cliff.

The Manitoba miracle is rooted in being un-miraculous, a middling province in the middle of the country. That even-keeled nature means that over the past five years, it has been on average Canada's best-performing provincial economy.

The secret lies in being a province that, more by accident than design, runs like an obsessively defensive investment portfolio with a balanced weighting of sectors.

"It's a really, really diversified economy, and that diversification has smoothed out its business cycle," says John McCallum, a professor of finance at the University of Manitoba who has sat on a number of public and private boards in the province.

Manitobans head to the polls on Tuesday after a month-long campaign that has been fought mostly over health care and crime, with very little emphasis placed on the economy. But now, as the world teeters on the brink of renewed recession, the province must face a troubling question: Is it strong enough to weather the storm once more? Bereft of public company head offices, a high-tech champion or a leading oil and gas player, the province must feed off its vaunted balance or sink with the rest of the world.

At stake is a jobless rate that is second best in the country after now-booming Saskatchewan. The Manitoba unemployment rate in August was 5.4 per cent – and the province did not lose as many jobs as many other jurisdictions in the recession. This time, with commodities under pressure again, that trick may be harder to pull off.

Even before recent financial choppiness, Manitoba's resilience was tested, as it reeled from historically heavy rains that cut output of canola and wheat by 20 per cent or more.

That put a crimp in Manitoba's growth, but it simply knocked it back to the middle of the pack of provinces. Instead of 3.6 per cent forecast real GDP growth this year, it seemed in early September to be heading toward 2.8 per cent, according to a Royal Bank of Canada report.

The impact of the weather was blunted because agriculture, while symbolically important, represents about 5 per cent of the economy (although a fair bit more in indirect services). Similarly, when manufacturing got hammered in the last upheaval, Manitoba got hurt, but not grievously, because manufacturing is about 10 per cent of output – and the province's bus manufacturing benefited from some stimulus spending.

Services account for more than 40 per cent of the economy, and financial services alone represent close to 20 per cent. Government plays an important role, as does mining and, increasingly, oil and gas – particularly with the boom in the rich Bakken formation.

Any talk of Manitoba starts with Winnipeg and its population of almost 750,000 – more than half the provincial total and nearly a third of the population of Middle Canada, the area between Thunder Bay and Medicine Hat. The next biggest Manitoba city is Brandon with fewer than 50,000.

Yet this economic kingpin lacks the flagship head offices of cities like Toronto or Calgary. Its two financial giants, Great- West Life and Investors Group, are cornerstones of the local economy, but both are controlled by Montreal-based Power Corp. of Canada.

"You have to play the hand you're dealt," Prof. Mr. McCallum says. The city must cope with an external reputation for high taxes, cold winter weather and long distances to major markets. But perversely, location also works as a strength, as it is positioned at the physical centre of the continent.

As a result, Manitoba has a strong transportation and warehousing component, which contributes 7 per cent of the provincial economy. The Winnipeg international airport is a big economic driver, as are trucking and rail giants, which have big operations in the region.

While short on public companies, the province is blessed with a deep contingent of big family companies, epitomized by James Richardson & Sons Ltd., owned by the most influential family in Middle Canada with interests spanning agribusiness, oil and gas, and financial services.

The other word you hear around Manitoba is resilience. In the past 15 years, it shrugged off the loss of an NHL hockey team – since regained – the death of Izzy Asper, its best-known entrepreneur, and the breakup of his broadcasting empire, CanWest Global.

Yet the city's survival instincts transcend a single company, says Leonard Asper, son of Izzy and the last family president of CanWest. In an interview earlier this year, he said CanWest might be gone, but the Asper family remains devoted to Winnipeg in its personal investing and philanthropy. He lives in Toronto but brother David and sister Gail are both very active locally.

The enduring legacy is the Asper Foundation, the charitable entity that with other local champions has helped drive the building of a human rights museum – the cornerstone of an emerging cluster of peace and human rights institutions in the city. "I don't think the museum is the last thing we will do," Mr. Asper said.

Another Manitoba asset is a business community willing to tackle big issues. In the wake of the NHL's departure in 1996, Jim Carr, a newspaper columnist and former politician, helped spearhead the founding of the Business Council of Manitoba to tackle the mood of despair. Its major achievement has been an ambitious immigration policy.

But with all its vaunted resilience, Manitoba must come face to face with some big challenges. A lot of its recent strength has come from outside forces – including high commodity prices and a seemingly resurgent United States.

Prof. McCallum says that as these forces turn negative again, the province will regret having failed to deal with its public debt and its reliance on Ottawa's transfer payments for about a third of government revenue. In the future, the federal government will not have as big an appetite for transferring large sums.

He sums up Manitoba's challenge as being a high-debt, highly Ottawa-dependent province entering a slowing period for commodities – all the while dealing with a U.S. economy that may be on the brink of recession.

"In the sweet spot of the cycle, we didn't get out from under Ottawa the way we should have," he says. "We squandered our windfall and we will regret that."