Diversification is key to British Columbia's long-term economic future, says a senior B.C. business leader.

Jock Finlayson, executive vice-president of the Business Council of British Columbia, says while the B.C. economy can thank the traditional oil, gas, mining and forestry sectors for its currently strong performance, it needs to diversify because commodities are cyclical.

Some of the ideas he discussed during a forum last week at the Vancouver Board of Trade involve lowering B.C.'s corporate tax rate, which stands at 13.5 per cent compared with Alberta - which plans to lower its rate to eight per cent over a two- to three-year period.

"Over time we need to strengthen the province's economic base by encouraging the development and expansion of more industries with export potential," Finlayson told the business audience.

Jock Finlayson

This includes resource manufacturing and those industries that produce services in the business, professional, financial, education, health, logistics and communications areas.

He added the tax rates on capital investment by large and medium-sized businesses should be reduced, as rates in B.C. are much higher than in Alberta and the U.S.

"Stimulate capital formation and boost investment in machinery, equipment and technology," he added. "Research shows that machinery and equipment investments are a primary driver of productivity growth."

Another speaker at the board of trade event, billed as the 16th annual Economic Outlook Forum, told the audience that at some point, worldwide demand for commodities will hit a downward cycle.

Helmut Pastrick

Ralph Huenemann, a professor of international business at the University of Victoria, said one solution is to promote small entrepreneurial business ventures.

The owners of these businesses will create the required diversification, he added.

Huenemann noted that his university's business school is urging its graduates to create those small businesses.

Helmut Pastrick, chief economist at Credit Union Central of B.C., also took a positive stance on the B.C. economy. "The forecast for the B.C. economy this year is quite good and we've had a good year (last year) in fact, one of the best," he said.

But Pastrick added one of the troubling developments for the export-oriented B.C. economy is the rapid appreciation of the Canadian dollar. "The big story for Canada is its currency," he said. "It's like a shock and it's very rapid and it will affect our exports for some time. Where the currency will go is anybody's guess."

Pastrick predicted exports will show little growth this year and tourism will record only modest gains due to the dollar's impact on American travel plans.

"We'll have to wait and see how U.S. consumers respond to a lower value for their dollar," he noted.

But his forecast for retail sales was slightly more positive, and Pastrick said the sector should grow by more than five per cent this year, compared with 6.5-per-cent growth in 2004.

Overall, he added, the B.C. economy is projected to grow by 3.8 per cent, compared with 4.2 per cent last year.

One key factor facing B.C., Finlayson said, is the fact that the federal government is not dealing with economic issues, focusing instead on social policies. "The economy has fallen off the table," he stated.

But compared to the rest of the country, he allowed, B.C. is doing well with standard economic linchpins such as overall economic growth and economic growth per person. In each case, he added, B.C. badly underperformed in the 1990s.

"But in the past couple of years we have seen a turnaround and we need to see that trend continue."

B.C.'s economic revival is due to four main factors, Finlayson said.

"Domestic and regulatory changes have led to a better investment environment and improved consumer, business and investor confidence.

"Stronger global economic growth especially in the U.S., China and Japan and higher prices for many of B.C.'s key commodity exports and low interest rates."

Keith Sashaw, president of Vancouver Regional Construction Association, expressed optimism about his sector.

"This is a very good time to be in construction," he said. "It's a very robust market and it should continue for a couple of years."

He pointed out that there are $16 billion worth of capital projects coming on stream between now and 2010-11.

"One of the biggest challenges to overcome is the supply of skilled workers and the supply of estimators, project managers and site superintendents," Sashaw noted.

He said one positive sign is that his office is getting more inquiries from students and parents wanting to know about career opportunities in the construction sector.

"Active recruitment is being undertaken at the high school level," he said.

For the short term, the speakers all agreed the outlook for the current strong B.C. economy will continue for years.

"B.C. really has come back strongly in terms of economic performance," said Finlayson.

"We are No. 2 in Canada in economic growth after Alberta . . . B.C. is on a roll and poised to outperform the rest of the country over the next two to three years."

(George Froehlich can be reached at george@businessedge.ca)