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Sonia L'Heureux
View Sonia L'Heureux Profile
Sonia L'Heureux
2013-04-30 11:03
Thank you.
Mr. Chair and committee members, I am here in my capacity as Parliamentary Budget Officer on an interim basis. Your interest in the work of the PBO is important to us, and we are pleased to appear before you today to discuss our report on the economic and fiscal outlook, which was recently published.
As you mentioned, joining me today are PBO officials Mostafa Askari, Sahir Khan and Chris Matier. I would like to begin with a brief opening statement, and then we would be pleased to respond to your questions.
As you may recall, our report was prepared in response to this committee's September 2011 motion that, consistent with my mandate, the PBO provide an economic and fiscal outlook to the committee twice a year, in April and October.
Since our previous report in October 2012, the outlook for global growth in 2013 has been revised down, from 3.6% to 3.3%, based on International Monetary Fund projections. The IMF currently expects global growth to improve to 4% in 2014, but cautions that the road to recovery in advanced economies will remain bumpy.
PBO's outlook for the U.S. economy is broadly in line with its October projection, which showed a gradual but steady improvement over the medium term. PBO's outlook for commodity prices is little changed from October, and consistent with futures prices over the near term, shows moderate increases going forward.
PBO's current outlook for the Canadian economy also reflects the impact of the government's 2013 economic action plan. Measures in the action plan were targeted at supporting jobs and growth and at returning the budget to balance. In addition, the action plan included downward revisions to direct program expense levels.
All told, over the period 2013-14 to 2017-18, the measures and revisions in the 2013 action plan should result in projected savings of $10.8 billion. Our report also provides estimates of the impacts of these changes on real GDP and employment based on Finance Canada's multipliers.
Combined with the sluggish recovery in the global economy, government spending restraint will act as an additional drag on growth and job creation in Canada. PBO projects Canadian real GDP growth to slow to 1.5% in 2013, and to remain below its potential growth rate until 2015. With the economy continuing to operate well below its potential, the unemployment rate is projected to remain relatively stable at around 7.4% over the next two years.
As the recovery takes hold, PBO projects real GDP growth to average 2.6% over the period 2015 to 2017. The unemployment rate is projected to decline gradually, averaging 6.3% in 2017.
Despite the sluggish economic recovery, given projected increases in employment insurance premium rates, and assuming that the government achieves its planned spending levels and savings from revenue increases, the PBO projects that the budgetary balance will improve from a deficit of $25 billion—or 1.4% of GDP—in 2012-13 to a surplus of $8.5 billion—or 0.4% of GDP—in 2016-17.
Assuming that the government does not increase its spending above planned levels and achieves its savings from revenue increases, the PBO estimates that given the economic uncertainty surrounding the outlook, the likelihood of realizing a budgetary balance is approximately 60% in 2015-16, 70% in 2016-17 and 65% in 2017-18.
PBO's projected improvement in the budgetary balance over the medium term is largely the result of a structural improvement in the government's financial position. PBO projects that the government's structural deficit will be eliminated by 2014-15, giving rise to structural surpluses of $8.4 billion, on average, over 2015-16 to 2017-18.
Estimates and projections of structural balances provide useful information about a government's underlying financial position and can be used to help guide policy actions. As such, our report also provides a comparison of PBO and Finance Canada estimates. Finance Canada's structural balance is estimated by PBO to be $3.6 billion higher, on average, than PBO's structural balance.
As most of you know, I was appointed to the PBO role only a few weeks ago on an interim basis. I must confess that my comfort level with the subject matter is still a work in progress. Nevertheless, I am joined today by officials from the PBO team with in-depth expertise in these matters, and they will assist me in responding to your questions or anything you may have on the economic and fiscal outlook.
Thank you.
View Peggy Nash Profile
NDP (ON)
Generally, how would you project economic growth going forward? What is your forecast for 2013-14? How would you characterize economic growth?
Mostafa Askari
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Mostafa Askari
2013-04-30 11:13
We are expecting 1.5% growth in 2013, rising to 1.9%.
Actually, for both of those two years, growth will be less than the potential growth. The output gap, that's the excess capacity, will actually increase over those two years. Beyond that, the economy will grow much faster. We are expecting about 2.6% growth over the last three years of the projection period. By 2016 we are expecting that we will actually reach the potential output level in Canada. That's the full capacity at that time.
Benjamin Eisen
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Benjamin Eisen
2013-04-25 9:14
Thank you very much for the invitation to appear today. The very existence of this study reflects the fact that there is a growing consensus around the world that evaluations of national economic performance shouldn't rely exclusively on measures of overall growth in gross domestic product. We should also take into account the extent to which the benefits of growth are broadly shared across the entire income distribution. This is a welcome development.
In Canada, as in many other affluent countries, high earners have enjoyed a large share of overall income gains in recent decades while real income growth through much of the rest of the income distribution has been somewhat slower. This sluggish income growth in the middle and bottom of the income economic distribution over the course of several decades should certainly be taken seriously. There are effective policy responses available, which I'll discuss later and which I expand upon in my written brief.
However, the committee should also recognize that there are powerful demographic and economic forces that are driving strong income growth at the top of the distribution and that these forces are likely to continue pushing in the direction of continued income inequality growth.
First, Canada's population is aging. Generally speaking, there's a greater income inequality among older workers than younger workers. The wages and salaries of highly skilled workers tend to increase faster over time than the wages and salaries of less skilled workers, leading to greater income disparities towards the end of careers than existed at the beginning. It's for this reason that the American economist Tyler Cowen went to far as to say much of the measured income inequality growth that we've seen is a matter of demographic fiat. Perhaps that's somewhat of an overstatement, but it's a very important factor that has contributed to income inequality growth in North America.
Secondly, there are global economic market forces related to globalization and technological change that are continuously driving up demand for highly skilled labour. This rise in demand for highly skilled labour is likely to continue, driving significant income gains for high earners. There are many policy options that can help increase the after-tax incomes of low- and middle-income families. The committee should study and pursue these types of reforms while recognizing that continued income gains at the top are likely. The objective should be to identify policy options that can contribute to robust income gains for families in other parts of the economic distribution as well.
The OECD has performed extensive research on policy strategies designed to mitigate income inequality growth. Their research deserves careful attention from Canadian policy-makers. OECD research suggests that some policy options represent a trade-off between the objectives of reducing income inequality and promoting economic growth. The key examples they cite are increases in corporate and personal income tax rates, which the OECD observes would likely decrease income inequality because these taxes are so progressive, but would also likely hinder economic growth because of negative effects on labour use, productivity, and capital accumulation.
However, the OECD research also identifies a number of policy approaches that do not entail this trade-off. In fact, there are other strategies likely to produce what they describe as a double dividend, which can help mitigate income inequality while contributing to growth. I suggest that the committee focus its attention on this second category of policy responses. Strong economic growth is absolutely essential to Canada's efforts to reduce poverty and ensure adequate government revenue generation. Policy responses to inequality that come at the cost of lost growth are likely to be self-defeating.
The OECD describes several broad policy strategies that are likely to produce this double dividend I've described. Their advice includes expanding the quality and reach of education. We've heard several suggestions along those lines today. They also include efforts to promote the successful economic integration of immigrants. In 2012, the Frontier Centre for Public Policy published an e-book by Professor Bryan Schwartz of the University of Manitoba, detailing strategies to reduce barriers to occupational freedom for new immigrants to Canada, many of whom have difficulty having credentials recognized. Efforts we can make to improve their successful economic integration will create the double dividend of reducing income inequality between immigrants and native-born Canadians while at the same time contributing to overall national income.
Finally, on strengthening tax policies that increase the after-tax incomes of low- and moderate-income families, strengthening the working income tax benefit is one that immediately comes to mind, a policy that might be paid for by eliminating deductions that benefit the affluent. All these approaches are applicable in the Canadian context, and I discuss them all in greater detail with specific recommendations in my written brief.
There are many policy strategies that can help promote strong income growth through the income distribution, and many of these strategies can help strengthen the economic performance of the country taken as a whole. There need not be a trade-off between mitigating inequality and promoting growth. By proposing these types of policy strategies, the committee can help promote economic opportunity for all Canadians while contributing to our country's prosperity in the years ahead.
Thank you.
View Peggy Nash Profile
NDP (ON)
Thank you very much.
It's a shame in a way that we have so many witnesses here and that each one doesn't get more time.
Mr. Wilkinson, I'd like to offer you just a bit more time to speak. There's so much we could ask you in terms of the research you've done, but I need to split my time with Mr. Caron.
I'd like to ask you, in terms of both the causes and the solutions to inequality, what role wage polarization has played in the increase in inequality. We've heard about technological change and economic restructuring, but is it inevitable that we end up with wage polarization and a lower middle class wage, as it were? Can you comment on that?
Richard Wilkinson
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Richard Wilkinson
2013-04-25 10:28
I think you're right that the big shift in income distribution has been driven by widening wage differentials—earnings differentials. If you look at the pay gap between CEOs in the top 300 U.S. companies—and these trends are fairly typical of other countries just a bit more exaggerated—compared to the average production worker, up until about 1980 the CEOs were getting 25 times or 30 times as much as the average production worker. By 2000, or early that decade, they were getting 300 or 400 times as much. This has happened in one country after another. It happened first in English-speaking countries—a little bit later, actually, in Canada—and then it spread to non-English-speaking European countries.
I would just say, though, that when people are talking about economic growth and inequality, there's a lot of research looking at the relationship between equality and growth. Although there are some papers that come down on either side of that, the majority suggest that greater equality is good for growth. That's partly because more unequal societies have lower social cohesion. They have more crime. Kids have lower math and literacy scores. You have more people in prison. You have lower social mobility. You're wasting a lot of your talent where you have great inequality.
Mark Carney
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Mark Carney
2013-04-23 8:48
Thank you very much, Chair.
Tiff and I are very pleased to be with you this morning to discuss our April monetary policy report, which the bank published last week.
I should say at the outset that sessions such as these are an important part of the bank's accountability to Parliament and, through Parliament, our accountability to Canadians. We greatly appreciate members taking the time and the focus to drill down on our views on what's happening in the Canadian economy and what the prospects are for the global and Canadian economies.
In the report we note that global economic growth has evolved broadly, as anticipated in January. In the United States, the economic expansion is continuing at a modest pace, with gradually strengthening private demand partly offset by accelerated fiscal consolidation.
Significant policy stimulus has been introduced in Japan.
Europe, in contrast, remains in recession, with economic activity constrained by fiscal austerity, low confidence and tight credit conditions.
After picking up to very strong rates in the second half of 2012, growth in China has eased.
Commodity prices received by Canadian producers remain elevated by historical standards, and despite recent volatility, overall they are little changed since January.
The bank expects global economic activity to grow modestly in 2013 before strengthening over the following two years. Following a weak second half last year, growth in Canada is projected to regain some momentum through 2013 as net exports pick up and business investment returns to more solid growth.
Consumer spending is expected to grow at a moderate pace over the projection horizon, while residential investment declines further from historically high levels. Growth in total household credit has slowed, and the bank continues to expect that the household debt-to-income ratio will stabilize near current levels.
Despite the projected recovery in exports, they're likely to remain at their pre-recession peak until the second half of 2014, owing to restrained foreign demand and ongoing competitiveness challenges, including the persistent strength of the Canadian dollar.
On a quarterly basis, growth in Canada is expected to pick up to about 2.5% in the second half of this year. Despite this expected rebound, with the weak growth in the second half of last year, annual average growth is projected to be 1.5% in 2013.
The economy is then projected to grow by 2.8% in 2014 and 2.7% in 2015, reaching full capacity by the middle of 2015. This is later than the bank had expected in January.
Total CPI and core inflation have remained low in recent months, broadly in line with our expectations in January. Muted core inflation reflects material excess supply in the economy, heightened competitive pressures in the retail sector, and some special factors.
Total CPI inflation has been restrained by low core inflation and declining mortgage interest costs, with some offset from higher gasoline prices.
Both total and core inflation are expected to remain subdued in coming quarters before gradually rising to 2% by mid-2015, as the economy returns to full capacity, special factors subside, and inflation expectations remain well anchored.
The inflation outlook in Canada is subject to upside and downside risks, which are similar to those identified in January.
The three main upside risks relate to the possibility of stronger-than-expected growth in the United States and global economies, a sharper-than-expected rebound in Canadian exports, and renewed momentum in Canadian residential investment.
The three main downsized risks related to the European crisis, more protracted weakness in business investment and exports in Canada, and the possibility that growth in Canadian household spending could be weaker.
Overall, the bank judges that the risks are roughly balanced over the projection horizon.
Reflecting all of the factors I've listed, on April 17 the bank maintained the target for the overnight rate at 1%, and with continued slack in the Canadian economy, the muted outlook for inflation and the constructive evolution of imbalances in the household sector, the considerable monetary policy stimulus currently in place will likely remain appropriate for a period of time, after which some modest withdrawal will likely be required consistent with achieving the 2% inflation target.
With that, Chair, Tiff and I would be very pleased to take your questions.
View Guy Caron Profile
NDP (QC)
Thank you, Mr. Chair.
I will ask my questions in French.
From what most of you are saying, it would seem that income inequality is an important issue but that it could be resolved by making a few adjustments, through some fine tuning.
I would like to focus my questions on the way in which these incomes are divided up. There's a lot of talk about market income, but that is made up of many things. For example, it could be divided into two major categories: wages and capital income.
I think you would agree that over the last 20 or 30 years in Canada, there has been substantial growth in terms of GDP. However, the indicators such as real incomes, whether they be hourly, weekly or annual, have remained relatively stagnant.
If we talk about capital gains, whether they be dividends or other capital income, you would also agree that, in general, those who are among the 40% with the lowest incomes do not really have access to these incomes. They rely more on government transfers, or wages.
Do you not think that the relative stagnation of wage incomes compared to capital incomes is a significant factor in growing inequality?
My question is for Mr. Poschmann first, followed by Mr. Alexander.
Finn Poschmann
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Finn Poschmann
2013-04-16 9:30
Thank you for your question.
Very interesting. Yes, I have a very different perspective on the experience in the 1990s and its contribution to income inequality. At the onset of the 1990s, we were recovering from a recession. We had very high interest rates as we wrung inflation out of the economy. That had good outcomes and bad. Globally, however...in other countries, as well as in Canada, the 1990s were, in the early part, a very slow growth period. It picked up after, and there were shifts in the composition of the population and wages of the sort that Craig described. These processes are likely to increase inequality. So there were a lot of different factors contributing to that shift in inequality at that time.
Whether it's persistent, though, remains to be seen. If you look at Canada's history of income equality or asset equality since World War II, it has been very flat, very steady. Inequality rose somewhat in the 1990s, and in recent years it has started to drop off in relative terms. There are many ways to look at this.
Globally, if we compare across countries or look at OECD countries, we see that income inequality has gone up a little, but it makes more sense to me not to compare countries but to compare people who live in those countries. When you compare individuals across countries, you'll find that the globalization processes we've talked about have raised incomes for many. In fact, in the developed world it has lifted billions out of low income, and that matters too.
Craig Alexander
View Craig Alexander Profile
Craig Alexander
2013-04-16 9:32
If we think about wage growth from 1999 to today, I would argue that wage growth has actually been very subdued. In fact, it's been relatively subdued for most workers. If we think about it in terms of high-skilled occupations, wage growth between 1999 and 2010 averaged a gain of 3.2%. Now remember, inflation was basically around 2%, so you're only talking about a 1% wage growth.
Middle-skilled jobs over that same timeframe increased only 2.6%. So strip off inflation and you're talking about something very close to zero. Then for low-skilled jobs we've had a 3.4% increase. Actually, low-skilled jobs had the highest percentage increase, but I'd argue that the issue is the level of income—3.4% only takes you up to $15,200. It's not an issue about wage growth. A lot of that growth came from increases in minimum wages in various provinces. The bottom line here is that wage growth actually has been very subdued.
View Parm Gill Profile
CPC (ON)
Thank you, Mr. Chair.
My question is for Mr. Johnston, but others are free to also weigh in and give their thoughts.
Some people have suggested that a high-dollar lack of talent pool and few R and D incentives have impeded the industry, yet we see the industry continues to grow at a high rate.
Can you please tell the committee if you anticipate continual job creation and overall growth within the industry as a whole?
Michael Johnston
View Michael Johnston Profile
Michael Johnston
2012-11-01 16:40
Yes, but I would offer that our growth has certainly slowed in the last 12 to 18 months, largely related to the dollar. Two to three years ago, when the dollar was stronger, we had tools available to help us win new work and to be competitive. We have some major contracts with Nickelodeon and MTV that renew every year. We've been traditionally very, very competitive with offshore teams in Belarus, India, and China in competing for those same projects.
Two years ago we were able to do creative things with currency forwards, to lock in money at favourable rates and offer rate reductions to clients to help sign long-term contracts and to grow those contracts. All of those tools are gone from our tool kit at this point.
As I mentioned, we've been the fastest growing business in Atlantic Canada for several of our 12 years. This past year we've grown a tiny bit. This has been the year of slowest growth that we've seen in the life of the company. We have a lot of opportunities, we have a lot of proposals, but we lack some of the tools we used to have to clinch the work on the finance side.
So yes, I see as much opportunity, if not more, in the global market, but, as I say, there are fewer tools to help us lock those in and bring them home.
Lance Davis
View Lance Davis Profile
Lance Davis
2012-11-01 16:42
Yes. If I may, I'll give a brief commentary.
You might recall the annual revenue number of $55 billion that I mentioned. By the way, that number is forecast to grow globally at 8% for each of the next three years, which is not an insignificant number. Our friends at the Entertainment Software Association of Canada predict that the entertainment software industry will grow 17% annually over the next few years.
There's ample opportunity for continued growth, and we do see that happening. However, we do need the right incentives and friendly legislation to help us capture our fair portion of that here in Canada.
Cliff Davis
View Cliff Davis Profile
Cliff Davis
2012-11-01 13:08
Thank you, Mr. Chairman. I have a prepared statement before the Q and A.
I'd like to thank the House of Commons Subcommittee on International Human Rights for hosting this hearing and for your interest in learning more about Nevsun Resources Ltd. and our work on the Bisha mine in Eritrea, our only mining operation. We're very conscious of the responsibility we bear, not only to Eritrea but also to Canada.
As you have heard from other speakers, Eritrea is an underdeveloped country. It presents a challenging environment for a Canadian company, especially a small company like Nevsun. Challenges notwithstanding, Nevsun is unequivocally committed to responsible operations and practices at the Bisha mine, based on international standards of safety, governance, and human rights. All who work at Bisha are there of their own free will. Nevsun does not condone or permit the use of military conscripts at the Bisha mine.
We believe Canadians can be proud of the work we have done in Eritrea. Nevsun has been a positive force for Eritreans, both economically and socially. The mine offers a safe and supportive working environment, with training, opportunities for advancement, and higher wages and benefits than most other types of employment available in Eritrea.
The owner of the mine is Bisha Mining Share Company—an Eritrean venture that I will refer to as BMSC, to distinguish it from the mine itself. Nevsun owns 60% of BMSC and the Government of Eritrea owns the remaining 40%. That means Nevsun must take into account the views of the Eritrean government in terms of its political sovereignty and as our business partner.
Bisha commenced production as a gold mine in early 2011, and we expect it to continue producing gold until early 2013, when the gold reserves will be exhausted. The mine is now transitioning for copper production, which we expect will start in mid 2013 and continue for at least 11 years.
Over the life of the mine, remittances to Eritrea are likely to exceed $1 billion. In addition, Bisha will contribute hundreds of millions of dollars to the economy of Eritrea through salaries, wages, benefits, local supply chain purchases, and community assistance.
We adopted the International Finance Corporation’s, or IFC's, social and environmental performance standards of April 2006 and developed our mine management plans accordingly. Our commitment encompasses the local community, public health and safety, an emphasis on local purchasing, and responsible environmental practices, amongst other things. Our social responsibility programs and contribution to Eritrea are described in detail in our 2011 CSR report, which has been filed with your committee and I invite you to review, if you haven’t already done so.
I would now like to turn to employment and human rights at Bisha. There are currently approximately 1,350 people working at the site, of which 1,194, or 88%, are Eritrean nationals. This reflects our deliberate policy to provide the greatest possible economic and social benefits to the people of Eritrea.
BMSC directly employs the most Eritreans, at 864. Our South African contractor, SENET, employs a further 200 employees. Their pay is far above Eritrean standards. They have free medical care and unlimited amounts of free food at the mine. Those who live in the five nearby communities have free transportation to and from home, while those who live farther away have free accommodation at the mine.
These 1,064 Eritreans, along with approximately 160 expatriates employed by BMSC or SENET, manage and operate the mine, provide the many services required by a mine, and oversee ongoing mine development.
We are not aware of any concerns by human rights organizations regarding these employees. To the extent that there has been controversy at Bisha, it has involved a third group, those employed by an Eritrean subcontractor that BMSC has been required by government to use for certain construction projects since 2008.
During the year 2010, the peak year for employment by this subcontractor, it had an average of 440 personnel at Bisha, or 34%, of the Bisha project workforce at that time. For most of 2011, there were no employees of this subcontractor on site.
In the first quarter of 2012, some subcontractor employees began returning to Bisha for the copper development phase. The current level of 130 is what we believe will be the peak for the copper project. That's approximately 11% of the Eritreans and 10% of the total workforce at Bisha.
In the first quarter of 2013, or in the next few months, after the subcontractor's work is completed, all subcontractor employees will leave Bisha.
BMSC is cognizant of the recommendations given by international human rights organizations and their specific allegations that this subcontractor makes use of conscripts. We have taken all appropriate steps to ensure that this is not true of staff used at Bisha.
BMSC established a rigorous process during the gold construction phase to ascertain that all staff were working of their own free will. The process involves a careful inspection of military demobilization documents and state-issued identification papers, supplemented by internal audit after the presentation of these documents. The penalty for non-compliance with the documentation policy is employment dismissal.
In January 2012, which coincidentally is when the subcontractor's employees began arriving at the mine for the copper phase, BMSC added a requirement that all personnel working at the mine carry photo ID to access the mine site. The identification cards are issued once the appropriate demobilizations have been presented. Among other things, the photo ID helps ensure that there will be no switch of personnel after the presentation of demobilization documentation. BMSC conducts random on-site spot checks to ensure that the individuals at Bisha have ID cards, and that the individuals are indeed the rightful holders of the cards.
In the second quarter of 2010, early in the peak period of subcontractor employment at Bisha, BMSC also conducted an investigation of the living conditions at the subcontractor's camp. The results of the investigation indicated that residential conditions were substandard and that food inventories were low.
As a result, BMSC launched a complaint with the subcontractor's senior management. BMSC asked the subcontractor to improve housing conditions, and it did so. In addition, BMSC began providing food directly to the subcontractor camp at no cost to the contractor or its employees.
I should note that the subcontractor's employees also have access to free medical care at a BMSC-supported medical clinic located at the mine site.
We're aware that for 2012 the subcontractor has now established its residential camp at a different location from the one used in 2010. The current location is one that was formerly used by a North American exploration company. It's reasonably modern and was developed to North American standards.
Further, since January 2012 BMSC has provided the subcontractor's employees a hot midday meal at the mine site. The meal consists of an unlimited amount of food at no charge to the employees or the contractor.
With such measures, along with our policy of prohibiting conscripts, we have attempted to address our human rights obligations to the employees of our subcontractor.
Nevsun has only a limited ability to influence and control events in Eritrea, but neither are we without influence so long as we exercise it judiciously. We are practising the tried and true Canadian approach of quiet diplomacy. It is our policy that Nevsun at all times conduct itself in a forthright manner with the Eritrean government, and we intend to continue to do so while respecting the government's sovereign rights.
In summary, in this presentation I've described the valuable work that Nevsun performs in Eritrea and our unequivocal commitment to responsible operations and practices in Bisha, based on international standards of safety, governance, and human rights. I have reviewed BMSC's human rights practices and policies, which prohibit the use of military conscripts for labour at the mine. I've described BMSC's strict enforcement of that policy, especially as it pertains to the Eritrean subcontractor that the government requires BMSC to use. I have described the effort that BMSC took in 2010 to understand and improve the conditions faced by that subcontractor's employees.
I can assure you that Nevsun will continue to use whatever influence we have as a positive force for the people of Eritrea, both economically and socially. We will do so by working cooperatively with the Government of Eritrea and respecting the sovereignty of that government.
We believe our influence is best exercised by demonstrating in a non-confrontational manner that positive change is in Eritrea's best interest.
That concludes my presentation. Thank you for your attention. I welcome your questions.
Jayson Hilchie
View Jayson Hilchie Profile
Jayson Hilchie
2012-10-30 15:40
Good afternoon. My name is Jayson Hilchie and I'm the president of the Entertainment Software Association of Canada. I'm joined today by Mr. Jason Kee, ESAC's director of policy and legal affairs.
ESAC is a national association representing companies in Canada that make, market, and distribute video games for video game consoles, hand-held and mobile devices, personal computers, and the Internet. ESAC represents the Canadian video game industry, which collectively employs approximately 16,000 people at nearly 350 companies across the country. Our industry directly generates $1.7 billion in economic activity.
First off, I'd like to thank the committee for having devoted time to studying and better understanding the Canadian video game industry. The Canadian industry is currently the world's third largest, and first on a per capita basis. We appreciate the opportunity to discuss the success of this sector.
We've seen tremendous growth in this sector over the past few years, even in recessionary times, and we're expecting to see a continued growth of approximately 17% this year.
The types of jobs that are offered in the video game industry are truly the jobs of the future: high paying, knowledge intensive, innovation driven, and at the cutting edge of creativity and artistry. Our industry comprises a unique mix of artistic and technological professions, and the collaboration of these two areas is what produces truly innovative products.
It also fosters the creation and development of many different multi-functional skill sets, such as art and design, animation, visual effects, game design, sound design, motion or performance capture, computer engineering, production, quality assurance, narrative development, and business and marketing. These skills transcend narrowly construed industries and constitute the types of transferable skills that can be used to grow various subsectors of the Canadian knowledge economy.
We have a good sense that these types of jobs will be the jobs of the future, because of the growth in the popularity of the interactive entertainment industry all over the world. The video game industry is the fastest growing entertainment industry globally. The global market is currently estimated to be approximately $67 billion U.S. That's bigger than the box office revenues for movies. With a growth rate of 7.2% annually, this industry will be worth $83 billion by 2016.
Mobile phones, tablets, and online game platforms are expanding the video game market in unexpected ways. We're seeing women and men over the age of 55 getting in on the action. Innovative new technologies are transforming the way people play games, extending the life of a game across multiple devices and providing immersive experiences that rival our enjoyment of television and movies. The average age of a Canadian gamer is 31 years, so any notion that this medium is strictly for kids in their basement is outdated.
Canada has seen tremendous success in the past with big budget video game blockbusters, and we're known the world over for franchises like NHL, FIFA, Mass Effect, Dragon Age, Assassin's Creed, and Splinter Cell, just to name a few. However, the rise in the number of companies developing games for mobile devices has largely grown out of exciting new opportunities on the mobile front and the challenges associated with risky big budget titles that take hundreds of thousands of dollars more to produce and many more years compared to lower costs and production time for mobile or more casual types of play.
The industry has also been shifting to a model of digital distribution, where consumers purchase games directly from their mobile devices, PCs, or their consoles. This has created challenges for existing distribution models, but has also opened up opportunities in reaching a global consumer base for games.
Innovation is a key component of our industry. We make significant investments in research and development to continually advance the technological underpinnings of games. Our consumers are demanding better, faster, bigger game play experiences, and our industry is responding by investing in technology in a concerted way.
The National Research Council and New Media BC undertook a study which showed that 55% of Canadian video game companies are developing technologies to aid them in production, and that 61% of these companies believe they could develop viable commercial products from these technologies. Our 2011 study showed that over 53% of companies surveyed indicated they'd spent between 76% and 100% of their production budget on the development of new intellectual property. In addition, over 45% indicated that up to 25% of their production budget was devoted to the development of new technologies.
To maintain a strong video game industry, Canada must seize the opportunity to establish itself as the world leader in this innovative and cutting-edge industry. In our view, this requires a holistic approach that recognizes the interrelationships between different segments of the digital ecosystem.
ESAC urges the federal government to develop a digital economy strategy that addresses a full range of digital economy issues, including ready access to skilled labour and capital. Indeed, as already discussed by the companies that have appeared in previous sessions, our industry is facing a shortage of available talent at the intermediate, senior, and expert levels in various disciplines, and delays in processing work permits for foreign workers are causing significant challenges which must be addressed.
We have a comprehensive list of recommendations to make on specific actions that could be taken to continue to create the right conditions for the success of the video game industry in Canada. We've circulated those recommendations to you in our information package along with a more detailed brief on our issues bringing in temporary foreign workers. We will also be providing a paper on our recommendations to you shortly.
We thank you for the opportunity to present and would be happy to answer any questions that you may have.
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