HANSARD

Printed and Published by Nova Scotia Hansard Reporting Services

ECONOMIC DEVELOPMENT COMMITTEE

Mr. Keith Colwell (Chairman)

Hon. Judy Streatch

Mr. Keith Bain

Mr. Chuck Porter

Mr. Clarrie MacKinnon

Ms. Vicki Conrad

Mr. Leonard Preyra

Ms. Diana Whalen

Mr. Harold Theriault

[Mr. Leonard Preyra was replaced by Mr. Trevor Zinck.]

IN ATTENDANCE:

Mrs. Darlene Henry

Legislative Committee Clerk

WITNESSES

Canadian Manufacturers & Exporters

Mr. Stephen MacDonald - Chair of the Board

Vice-President, Finance, Maritime Paper Products Limited

Mr. Robert Patzelt - Past Chair of the Board

Vice-President and General Counsel, Scotia Investments Limited

Mr. Ken Hardie - Director

Vice-President, Business Development, The Shaw Group

HALIFAX, TUESDAY, MARCH 4, 2008

STANDING COMMITTEE ON ECONOMIC DEVELOPMENT

9:00 A.M.

CHAIRMAN

Mr. Keith Colwell

MR. CHAIRMAN: I'd like to call the meeting to order and welcome our guests today. We're going to start by going around the table so that everybody can introduce themselves.

[The committee members introduced themselves.]

MR. CHAIRMAN: Good morning. I'd like to welcome our guests today and I'd like you to introduce yourselves and make your presentation at your will and you probably will have about 15 minutes. We started a bit late, so we'll go a little bit longer today if we need to.

MR. STEPHEN MACDONALD: Good morning, it's a pleasure to be here. In the way of introduction, my name is Stephen MacDonald. My day job is VP Finance for Maritime Paper Products Limited, but today I'm acting as Chair of the Canadian Manufacturers & Exporters - Nova Scotia Division.

MR. ROBERT PATZELT: I'm Robert Patzelt, Vice-President and General Counsel for Scotia Investments Limited, which is a holding company for the Jodrey family. I'm Past Chair of the Nova Scotia Division, but I also sit on the national board of the CME and its executive.

MR. KEN HARDIE: My name is Ken Hardie, Vice-President of Business Development with The Shaw Group. I sit as a director of the CME.

MR. CHAIRMAN: Welcome, proceed with your presentation.

MR. STEPHEN MACDONALD: Today's focus was sort of put forth to us so I'd like to speak a little bit on export trends of Nova Scotia's markets and some of the export constraints that we feel are maybe getting in the way of growing our exports. Second to that is the Canadian dollar and primarily the USD impact that is causing some great pains in business these days. Further to that we will talk about some opportunities that are available on both of these fronts and maybe some role that government can play to work with us.

Just to give you an idea of who we are, the Canadian Manufacturers & Exporters was founded in 1871, we are one of the oldest organizations in Canada. The CME in Canada represents 75 per cent of all manufacturing output in the country - its members - and 90 per cent of all merchandise exports in the country.

Our members are quite heavily involved in the economy of Canada. It's a very diverse membership with all sectors of business being represented and all provinces being represented as well. It also takes into account multinationals to small business, so it's a wide cross-section of all businesses in Canada - primarily 85 per cent are small- to medium-sized enterprises in Canada.

So, without further ado, Nova Scotia export markets. You have received today a new magazine; it's a photocopy because it is still being put to press, but you are the first viewers of it. It's called Nova Scotia 20/20 and it is a study of manufacturing and exports of Nova Scotia companies. I will touch on some of these things as we go through. The first part of that is based on Nova Scotia exports. The following bits and pieces of information are based on these Nova Scotia 20/20 survey participants.

When we talk about Nova Scotia exports, the lion's share goes to the United States; 86 per cent of our participating survey members export to the U.S., so that is by far the biggest market for Nova Scotia. Surprisingly, western Europe comprises 43 per cent; 43 per cent of our members do export to western Europe and then it begins to drop. Latin America and the Caribbean are 35 per cent, and then finally Russia and all other countries in the survey combine 10 per cent of our business people.

Some of the export constraints that have been expressed through the survey and through just general business discovery - internally that means the things that get in the way of business within a business - are input costs and return on sales - the input costs are your direct materials, your supplies - and internally when trying to break into the export market, generally profit margins are not quite as good, so that's a hindrance to some extent. There is no surprise there, when you compete globally you're competing with the world.

The second part of that, internal resources have been identified as a constraint, specifically human resources, the people component and physical resources, the size of a manufacturing facility. If you're going to expand and go into export markets you sometimes have to have bigger, better places to work.

The third thing based on the study was available time commitment and that really falls back to limited resources. To start trying to find markets globally you have to work very hard and travel a lot, and you have to either bring in more staff to do that or you have to commit extra time. A lot of people, a lot of businesses don't have that.

Externally, some of the constraints to going into the export market. There are many protective regulations in countries across the world, so learning how to get past those is a skill in itself. There is also preferential procurement, which is - how would I describe that? - it's not always fair when you go and try to sell your goods abroad. Countries have preferential trading partners and it's very hard to break past those.

[9:15 a.m.]

One of the other things that gets in the way is international trade and arms regulations. Trying to move into countries that have strong trade barriers and arms regulations really do hold back good trade.

Finally, there are government subsidies in other countries that compete against fair trade when we leave Nova Scotia and go abroad. So those are some of the constraints that we have experienced when we sell. Along with that is the U.S. dollar impact on sales and there are some downsides.

These are some of the things but if you're selling in U.S. dollars you've basically had your margin eroded over the past two years. To some extent, people in businesses in Nova Scotia have had to exit business because it has turned into a loss, and it's as simple as that. For every percentage point the U.S. dollar has declined, that's basically a decline in the margin of that product that is sold in that U.S. dollar. Along with that the reverse side is there are predatory U.S. suppliers entering Canada and selling goods at a very low rate because of the dollar, so they are competing against our own goods.

The third thing is a short-term downside - the volatility of the currency, it's up and down. Even if you make a short-term sale in U.S. dollars, by the time you receive it, what you planned on receiving may not be what you counted on in the beginning, so volatility is extremely important as well. However, on the upside there are some things that the U.S. dollar has done. It means that U.S. dollar-based inputs are very competitive now, so anything priced in U.S. dollars for inputs to Nova Scotia business, as well as U.S.-based capital expenditures, is now cheaper. Finally, U.S.-based business investment, if you were looking to expand, potentially, now is a good buy opportunity.

Finally, some opportunities that we have identified. For Nova Scotia exporters there are a great number of untapped markets and we feel that there's a great opportunity to expand. Export really means wealth. When you sell something in the export market you're bringing wealth back to your province and that's how you create wealth.

Another opportunity, we have to go and find stable, non-U.S.-based currencies. Right now it's difficult to compete in U.S. dollars but there are other currencies out there that are much better. An example of that is the Eurodollar, so countries dealing in Eurodollars are very stable - for example, Ireland. You can do business quite nicely in a country like that, staying out of the U.S. dollar and dealing in Eurocurrency.

Another opportunity that we believe in Nova Scotia is to raise the competitive bar. That is a challenge we all face. By that I mean investing in productivity and the people of Nova Scotia, meeting and exceeding global supply and requirements, so becoming a supplier of choice, not one of convenience, making people want to do business with us; also innovation, we have to continue to innovate. We have to continue to be very creative in what we supply to the world and how we supply it.

I had already mentioned almost changing the outlook of how we're looked at and becoming a supplier of choice. Some other opportunities I've already addressed and there are some U.S. dollar investment opportunities in equipment, business expansion and supplies. Another opportunity right here is our location; Nova Scotia is conveniently located to the world. So that's an old real estate term - location, location, location - we have it.

Finally, another opportunity that we can all work with is creating a culture of success, that isn't business success, that's people success. Whether you're working in business, education, government, creating that culture of success is important to us all for the future.

What we see as government's role is helping in the leadership of this. You can pull together business and education and government, and provide the leadership necessary to go forward. Along with that there's no question that workforce capabilities will be required to be increased. Our workforce needs the skills for the future and that is very much a quickly changing environment for them. So you can play a role there as well.

Innovation-wise, you can very much support innovation through different programs but we have to be creative, we have to think our way past obstacles, and you can play a role there as well.

Special business and financial services to work in the export market quite often require some creative financing and possibly government can play a role there as well. International business development, without question trade missions and things like that leading the way into new markets, breaking down barriers is certainly a government role as well.

A very important one we see is infrastructure and infrastructure has to be in place in the province for trade traffic. Things that fall under that, of course, things in the news right now, the Atlantic Gateway, but further to that, we need a great rail system to get goods out

of the province and into the province, a good road system. So all of those go a long way to being attractive to selling in the export market.

Finally, and you can play a huge role here, is make Nova Scotia a preferred place to do business and just changing the way we're looked at in the marketplace. So those are some of the things that we see as being a primary focus in the near and coming future.

MR. CHAIRMAN: Thank you very much.

MR. STEPHEN MACDONALD: You're very welcome.

MR. CHAIRMAN: I'm going to start with Mr. Theriault. Each one will have 10 minutes.

MR. HAROLD THERIAULT: There seem to be more downsides right now than there are upsides in the manufacturing, Steve. I've been in business most of my life, in the fishing business, export of lobster and we seem to concentrate - you know most of my business life - in the United States and, like you said, 86 per cent direct their marketing to the United States. Is the manufacturing association looking more towards Europe now? I don't think our dollar has gone up, I believe the American dollar has come down. So to the Euro, I mean their Euro is what, $1.50 to our dollar, I believe. I don't think that has changed a whole lot.

MR. STEPHEN MACDONALD: That's right.

MR. THERIAULT: So there's the manufacturing looking more to Europe now to do business, because it's just as close. I mean Europe is just as close to us as a lot of the places in the United States. Is that happening more and more?

MR. STEPHEN MACDONALD: Absolutely. Manufacturers are going to new markets, looking for the different currencies to deal in. It's a very much smaller world than it was even 20 years ago. Dealing in Europe, dealing with especially western European countries, is like dealing with Canada or the U.S. Once a company can get their mindset past going there, they are usually quite pleasantly surprised on how easy it is to do business and how stable the currency is.

MR. PATZELT: If I could make a couple of comments, one of the things is, I mean our dependence on U.S. trade is obviously very strong. Canada does more trade with Home Depot, the store, than it does with all of France, just to give you an idea of perspective.

The shift in the U.S. dollar has a profound effect. It wasn't just the amount of the shift, it was the speed of the shift. When it moves 10, 15 points in a couple of months, that's your entire margin eroded in such a short time frame and you don't have enough time to

adjust and get those customers, put new pricing out and that, and of course your biggest competitor being south of the border is taking advantage of that.

The difficulty we have isn't just a currency problem. For the longest time we were using the low Canadian dollar as something to hide behind. In essence, we were not making improvements in productivity in our methods of doing business, going to other markets, because we had it pretty easy. So now we've got two things happening: One, our major customer is also our major competitor, and you've got to remember, $1 billion worth of goods and services crosses the border every day, so there was that shift. The other thing is the world - sort of our lack of productivity, we're having to adjust for that right now and that's where we're seeing a lot of challenges.

Also in the world we have to deal with a new global supply chain. Gone are the days that you would cut down the tree, make the furniture, sell it to somewhere. You may now have to accept the fact that you do some preliminary processing here, send it to somewhere else in the world because their pricing is better, bring it back, repackage it, mark it, brand it, put it together or whatever and then ship it out to the different markets. We have to learn that part of the world's elements as well.

When it comes to trade, though, these relationships take a long time to build up. We cannot, as a government and as an industry, go to one country one year and then change the flavour of that popsicle and go to another country. You have to make that investment over a long period of time. For example, in Latin America, especially Mexico, you're friends first, before you do business. Well, you don't become friends by one trade mission, you have to go there year after year. So our Department of Economic Development and the federal DFAIT have to work with us to ensure that we build those bridges over a long time because as Steve says, once you're in there, you're pleasantly surprised both ways. They want to do trade with Canadians, they just don't know how and they don't "trust us" because they haven't had the opportunity.

MR. THERIAULT: We'll always be trading with the Americans, always. We may look abroad to trade a little more in Europe but you spoke of efficiency, of moving goods efficiently. There's only one cheaper way to move goods around, other than rail, and that's by water.

To get our goods to the American shores, why wouldn't we be looking at boats? It always was that way, back in the 1700s they were shipping goods by boat and it seems to be getting away from that more to the trucking business, which isn't very efficient. All of our goods that go to the United States, why wouldn't it be good to be shipping them out of the western part of this province by boat to the Gloucester area, New York area, whatever. Has the manufacturing business ever thought of that or looked into that?

[9:30 a.m.]

MR. STEPHEN MACDONALD: I guess the answer is absolutely because more economical is better. However, we are also in a just-in-time environment, and just in time often doesn't cut it with shipping by ocean and the road is the fastest way to get things there. When your customer says, I need it here on Tuesday and it's Monday morning, there's no way a ship is getting there and I think that probably plays a large role in that decision.

MR. PATZELT: I would add a couple of things. One of the reasons that the gateway is so important is that - and people have to understand - we have a window of opportunity here. If someone else builds a gateway in the Caribbean, a transhipment point before us, we're out of that game. What you want are the giant ships coming into Halifax, stripping off the top layers of containers, as it were, that intermodally go on to the rail and head into the middle of our country and the middle of the U.S. At that time you can also put some of your containers but the gateway would use all of our ports, along with the other ports on the Eastern Seaboard of the U.S. Basically, you come in with the really big ships and then you're using what is "a big ship" today, to do all of the ports along the Eastern Seaboard. The other important element to that is rail.

We are almost an island, we're a peninsula, with one rail company. We have no running rights on that railroad, and essentially CN is part of Burlington Northern and it has become a North American railroad company with a focus of north-south rather than east-west, and that's a very real risk to us. When Steve spoke of infrastructure that railroad is our backbone into not only the rest of Canada, but into the mid-east and to New York. We can get really unloading a ship here down into Chicago faster than we can by ship but that only works if you have a good ship-to-rail link system. Then if you're being efficient, you're only using the trucks to move the shorter distances by road. But it's very, very critical that we have a proper rail system and a competitive one.

MR. THERIAULT: I brought that up because down in western Nova Scotia we have a couple of ferry systems there and it seems like the government doesn't want to prop this up to be part of the infrastructure to the United States, or even across the Bay of Fundy to New Brunswick. The vast majority of people down there feel, especially business manufacturers, fish business, Christmas trees, whatever, they believe that's their best, cheapest route to get those goods to the United States. Here we are talking about efficiency and competing, yet the government seems to be backing away from it. You mentioned about government help, so that's why I brought that up. Like I said, there's only one cheaper way to move goods other than rail and that's by water, so if you build your waterways, especially to a place that's pretty near an island - and you said location, what did you mean by location? That was one of the upsides we had, was location.

MR. STEPHEN MACDONALD: Nova Scotia is perfectly located, especially for sea routes.

MR. THERIAULT: To the United States.

MR. STEPHEN MACDONALD: To the United States but even larger than that. Going through the Suez Canal is quicker to get to China than it is from Pacific routes but we don't seem to publicize that, we don't seem to capitalize on that to try to attract vessels going that route - I mean, there's a huge upside.

MR. PATZELT: We're on what's known as a golden circle, so if you look at the shape of the Earth and where Nova Scotia is located, pre-Columbus, if you had a flat map it looks like it's a long way to go, but we're at the top of the round part of the globe and we're on that golden circle. That makes us ideal to do trade with Asia, with Europe and the rest of the Continental United States, even going into South America; that's one advantage we have. The other one is, I don't think there's any part in Nova Scotia that's further than 70 kilometres from the water, and in most cases it's less than that. Again, with proper infrastructure - if you can get to, as you say, our ships - we have a competitive advantage.

MR. CHAIRMAN: Thank you. Mr. MacKinnon.

MR. CLARRIE MACKINNON: Thank you very much, Mr. Chairman. It's great to have Stephen, Ken and Robert with us today to share this information. I'd like to ask a question in relation to employment demographics, the losses and gains in the manufacturing sector. Could you give us some statistics, perhaps?

MR. STEPHEN MACDONALD: Regarding what? I'm sorry.

MR. MACKINNON: Within Nova Scotia - for example, in Pictou County, the three ridings there are suffering from the loss of TrentonWorks and I'm just wondering how we are stacking up in relation to gains and losses.

MR. STEPHEN MACDONALD: The manufacturing jobs are shrinking, that's an unfortunate thing to say. Some of the larger businesses that have gone away are not being replaced, however, manufacturing is still growing. Membership in our organization is increasing, however, some of the employment is not as large as the ones that have gone. To give you an idea, our organization probably represents right now a little over 40,000 employees in Nova Scotia. Demographically speaking, you would probably find them in the late-30s to mid-40s range in terms of an age group. Is that sort of what you're looking for in terms of your question?

MR. PATZELT: If I could add, CME is also a non-Halifax-based organization. Our head office is here but you have to remember our facilities are in Lantz, Hantsport, Yarmouth, Bridgetown, we are not a metro-based entity. Our salaries are about 15 per cent higher than the average salary in the province, it makes for a higher economic multiplier. We account for maybe 15 per cent to 20 per cent of the workers' compensation premiums in this province.

The three biggest expenses in manufacturing are people, energy, and raw materials. CME members account for 35 per cent of Nova Scotia Power's revenue and load - I mean, energy is a big deal and people are a big deal. I spoke earlier about productivity and Steve was talking about the average age. You have to be very, very careful with that one, because for example, the average age of our tradespeople is in the 60s. We are having a shortage here beyond - forget about Alberta and the pressures it causes. Our shipwrights, our millwrights, our power engineers, people who know how to use laser cutters and that are getting ready for retirement. Michelin is a classic example - 35 years ago all of those young people came in to build three factories in this province and a big chunk of them are going to be retiring. We probably have 15 per cent of CME's members retiring in the next five to 10 years, so we have a huge challenge in terms of a people resource.

When Stephen was talking about shrinking, we also have to change the mindset of just thinking about jobs. What you're trying to do is ensure that the organization that's here is competitive. Twenty years ago you might have had 500 employees and today that same organization may do the same with 250 or 300 employees, but that makes it competitive. You can't just do a body count, you actually have to say is this an economy and a business within that economy that is viable and sustainable.

MR. MACKINNON: In 1871, farming, forestry and the fishery were the keys. You talked about innovation; there is still room for innovation within those sectors. We have to ensure that these are not considered to be sunset industries. What is your organization doing to ensure that?

MR. STEPHEN MACDONALD: In terms of our organization we represent all manufacturers, whether they're resource-based or high-tech. In terms of trying to increase productivity and innovation along any of them, we offer many different programs to our members. One program that's very high on our list is called Lean Manufacturing. It started in manufacturing but it's a program by which you analyze your business and change your processes to the most streamlined ways possible. It works very well in manufacturing but you can take it and turn it around and put it in a farm, you can put it in a bank, you can put it in a school system, it's very interesting to look into if you haven't heard of it before.

We also support other programs in terms of quality initiatives. We're also looking at a new program called Global Certification, which is taking our businesses and evaluating them for their export readiness in terms of being a global supplier.

MR. MACKINNON: One of the needs that you identified was infrastructure. Recently in a report we in Nova Scotia found out that our infrastructure was in pretty bad shape. What would your priorities be? What are the priority needs as you see them? Now, rail was mentioned but certainly our roads and other pieces of infrastructure are not in very good shape. Can you give your priority list to us?

MR. HARDIE: I think one of the priorities, given what Robert said that many of our manufacturers are in rural Nova Scotia, is that our road links have to be up to standard to allow for movement through the ports or exits out of Nova Scotia. I think the main highway infrastructure has to be maintained at a standard that can handle the weights that have to travel those highways and next to rail, I would think that's one of the major priorities that we would see have to take place.

MR. MACKINNON: I'm very glad that you identified that. As a person representing a rural riding, I'm glad it is at the top of your list, for sure.

MR. STEPHEN MACDONALD: We're very much a rural organization. As Robert said earlier, our office is here but we represent businesses all around this province, so we very much understand that.

MR. HARDIE: I think, for example, The Shaw Group has maybe 600 employees and I think maybe 15 are in Halifax and the rest of them are scattered throughout rural Nova Scotia and New Brunswick.

MR. MACKINNON: One of the situations that I find hard to deal with sometimes is in relation to the role that China is playing in our economy here in Nova Scotia. I was just trying to buy some Canadian-made chairs for my office and you have to go to the catalogue, because everything that's in stock is Chinese-made. So a supplier tells me that even some of the components in Canadian-made are Chinese. Can you comment on just how devastating this is to manufacturing?

MR. HARDIE: Our company had a plant in Cornwallis that made solid wood furniture for Ikea and up until July 2006, we had some 225 employees down at that plant making RTA - ready to assemble - furniture for Ikea. We just could not compete on material costs and labour costs with the Chinese and the Russians. We couldn't meet Ikea's demands for lower and lower prices and unfortunately, we had to close that.

MR. PATZELT: Having said that there are still opportunities to take part in the global supply chain, it's that or give up entirely.

MR. HARDIE: There are opportunities.

MR. PATZELT: You have to sit there and say okay, we can take a wood product here, process it to a certain degree, send it to China to be made into components, brought back here where you can do assembly of different things, but then you have to remember that when your head office is here, that is also where your marketing is being done, that's where your legal fees are being done, the advertising. If that is all shipped out for someone else to do, that whole multiplier is lost as well. The days of doing something from beginning to end are probably over for most organizations. I mean you only have to look at a car and see where all the components come from around the world. We can't miss that opportunity, and back to the transportation advantage that we have, we should be taking advantage of that.

[9:45 a.m.]

MR. CHAIRMAN: Thank you. Mr. Porter.

MR. CHUCK PORTER: Thank you, Mr. Chairman. It's great to have you guys here today and it's a very informative session, no question about that. Just a few questions, I know you talked about the U.S. dollar versus other currencies and we need to start doing some trading, some thinking. How difficult is that actually to do? I know you said it takes time but how difficult from both perspectives, from our own business people getting that mindset because they've been locked in the U.S. market for so long, and you've already touched a little bit on what it's like on the other side, there's a certain "trust" I think was the word you used there, that has to be developed, but how difficult is that really going to be for me, the business guy, who is looking now to bounce back?

MR. STEPHEN MACDONALD: It's a good question. Is it going to be easy? The answer is no. Is it possible? Yes. There are ways to get there, there's working through trade organizations and introductions, trade missions. You have to get your head around, I have to go there, that's the first thing. Then once you're on the ground there, it's learning to build relationships, and then you're on your own. Now you can hire support and things like that but certainly you have to build that trust to that customer yourself.

MR. PORTER: Obviously the businesses that you folks represent are buying into that philosophy, what about the rest? I know there was a session a few weeks back that the Premier and Minister MacIsaac were at and some others in Truro and that appeared to be fairly productive, from what I understand, but what about the rest of the businesses in the province, outside of your group? Is there someone dealing with those folks and saying, let us introduce this to you and tell you how?

MR. STEPHEN MACDONALD: Well, we are the manufacturers and exporters. so when you talk to us most of our companies are exporting. Unfortunately, most Nova Scotia companies are not and that's the sin and that's where the big bang for the buck is. You're sort of preaching to the converted when you talk to us and you have to get that information out

to other businesses, that there are viable and trustworthy transactions in the global marketplace. A great place to start is Europe and all through the Caribbean as well.

MR. PATZELT: I don't think the support is there for the smaller business in dealing with international trade finance agreements, like letters of credit and that, how to properly use a trade show, how to properly make use of our consulates abroad, things like that. I think that training level has to be there. The one thing that I will say, maybe it's because I'm a massive Type A personality and an optimist, too; C.D. Howe did a huge amount of damage to this province post-war. I mean we manufactured cars, our own skates, everything else, and then we became dependent on federal government largesse. We are now returning to be the great trading nation that Nova Scotia was and can be in the future.

The Acadians sold wine up and down the seaboard and things like that. We're getting back there. I think a lot of our youth want to be involved in that exciting opportunity but we've got some people who have to be turned around mentally. If this were another country in another part of the world, it would be one of the richest countries going, in the sense that if you look at the resources we have, the educational institutions, the people, the proximity to water, next to a huge trading partner, why are we lamenting about how tough times were? Another place would be saying we're so resource rich, how can we not succeed?

I think we can succeed but we have to nibble at the cookie a little bit at a time and we've got to build up some of those skills that are deficient in different areas. It is doable, it's more than doable, but it's not going to be - you know, Einstein said the way to solve a problem isn't going to be by using the same thinking that got you there in the first place. Gone are the days of the way coal is manufactured and mined and the way forestry was done. I mean we have to look at a new way of being shippers of our products and services.

MR. PORTER: And we talked about 1871, or whatever it has been since trade has been going on. It's not like we haven't been here before; the dollar has been at par and it's not like that has been 100 years ago either. Hindsight is always easy, and I don't mean any disrespect by the question, but what about foresight? Was nobody looking over the last number of years, saying at some point we're going to reach this again, why would I invest all my eggs in the basket of the United States and not have already been looking into Europe, Asia, and all these easily accessible - you know the technology of the world, as you said, is now this big, it's just a click away, anywhere in the world. So I was just kind of curious as to, were businesses not planning? I mean the folks generally running big business are very intelligent people, but yet we seem to have stayed on that American side and not even within our own country very much.

MR. STEPHEN MACDONALD: I think that opinion applies to a great many businesses in the world, not just Canadian businesses.

MR. PORTER: That's kind of what I was wondering, how we compare.

MR. PATZELT: But I'd also like to point out, I mean for a long time we've been pushing the educational agenda and the fact that we had a skills gap happening. For a long time we've pushed, for example, on the large corporation tax which takes $50 million out of the companies' hands here, for no other reason than being in existence.

There are things that we were pushing, you know the productivity agenda, which wasn't on the top of any political agenda or bureaucratic agenda as well because we were hiding behind a 65 cent dollar, I mean you didn't have to be there. Well, what we didn't anticipate - you remember when we were kids, some of us remember - the $1.05 and it slowly came down. It took a long time for the dollar to come down but we didn't anticipate going from 60 cents to $1.05 in the space of two years. Had I seen that coming, I can assure you that I wouldn't be sitting here today, I would be a very wealthy currency trader.

MR. PORTER: And I guess that's part of my curiosity, you would have thought there would have been some of those big businesses. However, I just have one other question I really was thinking about and it had to do with the infrastructure. You talked about the rail, that's a great idea, and the shipping and a variety of things this morning. You've heard our government talk about P3, is the CME interested in coming to the table to talk about building rail lines and roads and improvements and those kinds of things and infrastructure, to make business happen and trade happen?

MR. STEPHEN MACDONALD: I would say that some of our members probably are.

MR. PORTER: You know, strategic infrastructure.

MR. PATZELT: I think the first thing we have to do is rename it but other than that, I think it makes sense, it makes perfect sense.

MR. PORTER: Whatever you want to call it, just as an example.

MR. PATZELT: I mean you take the Environmental Goals and Sustainable Prosperity Act recently, it talks about moving from 8.5 per cent to 12 per cent of protected lands. Well, do we have $1 billion to buy 4 per cent of Nova Scotia? I don't think so, but there are creative ways to do that. There are landholders - us included - who have lands we'd like to work with, with Ducks Unlimited and others, to get there. I think there are creative ways to do things and the P3 - people call it - is just another way of developing and financing those kinds of initiatives. I mean there's nothing sort of unique about it, we built Canada's railroad doing it that way however many years ago. I must have missed that class in high school.

MR. PORTER: So again, just to clarify it then, Robert, you would see that as a positive step there, coming to the table to get creative, obviously then, to make some of these grander things happen . . .

MR. PATZELT: But properly done, I mean we also have to balance the public interest. You don't turn back assets that have been poorly maintained and depleted. In Germany when they build an autobahn, the company that wins the right to build that highway also has to maintain it. So guess what, they're going to build it right the first time.

There are things that can be done to ensure that the public monies, however they're obtained, are properly spent.

MR. STEPHEN MACDONALD: I'll take you back to your prior question on terms of productivity and foresight. Our organization did a study nationally several years ago, called the 20/20 study, and the first thing it identified was that Canadian productivity and innovation were a problem and we had to improve.

We haven't improved as much as we wanted to over those years and the crunch has hit now. With respect to that, I downloaded that 20/20 PDF study to this laptop, so it will be available to you after this meeting.

MR. PORTER: Great, thank you very much.

MR. STEPHEN MACDONALD: Virus free.

MR. CHAIRMAN: Ms. Whalen.

MS. DIANA WHALEN: Thank you very much and again, welcome this morning. It's always interesting to explore further how we can expand our economy and look for that prosperity that will make us independent, pre-war type independent as you said, Robert. Yes, we want to get back there. And trade was our secret, in the original formula for Nova Scotia as we developed, the reason people settled here, the reason it was prosperous, was because of location, as you said. So we need to get back to that point.

Exports have fallen off quite considerably and our trade balance has gone from a surplus to quite a significant deficit, a $2.5 billion trade deficit in 2007 was the figure that I had. You've painted some of the challenges that our exporters have, but those figures sound a lot more drastic than even what you're talking about. When you are just looking at that one figure of going from a trade surplus to a deficit like that, can you sort of explain that or say whether you feel that urgency that this would indicate?

MR. STEPHEN MACDONALD: There's an absolute urgency to develop export trade in Canada and Nova Scotia, no question. How do we do it? I think we're working toward it but we have to come together as a province and as a country. We can't do it independently, business needs support of government and it also needs support of education - that was one of my points - and leadership. We have to be leaders and bring our people together. It's hard to sell the same products that we sold 20 years ago. We have to be creative and sell new, inventive, value-added products. Until we get those people coming together and working, I think it's going to be a tough stride ahead for a little while.

MS. WHALEN: I'm glad to hear you say that it's urgent, though. We've talked about this and similar to the skills shortage, business told us years ago to prepare for this skills shortage. You knew your aging workforce, you knew the draw from other provinces and places and yet we didn't respond because we had hundreds of applicants for every job that seemed to be on the low end and nobody seemed terribly worried about it. Now it has completely overtaken us and it's not something to talk about, it is happening right now.

MR. STEPHEN MACDONALD: We're in it.

MS. WHALEN: I think we need to be more attuned, is what I'm saying, to the signals that business sends us.

MR. PATZELT: Again, we have to be very careful of averages. The Halifax unemployment rate is relatively low. The problem is our unemployment rates in rural areas are very, very high but if you look at the average you say, oh, we're not doing so bad. Well, take Pictou County, you got it very, very quickly with the closure of two or three facilities and we have to be very mindful of those idiosyncracies between areas there.

The CME, again, we are not believers in handing out money to organizations or facilities that are going to die anyway. They have to show that they are sustainable, that they can adapt, and that's why we're looking at things like speedy writedowns of new investments in capital, tax credits for training. Take that labour force, if you take Minas Basin, for example, it runs its own literacy or GED program. That really shouldn't be the business of a paper mill, but we needed to bring those people who left school at 14 or 15 because they could walk into a mill. If you walk into a mill today you are more than likely to see a computer before you see the forklift.

If you go in Pratt & Whitney there's not even a forklift, there are little robots running around. It's a new world order and those people have to have that education to survive in that area, but those are the things that we're looking at. The elimination of the capital tax, again, commercialization - we have R&D happening in Dalhousie and Acadia and where else but we have to turn that into something that can be used in a fish plant, a paper mill or paper-converting facility.

MS. WHALEN: Could we talk a bit about maybe the changing nature of the companies that are part of CME here, in Nova Scotia? We know a few of the bright lights, I guess, like Ocean Nutrition and so on that are very different, that have moved into an area that is innovative, that are using substances we didn't look at as having any commercial value in the past. Are you seeing a change in your membership? Is there a move toward that and toward green energies as well, green products? Are we seeing a change that would signal some hope for us in terms of innovation?

MR. PATZELT: For sure. Number one, I think you have to remember that we are no longer smokestack industries. The Shaw that you saw 20 or 30 years ago, the Minas Basin or Maritime Paper of 20 or 30 years ago is not the company you see today. They are clean, they are greener, they are highly motivated individuals, the innovation there. What you see is PLC, the computers, the conveyor belts, how you use your energy more efficiently, the stuff we used to send up the stack because it was cheap, now you're starting to recapture it and put back in.

We have an image problem, there's no doubt about it, because people still view us as dirty and dangerous, that's not the case at all. So although Ocean Nutrition seems to be at that vanguard, the companies that are surviving are similarly in that vanguard, you just don't see it as apparently. In terms of the renewables and that, we want to have control of our energy future, there's no doubt about that. We're suffering from regulatory fatigue right now, before the URB in every rate hearing, the integrated resource plan, demand side management. I spend a big chunk of my life down there when I should be trying to sell cardboard boxes and other Chinet paper plates. That's a big issue and we're looking toward those opportunities.

[10:00 a.m.]

The other thing is the green agenda is no longer an agenda, it's a business reality. You will be expected to deal with your products from cradle to grave and, in fact, it is a marketing opportunity. Nova Scotia is perceived, like much of Canada, as a clean place to be, it's a marketing opportunity. Scotia Recycling takes old corrugated, takes it to Minas, that makes it from your old pizza and beer boxes into 100 per cent post-consumer liner board which is made by Maritime Paper into a box. When we go to sell that box to L.L. Bean, or Mountain Equipment Co-op or whatever, we still have to be competitive in price with someone else, the difference being you can say this is 100 per cent post-consumer. Is that a competitive advantage? You bet, by not putting it in the landfill and only shipping it around the corner and those are the advantages that we all want to take.

MR. HARDIE: I think, as well, with the diversification that our companies have taken over the last 20 years, moving into other markets and areas that are not traditional to us has brought us a much more sustainable growth opportunity and the ability to survive the ups and downs. Although we looked at the U.S. as an export downturn at times, we don't see

all of our products going that way. We have a variety of products and a variety of markets that I think is true of a lot of Nova Scotia companies, even small companies. I was in Sheet Harbour the other day and I was speaking to a contractor there. He was telling me all the things he had to do to survive in Sheet Harbour and that's sort of universal to, I think, a lot of small-entrepreneur business people who are thinking all the time of how to make the pie big enough to survive and not be caught with just one customer, one product.

MS. WHALEN: Just as an example, I wonder if you could say where your products are going from Shaw. You said you're not just in one market, you're more diversified.

MR. HARDIE: When I first started with the company back in 1970, we were making clay brick, some concrete pipe and concrete block, and now we make over 1,000 products, everything from what you call hard landscape - which is products that you put on your patio, your dooryard - to wood pellets that are shipped overseas and burned here locally in the Maritimes, to land development, housing, modular housing. So we've broadened out and tried to weather the ups and downs in the economy with different markets.

MS. WHALEN: I see you've really changed your products as well, I do see that. On the taxes, Robert, you were pretty eloquent there about the taxes and credits, particularly things like the large-business tax which does seem like an undue penalty for growing, for reaching a size that seems to be wealthier or whatever. There's no justification for it, really. There's also an investment tax that means, we talked here about having to be more productive and innovative and yet if you want to purchase more equipment and upgrade your plants, you're going to get an additional tax, even though you've paid your HST and everything else on it as it has been brought in. I don't understand that tax either. Have you lobbied government to have that tax taken off?

MR. STEPHEN MACDONALD: Absolutely. As a matter of fact, I sat with the Minister of Finance last Wednesday and went through a pre-budget thing and it was tabled by several of the businesses there. Quite frankly, he knows it but it's a question of where do the funds come from and unfortunately, right now, they're using that.

MS. WHALEN: I'm sure that the organization is aware that the budget has grown by over 100 per cent in about 10 years of what we spend in Nova Scotia, so there has been an expansion. As Finance Critic, I was told it comes largely because we've had good years, we've had a good economy, it hasn't been federal transfer payments, it has been local success. We should be able to argue that there's a time to take that off, I don't know if this is the year. One last question, I don't know how my time is, how is my time?

MR. CHAIRMAN: You only have about 30 seconds.

MS. WHALEN: Did you do a pre-budget submission to the government this year to say what you would like to see?

MR. STEPHEN MACDONALD: Yes.

MS. WHALEN: I wonder if that could be made available to the committee.

MR. STEPHEN MACDONALD: Absolutely. I'll send it to you.

MS. WHALEN: If you send it to the clerk, we would be very interested in seeing it. I think I have to share my time with others.

MR. CHAIRMAN: Thank you. Ms. Conrad.

MS. VICKI CONRAD: Thank you, gentlemen, for your presentation, it's very informative. There's no question we have a lot of work to do in the manufacturing sector and with our infrastructure as well. Coming from Queens, one of the ridings in the province that has been hard hit by the U.S. dollar, energy, fuel and even supply for our pulp and paper industry and our lumbering sector, we have a lot of be concerned about. I don't need to go into a lot of detail about that Abitibi-Bowater merger and where things are now but we, in Queens, are remaining optimistic that the next phase of the review for the mill will turn out somewhat favourably. That being said, we do have some successes.

We see Michelin moving forward and being very creative. Michelin resides in my backyard in a neighbouring riding. I also understand that Michelin is making great strides in partnering with Mexico and, in fact, I understand have some Mexicans coming into Michelin to train and get their qualifications and expertise up to snuff so that they can go back to Mexico and work within the Michelin companies or partnerships there. So that's a good thing if we're able to provide expertise here within our manufacturing sectors. Let's hope that it pans out for the good in the long run.

I want to turn my attention to the infrastructure needs. We all know that we have a huge deficit in our infrastructure and there's going to be the need for huge investment, both from Nova Scotia and probably other Atlantic Provinces, because it is possibly a joint initiative to get our infrastructure up and moving, which will mean looking at our major arteries, which will mean looking at our rail and also our ports. I'm wondering though if we have too many fingers in too many pies when we talk about infrastructure.

You clearly indicated that roads are probably at the top of your priority list and because we've been in such a deficit in this province for so long within our infrastructure - and although there may be some federal funds coming this way to help move that infrastructure forward in some way - will it be to the detriment of other infrastructure needs, our secondary roads which those arteries are just as vital for other industries, our tourism industry and for connecting our communities to each other? A lot of folks in rural communities don't necessarily use those series highways day to day to get from community to community.

Also looking at the trade deficits that we have in exports, I'm wondering if there may be a thought to all of the investment that's needing to be had to develop that infrastructure, whether or not we're going to be catering more to an import market than an export market. We are seeing all of the challenges for those exported goods and at the end of the day, have we opened up the potential for a great infrastructure to see more imports coming in as opposed to us shipping exports out?

MR. STEPHEN MACDONALD: That's a good question. Short term, I would say that your point of view is probably correct but developing those gateways and those rail systems over time, and proper planning and proper leadership, will start sending it in the other direction. If it's not set up in the short term it's going to start going somewhere else.

MR. PATZELT: I'd like to make a comment on the competing interests and the fact that people would be lobbying one way or another. There's a very real risk there and especially when we go regionally in something like a gateway. I think there's an important need in this province and elsewhere to one, get the right information out, we have to improve our consultation process, but the other thing is there is a time when we have to go behind closed doors and duke it out in private and then come back to the public. If we don't, we're seen as fractured and therefore nobody gets anything from the feds or otherwise.

With something like the gateway initiative it can't be just Halifax to the expense of Saint John, Port Hawkesbury, I think we have to sit there and take a bigger picture and longer term view. But when we come out in the public we have to try to work together as a region, as a group of municipalities, as a province. Right now the bickering is going to kill us, there's no doubt about that, in my view. Again, from a governmental affairs perspective in the CME, when you have a minority government in a province and a minority government federally and the U.S. in an election, it's almost impossible to get heard or get anything done. So it's even more important that the voice of Atlantic Canada, the voice of Nova Scotia and the voices that cumulatively make up the people of Nova Scotia get heard. In some cases that may mean singing from the same hymn book.

MS. CONRAD: That being said, with the right leadership, are we able to work on the needs of the manufacturing sector identifying all of the opportunities that can be had for them if we work together to move them forward in the direction that they need to be going, addressing the dollar, the energy costs, the supplies and expertise, and the labour that is needed and the expertise in that labour force? Needing the infrastructure, do you think that we have the capability here in this province to work on those simultaneously?

MR. PATZELT: With the exception of some taxation matters, our interests are primarily aligned with the people in the communities where we live and work. The road coming in and out of Queens County to Halifax, to the port, is the same road that people travel every day. I don't think it's going to be manufacturing over someone else at all, in fact, I think what makes a strong, vibrant community is what also makes a good economy, which

makes us want to put a business there and to stay there. I don't think there's a misalignment there.

MS. CONRAD: Another question around infrastructure is our grid. I really suspect that in the coming years there will be more focus on the export of our energy, especially when we look at the potential development for tidal power in the Bay of Fundy. We know that there are some innovative new technologies, we know that there is a lot of siting in and around the bay. We also know that there are other interests, not only in Nova Scotia but we have New Brunswick and we also have the eastern states, looking very closely at the developments there. Looking through some of the information that was provided to us I found a release from our Minister of Environment and Labour, talking about the deficits in our infrastructure if we are to export any energy coming out of that bay, so that's a huge concern.

Not only did we have our traditional products and services that we're exporting, we have kind of a new-to-us exporting energy, not that we don't do that already, we do to some degree, but not to the capacity that could be had in that bay. Seeing that Nova Scotia Power is the owner/operator of our electricity needs here in the province and certainly they haven't been stepping up to the challenge of keeping that grid in good repair, what are some of your suggestions for us to develop that particular infrastructure that will be needed in the future?

MR. PATZELT: The simplest thing to do is to put in place the infrastructure to support the implementation of the electrical marketing governance rules. We need access to the market to sell electrons. Right now, Shaw wouldn't build a co-gen facility or oversize it to sell the electricity because it doesn't have a market for the electrons, other than what it can use. We need to open - not open up the market in a California or an Alberta-type way where it caused their brownouts and blackouts - in a logical way and it would take time to bring into play anyway. That would be the simplest, most important thing.

MS. CONRAD: I understand those recommendations from the Electricity Marketplace Governance Committee have been in place for several years now and I think there have been all of three recommendations that have been moved forward in the last several years, so we have a lot of work to do trying to move those forward. I have quite a bit of interest in renewable energy moving forward and I'm quite familiar with those recommendations, especially Recommendation 51, that will actually allow us to sell electricity. Other than those recommendations being implemented, what else would perhaps the renewable energy folks be looking for from government in terms of investment into that particular infrastructure, besides the innovative dollars?

MR. PATZELT: I don't think there's that much need. I think the fact is that once the market is put into place, the money will flow to it to make it happen. I want to go back to the infrastructure issue. You have to remember, we're on a backbone system in this province not a circular one. There is only one line in and out to New Brunswick which is at capacity. We

have an aging fleet. There are a number of things we have to do regardless of whether or not we're going to export. Access to the market is the single most important thing. I don't think there need to be innovative programs and expensive government support to make renewable energy happen, the business will take care of that part.

[10:15 a.m.]

Where we should look toward for investment in areas is like energy efficiency, generally, conversion from bunker to natural gas, using less, what Chuck Cartmill is doing with the LED lighting kind of programming and the commercialization of that, where we would use less energy, become more efficient, save dollars, save the environment, those kinds of things need assistance. Programs for conversion, like I say, from bunker to natural gas, more efficient tools out there.

MR. CHAIRMAN: Thank you. I'm going to have to cut you off there but if you could hold that thought, I'm going to give you a chance to wrap up afterwards. Ms. Streatch.

HON. JUDY STREATCH: Thank you. Good morning, gentlemen, thank you very much for sharing your time with us this morning, I have four quick questions and they won't take too long, I don't think. The first one pertains to strategic infrastructure partnering, as we would like to investigate as we move forward. I'm wondering if you could each identify for me, with the exception of rail which we spoke of already, what would each one of you identify as a potential strategic infrastructure partnership that you would encourage government to enter into?

MR. STEPHEN MACDONALD: That's a good one.

MR. PATZELT: Why don't you ask the next question and we'll come back to that at the end. (Laughter)

MS. STREATCH: Think on that one, okay. Number two is, I have a favourite commercial on television and they go to this far-off market and these folks are creating this product that no one has ever heard of, the people are marching and they say, oh we're not going to buy that, we can't invest in that, we don't have those in our country. This happens two or three times and finally the intelligent, innovative, creative business person walks in and says, you know what, I can make that work in my market. It's that creative, innovative aspect of that commercial that I like so much and it reminds me of a company that I have in my own community, Nautel, in Hacketts Cove. I'll tell you, they are amazing. I bring them up because I want to ask you about niche marketing because they have absolutely captured the essence of niche marketing.

For any of you who don't know about Nautel, they are a radio transmitter company that really you wouldn't even know existed if you drove by on the Peggy's Cove Road, you'd sort of say, what's that in there? Very successful, very low key and recently in Saturday's paper there was an indication that they had just successfully been awarded another contract in Turkey. So they have gone to markets that aren't traditional and that some of us would roll our eyes and sort of maybe push back on, but they found a niche market. I'm wondering maybe if you could speak about niche marketing and how that fits with your association and your manufacturing today.

MR. HARDIE: I'd say that's of paramount importance for companies in Nova Scotia to look at and to examine new market opportunities. We cannot compete on a commodity basis, we just can't compete in the global market that way, so we have to bring to the table our core expertise and we have to capitalize on those in areas that can bring value to our customers and it may take us outside the box from where we currently are. We have to keep looking at those and in companies like Shaw, I'm sure our compatriots here are the same, we call up the entrepreneurial spirit and we look for managers and people who work for us who have that innovative thinking that we can kind of leap to.

We're in the wood pellet business today because we had two employees who went to B.C. in 1995 and came across wood pellet stoves and they came back and said, this will work and we said, yeah, let's take a look at it. We invested in a plant and went from there. So that's just an example, that's very much key for a small province like Nova Scotia to be in the world market, to bring our value to the world.

MR. PATZELT: The mass market doesn't exist anymore, that's just a reality. Even in the car market, every car is different. Gone are the days when you could have a car any colour as long as it's black sort of thing.

Going back to Nautel, it's a classic example of a company, he chose to live there, he created Nautel and put it in Hacketts Cove because it was beautiful, but it goes to show that you can build a factory anywhere and still compete worldwide. The other thing is, Nautel is not the same Nautel it was five years ago even. They constantly come up with new products and the one thing you see in Nautel's office is a map of the world and they stick a pin every time they sell a product somewhere and it's polluted, I mean they have covered the whole world. They are a tremendous success story, but no one has heard of them except the people in this room.

MR. STEPHEN MACDONALD: The niche markets are also the most profitable too, so absolutely, those are the ones you have to target. To learn how to do it is the expertise which we can help as leaders, we can cultivate that culture of innovation and creative thinking and entrepreneurship.

MS. STREATCH: I'll switch to my third question. I'm just wondering, we talked different sides of the discussion this morning about Atlantic Gateway and I'm wondering what role your association is playing with the Atlantic Gateway initiative.

MR. STEPHEN MACDONALD: We sit on the gateway initiative, our VP of CME Nova Scotia, Ann Janega, is a member of that committee, so she's playing a role in that manner.

MR. PATZELT: And our now president was the Promethean force behind the gateway initiative out of Prince Rupert for British Columbia and you've heard Mr. Fung come down here many times and speak to why we need to do it and the need to get that window of opportunity and seize that moment.

MS. STREATCH: I'm pleased to know that you're on the board, on the committee and certainly endorsing and working alongside government and other agencies to ensure that collectively - and I couldn't agree more that we cannot do it alone, it needs to be a collective and we cannot pit one region against another and it cannot be a government against another, it needs to be a collective.

MR. STEPHEN MACDONALD: It's larger than that.

MS. STREATCH: It's much bigger than each individual and that's something we all have to wrap our heads around and do a good job at it so the world sees that we've got it together.

My final question, before I go back and get my answer to the first one, I was listening as we were talking about innovation and creation again, and we were talking about education. I just want to go back for a moment because I want to make sure I'm clear. Again, one of the other success stories I think about is Composites Atlantic down the South Shore as well. Composites Atlantic looked at its product, it looked at what it needed to do to survive and how to be creative and how to be innovative. They looked and they realized that there was a component missing and that was their education component. So together with the Nova Scotia Community College they were able to create an education component that matched their needs.

On a different scale is the Dexter Institute as well, Dexter did the same thing. They realized that there was a void and so they stepped in and in partnership with the Department of Education, were able to move that forward. Is that something that your association would look to expand, or encourage, or do you see it more as, you do education, we'll do business?

MR. STEPHEN MACDONALD: No, not at all.

MR. PATZELT: You were the chair.

MR. STEPHEN MACDONALD: We have an education committee within the CME, I was the chair of that for a great number of years. Currently, the chair of that committee is Abid Ahmad of Nova Scotia Community College, he's in engineering technology. So the answer is, very much so.

MR. PATZELT: Can I just add one thing to that? That was a tough nut to crack a decade ago, we got in there. The other thing is the Nova Scotia Community College is one of those entities that seems to fall sort of outside the Department of Education, yet it is sort of there. It's this orphan child sometimes and it is important that it doesn't become orphaned, that it's of such importance to us that it has to belong to a number of - it's an economic development issue, it's an educational issue and it's important that it maintains a profile within the bureaucratic structure and the political structure to ensure that it remains healthy and vibrant.

MR. STEPHEN MACDONALD: Is her 10 minutes up now, Mr. Chairman?

MR. CHAIRMAN: Pretty well. At the end when you do your wrap-up you can answer that question, I'd like to hear that answer as well. Mr. Zinck.

MR. TREVOR ZINCK: Gentlemen, thank you. A couple of comments, maybe a question. Last year I had the opportunity to go to France for the expo on composite materials. I had actually gone on an excursion with Mr. Guitton from Composites Atlantic, and was very impressed at the thought process. It is exactly like Minister Streatch had mentioned. I watched Maurice go around that trade show, looking for opportunities, other opportunities for his company. Along with Mr. Guitton there was a senior member of the Department of Economic Development that I took the opportunity to bend his ear. One of the things I asked him was, why are we in the situation that we're in, as Nova Scotians, in our business sectors, along with our manufacturing sector?

His comment to me was, one of the first comments you made, Stephen, that we don't market ourselves; we don't market ourselves within our province for potential. Years ago we used to say to a young person, you don't want to go to post-secondary education, get a trade, we don't do that anymore, we stopped doing that, we recognize now that we have to. But that's what he said.

In the political landscape we've become critical of one another for taking those ventures and the trade missions and that has to stop. The gateway is a primary example. I believe we've been to India at least once since the symposium. I think Stephen Lund had gone over, but that's an area where we have to - and I agree with you, business in North America is done completely different than in the rest of the world. It's about building

relationships, sending out a consistent message, and I think we have to do that in a much quicker and better fashion than we do.

There's a gentleman right now who is travelling India, China and Moscow, doing broadband installation. A big part of his business is absolutely having the luncheons and the dinners and meeting the key people. Once you do that, those things are in place.

Around the gateway, do you have an estimated time that we would have a window of opportunity that we would have to have that infrastructure put in place, in your opinion, before we lose the opportunity?

MR. STEPHEN MACDONALD: My answer is an answer that has been provided to me, and that window of opportunity would be within two to three years. It's simply because other competing areas will have that infrastructure in place by then and if the choice is there, they'll bypass us.

MR. PATZELT: I would argue that a major announcement would have to be even sooner than that. There's a major shipping consortium out of Asia that's talking about building one in the Caribbean and if that gets off the ground first, ours loses all its legs.

MR. ZINCK: I know that in around the Burnside Industrial Park area that I represent, there are a lot of key businesses in there that are very interested in seeing, let's say, a much quicker approach because we don't want to lose this opportunity, absolutely. I think it comes down to leadership and co-operation amongst all three Parties here to take that message.

Immigration - there has been a lot of talk in recent months about immigration here and potential to use immigrants. In the past I know that I've worked through the grocery industry with a number of immigrants who would come here, would settle and were very interested in importing and exporting, but weren't successful. Any ideas why that might be, or if it would be an opportunity for us to embrace immigrants coming here to get into the exporting business with their countries?

MR. HARDIE: It's really to satisfy some of our short-term and long-term employment requirements. Immigration has to be one of the tools that we look at to fill that. You know we're not going to be able to do it clearly within all of the home-base population that we have here is Nova Scotia. We clearly have to add that as an avenue to look at, as to consider and have a workable avenue that we can work with in terms of immigration.

MR. PATZELT: We need to speed that process up. It's taking us up to two years to bring someone through the system and the accreditation process and that's just a crime. When you have Ph.D.s and other certified professionals in other jurisdictions slinging beer and driving cabs, that's just an underutilization of the resource.

The other side of that, my children have gone - now the last one - to Duc d'Anville, and 29 languages I think are spoken in that school. It's one of the most racially integrated schools in the province. My children have gone to school with people from the Middle East, Asia and that. The day will come where they have an opportunity to do trade and we'll have the links to all those families where those people came from, much the same way in the 1960s which we did with western Europe.

[10:30 a.m.]

I'm very positive about that. I would like to use our educational institutions that way. I would be bringing in more people to come to Dal and SMU and the Art College and whatever, with the hopes that many would stay but also, when they go back, they go back with a positive view of Nova Scotia and a Rolodex that's just stuffed, saying I can do business with these people.

Again, we've got a great location, in the sense of facilities. We have nowhere to go but up, on the immigration side, but we do need to speed up the process. We're loving people, I think we would be a lot more hospitable, too, to our new people coming forward.

MR. STEPHEN MACDONALD: And the credentials. The credentials is a big issue, that's huge, you have to be able to recognize someone's credentials, whether they're good or bad. So that's definitely a role for government.

MR. ZINCK: One more thing around the gateway. When the Premier had his symposium back in the summertime, I think the one consistent message from all the presenters who came in was the fact that business and education were crucial, that the infrastructure there had to be put in place, the emphasis on investing in the human capital.

I think more so than that, Minister Streatch had made mention that the message has to be consistent amongst all political Parties. We are at a point right now where we have a huge opportunity to be a have province but that means working together - departments working together, political Parties working together. I think that's part of the message I've heard here today, so I share in that as well.

MR. PATZELT: Remember, the purpose of education isn't knowledge, the purpose of education is action, right?

MR. ZINCK: Thank you.

MR. CHAIRMAN: You're not going to use all your time? Okay, that's great. Mr. Bain.

MR. KEITH BAIN: Thank you for being here this morning. Just a couple of questions, I'm going to go to Atlantic Gateway as well. Nova Scotia is very fortunate in that we have not one, not two, but three ports, and I guess my question to you would be, if these three ports are developed, can you see a number of small- and medium-sized manufacturing facilities coming to the province along with the development of other ports?

MR. PATZELT: The short answer is yes, and you'll also see the economic spinoffs of transshipment organizations like Fastfrate, and those kinds of things happening, the opportunity to take advantage of back-hauls, because containers come empty one way and go back full, those kinds of things, the consulting services. Again we go back to the days of the majesty of sail; we could be the majesty of all of those things. Why wouldn't you have a head office of a shipping company here, where the action is for the western hemisphere? There are tremendous amounts of opportunities.

Combine that with the exploitation of natural gas that's coming onshore very close to one of the potential ports, and it's already here. You can see facilities locating because the energy costs could be cheaper, it could be greener, you're right next to a major shipping line and again, there isn't a community in Nova Scotia that's that far away and you're only two hours by plane to major cities and really an e-mail to California to get this or that. There's no reason, we have everything we need to do that and then some.

MR. STEPHEN MACDONALD: I'll also toss in that manufacturing is only the start, it's all the spinoff. There's as much spinoff as there is in the core manufacturing.

MR. BAIN: This next question is totally away from what we're discussing, but can you define for me "Made in Canada"? There's always a lot of discussion that takes place as to - I guess my question is - what percentage of labour or materials is required to classify something as "Made in Canada"?

MR. STEPHEN MACDONALD: A final comment, it's not good. The definition of "Made in Canada" right now, I don't believe is a good thing because you can bring something from China, India, Malaysia and assemble it here and it's "Made in Canada".

MR. BAIN: So our goal should be to have something 100 per cent Canadian made?

MR. PATZELT: I think that's an unrealistic goal. My definition of "Made in Canada" is when the head office is located here in the Province of Nova Scotia in this great land called Canada, and if that's the Jodreys or the Sobeys or the Irvings or Shaw or Maple Leaf Foods, or whatever manufacturing facility, if the head office is here, if the legal fees are being done here, the advertising is being done here, they're buying the corporate dinners at your fundraising events and supporting that community, that's "Made in Canada".

MR. BAIN: I think your optimism is beginning to show. That's all, Mr. Chairman.

MR. PATZELT: I'm tired today.

MR. CHAIRMAN: With the committee's permission, I'd like to ask a few questions, if nobody has any problem. I'm sitting here with great interest in this because to me, being a former exporter and a small-business operator, what you're doing and what you're talking about is very important and it's extremely important to all Nova Scotians and indeed Canada and I commend you for the time you take outside of your businesses to promote things that we should be automatically doing, as far as I'm concerned.

I'm going to ask a pretty straightforward question. If we don't get our training in place, don't get our educational system up in place so we don't have to have a GED program at a company that shouldn't even be in that business - because the people should be trained well enough - if we don't get our tax structure right, if we don't get our transportation infrastructure systems right and if we don't get our power cost generation and the whole envelope of that correct, don't look at more green energy, is there any hope for business in Nova Scotia?

MR. HARDIE: I think business people are problem solvers and they will solve each of those problems in their own way and it may not be in Nova Scotia, it may be in some other locale. If we need trained people, employees on our production lines and in our offices and that, we'll get them. If the province can't collaborate and help us achieve that goal, then we'll solve the problem another way. As Robert was saying, they have a GED program down in Hantsport, as an example, that's how they're solving that particular problem.

So I think those issues will have to get resolved but it may mean that some of these entities move outside of Nova Scotia to solve that, and that would be a sad thing.

MR. PATZELT: The way I measure the world, Mr. Colwell, is I have four children between the ages of 12 and 17 right now. The way I'll measure our success is, do my children, if they go away to school or travel around the world, (a) do they want to come home and (b) can they come home? That will be the test.

You and I are old enough that we'll be fine and business will be the way it should be, but will we have a vibrant, beautiful province that people not only want to visit but people want to come here and we'll have to beat them off? That'll be the ultimate test.

MR. STEPHEN MACDONALD: Along with that, Mr. Chairman, some of the things that this association is trying to do, we've recently facilitated an energy benchmarking study that has surveyed all the large industrial users of power in the province. We'll be releasing that study on March 26^th in a convention, and that benchmarking and energy-efficiency promotion will all come out on that day. So we're taking it in hand to improve productivity

and energy consumption ourselves, which goes to the greenhouse gas and the green. So we try, we're working towards it in trying to find solutions.

MR. CHAIRMAN: You know I commend the businesses in Nova Scotia for the job they're doing because I know it's extremely competitive. For years I've been saying we're not competing with the next door neighbour anymore, we're competing with someone in China and someone in the U.S. Every given day any particular company has competitors that are bigger than what our local companies are, in some cases, in some cases not - more resources, better trained people because everyone thinks with these Third World countries that the education system is no good and you look at Korea, they go to school six days a week, pretty well 52 weeks a year, and they're turning out well-educated, well-trained people who go into a workforce at a lower labour rate than we have and more favourable tax structure, so it's very difficult to compete.

When you talk about niche markets that we've already talked about, that's one thing I think that has helped and the other business that you managed to evolve over the years and got such a huge investment in Nova Scotia that it's pretty tough for you to move on from Nova Scotia to another jurisdiction, which I hope eventually we'll get a suitable tax structure. I feel - and I don't know if anyone shares my view on this - but I feel if companies have a favourable tax structure that you can take and reinvest in your business and make it more profitable, more efficient, you're going to hire more people. As you hire more people, you're going to pay more income tax, they're going to buy more goods in the community. So you very quickly get your money back, and then some, plus you have a healthier, happier economy.

MR. STEPHEN MACDONALD: And it also makes it much more attractive for new, incoming business as well.

MR. CHAIRMAN: Exactly, and it makes it better for everybody. I think we've got to stop this scenario that big business can afford everything, I've seen that so many times. I can remember years ago, and that dates me quite a bit, going to Glace Bay, installing a piece of equipment that we had designed for the heavy water plant. Now it was a two-hour job so we worked seven days a week for 10 days straight, finally got it hooked up and I can see why the plant closed down. It was unbelievable, absolutely unbelievable, not only that we worked seven days a week, but we worked from seven o'clock in the morning until midnight, 10 days straight, to get this two-hour job done, and the plant shut down. I wonder why? I mean it's just insane. We had everything, all you had to do was bolt it on and make a couple of connections.

I remember one day we got so frustrated after awhile, we went into Canadian Tire and bought our own tools because the guy would forget tools and we'd have to come in, so we bought all our own tools and I finally hooked in three wires, 110, that's just a plug-in, into our machine and the tech said, we're going to have a strike because you hooked that up.

Well, I said, that's too bad, I'm hooking it up. I said, do you want to initiate the strike? He said no, so I got away with it, and that's how we got the equipment installed.

We've got to stop that foolishness in the province and we've got to really start making things happen. They took all the industrial training equipment out of the schools, all of it, and put all computers in. I really enjoy computers but it doesn't make any sense - now we're putting equipment back in. It is short-sighted, an inability, I think, for the people making the decisions in government and semi-government that should be going to industry and saying, what do you need? What do you need now? What will you need in 10 years time, and really training towards that.

They've watered the trades training down so bad that now it's not even worth taking some of these courses. I brought that issue up with the president of the community college here and she was horrified - oh, we train great people. Well, that's great, but when I had my manufacturing business I couldn't hire them, so I don't know who's hiring them. In some of the cases they're doing an excellent job, in other cases they're not.

I think it's time that industry had a bigger input into this, to make sure that we've got the trained people we need. A lot of young people out there would really love to have these jobs, they're high-tech jobs. They're not necessarily running computers all day, sitting at a desk, and that's great, but it's other things. I'm still convinced that eventually an auto mechanic is going to make more than a lawyer in this province, and we're headed there right now. When the lawyer's car won't start in the morning and they've only got four auto mechanics at one service station and it's $400 an hour for that auto mechanic, they'll remember that they didn't do the training.

MR. PATZELT: Well, this lawyer is a farm boy so I'm not too worried about that. (Laughter)

MR. CHAIRMAN: You're very fortunate but anyway, I'm digressing here. We had the Nova Scotia homebuilders in here and they pointed out - not here but in our caucus - they pointed out to us that a bricklayer in London makes £0.25 million a year now, a bricklayer. Think about that. We're headed that way, we've eliminated all the importance of our trades training in this province and it has to come back, because that's the backbone of our industry. Then you need to add the high-tech abilities but if you don't have the educational background, you can't train or retrain your people easily.

So anyway, I'm just going to stop at that and ask you to wrap up because you've got several questions that you've got to finish answering, that I cut you off for, and I'm going to allow you lots of time to do that.

MR. STEPHEN MACDONALD: Well, I'll start. The one thing that I truly believe is that we're all in the same boat, we have different career paths but we all have to be rowing in the same direction. I'm glad that we could be here to actually talk to you today about that.

There are different careers, different businesses, different parts of government, but we're all Nova Scotians and we all want a better Nova Scotia and that's where we have to come together.

MR. PATZELT: Minister Streatch, you asked a question about strategic investment with private business. The example that comes to mind, and I think we're on a good start, is what we did with the Bragg Group and basically having the whole province wired. I think that's an important infrastructure thing that you can partner with private enterprise. As a matter of fact, you have to because that ground changes so quickly, not just the data but the technology within it. If you were trying to develop it in-house, in government, it would be outdated before you got it in implementation. So I think that's an example of where you can do that.

[10:45 a.m.]

The other thing about it is, especially when we're only a few hundred kilometres apart, we cannot have a have and a have-not part of the province when it comes to information knowledge technology usage. I have four computers in my home and I asked the kids, because they have to send in their assignments now, they don't even print the paper and hand it in and say the dog ate it sort of thing, you send it in. I said, well, what do the kids who don't have computers do? They say, well, I guess they could go to the library and I go, well, I go to the library and they're not there, so I don't know what they're doing. But I'd hate to see what happened in the Industrial Age and whatever here. All Nova Scotians should have that access, but I think that's an example.

The two questions when you come to P3, or whatever you want to call it, is we should ask ourselves, does government need to do this, why can't we contract it out? For example, I think that Service Nova Scotia and Municipal Relations is a fantastic entity, but why do you have to go to one office to get a picture for a driver's licence? I go to a photo place to get a picture for a passport. There are things that I think we can send out, when it makes sense to do so.

The other thing is, do they have to do the whole thing? You can use private enterprise to do components, the financing of different things, but you don't have to build the school and run it; you can be a portion of that and I think we have to be flexible in those kinds of things.

The other comment - and this may be heresy, but I've got to say it - we have to look at the payment structure, the remuneration structure of our senior bureaucrats in this

province. It's way too low. You've got this - what is it? - a $6 billion corporation called the Province of Nova Scotia and your good people we're attracting away. That's a reality, and for a number of reasons - pay is one of them.

If we're going to run this province right, we should be trying to attract the brightest and the best. It doesn't mean that you have to be higher paying than business, but it certainly has got to be able to attract them to keep them here because at the end of the day if we don't have good quality people backing up you people, we've got a really tough row to hoe. So that's probably the only time I'll be coming in asking you to spend more money.

MR. HARDIE: I have just a few thoughts that come to mind from our discussions and that, one of which I'll start with, the public-private partnership. I think that's an opportunity - it may not be the right thing to do at a certain time, but at other times it might be the right thing to do. I think you've got to take each one individually and decide when you can do the economic analysis on it and decide if that's the right thing to do. I think business would be open to all different kinds of thinking outside the box; our company would look at bridge structures, as an example, and say, well, you know, maybe that's something we could work with but it may not be the right thing for us or it may not be the right thing for the province. Each one has to stand on its own two feet and be analyzed and it's got to be right for the province.

We have to work together, we have limited resources, limited infrastructure here in the province so we've got to be very selective, a selective strategy to where we spend our money and what we spend it on and there has to be a payback. We cannot pave a road to nowhere where there's a little plant that's going to create two jobs. We can't do that, we've got to put our money in the right place because of limited funds, so I think that's important.

I think that the niche market has to be a key component of our growth strategy. We have to look at niche markets where we have our core strengths and pursue those and all aspects of our business.

Lastly, I think the thing that will help to sustain our skilled labour and our employment in the province is to maintain a quality of life in Nova Scotia that is second to none. We've had it here, I think we still have it but there are things that are disconcerting for residents when they look at crime and aspects of that. I think we want to maintain that quality of life here because that will be the thing that will maintain and attract folks back to our province.

MR. CHAIRMAN: Thank you. I thank you for coming in today, on behalf of our committee. It was very informative and I just want to say please keep up the good work in your corporate endeavours and move our province forward because without the businesses in this province, we're going nowhere.

MR. STEPHEN MACDONALD: Thank you very much.

MR. CHAIRMAN: Thank you. We've just got a couple more things here, just very quickly. Our next meeting is scheduled for April 15^th, providing the Legislature isn't called. If it is called, that will be cancelled. At that time I'd like to go over our witness list again and set some priorities for our meetings following that. We have no more ones scheduled after the 15^th so if the caucuses could just reaffirm the list that you have and give us a priority, then we can go over that at our next meeting.

Thank you very much, we stand adjourned.

[The committee adjourned at 10:50 a.m.]