COVIDcast

UCalgary podcasts feature interviews with experts from our community on the COVID-19 situation.

Episode 22: Calgary's economic future

May 19, 2020

Calgary's economy has taken a beating in recent years, but the coronavirus pandemic doesn't have to be the knockout blow. We talk to Mary Moran, president and CEO of Calgary Economic Development, about Calgary's new economic realities and the challenges of restarting an economy that's been battered on all sides.

Mary Moran (MM): What we do know through the perception research we did worldwide last year is particularly, Canada doesn't think about us or Canadians don't think about Calgary as a tech centre. They think about us as an oil and gas sector.

 

 

Deborah Yedlin (DY): That was Mary Moran, president and CEO of Calgary Economic Development. And this is UCalgary COVIDcast. I’m Deborah Yedlin. Thanks for joining us. It's no secret that Calgary's economy has taken a beating in recent years. We've had floods in 2013, an economic downturn that started in 2015, and now we have a pandemic coupled with another downturn in the energy sector. So how do we pick ourselves back up? The road to recovery is going to be long and require a lot of careful thought and planning. Today on COVIDcast, we're talking with Mary Moran, president and CEO of Calgary Economic Development. That's the organization whose mandate is to attract business investment, trade, innovation and talent to Calgary. Mary's team drew global attention to Calgary with its bid to attract Amazon to the city, and also developed the "Calgary in the New Economy" economic strategy. Here at UCalgary, we support those goals through our programs, our expertise and our research. We've been partners with Calgary Economic Development for many years. Mary joins us to talk about Calgary's new economic realities and the challenges of restarting an economy that's been battered on all sides. Let's go to our interview. Mary, thanks for joining us.

 

MM: Thanks so much for having me, Deborah.

 

DY: So tell us what do you see as being the biggest challenges facing Calgary right now?

 

MM: Well, let's face it. We've been on a long road to recovery pre COVID and now, COVID is layered on top of kind of a twin economic crisis. Obviously, the economic impact of COVID and self-isolation. But in addition to that, the global oil price war obviously has put us in a very vulnerable position.

 

DY: What does Calgary need that is unique to our jurisdiction relative to other metropolitan areas across the country, in terms of restarting the economy and really moving it to a growth phase that is sustainable over the longer term?

 

MM: Yeah. I think it's important to acknowledge that even in the structural change that happened in the energy industry in 2014, that our problems were a lot more complex and we got hit hard and fast compared to other jurisdictions in Alberta. But even if you compare ourselves to other jurisdictions around the world, and we've done a number of studies and spoken to many leaders in those communities, our problems here in Calgary are quite complex. And I think we have to acknowledge, we have the most prevalent kind of or apparent indicators are unemployment and empty office space. And both of those two things, if you look at empty office space for example, we have more office space on a per capita basis than any other jurisdiction in North America by a long shot. So if you look at us compared to Toronto, we have double the amount of office space compared to Toronto. We have triple the amount of Denver, Houston, Pittsburgh, we have four times the amount of Detroit on a per capita basis. We actually have enough office space to support a population of four million people. And so then you look at that in combination with the fact that through the first structural change, the energy industry figured out that they don't require as many people, so they can often produce more with fewer people. And so, as a result of that, we have not only empty office space, but we have a disproportionate number of highly educated, highly talented people that are sitting idle on the sidelines. It's really hard to draw on other jurisdictions because our problems are so complex. And when we think about that, we have to take a long term look at what our solutions are going to be for job creation and filling office space.

 

DY: So you can look at things as whether the glass is half empty or half full. In this case, there's two interesting pieces to pursue. One is, we have a highly educated workforce. We've talked about that a lot, and we have the office space. So one would assume that you should be able to put those highly educated people into the offices that are vacant in a very competitive manner from a cost standpoint, and support them in starting new ventures because presumably they have the skills to do that. What's preventing us from pivoting and really harnessing that educated workforce coupled with the empty offices that we have?

 

MM: Yeah, I think you're bang on, on that. We've got great ingredients to kind of create the next chapter for Calgary and allow us to be famous for something over and above just our oil and gas industry. And when I say that, I say it respectfully because I think that the government, particularly the government of Alberta, has the right to fight and defend that energy industry so we optimize it. That optimizing meaning getting product to tidewater so we can actually start to solve global climate problems with our responsible oil and gas production. And not to mention, just the fact that we're also good at other forms of energy, including renewable and clean energy. We have a big role to play in the global climate action and frankly, we should stand up and say that. But the big macro trend that we see coming towards, not just energy, but all the things that we excel at. So agriculture, transportation logistics, aerospace. And increasingly so with great work being done out of the university health and life sciences in smaller, but still we punch way above our weight in things like creative industries. The big trend coming towards all of those industries is industrial revolution 4.0, or the new economy or industry 4.0. And you think about that science and math minded population or labor force, it's sitting idle. They're perfectly well set up to help us digitize all of those industries. Right? And so if you think the global trends are 25 billion mobile devices will be connected by 2025 around the world and it's going to have an injection of about $14 trillion of global GDP. Well in Canada, we're the centre that should be driving that transformation and should be. We're not going to be a high tech centre, there'll be high tech companies here. But if you think about the application of those advanced technologies, artificial intelligence, autonomous systems, AR, VR, blockchain, the list goes on. If you think about that in that opportunity for us to own and run with that and really become that centre in Canada, we're the only place that can do it because we have the highest concentration of head offices of energy, agriculture, transportation. We have like 125 emerging life sciences companies here that growing at a rapid rate. If you think about that, and those people own the data and they have robust datasets, there's such a significant opportunity for Calgary in the new economy to create jobs with future and fill office space and really redefine who we are, and create an exportable product called technology that is applying to those industrial sectors.

 

DY: Where do government policies fit in to this in making sure, supporting this new path for Calgary? What do you think we need to see from the province? What do we need to see from the federal government in order to make this happen?

 

MM: Yeah. Well, I'm not a policy person nor a lobbyist, but I will tell you about my observations, and I will state this carefully because I think they both do a good job on certain elements of this. And if we could just marry the two, I think we'd find a path out of here. I always say jokingly, and I do mean it respectfully, is if we could have the federal government understand the energy industry like the province does and the province understand innovation and technology like the federal government does, we'd probably find a path out of here. I think about the marrying of the two expertise and skill sets and think that it could be a marriage made in heaven and would help create jobs, fill office space and drive growth and efficiency in in our key industries and predictability. I think the one ingredient when we talked to all the other jurisdictions, they often talked about leadership and alignment with all orders of government. And we need that now more than ever. There's a lot of debate going on about do you do boutique tax credits or do you do, protect what we call the core advantage, which is lower corporate tax rates, no payroll tax, no healthcare premiums for employers, et cetera. And that advantage is a very saleable product for sure, but I think too, when you're restructuring that you might need both. You might need some boutique type of tax incentives to actually increase the adoption and acceleration of that adoption of digital technologies across the things that we excel at.

 

DY: Where does capital formation fit into this conversation in terms of being able to support the growth and development of these companies? Do you see their barriers to capital formation and what do we need to think about in that context?

 

MM: Yeah, 100 per cent. I think that capital formation is quite critical. And so I think as an organization, we've often thought that flow through shares would be a great mechanism or tool to increase adoption, particularly with big infrastructure projects. If you think about digital technology and the application across energy or agriculture and some of the infrastructure that's required there, that alone is quite significant. So it might induce or spur the acceleration of adoption. Capital, if you think about the things we need, we need to figure out our talent pool and our talent pool isn't perfectly set up. And I can come back to that and we've got to figure out how to get more capital. And that includes loosening the purse strings of the high net worth people here locally. We've got to teach them to be patient investors because technology usually is, it requires a lot more patience. It doesn't give you the 20 to 30 per cent return they're used to.

 

DY: No, it's a long game and it's not the line of sight that you're used to when you're investing in energy, when something's going to start producing and pay out. You did allude to earlier the importance of the universities and the University of Calgary as being part of this pivot. Why do you think, broadly speaking, are research universities important to attracting talent and business and particularly, to Calgary's economic pivot?

 

MM: Yeah. I think that's another thing we learned from the other jurisdictions. If all the jurisdictions that have pulled themselves out or built or restructured their economy, the triangulation between government, post secondaries and industry is critical. The universities are the generators of what I call the spine of economic development, which is the creation of ideas and creation of talent. We've got to make sure that, the first question we always get asked by companies that we're trying to attract here, is what's going on at the university? They want to know about research projects, but they also want to know about, is the pipeline wide enough for me to fulfill my talent needs and are you going to make it easy for me? And this is where we've had a lot of people that are... Obviously there's a global war, particularly on the talent that we already have a shortfall on, particularly software engineers, data scientists, coders, programmers. The good news for us is it's not that big of it. It's not a quantum leap for people that have worked in the energy industry and have that science and math capacity or competency for them to transition into digital work, or that applies to their industry or applies to other industries. So it's not a big, it's not a quantum leap, but we need the universities and the post secondaries is to help us do that. And then the second piece is, is we actually need to widen the pipeline for the type of the future skills that are required. And that is not just the type of competencies that they will have, but the way they're going to learn because it's going to be lifelong learning. And so there's more flexibility required, there's obviously micro-credentialing, et cetera. If we had that all in place prior to the 2014 downturn, I think we probably could have responded a little bit more quickly. But it is what it is.

 

DY: So talent you've talked about is being one of the challenges that we face in terms of addressing the issues that we need. We've also seen other companies, Amazon for example, is building office space in Vancouver. We have office space here. We've seen other companies choose to locate their operations elsewhere. What is it about Calgary that companies that are looking for opportunities to land in Canada, don't see us as the place they want to set their next footprint on it? Is there a perception issue? What do we need to do to change that, if there is one?

 

MM: Yeah, I think it's both. So Amazon, when they did their HQ2 search, I always count our blessings in some ways because we took a much different approach than most jurisdictions. There were 238 cities that submitted, responded to the RFP and we took a much different approach. Part of it is, is just we wanted to increase awareness about actually what was going on here. We wanted to change perceptions, but they were kind enough to call us within the first few minutes of the short list being released. I don't know why they called Calgary, but I think part of it is, is they liked that we we were non-government and kind of very entrepreneurial. We asked them a whole bunch of questions, but it came down to, we said to them we've been building talent pools forever. And they went, "Yeah, we know that." But if you look at your science based population, where you're really weak is in software engineer data scientists and frankly, you shouldn't be concerned about that for our industry, you should be concerned about that for the industries that you supposedly excel at, energy, agriculture, transportation, because technology and advanced technologies in particular are, it's not a sector anymore. It's a way of doing business and your industry have great opportunities to adopt it and you're not ready with the talent pool. And we know that now. We looked at it and 25 per cent of our STEM based population are software engineer data scientists compared to up to 63 per cent in other jurisdictions across Canada. We have high growth, high tech companies here. We have our industrial sectors who are trying to adopt technology and we have two to 3000 jobs open on a good day here in Alberta that we can't fill. So the logical thing is go to the university, do we have a pipeline? Well, we have a dribble compared to what we need. So we've got to put more spots into the post tech spots into the post secondaries a hundred percent. We have to build more flexibility into that. But in addition to that, we got to go attract people and we know exactly who we need to go attract. And the problem for attracting people to Calgary isn't about their first job. If we can convince them that they can get a good job in technology solving big world problems or working in a high tech, high growth high tech company like Solium or Benevity, that's not their concern. Their concern is where's their second, third and fourth job going to come from. And what we do know through the perception research we did worldwide last year is particularly, Canada doesn't think about us or Canadians don't think about Calgary as a tech centre. They think about us as an oil and gas centre.

 

DY: What's strange in that is the energy sector has been at the forefront of adopting technology in order to increase its competitiveness. And if I'm not mistaken, in 2014 when we started to see the impact of that first oil price crash, the fact that we weren't using as much data on our cell phones because there weren't as many people in the fields, impacted the bottom lines of the telcos across the country, whether it was Rogers, Telus, they felt that on their bottom line. So we have been technology at the forefront of technology. That's something that's just such a disconnect. I don't know how, how do we change that perception or is it just a function of attracting that critical mass of new companies, and that's how that sort of starts to turn the tide.

 

MM: I think it's both. I think we, I get frustrated because I agree with you a hundred per cent. I mean, we've been innovative in adopting technologies in this jurisdiction forever. I even use the example of, it takes very smart people to figure out how to go five kilometers down, three kilometers across and hit a bathtub size target and extract very difficult product out of difficult geology. That requires innovation and technology. But nobody's ever talked about us that way. I get frustrated when I hear the federal government talking about the Toronto Waterloo corridor and they should be talking about the Alberta innovation corridor. We need politicians to stand up and start to talk about us in a different way. Because if you think about the socially minded young people of this country and their attraction to using technologies but also their attraction to solving big world problems, they should all be coming here. We want to be the centre that attracts the world's best entrepreneurs that want to solve, embrace that technology and solve problems. Whether that be cleaner energy, safer and secure food, the more efficient movement of goods and people and increasingly so, better health solutions. And what's interesting about COVID is it tested all of that. If you really, really think about it, COVID tested all of that. We needed health solutions faster and the speed and need of health solutions was astronomical. The spike in online, the businesses had to have distributed workforces in online business processes spiked dramatically. The need for human connection and content online was significant during this COVID. And you think about our food and our supply chain was threatened and you think about oil and gas and if they're going to survive at $33 in, they're going to have to embrace more technologies because it's difficult to make a dollar at $33. So you think about all of those things that were tested and those are things that we're good at. I think it put a big spotlight on the fact that digital adoption in our industrial sectors is needed even more today than it was pre COVID, and I think we've got to kind of get on with it.

 

DY: So Marty Reed, who runs Evok Innovations, has a very interesting observation about how this can work. He says, "Entrepreneurs go to where the customers are, and then the investors and the capital goes to where the entrepreneurs are." So how do we make that circle self-sustaining in Calgary?

 

MM: Well, but it goes back to, the biggest strength we have is our entrepreneurial spirit. And so, we have got to start talking about that. We have got to start talking about it to attract talent and capital.

 

DY: I've talked about that too for years, but it's the entrepreneurial spirit has existed in the energy sector as people regularly bet their houses, families and friends also bet their houses on the startups in the oil and gas sector. Those days are done. And it seems like that mentality is not translating or transferring, as you said, into the longer term, potentially riskier bets that take a little longer, maybe a little more complex to surface value. So I would argue that we have an entrepreneurial spirit in a very specific sector and the challenge is making sure that it can be translated into other parts of the economy that have potential to grow. So how do we do that?

 

MM: Yeah. I think we've done it beyond just the energy industry, but I would say primarily in the energy industry. If you think about some of the companies that have really excelled here in Alberta, they've thrived in spite of us being more focused on the energy industry. Western is a great example of entrepreneurial spirit. And that required patient investors. We have the ability to do it. A company like Solium, which is primarily investment out of from people that were from the energy industry and it's been a overnight success story that took 20 years. And they demonstrated the patience and so the education on patient investment is kind of the primary thing that I think we need to focus on because we have the highest concentration of millionaires still. They might not be as rich as they were previously, but we still have the highest concentration of millionaires. And unlocking local purse strings is really important. And so, how do we get the investment bankers to get out of bed for a $200,000 investment as opposed to a 200? That, to me, is where part of the challenge lies. I think the longer this goes on, the more understanding and interest there's going to be. But we really, I don't think time is on our side, to tell you quite honestly. And I would just say, here's another great point which is not my quote, but it's something someone from one of the multinationals always says, "When there's so much uncertainty, particularly in the energy industry, right? We can't control global price of oil. We can't control completion of a pipeline. We can't control the regulatory process. We can't control carbon tax. The one thing that people can control is investment in technology and you'll get ROI right away." And people think of it as an expense. They don't think of it as an investment. And that's a mind set shift that I'm worried about. We saw a lot of the first quarter results produced this week and I'm worried when people are posting billion dollar profits, that the first thing to get cut is investment in technologies that will actually make them more competitive. The pipeline is crucial, there's no question about it but we have to remain competitive, and investment in technology will help. It's because it's happening all around us.

 

DY: How concerned are you that, we started at the beginning just talking about how we have all this office space that's empty. I mean, now we're shifting the way we're working and I think that causes another, that compounds the problem from a perception that there's more space that's available. There's also an issue of an erosion of the tax space and not to add to the pile of woes for Calgary, but it's just one more issue to address. The way we work today is not the way we worked yesterday before COVID, is not going to be the way we work tomorrow.

 

MM: I agree. I think other cities are going to be impacted probably greater than we are. And part of that is, we still are a pretty easy city to move around so commute times are not a big concern. I had a fireside chat with some of my staff last yesterday and a lot of people were saying they prefer working from home out of one side of their mouth and then out at the other side of their mouth, they complained about how close they were to the fridge and the impact it's having on their physical appearance. I think when reality hits is that we've actually, our kind of transition into self isolation was very easy for us because we are firm believers and think that this is part of Calgary's great offering, is flexible work is really important particularly in the industries we work at, with knowledge based workers. We ran a program called Work Shift, which we have since sold, but it was trying to teach companies and jurisdictions how to do flexible work, shift to take cars off the road, correct gridlock, increase productivity and increase employee engagement and satisfaction. When you think about that, we've allowed people to work from home one day a week and we believe that that's kind of the right mix. If you're working from home as a knowledge based worker, if you're working from home 20 per cent of the week, then it often does increase productivity by about 40 per cent because you can go write the reports, do your CRM system, whatever the case may be. Do more concentrated call-outs or business outreach and there's many trends. I think that the trends in Calgary will probably have less of an impact. We are a connected city and we like to be connected, but I don't think we have big obstacles. It doesn't take you 42 minutes to go three and a half kilometers like it does in Toronto. That issue, that's kind of not as big of a hurdle for us. But I would encourage most companies to adopt flexible work schedules. I still think that there's room, need for connectivity. I think eight weeks into this, a lot of people are starting to experience, they might have left it initially. And I don't want to sound naive like we have to be aware of it for sure, but I think it's more that we're going to see more skimming of talent as a result of lower oil prices. That's going to be having an impact on the office space more than flexible work schedule. But it's interesting because Calgary, I used to complain a year or two years ago that the energy, the real estate industry wasn't adopting quick enough with respect to the demand for particularly tech companies, for open floor plates. So we have a disproportionate amount of office space, but we have a disproportionate amount of empty office space with offices, too. A lot of people are talking about COVID, that people are going to want to go back to their offices or want more space, et cetera. So I think that's going to be probably the more stronger trend that we see post COVID.

 

DY: Yeah, I think you're absolutely right. The contiguous office space with the walls, the notion of sitting cheek by jowl in a coworking space might not have the same kind of appeal going forward that it has had. And I think that you're right, it could play into our favour. One the things you've done and you've made a very deliberate effort to do this, is you've gone and seen other jurisdictions, you've spoken with business and community leaders in places like Pittsburgh and Austin. What lessons have you learned from those meetings and your travels that we could apply in Calgary to help us move forward into the new economy?

 

MM: Yeah. There a couple of key themes. I think the first one is what I talked about earlier, was the triangulation of government post secondaries and industry is critical. I think the best example of it, that's probably Pittsburgh followed by Houston, maybe Denver and Austin, where the strength of the university has been a critical factor in economic development. And we really, and I'm not just saying that because you're the audience here today, there's proof in the pudding there. We've got to do a better job of that always. And I know that's tough right now because we're not seeing investment. In fact, we're seeing reduction in post secondaries. I think that we've got to figure that hurdle out. The second piece is that every, it's a long game and we have to be much more patient than we are. I think some leaders in this community do a great job of explaining that we're more the instant coffee type of business community, that we look for instant solutions. And there is no silver bullet in this recovery. It requires commitment, it requires leadership, and it requires alignment of all orders of government. From the federal government, I want, we need more. And from the provincial government, we need more alignment with the city and the federal government on what's important to them. And both of us are talking about innovation and technology, in addition to the energy industry. We have to have parallel strategies, that's really important. And the third piece is for me, the mayor of Nashville uses, he calls it the three Ts. And the first T is investment in talent, which ties to the first one. The second piece is that we have to have competitive tax rate and we have to focus our taxes on where we need to be doubling down. So right now it's innovation in technology. And the third piece is, is that we have to have tolerance. I think as a community, we actually do have tolerance. As a community, we have really good talent that still needs to be put to work and that should be our number one objective. And the third piece, the tax piece is, I don't know if we're quite there yet. I think have a lot of work to do, particularly as it relates to attracting capital into this market and innovation.

 

DY: Yeah, no, it's absolutely true. The three legged stool. And as you said, tenacity. I spoke with a business leader in Denver and his comment was, it took commitment through election cycles to get Denver to where it got to today, and diversified away from the energy sector dependence. So I guess that's what we have to really focus on, is that a timeline that is independent of an election cycle.

 

MM: Yeah. And I think you look at Denver versus Austin, they took different approaches. All of them built on their strengths, so that is really important as well. And Denver, we talked to them very early in 2014 and they talked about going into Silicon Valley and attracting satellite offices and they were happy to get kind of one, two person offices, which we've done a little bit too. But Austin did it, their strategy was a little bit different where they actually went after big companies. They have big tech companies that are from AMD to Google to whatever. There's two approaches there. I would say from a talent attraction, in some ways Austin is a bit stronger. We still have a very competitive product in Calgary, we have a very competitive product. We just got to get some of these policies more aligned so we can accelerate the things we need to do.

 

DY: Let's end on a hopeful note. Calgary has a lot to offer, and what makes you most hopeful for the city's future?

 

MM: The people. And when I mean that, I mean that entrepreneurial spirit we talk about and you could argue that most of it's been in the energy industry. I do agree with it, but I think just the DNA of the people in this city is really about, this is a population and a talent pool that loves to solve problems. And the world is facing big problems and they're facing big problems in the industries that we excel at. There's such a huge opportunity for us to create new jobs, mostly around the digital or the new economy and applying them across our sectors to make us more competitive and really start to reinvent what we're going to be famous for in the future. If we don't own the digital transition in our industrial sectors in Canada, then shame on us. I think it would be a lost opportunity because it's not Waterloo can't do it, Toronto can't do it, Vancouver can't do it, but Calgary can.

 

DY: So, those are our marching orders.

 

MM: Absolutely.

 

DY: Digital transformation. Thank you so much for joining us today. Where can our, thank you so much for joining us today, Mary. Where can our audience find out more about what is going at CED?

 

MM: Yeah, definitely go to our website. I would encourage people to look at Calgary in the New Economy strategy, but also look at the research we've done around the digital spend, which is forecasted to be about 18 and a half billion dollars in two years across Alberta. And the need for 77,000 software engineers and data scientists across the province, which is more than double what we need today. We validated our hypothesis by doing that research with an outside firm. That's where this big golden ring is sitting there waiting for us, and we just got to really make sure that we embrace it.

 

DY: Thanks so much. This has been UCalgary COVIDcast. To subscribe or to listen to past episodes, or to get more online resources for coping with the coronavirus pandemic, visit ucalgary.ca/covidsupport. Thanks very much to Mary Moran for taking the time to chat with us today. I'm Deborah Yedlin. Thanks for listening.

 

 

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