2014 BC Check-Up – Published by the Chartered Professional Accountants of British Columbia 1

The Thompson-Okanagan Development Region (TODR) encompasses 94,308

km2 in south central BC and is bound by the Cascade Mountains in the west and

the Monashee Mountains and Alberta border in the east. The region has the third-

highest population after the Mainland/Southwest and Vancouver Island/Coast

Development Regions with 529,868 residents in 2013.

Last year, the TODR’s population decreased slightly (-0.1%), as net migration fell to

its lowest level in over 27 years (-290 persons). Although this decrease was smaller

than those in the Nechako (-0.2%), Northwest (-0.8%) and Kootenay (-0.8%), it

contrasted with overall provincial population growth of 0.9%.

The TODR’s economy has a diverse mix of industries ranging from a traditional base

of forestry, agriculture, and mining to manufacturing and high-tech companies.

The region’s climate and scenic appeal makes it a popular tourism and retirement

destination that has generated significant investment and construction activity over

many years. This in-flow of people has fuelled employment growth in health care,

accommodation, and food services.

The TODR is also a centre for post-secondary education institutions, including

Thompson River University, Okanagan College, and UBC Okanagan, all of which

have growing student enrolment.

Thompson-Okanagan Development Region

2014 BC CHECK-UP

1 Destination BC, Provincial Tourism Indicators, 2013 Year End Report.2 BC Ministry of Jobs, Tourism and Skills Training, Major Projects Inventory, December 2013.3 Kamloops, Okanagan Mainline and South Okanagan Real Estate Boards.4 This includes a variety of post-secondary, trade, business, art, athletic, extracurricular and specialized schools and training programs. 5 Employment & Social Development Canada, Labour Bulletin – BC October 2013.

Last year was mostly a disappointing year for TODR after some signs of recovery from the recession in 2012.

Population declined as net migration, the major source of region’s growth, dropped to a fraction of what it has

been in the last quarter century. Employment fell, the region’s labour force contracted, and unemployment

increased. Tourism remained sluggish with hotel occupancy increasing by only 1%,1 and the value of major

development projects stagnated throughout the year, marking a six-year low.

One of the few bright spots last year was the continued strength of forestry and wood products manufacturing,

which was sustained by the recovering US housing market and growing Asian demand. Record low interest rates

and lower prices also stimulated real estate sales, which was followed by an increase in housing starts in the latter

part of 2013 as excessive inventories were drawn down. By the end of 2013, real estate sales and housing starts

were up 14.4%2 and 11.7%3 respectively, but remained well below pre-recession levels and are predicted to remain

so in the foreseeable future.

W O R K I n d i c a t o r s

Job Creation

Job creation is an indicator of labour market trends and economic health. After job gains in the last half of 2012,

TODR employment plummeted until April 2013, when employment numbers began to recover. Nevertheless,

average annual employment was down 7,500 jobs—a decrease of 2.9% and the largest job loss since 2009.

Almost three-quarters of these losses were part-time jobs (-5,400 jobs). The TODR’s employment loss (-2.9%)

was second only to that of the Cariboo (-4.6%) Development Region and was more than three times the

provincial average (-0.9%).

The lower employment rate last year resulted from the loss of 12,400 service sector jobs, which eclipsed the

addition of 4,900 jobs in the goods sector. Across the service sector, employment trends were mixed with five

out of 11 industries reporting increases, which were insufficient to offset reductions in other industries. Hardest

hit were the accommodation and food services (-4,300 jobs), health care/social assistance (-4,000 jobs), other

services (-3,100 jobs), and transportation and warehousing (-2,800 jobs) industries. Professional, scientific and

technical services lost 1,200 jobs, in which 1,100 jobs were lost from the architecture and engineering design

sub-industry. Educational services also reported a small loss of 800 jobs, which resulted from cutbacks in other

education services4 (-2,800 jobs) that exceeded additions in primary and secondary education (+1,900 jobs).

Weak tourism, population decline, and reduced development and construction activity explain most of these

cut-backs. The exception is health care and social assistance industry, where there continues to be growing

demand and investment in facility expansion within the region. Provincial health authorities began to restructure

last year, resulting in layoffs across the province. In some cases, services were streamlined or outsourced,5 which

likely explains the region’s job losses.

The largest employment increase in the service sector was in the finance, insurance, and real estate and leasing

industries (+1,500 jobs). This increase, together with modest growth in business, building and other support

services (+300 jobs), reflects last year’s upturn in housing sales.

2014 BC Check-Up – Published by the Chartered Professional Accountants of British Columbia 2

6 BC Grapegrowers Association, December 2013.7 Statscan, Area, production and farm gate value of fresh and processed fruits by province, 2013. Cansim Table 001-0009.8 Industries with “-”are estimated to have less than 1,500 employed at that particular point in time, thus the numbers presented in the table may not add up to total sector figures, and job creation statistics can not be

calculated.

Trade added 1,400 jobs as a result of 3,400 new positions in retail, which outweighed the loss of 2,000 jobs

in wholesale services. The growth in retail trade reversed job losses in 2012 and was likely a survey or market

correction. Small gains were also posted in arts, entertainment and recreation (+600 jobs) as well as public

administration (+100 jobs). Public administration grew because 900 provincial and local government positions

were added, making up for the loss of 800 federal government jobs.

In contrast, goods sector employment increased in all industries other than mining (- 200 jobs) and construction

(-900 jobs). The recovering US housing market and continued growing Asian demand expanded employment

in both forestry (+1,600 jobs) and wood product manufacturing (+1,300 jobs). Favourable weather translated

into a bumper grape crop6 and more jobs in agriculture (+500 jobs). However, fruit tree tonnage was down

from 2012 record highs,7 which likely explains the small loss in food manufacturing jobs last year (-200 jobs).

Lower employment in construction was expected given the lacklustre performance in the development industry,

whereas cutbacks in mining could reflect restraints in spending as a result of lower commodity prices.

Table 1-1: Employment, Thompson-Okanagan Development Region, 2008 to 20138

Job Creation (000)

2008 2009 2010 2011 2012 2013

5-Year

2008-13

1-Year

2012-13

TOTAL EMPLOYMENT (000) 256.6 248.0 257.2 254.7 256.7 249.2 -7.4 -7.5

Goods-Producing Sector (000) 69.1 63.5 64.5 60.3 57.4 62.3 -6.8 +4.9

Agriculture 6.6 9.0 7.3 5.9 5.9 6.4 -0.2 +0.5

Forestry, fishing, mining, oil and gas 7.6 5.7 8.0 5.4 7.4 8.9 +1.3 +1.5

Utilities 1.8 1.6 1.8 2.8 x 2.1 +0.3 n/a

Construction 30.8 28.1 26.7 25.4 25.5 24.6 -6.2 -0.9

Manufacturing 22.4 19.1 20.6 20.9 17.3 20.2 -2.2 +2.9

Services-Producing Sector (000) 187.4 184.5 192.7 194.4 199.3 186.9 -0.5 -12.4

Trade 40.5 38.3 42.0 41.4 40.1 41.5 +1.0 +1.4

Transportation & warehousing 11.0 10.0 12.2 10.5 11.0 8.2 -2.8 -2.8

Finance, insurance, real estate & leasing 11.3 13.5 14.3 11.7 14.1 15.6 +4.3 +1.5

Professional, scientific & technical services 11.9 13.8 16.1 14.2 16.3 15.1 +3.2 -1.2

Business, building & other support services 10.8 9.4 7.1 8.6 9.5 9.8 -1.0 +0.3

Educational services 16.1 15.0 16.3 16.0 17.6 16.8 +0.7 -0.8

Health care & social assistance 34.3 34.0 29.7 34.3 34.4 30.4 -3.9 -4.0

Information, culture & recreation 11.7 10.5 13.3 10.7 11.6 12.2 +0.5 +0.6

Accommodation & food services 21.7 19.4 18.7 22.2 23.0 18.7 -3.0 -4.3

Other services 9.6 10.7 11.6 14.2 12.6 9.5 -0.1 -3.1

Public administration 8.6 9.8 11.4 10.7 8.9 9.0 +0.4 +0.1

Source: Statistics Canada, Labour Force Survey Historical Review

2014 BC Check-Up – Published by the Chartered Professional Accountants of British Columbia 3

9 Employment and Social Development Canada website, “Indicators of Well-Being in Canada - Work”, HRSDC calculations based on Statistics Canada Labour Force Survey estimates.

Unemployment Rate

Unemployment rate is another important measure of regional economic health, as it reveals the balance between

job supply and labour availability. In 2013, the TODR’s unemployment rate fluctuated between 6.1% and 7.1% until

August, and then increased steadily to 7.9% by the end of 2013. The resulting annual average of 7.1% represents

a 0.2 ppt increase from 2012, but is still well below post-recession levels. Nevertheless, it was the highest among

the Development Regions, where unemployment ranged from 4.9% (Northwest) to 6.7% (Mainland/Southwest).

The region’s unemployment rate increase resulted partly from the loss of 7,500 workers from the labour force,

while the number of unemployed workers remained constant. However, individuals opting out of the labour

force, which does not factor into the unemployment rate, increased by 6,000. These factors underlined the

region’s weak economy and job market in 2013.

Table 1-2: Unemployment Rate, Thompson-Okanagan Development Region, 2008 to 2013

Percentage Point (ppt) Change

Region 2008 2009 2010 2011 2012 20135-Year

2008-13

1-Year

2012-13

Thompson-Okanagan 5.5% 8.8% 8.6% 7.9% 6.9% 7.1% +1.6 ppt +0.2 ppt

British Columbia 4.6% 7.7% 7.6% 7.5% 6.7% 6.6% +2.0 ppt -0.1 ppt

Source: Statistics Canada

In 2013, youth unemployment in the TODR fared better than overall unemployment rate, dropping to 9.9%.

Compared to other Development Regions, the TODR had the second-lowest youth unemployment behind the

Northeast (6.3%), and the provincial average (10.5%). Last year’s reduction was also the second-largest after the

Cariboo. However, this decrease is somewhat deceiving as it resulted from a reduction of the youth labour force

(-3,500 workers) rather than job creation, as the number of jobs held by young workers was down by 2,700 jobs.

The region’s loss of young workers is not surprising given the majority of jobs cut last year were part-time

positions, which generally represent almost half of youth employment.9 Reduced employment in construction—an

industry that offers opportunities for young unskilled workers—was likely another contributing factor. Also, young

people are more mobile and able to seek opportunities elsewhere.

Table 1-3: Youth (age 19 to 24 years) Unemployment Rate, Thompson-Okanagan Development Region,

2008 to 2013Percentage Point (ppt)

Change

Region 2008 2009 2010 2011 2012 20135-Year

2008-13

1-Year

2012-13

Thompson-Okanagan 9.1% 13.1% 10.6% 12.3% 11.0% 9.9% +0.8 ppt -1.1 ppt

British Columbia 6.8% 11.1% 11.3% 11.5% 10.9% 10.5% +3.7 ppt -0.4 ppt

Source: Statistics Canada, Labour Force Survey, Custom Table

2014 BC Check-Up – Published by the Chartered Professional Accountants of British Columbia 4

10 This is non-residential construction and machinery and equipment. Statistics Canada, 2014: Public and Private Intentions in Canada – 2014 (intentions), Table 2 Capital spending, non residential construction and machinery and equipment, provinces and territories, Statistics, Catalogue no. 61-205-X http://www.statcan.gc.ca/daily-quotidien/140226/t140226a002-eng.htm Reviewed March 2014.

11 Czikk, Joseph, VC Investment in Canada jumps by Nearly a Third, Canadian Start-UP News, February 2014. 12 2007 figure at time of acquisition by Disney Corporation for $350 million.13 Business in Vancouver, Invest in BC 2013.14 BC Ministry of Jobs, Tourism and Skills Training, Major Projects Inventory, December 2013.

I N V E S T I n d i c a t o r s

Business and Investment Activity

Capital investment in non-residential construction, machinery, and equipment is essential to economic growth

and enables BC to stay competitive with other provinces and internationally. The private sector has been

responsible for 90% of BC’s capital investment in recent years. In 2013, capital investment in BC declined by

3% to $32.4 billion.10 This decrease resulted from 5.5% less investment in machinery and equipment, which

far exceeded a 2.6% increase in non-residential construction. The province’s tepid economy, government

spending constraints, global financial uncertainty, and lower mineral and energy prices contributed to weakened

investment in established businesses.

On the other hand, venture capital investment in BC soared from $198 million in 2012 to $478 million in 2013,

mainly because of the $170.7 million Hootsuite deal.11 While most start-up, high tech companies in BC requiring

venture capital are based in the Mainland/Southwest, the TODR has the second-largest cluster of digital media

companies, including Disney Interactive’s Club Penguin that generates over $40 million in annual sales.12 The

Okanagan Research and Innovation Centre13 is also an important incubator of high-tech companies tasked with

increasing the number and growth of high-tech companies in the region.

In 2013, capital investment and infrastructure development in the TODR reflected the aforementioned provincial

and global factors, as well as the continued post-recession retreat of recreation property and retiree demand in

the region. The total value of major capital projects dropped to a six-year low and remained flat throughout the

year. The total inventory value of projects—proposed, under construction, or on-hold—was down 2.4% from $25.1

billion in 2012, to $24.5 billion in 2013.14 This was 27.9% below the TODR’s pre-recession peak.

The value of newly proposed projects increased from $325 million in 2012 to $1.4 billion in 2013, primarily as a

result of the addition of a $1 billion multi-year, mixed-use development in Peachland. In contrast, the value of

new projects starting construction fell by 28.8% from $805 million in 2012 to $573 million in 2013. This decrease

reflects the high backlog of residential/resort properties combined with lack of demand from recreation and

retirement buyers.

The total value of proposed projects at year-end was also up 8.3%, from $6.4 billion in 2012 to $7 billion in

2013, again because of the Peachland project. Over half (54%) were non-residential projects and the remainder

included residential/commercial and resort developments, many of which have been on the books over several

years. Non-residential project proposals included $1.8 billion for new mine developments and upgrades, $1.3

billion for power and gas transmission projects, and $500 million for transportation, hospital, and other civic

facilities. Residential, commercial, and resort project proposals included two $1 billion dollar multi-year mixed

use projects (Monaco in Peachland and Shelter Bay in Westbank), $700 million for resort developments or

expansions, and $580 million for nine smaller projects.

The value of projects under construction in December 2013 totaled $16.3 billion. This was 1% less than the

previous year. Most (80%) were residential, commercial, and resort projects, including several large multi-year

projects that have been in progress for several years.

2014 BC Check-Up – Published by the Chartered Professional Accountants of British Columbia 5

15 In previous years, we have also included an indicator of business incorporations, but this data is no longer provided by BC Stats.16 The North Coast dropped from 2 business bankruptcies in 2012 to 0 in 2013.

The largest of these projects were the $2.1 billion Glenmore Highlands Development and $1 billion Tower

Ranch Golf resort in Kelowna; $1.5 billion Lakestone Resort, $1 billion Revelstoke Mountain Ski resort, $1 billion

Ponderosa development in Peachland; and $1 billion Rise Resort development in Vernon. Non-residential projects

under construction totaled $3.2 billion — the largest projects were the $972 million Highway 1, Kicking Horse

Canyon upgrade, $714 million Mica power generating expansion, $475 million Highland Valley Mine upgrade, and

$367 million Heart and Surgical Centre in Kelowna.

Business Bankruptcies

Business bankruptcies are a key indicator of business vitality and are linked to changes in the economy and

the regional investment climate. They also serve as a barometer of entrepreneurial and investor confidence.15

Business bankruptcies in the TODR rose for the second consecutive year, increasing by 25.6% from 43 in 2012

to 54 in 2013. This increase is not surprising given the region’s weak economy and lack of population growth in

2013.

The TODR’s increase in business bankruptcies was exceeded by the Vancouver Island/Coast (73.9%). Other

Development Regions either reported no change (Nechako) or declines that ranged from -20.4% (Mainland/

Southwest) to -100% (North Coast).16

Table 1-4: Business Bankruptcies, Thompson-Okanagan Development Region, 2008 to 2013

Percentage Change

2008 2009 2010 2011 2012 20135-Year

2008-13

1-Year

2012-13Business Bankruptcies 82 67 42 33 43 54 -37.2% 25.6%

Source: BC Stats and Office of the Superintendent of Bankruptcy Canada

L I V E I n d i c a t o r s

Educational Attainment

The productivity and wealth generation potential of an economy is linked to the education level of the labour

force. In 2013, the percentage of the TODR’s labour force, aged 25 to 54, with post secondary accreditation

increased for the fourth consecutive year, setting a new record high of 63.9%. This increase was only exceeded

by the Mainland/Southwest and Northeast Development regions (2.1 ppts). While the TODR continued to rank

third in educational attainment behind the Mainland/Southwest (71.1%) and Vancouver Island/Coast (65.7%), it

narrowed its gap with the Vancouver Island/Coast last year by 1.8 ppt.

While the TODR’s increase in educational attainment is positive, it is also deceptive as the increase resulted

primarily from a reduction in labour force aged 25 to 54. The number of workers in this age group with post-

secondary accreditation actually decreased by 900, but this loss was far exceeded by the loss of 5,800 workers

with lower levels of education. It is worth noting that the region also lost 2,200 workers with post-secondary

diplomas, which was mitigated by the addition of 1,300 university graduates. Taken together, it seems that job

retention and opportunities in the region increasingly favour those with higher education.

2014 BC Check-Up – Published by the Chartered Professional Accountants of British Columbia 6

17 A consumer proposal is an alternative to bankruptcy whereby the indebted consumer negotiates to repay only a part of their debt. This allows the debtor to keep their assets as long as they continue to make payments on any loans secured by those assets, such as a home mortgage.

18 This trend was spurred largely by changes in the Bankruptcy Insolvency Act (BIA) in 2008, when the limit of the size of non-mortgage debt qualifying for a proposal was hiked from $75,000 to $250,000, an incentive to choose proposals as an alternative to bankruptcy. Source: Tal, Benjamin, “The Changing Composition of Insolvencies,” The Bankruptcy Report, CIBC, August 12, 2013.

Table 1-5: Percent of Labour Force Age 25 to 54 with a Post-Secondary Certificate/ Diploma or Higher,

Thompson-Okanagan Development Region, 2008 to 2013

Percentage Point Change

Region 2008 2009 2010 2011 2012 20135-Year

2008-13

1-Year

2012-13

Thompson-Okanagan 57.5% 60.7% 59.6% 61.5% 62.2% 63.9% +6.4 ppt +1.7 ppt

British Columbia 62.6% 63.0% 64.4% 65.9% 66.6% 68.1% +5.5 ppt +1.5 ppt

Source: Statistics Canada, Labour Force Survey, Custom Table.

Consumer Insolvencies

The consumer insolvency rate is an indicator of the number of households experiencing severe financial stress.

The most common causes of insolvency include job loss, reduced income, money mismanagement, relationship

breakdown, or medical problems. Over the past five years, the number of consumer proposals17 provincially and

nationally has grown to comprise a considerable share of insolvencies as more consumers choose this option to

manage their debt.18 This year, we have expanded our discussion to include consumer proposals.

In 2013, the rate of consumer insolvency in the TODR decreased by 5%. This decline resulted from a 15.4% drop

in bankruptcies, partly offset by a 6.7% rise in consumer proposals. At 3.8 per 1,000 population, the TODR’s

insolvency rate was the second-highest last year after the Cariboo and Vancouver Island/Coast (3.9 per

1,000) Development Regions. The TODR was also only one of four development regions to record a decline

in the insolvency rate; the others were the Cariboo (-2.5%), Northeast (-29.2%), and North Coast (-40.9%)

Development Regions.

Table 1-6: Annual Consumer Insolvency Rates per 1,000 Population Aged 18 Years and Older,

Thompson-Okanagan Development Region, 2008 to 2013

Percentage Change

Rate 2008 2009 2010 2011 2012 20135-Year

2008-13

1-Year

2012-13

Thompson-Okanagan

Insolvency 2.7 4.4 4.5 4.2 4.0 3.8 +40.7% -5.0%

Bankruptcy 2.4 3.7 3.2 2.7 2.6 2.2 -8.3% -15.4%

Proposal 0.3 0.8 1.2 1.4 1.5 1.6 +433.3% +6.7%

BC Insolvency 2.5 3.7 3.5 3.2 3.2 3.2 +28.0% 0.0%

Source: Office of the Superintendent of Bankruptcy Canada and Statistics Canada

2014 BC Check-Up – Published by the Chartered Professional Accountants of British Columbia 7

19 J. Girvan, M. Hall, G. Van Leeuwen, A. Palmer & R. Taylor, BC Pine Mountain Beetle Epidemic: Big Industry Changes Expected by Mid-decade, Wood Business Magazine, August 2012.

C o n c l u s i o n s

The effects of the 2009 recession continued to beleaguer the TODR last year. Population decreased, although

slightly, for the first time in more than 25 years. Retirees and second home buyers, who were growth catalysts

for many years, have yet to return to the region. As a consequence, development activity dropped to its lowest

level in six years and jobs were lost in construction and other related service industries. Tourism, another

economic generator for the region, was also stagnant last year, resulting in job losses in the accommodation,

food, and other service industries. In total, the region lost 7,500 jobs, while unemployment, consumer insolvency,

and business bankruptcies rose. The TODR’s labour force also contracted for the third consecutive year, as

workers, particularly those aged 19 to 24, relocated to seek job opportunities elsewhere.

Fortunately, forestry and wood manufacturing expanded as a result of higher demand from the recovering US

and growing Asian markets. Mining remained robust despite lower commodity prices with only a small reduction

in jobs. There was also a moderate surge in property sales attributed to low interest rates and price reductions

that increased housing starts in the latter part of the year.

Prospects for the TODR in 2014 remain uncertain at this point. Demand for forest products is expected to

continue to grow this year, increasing prices and sustaining mills with higher production costs.19 However,

reduced log supply is anticipated by 2015. This would affect the industry, including possible closures of some

mills in the TODR. For this year at least, forestry, support activities, and mill employment appear poised to

expand or at least remain stable. Mining also faces the challenge of softened commodity prices, which may delay

new mines in the TODR coming on stream and result in constraints at existing operations. A lower Canadian

dollar is welcomed by the tourism sector and, together with higher prices for alternative US recreational

properties, may induce some second-home investors back to the region. However, housing inventories remain

high, which will continue to dampen development and construction activity.

2014 BC Check-Up – Published by the Chartered Professional Accountants of British Columbia 8

G l o s s a r y o f D e f i n i t i o n s

• Consumer proposals: A viable alternative to bankruptcy for those struggling with too much debt. In a

consumer proposal, the debtor makes a legally binding debt settlement arrangement with their creditors

to pay a portion of their outstanding debt over a period of up to five years. The greatest advantage of

a proposal over a bankruptcy is the ability of the debtor to keep their assets as long as they are able to

continue to make payments on any loans secured by those assets (like a house mortgage).

• Job creation: Change in number of employed individuals between two given years.

• Unemployment rate: Share of employable labour force looking for work but unable to find it.

• Venture capital is defined as financial capital provided to start-up companies (usually in the IT sector) in

either the inception phase or a period of early growth, and is generally characterized by high risk.