It is beginning to sink in among the Canadian business elite that the economy is going to have to start weaning itself off oil.

The latest quarterly C-Suite Survey shows that almost two-thirds of Canadian corporate executives – including those in the west – feel Canada’s economic policy relies too much on Alberta and its natural resources. Fewer than one out of five say the economy currently has a good mix of industrial sectors.

As the next decade unfolds, priorities must change, they said. Information technology, renewable energy and services will rise in importance to the Canadian economy over the next 10 years, the executives said, outpacing mining, automotive and oil.

David MacDonald, chief executive officer of Softchoice Corp., a Toronto-based technology services firm, said the need for diversification is becoming a strong theme both in corporate corner offices and in Bay Street financial circles. The spate of recent initial public share offerings outside the energy sector is one sign of this, he said. “You are starting to see that even the equity markets are starting to focus on non-resource-based companies.”

To accelerate the shift, he said, the federal government should put more emphasis on promoting innovation, particularly in manufacturing and technology. “We’d like to see more investment in the clusters of Toronto and Waterloo, to drive more technology jobs,” Mr. MacDonald said. “[They are] creating real value in the Canadian economy and diversifying it.”

The fact that Prime Minister Stephen Harper has signed on to the recent Group of Seven declaration to get the world off fossil fuels by 2100 is an indication that Ottawa at least recognizes the need for a long-term trajectory of shifting to other sectors, Mr. MacDonald said. However, “Canada’s credibility at that table is pretty suspect given the continuous focus by the government on how to export more oil,” he added.

A strong majority of executives surveyed said more effort, including government financial assistance, needs to go to clean technology, information technology and the pharmaceutical and biotechnology sectors. But more than half also support government help for pipelines, mining and oil refinery construction, which will continue to expand for the time being.

Chris Dobrzanski, chief economist at Vancouver City Savings Credit Union and CEO of Citizens Bank of Canada, said one reason for the shifting mindset among executives is a realization that energy alternatives to the oil sector are beginning to become more viable. Now clean energy projects are “scalable,” in that they can be large enough to actually make a dent in traditional power sources, he said.

C-Suite executives are also recognizing that it is not just venture capital “angels” who are investing in renewable projects, Mr. Dobrzanski said. Now, big traditional energy players such as TransAlta Corp., Enbridge Inc. and Suncor Energy Inc. have huge clean energy portfolios, a sign that they understand the changing nature of business over the long term.

At the same time, Mr. Dobrzanski said, executives also realize that governments need to participate in the shift to a lower carbon environment because traditional market forces are imperfect. They acknowledge that governments must support cleaner technology through incentives, or by setting a price on carbon. “There is an awareness [among business people] of the role of another partner,” he said.

Still, not everyone is convinced a wholesale shift away from the resource sector is a smart move.

“You don’t want to throw the baby away with the bathwater,” said Francis McGuire, CEO of Major Drilling Group International Inc., a Moncton drilling services firm that mainly works with the mining industry. Canada has to be aggressive in investing in new technologies and alternative energy, he acknowledged, but natural resources will always be crucial to the economy.

Oil, mining, forestry and agriculture are huge industries, particularly outside the large urban cores, Mr. McGuire said, and they will remain so even as other sectors expand. “We can chew gum and walk at the same time, can’t we? We shouldn’t turn away from what we are good at.”

Indeed, C-Suite executives are not turning their backs on the traditional resources businesses. While information technology, services, natural gas and renewables got the top marks as industries of the future, 57 per cent of those surveyed said oil will also be more important than it is now in 10 years time. And 51 per cent said mining will be more important to the economy than it is now a decade ahead.

A crucial role for Canada is to combine the two worlds, by applying new technologies to resource industries so they function more efficiently, Mr. McGuire said. That’s the kind of diversification that works best, he said. “We want natural resources and the high tech.”

Willy Kruh, global chair of consumer markets at KPMG, said the tough times in Alberta’s oil patch – prompted by low petroleum prices – is “actually a blessing” because it “will force the Alberta economy to be diversified.”

That will eventually strengthen the province’s economy, and that will benefit all of Canada, he said.

“Diversifying our economy, investing in sectors that are globally important in the next wave, is vital for our country,” Mr. Kruh said. “If Alberta gets that message, and understands it, and truly diversifies, that will be a good thing.”

The Globe and Mail
Published Sunday, Jun. 21, 2015 5:57PM EDT
Last updated Monday, Jun. 22, 2015 5:46AM EDT