Saskatchewan Assessment Appraisers’ Association

September 24, 2015

Outline

• World economy• Competitiveness policies• Current projects

3% Global GDP Growth in 2015

6.8%2.5%

GDP Growth Forecast

Global Economic Forecast (Real GDP Growth)

Region 2014 2015F 2016F

World 3.3% 3.0% 3.4%

Canada 2.4% 1.0% 1.7%

US 2.4% 2.5% 2.6%

Saskatchewan 1.4% 0.1% 1.2%

Euro Zone 0.09% 1.3% 1.6%

China 7.4% 6.8% 6.4%

Source: Scotiabank

Commodities OutlookCommodities Forecast

Current price 2015F 2016F

Commodity ScotiaBank TD BMO ScotiaBank TD BMO

Oil -WTI- (US$/bbl) $ 99.00 $ 48.00 $ 49.40 $ 55.00 $50-55 $ 54.75 $ 65.00

Natural Gas (US$/mmbtu) $ 4.28 $ 2.82 $ 2.94 $ 3.00 $ 2.80 $ 3.11 $ 3.65

Lumber (US$/mfbm) $ 349.00 $ 390.00 $ 332.02 $ 320.00 $ 340.00 $ 360.00 $ 390.00

Wheat (US/Bushel) $ 5.12 - $ 6.89 $ 5.40 - $ 6.79 $ 6.45

Sources: ScotiaBank, TD & BMO

Canadian Outlook

• Non-energy exports performing well• Recovery in firm creation• Slow growth• Full capacity by the end of 2016

China’s economic effect

• In June and July China’s stock market dropped over 30% signaling weaker growth

• China accounts for one third of the world growth since 2008 (US accounts for 20%)

• Debt to boost growth– Debt as a share of GDP increased from 150% in 2008 to 250% in 2015. – Most of the debt is owned by Chinese nationals.

• Source: The Conference Board of Canada

China’s Implications for Saskatchewan

• Effect is expected to be limited as China’s Central Bank has $4 trillion in foreign exchange reserves as a cushion and multiple other action tools

• Slower growth in China could impact Saskatchewan as the

country is a large mineral and agricultural products buyer – (8% of Sask. total exports are directed to China)

Sources: The Conference Board of Canada & Statistics Canada, Industry Canada, Trade Data Online

Euro Sovereign Default

• 2009 Financial crisis produced a prolonged recession with large declines in income and employment which implies lower tax revenues.– Governments increase spending to stimulate the economy which

increases debt (and interest payments)

2008 2009 2010 2011 2012 2013 2014 2015-16%

-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

Deficit as a percentage of GDP

Canada Greece

Source: Economics: Key Tables from OECD

Greek Sovereign Default

• Fiscal reforms included lower government spending, decreasing public employment, pension reforms and tax raises which tend to face resistance.

• Restructuring debts for longer maturity and lower interest rates.

• Defaults are more common than expected.

Euro Implications for Saskatchewan

• Increased uncertainty in financial markets which can be translated into the euro depreciation and potentially a short-term depreciation of other currencies such as the CAD

• Greece represents .025% of Saskatchewan total exports while the European Union represents 3.5%

• Depreciation of the EURO benefits Saskatchewan as it decreases the costs of imports from the region

Sources: The Conference Board of Canada & Statistics Canada, Industry Canada, Trade Data Online

Federal Reserve• Uncertainty about the timing of US Federal Reserve interest

rate hike

• Higher interests rates = borrowing more expensive

• Low interest rates promote spending and economic growth. However, extended periods of low rates cause inflation, low savings and risk seeking behaviors.

2014 GDP Comparison SK vs AB

Source: Statistics Canada, CANSIM Tables 379-0030

Diversification

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20140.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

SK vs AB - Oil and Gas as % of GDP 1997-2014

SaskatchewanSK 5 Year Moving AverageAlbertaAB 5 Year Moving Average

POLICIES, PROGRAMS & SERVICE ENHANCEMENTS

Policy Impacts

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014$90,000

$95,000

$100,000

$105,000

$110,000

$115,000

$120,000

Productivity per Employee in Saskatchewan 2004-2014

Policy Target 3.5% GDP growth ActualReal

Val

ue o

f out

put

per

empl

oyee

(GD

P/em

ploy

men

t)

Source: Statistics Canada, Labor Force Survey & CANSIM Table 379-0030

Potash Production Incentives• 10-year holiday from base payments• 120% depreciation rate• $100K allowance per corporate office job

Uranium Royalties

• Royalties adjusted in consultation with industry

Mineral Administration Registry Saskatchewan

• MARS allows online dispositions• Industry saves millions in staking costs

Mineral Exploration

$0

$100

$200

$300

$400

$500

Other Uranium

2003 - 2014: Total = $2.97 B*; Uranium= $1.35 B*2008: $474 M; 2013: $236 M; 2014: $235 M**

*Data from the Annual Survey of Mineral Exploration Expenditures by the Saskatchewan Ministry of the Economy.

** Data for 2014 are a preliminary estimate.

Petroleum Production

• Saskatchewan Petroleum Research Incentive

• PST and fuel tax exemption on injection fluids

• PRIME• Oil and Gas Well Levy

Regulatory Improvements

• Results-Based Regulation• Regulatory Modernization

Property Tax SystemFour significant changes:1. Introduction of market

valuation2. Education Property Tax (EPT)

relief3. Harmonization of

percentage of value4. Limit on municipal mill rate

factors

TAXES

Source: Canada Revenue Agency and Provincial Finance Ministries

Source: Canada Revenue Agency and Provincial Finance Ministries

“Canada’s Most Damaging Tax”

Source: Canada Revenue Agency and Provincial Finance Ministries

Source: Canada Revenue Agency and Provincial Finance Ministries

Competitiveness• Saskatchewan ranked

2nd out of 122• Improved from 30th

out of 64 in 2004• 2013 Global Petroleum

Survey: best policies in Canada

• Infrastructure• Workforce• Competitiveness• Resources• Trade• Fiscal

responsibility

Ministry of Economy Targets (2020)

• 60,000 more people working• Double the value of exports• Increase timber harvesting by 50%• Increase mineral production by 50%• Increase oil production by 1%• Saskatchewan’s economy will remain among

the most competitive in Canada

Oil & Gas Upstream Investment ($B)20

00

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

*

2014

**

2015

f

2016

f

2017

f

2018

f

2019

f

$0.0

$1,000.0

$2,000.0

$3,000.0

$4,000.0

$5,000.0

$6,000.0

$7,000.0

Source: Canadian Association of Petroleum Producers(CAPP)

Mining Investment($B) 20

00

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

*

2014

**

2015

f

2016

f

2017

f

2018

f

2019

f

$0.0

$500.0

$1,000.0

$1,500.0

$2,000.0

$2,500.0

$3,000.0

$3,500.0

$4,000.0

$4,500.0

$5,000.0

Source: CANSIM 029-0005, Statistics Canada Forecast by Saskatchewan Ministry of Economy

Agriculture Investment ($B)20

00

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

*

2014

**

2015

f

2016

f

2017

f

2018

f

2019

f

$0.0

$200.0

$400.0

$600.0

$800.0

$1,000.0

$1,200.0

$1,400.0

$1,600.0

$1,800.0

$2,000.0

Source: CANSIM 029-0005, Statistics CanadaForecast by Saskatchewan Ministry of Economy

Construction and Housing Investment ($B)20

00

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

*

2014

**

2015

f

2016

f

2017

f

2018

f

2019

f

$-

$500.00

$1,000.00

$1,500.00

$2,000.00

$2,500.00

$3,000.00

$3,500.00

$4,000.00

$4,500.00

Source: CANSIM 029-0005, Statistics CanadaForecast by Saskatchewan Ministry of Economy

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

*

2014

**

2015

f

2016

f

2017

f

2018

f

2019

f

$0.0

$200.0

$400.0

$600.0

$800.0

$1,000.0

$1,200.0

$1,400.0

Source: CANSIM 029-0005, Statistics CanadaForecast by Saskatchewan Ministry of Economy

Manufacturing investment ($B)

Associated Gas

Canola Processing

Pea Processing

Oat Processing

Barley Processing

Flax Processing

Agricultural Equipment Manufacturing

Mineral Processing

Investment Attraction Results

Year LeadsQualified

Leads Projects Investments2014/15 617 122 53 12

• $496M total investment

• 2015/16 to-date: 6 investments for $38M

Questions?