Thoughts for Island Firms in a Turbulent Environment


Islanders are resilient. Forced to adapt and seek advantage where our resources are often limited, and there are many current success stories of Islanders who are adapting to markets outside the Island.

The coming years will be ones of austerity and self-reliance for Island businesses. Finally freed from the shackles of government intervention, which has only served to diminish the creativity and competitiveness of Island entrepreneurs. With governments(s) no longer in a position to directly intervene, obstruct or circumvent commerce’s natural selection process, true entrepreneurs will emerge and succeed.

The focus of value creating entrepreneurs needs to be outside our province. More and more, the creative class are choosing PEI as their preferred destination of residence and using global perspective to identify opportunity.

With diminished fiscal autonomy, burdening debt loads, bloating administration and fatigued tax base; our provincial government has moved from economic saviour to self-survival. If PEI is no longer a growth market, where should business focus?

One must consider macroeconomic factors. Domestically, and regionally, we have been benefactor of strong energy demand. That force is recalibrating. In my annual predictions last month, I speculated West Texas Intermediate oil would see sub $45 a barrel. While the price has rebounded to over $50 consensus seems to be that the price per barrel could drop much lower and stay low much longer

Oil is a good metric for economic health. The futures price is based on anticipated demand and observed supply. We now have historically excessive and diverse ranges of supply and more significantly, decreasing demand. When the world demands less oil, it is indication that economies are not growing. (At least in the context that we are still heavily reliant on fossil energy).

Economic health can also be observed in sovereign bond issuances or interest rates. While many are celebrating the possibility of another Canadian interest rate reduction, this affects Canadian savings, retirement planning and is a strong measure of economic performance; in this case a concerning over poor performance. The same issues are facing Europe, China and many developed countries. Interest rates are being cut and money supply is being increased, all in an effort to stimulate stagnating economies.

Islanders need to look to the one near market, which is performing. The relative strength of the US economy is so imbalanced that this too causes me concern. However, publicly listed consumer focused companies have experienced a 23% growth rate over the last year (outpaced only by health related stocks at 30.5%). Consumers are driving economic activity.

Other new markets must also be explored. The Canadian Federal government has vastly expanded trade opportunities in recent years. Including Korea in January of this year, understanding the implications and opportunities of these agreements, should be on the minds of all outwardly focused local entrepreneurs.

Turbulence is forecasted to persist. Diversification and strategic planning will be essential for growth, and perhaps survival, of many local small businesses.