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Is the Plan Nord really an economic development tool for Québec?

April 27, 2012

3-minute read

On 9 May 2011, the Charest government presented its Plan Nord. Its objective is to revitalize the economy north of the 49th parallel. This plan relies on natural resource extraction to breath new life into the entire province’s economy. To do so, it invests in infrastructure at the different northern Québec resource extraction points to enable mining multinational corporations to access resources far from the big centres. At the moment, Québec’s government announced investments ranging up to $2G in routes and infrastructure. In addition, many investment groups such as Québec’s Caisse de dépôt, responsible for managing Québéckers’ pension funds, have promised investments in partnership with the private sector to fund infrastructures such as railroads or deep-water ports. The $82G project over 25 years will be divided as follows:

Source of investment Amount ($G)
Hydro-Québec 47
Private partner / Caisse de dépôt 33
Government of Québec 2
As shown, the lion’s share of investments come from Hydro-Québec, which hopes to develop hydro-electric dams even though the state-owned corporation is already overproducing.

Regarding return on investment, the Québec government can derive $14.3G from mining and hydraulic royalties as well as from tax revenues from both businesses and individuals. These royalties are however merely hypothetical since nothing guarantees that they will reach such a level. It should be noted that between 2002 and 2008, 14 mining companies did not pay any royalties to the state of Québec. In fact, over the same period, only 40% of mining companies paid a royalty.

Furthermore, the royalty system based on mining profits does not allow the State to steadily foresee the amount of money which it will take in. The situation might seem advantageous when the price of ores is high (as it is at the moment) and mining companies are reaping profits. However, when the markets drop, royalties will decrease accordingly. The Québec government projects $365M of royalties for 2011-2012. However, this amount seems low in comparison to the annual mineral production which reaches $7.7G. If the Québec government took a fixed royalty rate of 20% of mineral production, instead of establishing its royalty system on profits, it would harvest a relatively stable $770M annually.

Moreover, if we consider that the concept of royalties is based on a monetary compensation to the State for the exploitation of a common good, it seems more appropriate for the government to take a percentage of the total exploitation of a mine rather than simply of its profits.

Regional development?

The Plan Nord is sold as a massive regional development plan: the government promises to create 11,000 jobs during a “construction” phase and a recurrent 4,000 jobs annually during the “exploitation” phase.

Nonetheless, the vast majority of businesses that will set up in the North of Québec will be mining development companies. Yet mining development job creation depends purely on the ore market. When it is high, it is perfectly normal to be optimistic about the number of jobs that will be created. However, low market prices are likely to compromise the jobs that the government promised.

In short, since resource prices are far from certain, related jobs are precarious. Furthermore, mechanization in the mining industry has rendered the jobs increasingly uncertain. Indeed, between 1961 and 2009, the country’s mining industry has seen due to mechanization a 60% decrease in jobs in absolute terms. In addition, the mining sector creates social inequalities because it is overwhelmingly homogenous. In 2006, female workers only represented 12.9% of the mining industry’s workforce. In mining extraction and preparation teams, women fill in only 0.7% of positions. By excluding women from the main economic sector of this remote locality, the Plan Nord will assuredly exacerbate social inequalities.

An integrated regional economic development strategy will set up secondary- and tertiary-sector industries, which enable longer-term job creation. However, at the moment, the Plan Nord is reproducing the mining model of the last century. The government of Québec’s choices regarding the diamond transformation industry development is particularly instructive. In contrast with Ontario, Québec will not force diamond mines to supply to the province a portion of their extractions for local transformation. In Ontario, the government claims 4% to 10% of extractions to stimulate the local industry. All in all, it seems apparent that Northern cities’ development will encourage mono-industrialization, in turn creating social inequalities.

A forward-looking project for Québec?

The Plan Nord is far from living up to the promises which the government has made. In addition to encouraging an industry which will not lead to real regional economic development, the current strategy creates long-term inequalities. To put the plan into action, taxpayers will need to take on an important portion of the risks through their taxes, their pensions, and the state-owned Hydro-Québec. In contrast, the State’s royalty system is monetarily uninteresting. Therefore, if nothing changes, Québec taxpayers will be the ones taking risks for the Plan Nord, and the mining companies that will be benefitting from it through their profits.

Bertrand Schepper is a researcher with IRIS, a Montreal-based progressive think tank.

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