Industries Highly Concentrated in Ontario Are Exposed to Regulatory Change

Sworn in as Ontario’s premier on June 29, Doug Ford’s inauguration represents a crucial paradigm shift in the province. The turn from liberal to progressive conservative is expected to have consequences throughout the Ontarian economy. Ontario is the single greatest contributor to GDP and is the engine of the economy. Legislation that aims to lower regulatory oversight could lubricate that engine.

Ford’s campaign promises include tax cuts for the middle class and corporations, the privatization of utilities and the rapidly growing cannabis economy and lessened environmental regulation. Tax cuts can instigate spending on the consumer level while increasing corporate profit and the potential for investment. Privatization can also be a boon for many businesses. For example, Ford’s promise to privatize cannabis production, coupled with its impending legalization in October, may bolster the already strong anticipated expansion of the Cannabis Production industry in Canada of 44.5% in 2018. With Hydro One, Ontario’s primary provider of electric power, in Ford’s crosshairs, others can take the mantle in a lucrative market. Environmental regulation can be prohibitive, exemplified by the termination of the construction on the Trans Mountain Pipeline, which was temporarily halted due to regulatory hurdles. Plus, amid talks of a federal carbon pollution pricing system, how will a laissez-faire environmental reform in the province affect business?

ontario regulation concentrated industries chartOntario is the economic hub of Canada. Of the 427 industries that IBISWorld examines, 200 of them locate more than 40.0% of their operations in the province. Accordingly, legislation is of tantamount importance, particularly since 101 industries that IBISWorld covers are considered highly regulated, 34 of which are centralized in Ontario. Of these heavily regulated industries, 50.0% are in the manufacturing sector, 11.8% are in the information and cultural sector, 8.8% are wholesalers and 5.9% are utilities. Of these industries, the Cable Networks industry in Canada is the most concentrated in the province with 61.4% of the industry’s establishments located in Ontario. The Cigarette and Tobacco Manufacturing industry in Canada, the Communications Equipment Manufacturing industry in Canada and the Cannabis Production industry in Canada follow with 56.3%, 55.4% and 54.8% of industry establishments located in the province, respectively. The health and performance of these industries are contingent upon favourable regulatory conditions.

Regulation and Industry Performance in Ontario

Heavily regulated industries that are concentrated in Ontario are projected to perform well, with revenue rising 16.6% between 2013 and 2018. Industries with a larger proportion of their establishments in Ontario have outperformed those that are centralized elsewhere, regardless of regulation levels. Dominantly Ontarian industries with a low and moderate level of regulation are forecast to grow 13.8% and 19.1%, respectively, during the same period. In comparison, performance in the industries that are not concentrated in Ontario is forecast to rise 9.6% and 9.2% for low and moderately regulated industries, respectively. Plus, when compared with heavily regulated industries outside of the province, Ontarian industries are much better positioned to thrive. The remaining 67 heavily regulated industries that are not heavily concentrated in Ontario are projected to realize a revenue decline of 4.2% from 2013.

ontario regulation growth rate chart

However, if we omit the oil and mining sector, this trend turns positive, with a projected 12.5% increase during the same period for those industries not centralized in Ontario. This suggests that the aforementioned decline is largely the result of commodity price volatility rather than regulation alone. Regardless, if we continue to omit the oil and mining sector, the Ontarian industries are still expected to dominate, growing 19.0% collectively between 2013 and 2018. Without these volatile commodity sectors, highly regulated industries that are concentrated in Ontario are forecast to outperform the national aggregate of heavily regulated industries, and those that are located elsewhere throughout all of IBISWorld’s revenue metrics that include 2013 to 2018 growth, 2018 growth only and 2018 to 2023 forecasted growth. Nonetheless, IBISWorld projections for the upcoming five years are only slightly more positive for heavily concentrated industries in Ontario when compared with those that are not centralized in the province.

ontario regulation infographic

An Uncertain Future

While the new Progressive Conservative (PC) majority government in Ontario is yet to make any significant headway on Ford’s campaign promises, the future of Ontarian businesses is at stake. Highly regulated industries have performed poorly over the past five years compared with less intensely scrutinized industries overall. Indeed, over the past five years, across the entire economy that IBISWorld covers, heavily regulated industries are projected to realize a net decline in revenue, albeit marginal, while other industries with less oversight have grown. While a portion of this decline is accounted for by the volatility in oil and mining markets, those heavily regulated industries that have a significant presence in Ontario have done better than those that are not concentrated in the region during the current period. Nonetheless, while the forecast for heavily regulated industries nationwide is stronger than their less supervised counterparts, heavily regulated industries that are concentrated in Ontario are expected to fare worse in upcoming years, compared with those outside of the province when including the oil and mining sector, although these forecasts are based on current conditions.

Legislative stances have an indelible influence on numerous industries. Particularly concerning is the ongoing uncertainty of trade with the United States. Many Ontarian manufacturers, which represent 50.0% of the province’s most heavily regulated industries, typically derive a significant portion of their sales from US markets. A PC government, with a keen eye on deregulation, represents a paradigm shift in Ontarian politics that may support a stronger provincial outlook, bolstering the strong performance of heavily regulated industries with potentially expansionary ramifications in other industries as well.

Edited and designed by Tafannum Rahman.

Industry Impact: Cannabis Production; Cable Networks; Cigarette & Tobacco Manufacturing; Communications Equipment Manufacturing; Manufacturing