Fundamentals Of How Canada Makes Its Money

Canada is the second largest country in the world with a surface area of over 3.8 million square miles. There are about 35 million people living in Canada, and with a GDP of $1.99 trillion, it’s the eleventh largest economy in the world. Economic diversity is the key to Canada’s success: when one part of the country is suffering economically, another is booming.

The oil and gas industry is a large part of the Canadian economy, and it has suffered immensely since the price of oil fell in late 2014. Canada currently has the third largest oil patch in the world, most of it in oil sands and crude. Oil is found throughout Canada, with the largest onshore reserves being in the western provinces of British Columbia, Alberta and Saskatchewan, as well as in the northern territories. There is also oil offshore near the provinces of Newfoundland and Nova Scotia.

Alberta is an oil province. The Athabasca Oil Sands are still far from their peak production, yet, with the province collecting royalties on each barrel sold, 30 percent of the province’s revenue comes from oil. This 30 percent figure is alarming to some, and, as can be expected, a fall in the price of oil can lead to a budgetary crisis. In addition to oil production, the western provinces are also home to oil-related industries. From exploration to petrochemical to plastics, Canada earns a lot of money from oil. The two largest cities in Alberta —Edmonton and Calgary—are home to hundreds of oil headquarters and laboratories. In the north, cities have been built for the sole purpose of supporting the oil and gas industry.

Canada exports about 1.75 million of the 2.75 million barrels it produces a day. Most of these exports go the United States through various pipelines, and Canada is hoping to begin exporting oil to new markets—provided it can get pipelines built to ferry the oil away from the landlocked, northern oil patches. (For more, see: Which Canadian Oil Stocks Are The Best?)

Oil and gas aren’t the only energy revenue sources in Canada. The country has huge coal deposits in the western provinces of British Columbia, Alberta and Saskatchewan that are exported to Asian countries. The province of Quebec has uranium and other mineral mines, and Alberta, Quebec, Nova Scotia and Prince Edward Island are home to many wind farms.

The big energy earner, though, comes from a mostly renewable source: hydro-electricity. Hydro plants are found in every province except Prince Edward Island, and while a lot of it is cheaply sold to and used by Canadians, several provinces export a much larger percentage than they consume. Quebec, for example, exports hydro-electricity to Vermont, Massachusetts and New York, in addition to selling it to other provinces. The Pacific Northwest and northern Midwest also import Canadian hydro-electricity. (For more, see: Top 10 Alternative Energy Stocks for 2015.)

Lately, the Canadian dollar has been declining at a rapid pace: $1 USD could buy $1.07 CAD in July 2014; it can fetch $1.22 CAD today. While Canadians now have to pay more for imports, the weak dollar is great news for the Canadian manufacturing sector, which produces food, machinery, motor vehicles and aerospace manufacturing.

The central province of Ontario has been building cars for GM (GM), Ford (F) and Chrysler for at least 50 years, and the Ambassador Bridge, which connects Detroit to the Canadian automotive city of Windsor, carries 25 percent of Canada’s exports. Quebec is home to Bombardier, a company that designs and builds snowmobiles, buses, aircraft and trains that are sold internationally. (See: How & Why Oil Impacts The Canadian Dollar (CAD).)

Canada is the second largest country in the world and has very diverse geography, history and culture. This diversity, as well as hosting three Olympics Games and having 17 UNESCO World Heritage Sites, means there is something for everyone in Canada. In the northern territories, visitors can see the Northern Lights and explore the polar ice fields. They can check out Vancouver, the Rocky Mountains, dinosaur parks, festivals and museum in the western provinces. In the central and eastern provinces, tourists can visit historical sites, Niagara Falls, Montreal, Quebec City and Ottawa, as well as hundreds of museums and festivals. There are national parks throughout the country that are worth a trip for the nature-loving traveler.

The tourism industry in Canada employs 618,000 people and is supported by the 16.6 million visitors each year. With $84 billion in revenue and a $33 billion increase to the Canadian GDP, tourism accounts for 1.65 percent of the economy. (See also: The Most Expensive Countries For American Tourists.)

Farms cover the Canadian countryside with the obvious exception of the northern territories. Canadian farms grow grain, fruit and vegetables, along with raising cattle for dairy and meat. Crops are also transformed into a variety of products, not limited to wine, beer, candy and whisky. Canada is also a big producer of honey and of maple syrup, and large percentages of the country’s agricultural products and by-products are exported.

Despite fishing being the sole economic resource for many coastal communities, the fishery industry is not well-known to most Canadians. The fishing industry employs 80 000 and adds about $6.8 billion to the economy.

Lastly, the government is the main provider of education and health care in the country. Education until high school is, more or less, free, and post-secondary education is either free or subsidized. Medically necessary health care is provided free of charge by the government. As a major employer in each province, the government ensures a steady income for about 21 percent of Canadians.

The Canadian economy is stumbling a bit these days. Despite a diversified economy and strong economic plans for the future, inflation is currently only at 1 percent. If a visitor were to come to Canada to view the ways that Canada makes money, he would be overwhelmed with the stops on the tour.