Forestry companies challenged to match the restructuring of the mining industry.

• Author: Krejlgaard, Chris
• Position: Industry Overview

The year 1991 was not good for business.

The effects of the recession were aggravated by the introduction of the goods and services tax (GST) and by the restructuring brought about by the Canada/U.S. Free Trade Agreement.

What was expected to be merely a re-alignment of Canada's industrial sector turned out to be a full-fledged downsizing and exodus.

However, Laurentian University economics professor Dimitri Sakellariou believes the cloud has a silver lining.

Sakellariou says the lessons taught by the recession will make business leaner and better able to compete in the global arena as Canada moves into a period of limited economic growth.

The downsizing of operations and improvements in efficiency which helped firms stay afloat will continue to reap benefits during the upswing if the rationalization is maintained.

John DeDiana, a mining analyst with Richardson Greenshields of Canada in Sudbury, points out that the mining sector was better prepared for the recent recession than it was for the one of 1981/82.

DeDiana uses Inco Ltd. to support his point.

"They (Inco) made a lot of cost-effective decisions during the past five years. They reduced labor costs and made smart capital investment," he says.

"They were much more prepared going into this recession."

Maureen Farrow, a partner with Coopers & Lybrand Consulting Group in Toronto, agrees.

"Mining companies streamlined their management and got their costs under control, so while it was not the best year, it could have been worse," she says.

However, Farrow says the manufacturing and forestry sectors must now go through the same tough restructuring process.

A CURSE

Northern Ontario's reliance on such natural resources as lumber, pulp and paper and metals proved to be a curse during the recession.

The downturn in newspaper advertising created a surplus of pulp and paper, and the slump in construction hurt both the lumber and mining sectors.

However, the same natural resources could be a blessing during the initial phase of the recovery.

Rick Lymer, the Northern Ontario district economist for Employment and Immigration Canada, believes the performance of the downsized forestry sector will buy the region time to establish new industries and find new market opportunities.

Lymer does not foresee a renaissance of the forest industry, but he does believe that most of the required rationalization has been accomplished.

Meanwhile, DeDiana expects to see the mining sector's troubles continue for the...