SMR development: When in bed with an elephant, sleep with one eye open

A couple of folks have reached out already this morning about comments in a CBC article about SMR development.  If you read the article you will see that I fully agree with Ontario being part of a formal effort with New Brunswick and Saskatchewan to develop small modular reactors in Canada for export markets. It’s better being in a partnership than on the outside.  But the old maxim about getting in bed with an elephant still applies.  You want to avoid getting squashed.

Ontario generates roughly 173 times as much GDP from computer and electronic/electrical equipment manufacturing than New Brunswick. Canada’s largest province has nearly 1,300 manufacturing firms in these areas compared to 16 in New Brunswick.  Ontario has 114 firms with at least 100 employees, New Brunswick 2.

And this doesn’t even begin to take into account all the professional services, engineering, IT, R&D, etc. that goes along with this development.

Ontario’s GDP from related manufacturing has dropped 33% since 2005.  I suspect they are looking at this sector as one way to get that activity back into growth mode.

Having said this, there is a lot of opportunity to go around.  I’d like to see New Brunswick firms building SMR components near or at the Port of Saint John and then shipping modules around the world. Ontario firms could fill some supply chain components and provide some services.  But, the data above shows clearly we have far less existing capacity here so we should spend the next few years thinking about how to attract and develop the capacity.

I’ll end with a little story.  Back in the 1990s when all the new auto manufacturing investment was going into southern Ontario I had a discussion with someone at Industry Canada about this and he told me that it was obvious that auto manufacturers want to locate near their supply chain.  This, even as almost all of the new auto manufacturing investment in the U.S. was going to places like Alabama, South Carolina and Kentucky.  States with no auto supply chain.

The head of one of the big manufacturers at the time, either BMW or Mercedes, was asked about this and replied that it wasn’t an issue as we are big enough that the “supply chain will come to us”.  Of course it helped they received hundreds of millions in tax breaks but in the end they wanted to locate in greenfield locations.

Not in Canada.  Almost all of the manufacturing not tied to a natural resource (like forest products) is located in the Montreal to Windsor corridor.

It is what it is.  Ontario gets the high value economic activity and we get a bump in our Equalization payments.

When looking to develop this important industry, maybe we have an opportunity to do things a little differently.