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Smaller Alberta businesses will slash investment 27% in 2016, survey finds

A new survey shows small and medium-sized businesses in Alberta will slash spending more than expected this year as the oil downturn hits every level of the province's economy. The government-owned Business Development Bank of Canada says smaller businesses in the province plan to invest about $11 billion this year, 27 per cent less than last year.

Reality of low oil prices sinking in, Business Development Bank of Canada says

Smaller businesses in the province plan to invest about $11 billion this year, 27 per cent less than last year. (iStock)

Small business confidence in Alberta's economy has dropped as oil prices remain low, two new surveys reveal.

The government-owned Business Development Bank of Canada (BDC) says smaller businesses in the province plan to slash spending more than expected this year, while the Canadian Federation of Independent Businesses (CFIB) says its members' confidence has reached an all-time low in the province. 

According to the BDC, small and medium-sized businesses will invest about $11 billion this year — 27 per cent less than last year.

That compares with a 14 per cent increase in planned spending in British Columbia, and either flat or modest growth in spending across the rest of Canada.

BDC chief economist Pierre Cleroux says he expected spending to go down in Alberta, but was "surprised by the magnitude of the drop."

Two-thirds of the survey respondents in Alberta said a lack of confidence in the economy was their main barrier to investing.

"Just 18 months ago, the oil price was at $100 a barrel, so now it's at barely $30," Cleroux said in an interview with Alberta at Noon on Thursday.

"There's quite a change in a short period of time so I think it's normal that people are not confident about the economy."

The BDC survey heard from roughly 4,000 executives of companies across Canada with between one and 499 employees.

​Confidence has plummeted

The CFIB's monthly "business barometer" suggested that Alberta's small business confidence dropped to the weakest level ever reported.

Thirty-five per cent of owners said they will reduce their full-time workforce.

"In the last recession, confidence levels began rebounding much more quickly. At this point, it is not clear how low it might go," said Amber Ruddy, CFIB's Alberta director, in a release.

Amber Ruddy is the director of provincial with the Canadian Federation of Independent Business. (CBC )

The business barometer operates on a 0-100 scale, where an index above 50 signals there are more business owners expecting their performance to be stronger in the next year than there are those expecting a weaker performance. 

The index in Alberta fell to 28.8 in January, which is 26 points below where it was at this time in 2015.

Ruddy urged the province to reconsider its plans for a carbon tax and to raise the minimum wage.

"To improve spirits the Alberta government should announce a firm release date for the provincial budget," she said.

"Entrepreneurs want to know a plan is being developed to deal with the mounting challenges in the economy."

Cleroux said the lack of confidence can't necessarily be attributed to provincial policy. "It's a market thing," he said.

"Oil is not the only sector that is depressed. Mining is also depressed across the country, and it's just because the price of most commodities are depressed."

The CFIB survey was based on 712 responses collected from a stratified random sample of CFIB members to a controlled-access web survey.The survey is considered accurate to +\- 3.7 per cent, 19 times in 20.

Low prices creating a chance to diversify

Small- and mid-sized energy companies that are well diversified have a better chance of prospering than less diversified businesses, says a study by the Business Development Bank of Canada (BDC). (The Canadian Press)

Cleroux said the low oil prices present an opportunity for diversification, even within the oil sector.

"In the last three years when we look at companies that are more diversified, then they perform better," he said.

"So this is a good time to look at other markets, other sectors, that we can serve."

Other sectors continue to perform better, Cleroux added, pointing to tourism, manufacturing and parts of the farming industry.

"What we have to think about today is how we should diversify our businesses to prevent the next cycle," he said. 

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