Last summer, as I sipped camp coffee on the beach just below the “Gums of Death” on the Takhini River, I watched some tourists in a canoe float unprepared through the rapids.
Once we got them out of the river, one of the tourists said, “That must have been the rapids mentioned in the guide book.”
When you hear the roar of rapids, it is generally a good idea to stop dangling your feet over the side, put away the crime novel, seal up the dry bags and get your hands on your paddle.
Economically speaking, I am afraid the roar of rapids is getting rather loud here in the Yukon. Big layoffs were announced in June at Alexco and Yukon Zinc, two of the Yukon’s operating mines. Alexco cut about 25 per cent of its Yukon workforce. Yukon Zinc cut about 100 jobs in the Yukon, including around half the underground miners.
Victoria Gold also announced cost-cutting and staff reductions as it tries – unsuccessfully so far – to find financing to go into production.
Mining company share prices are down sharply. Alexco and Victoria Gold are both down more than 85 per cent from their peaks in 2010-11. (Yukon Zinc is now owned by Chinese interests and is not publicly traded.)
Exploration has also been slowing down. Federal government data reported in the N.W.T.‘s recent Pathways to Mineral Development report showed projected 2013 Yukon exploration spending at one-third the level of its peak in 2011, and below spending levels in five of the six previous years.
Meanwhile, federal cutbacks to things like the Whitehorse tax office and tour guides on the S.S. Klondike continue to ripple through the economy. Each of these cuts is small in itself, but cumulatively across departments they add up.
So what does this mean for our economy, Yukon businesses and Yukoners?
The canoeing metaphor is a good one. Perhaps that roar around the corner is just an easily avoided rock. But maybe not. The wise paddler will get ready just in case. Especially since, unlike canoeing, the economy doesn’t allow you to pull over and walk ahead to see what’s really around the corner.
So what is the economic equivalent of sealing the dry bags and grabbing your paddle?
The first is cash-flow. Going into a recession with your expenses higher than your income is like going into rapids with your canoe already leaking. Businesses and families need to make sure there is a solid margin between revenue and expenses.
On the revenue side, it is already a tough environment. For businesses, competition from local, Outside and Internet players is intense. For individuals, managers are cutting overtime budgets and pushing back on raises. But any revenue opportunity should be seized.
Cost can be a more manageable lever. Now is the time to comb through discretionary spending: travel, meals, entertainment and the small items that add up to big bucks at the end of the month. Go through your monthly expenses and review where your money goes. If in doubt, err on the side of keeping the money in the bank. And think about bigger ticket items too. With gas prices higher, perhaps your delivery staff can do their jobs in a four-cylinder Honda Fit rather than a V-8 pickup. The same applies to your personal commute to work.
After you’ve ensured your monthly cash-flow is positive, have a look at your balance sheet. In particular your debt. This is the equivalent of going into the rapids with an overloaded canoe and just a few inches of freeboard.
Ask yourself a few questions. Do you carry a balance on your personal or business credit card? Are you paying high rates on unsecured credit lines? Ask a banker about how much you could save if you refinanced with a lower-rate product. And ask yourself if you could increase monthly cash-flow to pay down debt faster.
And have a look at your assets. On the business side, do you have any assets you picked up during the boom years that might be worth turning into cash? Perhaps you should do that now, before the economy slows further and buyers go into hibernation. The same applies on the personal side to snowmobiles, boats, campers and so on.
Finally, do some scenario planning. How would you cope if your business’s revenues went down 20 per cent? Or if layoffs or job-sharing hit your company? Do you have the flexibility to cut costs quickly? Do you have a cash reserve to cover mortgage payments if the worst should happen?
Everything will probably turn out fine. Most canoes make it through most rapids most of the time. But it pays to be prepared. You don’t want to end up like last summer’s tourists. As we loaded our canoe onto the truck at Mendenhall Landing, we saw the fly of their tent float by.
Keith Halliday is a Yukon economist and author of the MacBride Museum’s Aurore of the Yukon series of historical children’s adventure novels. You can follow him on Twitter @hallidaykeith.