I usually take stat holidays off, but Good Friday strikes me as a bogus holiday — is this a theocracy or what? — and besides, I feel compelled to write about two issues in the news, so here’s an abbreviated version of Morning File. We’ll publish Examineradio later today, El Jones will write Saturday’s Morning File, then we’ll all take a few days off. I’ll return with Tuesday’s Morning File.
1. Unique Solutions
Unique Solutions Design Ltd will cease operations if it doesn’t find $10 million in new investment. In fact, if the company doesn’t raise $4 million in the next six weeks, “assets will likely be liquidated to satisfy secured creditors and it is unlikely that there will be any residual value for shareholders.”
That’s the bleak assessment of the company’s future as explained by Tuoc Luong, Chief Executive Officer of the company, in a letter sent to shareholders Tuesday.
This article is behind the Examiner’s paywall and so available only to paid subscribers. Click here to purchase a subscription.
Why should we care? Because Nova Scotia Business Inc, the province’s economic development agency, invested $5.6 million into Unique Solutions. Most of that money was probably written off years ago, yet NSBI refuses to disclose that fact; but when Unique Solutions finally goes belly-up, there will be no denying the loss of taxpayer money.
I’ve been following this story for a while, in part because I distrust government economic development agencies and in part because the Chronicle Herald has so horribly covered the story. I’d go so far as saying that business columnist Peter Moreira has been misleading Chronicle Herald readers.
Of course, Chronicle Herald management knew that Moreira was misleading his readers — I told them as much, and documented it — but they didn’t care. So by extension, Chronicle Herald management and owners Mark Lever and Sarah Dennis have also been misleading their readers.
Let’s review.
We have a government economic development agency — NSBI — that picks and chooses which companies it “invests” in — and which it doesn’t — by who-knows-what mechanism. Over the course of time that Unique Solutions’ CEO Tanya Shaw managed to convince NSBI to invest $5.6 million into her company, her marriage with her then-husband fell apart and they divorced. She later ended up marrying NSBI’s Director of Venture Capital, Peter MacNeil. In his position at NSBI, MacNeil had sat on Unique Solutions’ board of directors, but there’s no indication that his personal relationship with Shaw started before NSBI invested the money into Unique Solutions, and NSBI has assured me that once the relationship began, MacNeil was removed from the file.
It’s a small province, after all, and everyone knows everyone in Nova Scotia.
Peter Moreira also is involved with NSBI — NSBI hires him to write about start-ups. One of those start-ups was Unique Solutions. As I’ve pointed before, in his dual role as start-up promoter and business columnist, Moreira faces some big ethical issues.
Here’s one of those ethical issues: Moreira knows Tanya Shaw and invested in Unique Solutions, and then as a Chronicle Herald columnist wrote about the company favourably, and then didn’t write the truth about the company when he, as an investor, was alerted to the failed body-scan kiosk initiative.
It’s a small province, after all, and everyone knows everyone in Nova Scotia.
And then there’s Ian Thompson. Thompson was the deputy minister at the Department of Economic and Rural Development and Tourism from 2008 through 2011, and in that position was appointed to the NSBI board of directors in 2009. Thompson was the bureaucrat charged with overseeing NSBI when it extended $2 million in assistance to Unique Solutions in March 2009, and he OKed the conversion of NSBI’s $5.6 million in loans to Unique Solutions into an equity stake in the company. And — follow the bouncing ball here — Thompson is Sarah Dennis’s uncle; in 2011 Dennis hired Thompson as the Assistant Publisher of the Chronicle Herald. Thompson was therefore in charge of the paper when Moreira and the paper’s business reporters utterly failed to properly report on the collapse of Unique Solutions.
It’s a small province, after all, and everyone knows everyone in Nova Scotia.
But let’s leave all the personal messiness behind and concentrate on the philosophy of the provincial government investing in private companies.
I would argue that such investments are almost always inappropriate. But for the sake of argument, let’s say there’s some legitimate reason for the government to get involved in for-profit companies. Yet, if so, is it enough to say that the province should merely be looking for a good return on its investment, or should there be a consideration of public purpose?
I mean, maybe one could argue that the province should invest in, say, tidal energy companies, because the potential payoff not only includes dollar profits but also clean energy that can displace fossil fuels and therefore offset climate change. That’s a legitimate public purpose.
But what if the government invests in a company that hoodwinks the public, shilling a homeopathic product with exactly zero medical value? Sure, there’s the potential to make millions of dollars from desperate people in pain, but is that, you know, ethical?
That’s exactly what NSBI did when it invested $7.9 million in taxpayer money into Origin Biomed, a company that sold a bogus medical product called Neuragen. As I wrote last year (see my three-part series on Origin Biomed here, here, and here):
Shouldn’t NSBI have an ethical filter? No matter what the possible export sales income from Neuragen may have been, the Nova Scotian government should not be in the business of promoting quack medicines. Tens of thousands of people were sold a bogus product, costing those people millions of dollars, and that scam — there’s no better word — was facilitated and financed by Nova Scotia Business Inc. Is there no oversight body to investigate this? Where is the auditor general? Where is the provincial Office of the Ombudsman? Do any of our elected representatives care? What about minister of health, Leo Glavine?
But even if you think it’s OK to profit off selling quack medicine to sick people — and what kind of person thinks this? — the scam failed: Origin Biomed went bankrupt.
I recognize that Unique Solutions is one step above Origin Biomed. Unique Solutions isn’t selling a quack product, but is rather selling a service that is aimed at helping people who have body image issues feel less self-conscious when buying clothes. There maybe was arguably a value for consumers in that service, although demonstrably, given the pathetic performance of Unique Solutions, there wasn’t in fact.
Still, say there is a consumer value in making people feel less self-conscious as they buy clothes. Does that consumer value really rise to the level of something the taxpayer should invest in? Does it merit government investment? Is there a public purpose?
Besides, the whole idea of a body-scan booth is ridiculous. Unique Solutions’ mall kiosk fiasco was predicted 40 years ago:
2. Yarmouth ferry
The province yesterday announced its support for the Yarmouth ferry:
The province has reached a 10-year agreement with Bay Ferries Limited to manage and operate a high-speed ferry between Yarmouth and Portland, Maine.
Government will provide annual funding for the ferry service, including marketing, at $10.2 million for the first season and $9.4 million for the second. There will also be $4.1 million for start-up costs that will include terminal upgrades and $9 million towards the ferry’s retrofit, in lieu of two years of charter fees.
[…]
Bay Ferries Limited, who operated the Yarmouth-Portland ferry service until 2009, has secured a vessel from the Military Sealift Command of the United States navy for the service. The vessel is a high-speed ferry with a capacity of 282 vehicles and 866 passengers. It was built in 2007 as a civilian ferry and was used in the Hawaiian Islands.
[…]
The 2016 season schedule is anticipated to run June 15 to Sept. 30, departing Yarmouth and Portland daily at 8 a.m. and 2:30 p.m. respectively and returning to Yarmouth at 9 p.m.
That’s $32.7 million for two years of service, and the first year is a shortened season.
As Michael Gorman reports in Local Xpress:
All financial figures for the service are based on a starting point of 60,000 passengers, slightly more than what Nova Star Cruises carried during each of its two years serving the route.
At $10 million a year, that’s an operating subsidy of $167 per passenger. Assuming 60,000 passengers travel in each of the first two years, and including all capital costs, the subsidy is $273 per passenger.
It’s hard to talk dispassionately about the ferry expenditures. Some people along the South Shore feel their concerns are discounted, and they become second-class citizens. They could point to the $13.3 million annual subsidy (municipal and provincial payments combined) for the new convention centre in downtown Halifax, and say that shows that the government has no problem dumping money into Halifax-centred economic development programs, so why are we criticizing such expenditures that help people on the South Shore? And they’d have a point.
But I’d argue that like the Halifax convention centre, the Yarmouth ferry expenditure is not a wise use of public money. It’s not so much the dollar amount that concerns me, but rather the bang for the buck. Put simply, $32.7 million for 120,000 passengers is a horrible return on the investment.
“Economic impact” figures are the government equivalent of voodoo. People can create numbers out of thin air, then twist and turn those numbers to say whatever they want. Economic impact for tourism is particularly problematic. Take, for example, the Ivany Report’s Goal 14:
Tourism Expansion:
As Nova Scotia’s leading source of service sector exports, gross business revenues from tourism will reach $4 billion (approximately double the current level).
Doubling tourism revenue to $4 billion means that the starting point is $2 billion. Where’d that figure come from?
Well, there are lots of government reports that point at modelling done in 2010. Here’s one, which states:
Nova Scotia’s visitor economy is valued at $2 billion and contributes $722 million to provincial gross domestic product, which accounts for two percent of all provincial economic activity.
Two billion dollars, right there in black and white. But wait. Keep reading:
Tourism industry revenues totaled over $2 billion in 2010. The visitor economy directly supported 24,000 jobs and $531 million in household income. It also contributed tax revenues of $78 million provincially and $78 million federally in 2010. Municipal tax impacts attributable to tourism were estimated at $24 million or 2.4% of all municipal taxes.
Visitors to Nova Scotia bring new money into the provincial economy. In 2010, out-of-province travellers generated almost $1.2 billion in export dollars, more than half (58%) of all tourism revenues.
The Nova Scotia resident component of the visitor economy was $840 million. Nova Scotians spent $652 million travelling within Nova Scotia and contributed $188 million when Nova Scotia travel was part of a larger trip out of province.
See what they did there? Yep, they included Nova Scotia residents travelling within the province in the total $2 billion figure in order to figure economic impact. This is a big no-no in economic impact reports.
If the new convention centre includes local meetings in its calculation of economic impact, it will be lying to citizens. If the Halifax Association of Disgruntled Journalists (HADJ) decides to hold its annual general meeting at the new convention centre instead of the Woodside Beverage Room, it doesn’t magically create new money in the province. Likewise, if I decide to spend the weekend in Canso instead of staying in Dartmouth, it might help the owners of the Canso Beverage Room (where I’d inevitable spend all my dough), but only at the cost to the owners of the Woodside Beverage Room. There’s no new money created.
So “doubling” tourism revenue to $4 billion might be achievable by simply getting people to knock off work early on Fridays and spending the day at the boardwalk beer garden. The productivity loss would be far greater than the increase in beer sales, but tourism promoters could point to the increased beer sales and say the economy is doing great. Heck, if we give everyone Thursdays and Fridays off, we’d do that much better economically.
If we’re going to be remotely honest about this, what we should be seeking to double is not the $2 billion figure, but rather the $1.2 billion from people who come from out of province.
Maybe the Yarmouth ferry figures into that, because presumably the point is to get Americans to come up here and see how quaint we are.
According to Tourism Nova Scotia, 2.1 million visitors come to Nova Scotia every year. If they’re responsible for $1.2 billion in sales, that’s about $571 spent per person. That includes transportation and fuel costs.
So if 120,000 people come on the ferry, that’s a total of $68.5 million spent, obtained at a cost of $32.7 million.
A job in tourism is better than no job at all, but the vast majority of tourism jobs are going to be minimum wage or near-minimum wage, and seasonal. It’s a testament to how much people want to live on the South Shore that they’ll piece together an income from seasonal tourism jobs, perhaps supplemented with seasonal jobs in resources, but is this the best way to serve people? Is this the best investment of tax dollars?
$32.7 million is a lot of money. It’s six Unique Solutions. It’s about $5,000 per resident of Yarmouth. How ’bout instead of paying for a boat, we give each and every Yarmouth household free high-speed internet? Or we create a loan fund to help people establish their own businesses? Or we give every high school graduate free university tuition? Or we… well, you get the point.
‘…requires an American crew.’
So we’re not even subsidizing our own wages and tax base. Brutal. I’d like to know operating costs due to wages. And what about supplies/fuel/etc? I suppose we’re gonna take it in the teeth there too…?
I am not aware of any public transit solution that does not require subsidization, ferries, and transit buses… maybe public bicycle sharing services can go it alone, but I think those are privately run and not really a true public service venture. I guess the bottom line is that there should be a realistic business case put forward for the continued operation of the Yarmouth ferry…. if it were a sustainable and profitable business venture, then some private entity would already be providing the service and raking in the cash.
NS cannot afford to subsidize money pit type public services that do not demonstrate a truly beneficial ROI for the NS economy.
As much as I hate to correct your math, because you’re normally so good at it, your numbers on the ferry are off.
That 120,000 passengers is BOTH ways. So you’re double counting.
That means 60,000 individual visitors. So the ferry revenue at best would only be $34.5 million.
It also doesn’t take into account that a significant percentage of them were Nova Scotians taking their money OUT of the province to spend it in the US (instead of here), so that money has to be subtracted from the benefits. And, if I remember correctly, a noteable %age of the travelers last year were “there and backs” for the “experience of the trip” and they’re hardly spending the “average” tourist dollar amount because the “average” tourist isn’t spending only a few hours in Yarmouth. So those individuals barely count at all as far as contributions to the province go.
Unless I’ve missed something, the ROI of the ferry is worse than you stated.
Wow that was an abbreviated version of morning file?
There’s more there to chew on than 8 weeks worth of strike bound Chronicle Herald “news”.
We work too many days anyway. Let’s have all the major religious (not just Christian) holidays become statutory holidays.
Thanks Tim, another outstanding report on why our provincial economy just can’t find adequate solutions to this ongoing malaise. Don’t know if there’s a Nova Scotia equivalent to Ancestry.ca that constructs a “family tree” of incestuous business/political relationships but it would be instructive. Perhaps we could call it ClientelistpolsNS.ca?
Unique Blinders. Did it ever occur to anyone in the Unique Solutions saga that most people simply don’t want to have their body scanned? That it’s an invasion of privacy. That all the while this product was being developed and marketed, body scanning was repeatedly complained about in the news via stories of humiliation at airports in the U.S.
Was there even an inkling that if people didn’t want their body scanned in the name of safety on a plane, they just maybe wouldn’t submit to it voluntarily in the name of the perfect fitting blouse? And that in an era of increasing concern regarding the invasion of privacy surrounding personal data, they likely wouldn’t trust a mall kiosk that takes pictures of their bodies. Apparently with good reason, considering that data is now for sale.
And finally, most successful products solve a real problem. Was there ever actually any market research done that definitively identified a relevant critical mass of people who don’t like trying on clothes? Was there any consideration that perhaps the type of people who really care about fashion, fit, and love shopping — also love the ritual of trying on clothes and parading them in front of their shopping partners? That they love engaging with the shopkeepers, getting their advice — or even just their attention. That it’s an important part of the experience for them? That it’s part of the fun? Or on a more psychological level, that it’s an integral part of filling the space in their life that they’re using shopping to fill?
If the answer to all these questions is no, then I would suggest that a hand-held scanner is not the answer. Maybe people just don’t want to go through something that feels like airport security when they buy a pair of jeans. Maybe people who don’t like trying on clothes in a retail setting are among the millions who presently buy them on the internet.
With respect Trevor, do you know how these Unique Solutions body scanners worked? They may have used optical scanning rather than back scatter X-ray radiation scanning like airport scanners.
All the US units apparently wanted to do was determine principal tailoring dimensions. Airport scanners are looking for concealed weapons. That directly resulted in 3d quasi-nude renders of the subject, which the operators swore they wouldn’t copy and didn’t laugh at. AFAIK the only data on radiation levels which the subjects of these things face comes from their manufacturer and last I heard they had not been independently verified. (I have chosen to be groped rather than take scans). Totally different objectives IMHO.
I would certainly support your other comments on the US scanners.
Regarding the Yarmouth ferry issue, has the trucks/no trucks issue been resolved with Portland? Commercial Street, where the ferry terminal is located, and despite its gentrification, has always been a REAL commercial area, with trucks large and small going and coming constantly
There will be no trucks on the ferry.
Which is crazy since the ferry terminal in Portland dumps all vehicles onto a main 4-lane corridor which after a very short distance (1km), takes you in a straight line to the interstate.
Wicked negotiating skills. We provide Maine with jobs, subsidized by our taxes, and what do they do for us? Was there a sensible reason for the truck traffic ban?
Wow, the fact that The Chronicle Herald is the longest serving independently owned, controlled and operated newspaper in Canada really makes all the difference. Unreal.