HAMILTON—For Graeme Smith, cheese is the new steel.

The laid-off steelworker-turned-entrepreneur serves gourmet grilled cheese to former co-workers at the restaurant he opened on gentrifying Ottawa St., in the shadow of Hamilton’s steel mills.

When Smith landed a job at Stelco in 2006, a year before it became the now-insolvent U.S. Steel Canada, he believed he landed a lifelong career like his father, who worked at the mill for 38 years.

“But the writing was on the wall,” he said.

He was laid off within a year of the new ownership’s takeover, and used Ontario’s Second Career Program to go to culinary school, where he developed a business plan for his 20-year dream to open “Gorilla Cheese.” His concept became Hamilton’s first food truck in 2011, and a permanent part of its re-invigorated restaurant scene in November.

His story is emblematic of Hamilton’s newfound narrative: the scrappy community that pulled itself up by the bootstraps to prove there is life after Steeltown.

Even as a U.S. recovery and low Canadian dollar breathe new life into the city’s manufacturing sector, Hamilton is focused on diversifying the local economy away from its former dependence on heavy manufacturing, the fate of which is largely determined by global cycles beyond its control.

The port city’s steel-driven manufacturing base — once the Canadian home to a who’s who of industrial leaders from Westinghouse to Procter and Gamble — has shed some 25,000 jobs since 1976, as major employers lost out to new cheap global competitors amid the rise of the Canadian dollar.

“We were in desperate need of diversifying the economy and growing the economic base,” said Neil Everson, City of Hamilton economic development director.

The realization came at an auspicious moment — just before the 2008-2009 recession battered the city’s manufacturing sector, sending output down 16 per cent in 2009.

City hall believes that this focus on diversification is one of the major reasons Hamilton weathered the recessionary storm as well as it did, and even managed to post lower unemployment rates than the provincial or Canadian averages.

Hamilton has been rated Canada’s most diverse city economy by the Conference Board of Canada, which expects it to make strides in economic growth, employment and personal income levels over the next three years.

The city’s transformation away from a reliance on one dominant sector can be a lesson for oil-dependent communities that are smarting from a crude downturn, Everson said.

The principle is deceptively simple: “Don’t put all your eggs in one basket.”

But execution has been less easy. The public sector is the new economic driving force, and the city needs private companies to create more of that growth, Everson said. Hamilton ranked just 67th out of 121 Canadian cities on a Canadian Federation of Independent Business survey of best communities for entrepreneurship.

Steel is still the biggest private-sector employer here. Even if Hamilton’s fortunes are less susceptible to the ebb and flow of the commodities market, manufacturing is still a giant piece of its economic puzzle. The sector is expected to drive municipal growth this year, as a low loonie makes Ontario-made goods cheaper and a U.S. recovery spurs demand.

The city’s steel manufacturers are part of a rebound in Ontario auto part shipments to the U.S. over the past six months. ArcelorMittal Dofasco plans to hire 1,000 workers over the next three years. U.S. Steel Canada, which is mostly shuttered and has slashed its workforce, has been recalling workers in recent weeks.

National Steel Car, which makes railroad cargo containers, laid off 520 workers just before Christmas when it shut its oil tanker line due to a slowdown in orders. But 300 of those workers have been recalled to work instead on two additional freight lines where orders are picking up, partly thanks to a low dollar. It expects to have all of the workers back by March and even plans to hire.

While the City is encouraged by a rebound in it traditional manufacturing base, it is more excited about the opportunity that the low loonie provides to attract new foreign investment in the sectors it’s focused on, including advanced manufacturing, life sciences and technology.

Advanced Hamilton-based manufacturers have succeeded by focusing on knowledge-based, value-added production to give them an advantage over lower-cost competitors.

A multitude of smaller players are in expansion mode, including waste water filter company Fibracast and autoparts maker Stackpole. They employ hundreds rather than thousands of people, but combined they have helped the city to more than make up the jobs lost in heavy industry.

Output from the city’s manufacturing sector is expected to increase by two per cent in 2016, thanks in part to the growing food processing business, led by a Maple Leaf Foods super-plant and investments from major agricultural players at the port.

Much of Hamilton’s economic diversity relies on the growth of “eds and meds” sectors, a focus that is a popular route to economic development for recovering Rust Belt cities. The research-focused health care industry is now the city’s biggest employer, providing some 20,000 jobs, while education is its fastest-growing sector.

The information and cultural industries, which have grown since the city became an affordable destination for artists in the 2000s, is another of the city’s fastest growing sectors. The Conference Board projects that a low loonie will make it an even more attractive location for film shoots.

To passersby, Hamilton’s economic renaissance has been overshadowed by the factories spewing smoke over the Burlington Skyway, clouding a transformation inside the city that Ontario’s economic development minister has touted as a role model for recovery.

But now an increasing number of Toronto developers and families are ready to invest in Hamilton’s skyrocketing, but much more affordable, real estate market.

“We were the city that people drove by and see the smoke stacks and went ‘Oh, what a dirty city’,” said Smith, sitting at a table in his little grilled cheese shop, giving a knowing smile toward the steel mills at the end of the street.

“But people from Hamilton are happy being the little kept secret because we’re happy with what we’ve got here.”

The businesses

Hamilton has more than made up for the loss of manufacturing jobs by adding to the workforce in the knowledge-based sectors it’s focused on. Its average unemployment rate was 5.4 per cent in 2015, less than the average in Canada or Ontario, and it’s lowest since 1976.

On the lakeshore, the Hamilton Port Authority desperately needs land to meet the growing demand for space from a steadily rising base of agri-business customers that surround steel company lands.

“We’ve been almost using a shoehorn now to bring in new customers and fitting them all into the footprint we’ve got,” said the port’s vice-president Ian Hamilton.

The port has seen about $200 million in investment from agri-companies in the past five years. In addition to a sugar refinery and a new craft brewery, construction is underway for a third grain terminal and a new flour mill.

Attracting agricultural tenants was an intentional strategy by the port to offset some of the losses from shipping steel-related products it was seeing in 2007.

“We recognized we were too dependent, we just didn’t recognize we were going to lose that chunk of business, that we were going to be filling this void.”

Agriculture hasn’t filled the entire 4 million tonne loss from the steel business, but has replaced about half.

Hamilton anticipates demand for shipping cargo to the U.S. will grow further due to the lower dollar. But he believes it will take another half a year to see the real opportunities arise.

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Hamilton’s port, the busiest on the Canadian side of the Great Lakes, has 130 tenants on long-term leases and just 27 acres of vacant land, compared to 200 acres in 2007. The port has expressed interest in buying at least some of the parcel of adjacent U.S. Steel land.

“That’s one of our challenges now with the success is we just don’t have the land to meet that demand going forward.”

Here’s a look at how other Hamiltonians are building the new economy:

Information technology

Waterloo doesn’t own tech, said David Carter, executive director of Hamilton’s Innovation Factory. But without a startup incubator of Hamilton’s own, the city risked losing a lot of “interesting collisions” — with health care, advanced manufacturing and other burgeoning sectors — to the city an hour away.

The Forge incubator opened its doors in January 2015 and houses about a dozen young companies in various stages of development — from QCard, an app designed to help people with cognitive impairments remember tasks, to Chipsetter, a low-cost microchip machine for companies to make small batch circuit boards.

Hamilton may not have a RIM yet, Carter said, but “it’s not hard to see a generation here that in five years will be significant employers.”

Nix Sensors Inc. grew from engineering student Matthew Sheridan’s house through the incubator into an eight-person team. Sheridan, now CEO, moved the company briefly to Waterloo. He had offers to move into programs in Boston and San Francisco, but decided to return to Hamilton. “There’s no shortage of talent here, and definitely no shortage of community support as well.”

Creative industries

Erin Dunham was always going to Toronto to eat because Hamilton had few independent restaurants where she wanted to hang out. So she opened one — and then four more. Dunham and partner Matt Kershaw own Other Bird food group, which opened Rapscallion Rogue Eatery, one of Hamilton’s hottest restaurants, four years ago. Since then, their team has grown from five to 70 people.

The growth of the creative industries, spurred by an influx of artists into the city since the new millennium, has sparked a grassroots scene that has helped the city’s “cool factor” she said. Art Crawl, a decentralized once-a-month art show, spawned the award-winning Supercrawl festival which now attracts more than 130,000 visitors.

“It’s all very much spontaneous, it’s not being centrally organized but it’s all happening,” said Rob Zeidler a developer who recently converted a turn-of-the- 20th-century Imperial Cotton factory into an affordable workspace hub that houses 60 artists, filmmakers and fashion designers.

“The art scene has become the symbol of the revitalization of Hamilton.”

Life sciences

Hamilton’s health sector is the city’s biggest employer. It grew by eight per cent over the past five years. McMaster University, Hamilton Health Sciences and St. Joseph’s Healthcare Hamilton have won global awards and recognition for research capabilities. The sector attracts more than $200 million in research revenue annually.

The industry’s economic impact could be even greater if the group can bridge a gap between innovation, research and commercialization, said Rob MacIsaac, CEO of Hamilton Health Sciences.

The next step is to create more partnerships with the private sector, to spin off private companies to help sell products and services being developed in Hamilton around the world. There are currently about 300 life sciences companies operating within Hamilton, but a relatively small presence of multinational companies.One recent international collaboration will see Germany’s Fraunhofer, Europe’s largest applied research organization, partner with McMaster University to create the Biomedical Engineering and Advanced Manufacturing research facility, which will focus on regenerative medicine, cell therapies and innovative diagnostics.

Real estate

Hamilton is one of the hottest markets in the country, fuelled in part by Torontonians moving west because they’re priced out of the market in the big city. Home prices in Hamilton rose by nearly 10 per cent in 2015, about the same as in Toronto. But prices are about half as much, with the average hovering around $363,000.

Vanessa Perry and her husband reluctantly moved back to the city where they grew up from Toronto three years ago, when she was pregnant with their first child. But they are converted.

“Hamilton was really starting to make a big change so on our return to Hamilton we started to see a lot more local small businesses opened up, new restaurants, condo conversions and it really just seemed like there was a whole different vibe.”

Now, as a real estate agent in Hamilton, Perry serves clients in similar situations. Perry said Hamilton is starting to see an increase in bidding wars and sales of homes for above asking price. Prices in her area near Gage Park have risen nearly $100,000 in the three years they’ve been there.

Advanced manufacturing

ArcelorMittal Dofasco continues to hire and invest in its Hamilton harbour facility, telling a starkly different story from its competitor next door, where U.S. Steel sits mainly idle and on the verge of collapse. “Make no mistake, steel is still a very, very important economic engine in the city of Hamilton,” said Sean Donnelly, president and CEO ArcelorMittal Dofasco.

The Canadian division of the global steel giant is a bright spot for the world’s largest steelmaker and recently invested $120 million in a new line for advanced high strength steel for the auto and construction industries.

Still, it is the quiet local manufacturing successes like Ancaster-headquartered specialized oil pump maker Stackpole that have stepped in to fill the void left by industrial giants that, unlike Dofasco, have left the city.

The company employs about 700 people in Ancaster and is expanding its powdered metals plant by about one-third to meet current demand and plan for new business it expects to win as North American auto sales heat up. “Stackpole makes things on vehicles that I wouldn’t consider to be commodity parts — that you can just buy a lot cheaper overseas. There’s a lot of intellectual property involved in what we do,” said Paul Bartel, general manager of the Ancaster division.