Countless reports have concluded that Canada is losing the global innovation race because companies aren’t investing enough in research and development.
A new report Wednesday from Statistics Canada suggests the message isn’t getting through.
Canadian businesses say they’ll spend less on R&D for a third straight year in 2010, according to preliminary estimates by Statscan. Companies intend to spend $14.8-billion this year, 2.6 per cent less than in 2009.
The agency blamed the drop on the “start of the global financial crisis” in 2008 and the subsequent recession.
Canadian companies spent $16.6-billion before the recession hit in 2007. Spending has fallen every year since, including drops of 5.1 per cent in 2008, and 4 per cent in 2009.
This year’s forecasted decline is spread broadly across all regions and most industries, Statscan said.
The findings aren’t entirely surprising. There’s a direct correlation between after-tax cash flow in one year and productive investments, such as R&D, in the next year, according to a recent report, Invest to Grow, by the Canadian Manufacturers & Exporters (CME). And cash flow for many companies took a big hit in 2008 and 2009.
“For most companies, the first priority is survival and meeting payroll,” pointed out CME president Jay Myers. “A lot of companies tell us they would like to make investments, but can’t because of cash flow considerations.”
Financing is also problematic. Even with the recession over, companies are facing difficult financing conditions for everything they do, including R&D. As recently as June, a significant percentage of manufacturers reported they were having trouble securing financing for development of new products and technologies, the CME said.
That’s why the CME has been lobbying Ottawa to move to refundable tax credits in its key incentive for R&D – the $3-billion Scientific Research and Experimental Development program.
Even before the recession hit, Canada’s record on innovation was lagging. The country ranks 12th among advanced economies, spending 1.95 per cent of gross domestic product on R&D, according to the Organization for Economic Co-operation and Development. That compares with an average of 2.2 per cent among Group of Seven countries and 2.6 per cent for the United States, Canada’s major trading partner.
Ontario leads the country in R&D, spending $7.6-billion in 2008 or 48 per cent of all money spent in Canada, Statscan found. Quebec was second at $4.6-billion (29 per cent), followed by B.C. ($1.5-billion, 9.8 per cent), Alberta ($1.5-billion, 9.4 per cent), Manitoba ($160-million, 1 per cent), Saskatchewan ($132-million, 0.8 per cent) and Atlantic Canada ($317-million, or 2 per cent).
Five industries expect to spend more than $1-billion on R&D in 2010: R&D services ($1.6-billion), telecommunications equipment ($1.3-billion), wholesale trade ($1.2-billion), computer system design ($1.1-billion), and cultural and information industries ($1.1-billion).
- R&D provided the equivalent of 158,926 full-time jobs for Canadians in 2008, up 15 per cent from 2003.
- 60 per cent of R&D spending goes to salaries.
- Companies finance 79 per cent of R&D themselves, while 13 per cent comes from outside sources, and 2 per cent from the federal government.
