Statistics Canada projects impressive R&D gains in services sector as industrial spending closes in on $10 billion mark

Key industries within the services sector are fuelling impressive growth in the performance of Canada's industrial R&D, led by engineering and scientific services firms which are projected to post $968 million in R&D outlays in 2000, up 14.8% from a year earlier. Overall, R&D expenditures by Canadian industry are projected to increase 5.8% this year pushing the overall total close to the $10 billion mark, according to the latest data from Statistics Canada.

In addition to vibrant services sector performance, major elements of the manufacturing sector are also substantially increasing their R&D expenditures, most notably pharmaceuticals and medicine (up 8.7% to $639 million) and electronic parts and components (up 11.9% to $160 million). Of the six sectors tracked, manufacturing and services comprise the vast majority of R&D spending in Canada, totalling 96.3% of the $9.9 billion projected in 2000. In 1999, estimated R&D expenditures totalled $9.361 billion, a 2.7% increase over actual expenditures of $9.111 billion in 1998.

StatsCan reports that R&D spending in the remaining sectors - construction, utilities, mining and oil wells and agriculture, fishing and logging - is either stagnant or in moderate decline, although these sectors of historically spent relatively little on R&D.

In the services sector, strong R&D spending growth in engineering and scientific services, computers and related services, wholesale trade and finance, insurance and real estate, is being watched closely as a key indicator that the skills required in the knowledge-based economy are taking root.

"I'm particularly interested in the strength of the service industry component. It now comprises a substantial portion," says Dr Fred Gault, director of StatsCan's science, innovation and electronic information branch. "It shows that service industries are not just a repository of knowledge, but a generator of knowledge as well. I'll be keeping a close watch on the sector."

While growth in the services sector is undeniably strong, it is a relatively recent phenomenon. Spending actually fell 3% in 1998 from the previous year and its projected share of the 2000 total is actually lower than 1996. Nonetheless, the upward trend is encouraging, and if sustained, bodes well for future competitiveness and productivity.

Services R&D spending pales in comparison to manufacturing, which accounted for $6.662 billion in 2000 or 67.3% of the total. That compares to a 62.9% share in 1996, when manufacturing R&D outlays totalled $5.062 billion. Within manufacturing, telecommunications equipment looms ever larger, as it continues to dominate the Canadian R&D landscape. This year outlays are $2.301 billion or 23.2% of the 2000 total, although the increase from 1999 is a relatively modest 3.3%.

As expected, Ontario continues to rein as the dominant locale for performing R&D. Firms situated in this province accounted for $5.181 billion or 56.9% of the 1998, the latest year for which provincial breakdowns are available. Quebec trails a distant second with $2.584 billion or 28.4%, followed by Alberta ($557 million or 6.1%) and British Columbia ($534 million or 5.9%).

The remaining jurisdictions were home to the following R&D spending: Manitoba ($90 million); Saskatchewan ($71 million); Nova Scotia ($52 million); New Brunswick ($28 million); Newfoundland ($12 million); Prince Edward Island ($2 million); and, Yukon and Northwest Territories ($1 million).

Foreign funding has always accounted for a significant portion of R&D spending in Canada and 1998 was no exception, with $2.478 billion coming from foreign sources representing 27.2% of the annual total. That amount is down substantially from 1997, however, when foreign sources contributed $2.925 billion for 34.3% of that year's total. StatsCan's Gault says the decline in foreign funding for 1998 is likely a "one-year drop" due to fluctuation of foreign purchases of R&D moving in and out of the market. In general, he says, the portion of R&D outlays financed by foreign sources has been growing over the years. Another finding of the StatsCan data left unexplained is a significant decline in the number of persons engaged in R&D. In 1996, 80,329 people were considered to be R&D workers. That rose slightly in 1997 to 82,156 but dropped to 76,493 in 1998, a one-year reduction of 5,663 or 7.4%.

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