Canada's R&D performance in doldrums with third lackluster year in a row

Economic crisis still to register

Statistics Canada has released its final and most substantial collection of R&D data of the year and it doesn't paint a pretty picture. It shows that Canada's gross domestic expenditures on R&D (GERD) are projected to be virtually stagnant for the third year in a row and are actually in decline when measured in 2002 constant dollars. What's more, industrial R&D spending — the focus of both federal and provincial S&T policy for the past several years — is barely increasing, managing just a 1% rise (before inflation) between 2007 and 2008.

Even the higher education sector, which has experienced dramatic gains in recent years, is set to perform only 1% more R&D in 2008 than the year before, while the amount of federal R&D performed will shrink 2.7% (see chart page 2)

In 2008, overall R&D expenditures are slated to increase 0.7%, virtually the same as the 0.6% increase registered for 2007 and down from a 2.0% increase for 2006. When examined in 2002 constant dollars, those marginal increases turn into declines — 0.4% in 2006 escalating to 2.4% in 2007. The decline for 2008 will likely be even larger as R&D spending has remained virtually the same and gains in GDP have vanished into the black hole of the current economic crisis.

Underlining the decline in Canadian R&D is the measure of GERD-to-GDP, which was showing promising signs as recently as 2004 when it reached 2.08 before dropping once again. to 1.88 in 2007.

Data from the Organisation for Economic Co-operation and Development (OECD) confirm Canada's relatively poor standing against its peers with 2006 data showing Canada's GERD/GDP ratio at 1.94 compared to the OECD average of 2.26.

Only when Canada is compared to the so-called EU-27 does its GERD/GDP ratio rise above the average — 1:94 vs 1.76. The EU-27 includes countries such as the Slovak Republic, Hungary, Greece and Poland, whose economies arguably do not place them in the category of advanced nations.

The natural sciences and engineering completely dominate R&D spending in Canada, with $26.9 billion or 92.5% of the 2008 total. In contrast, social sciences and humanities R&D accounts for $2.2 billion or 7.5% of the total.

Quebec can lay claim to the highest provincial GERD-to-GDP ratio in Canada (2.7, higher compared to Ontario at 2.27 and the OECD average of 2.26). In 2008 (the last year for which a provincial breakdown is available), Quebec's R&D performance increased a respectable 5.1% to $7.6 billion after a flat performance the year before. Virtually the whole increase is attributable to stronger industrial R&D spending — a claim that can't be made by neighbouring Ontario.

It was Ontario's turn for stagnant R&D, with $12.7 billion in 2008 up a negligible $15 million from the year before. Industrial R&D actually declined nearly $200 million to $8.0 billion, although that still accounts for more than one quarter of total Canadian R&D spending by all sectors.

The severe downturn in Ontario's manufacturing sector is unlikely to diminish the provinces status as Canada's R&D powerhouse. Almost every indicator attests to Ontario's dominance, from the strength of its private sector R&D to its ability to attract nearly half of all foreign R&D funding. But if Ontario's high-tech sectors are hit hard by the economic crisis, the province's R&D numbers could tumble.

An indication of the seriousness with which the high-tech sector is taking the economic crisis was exemplified by an extraordinary appeal for $60 billion in stimulus funding by the Canadian Advanced Technology Alliance. CATA is calling for new tax measures to benefit the services economy, more generous R&D tax credits, a boost to green technology and support for aerospace and broadband Internet.

Lackluster R&D performance extends west across Canada with none of the western provinces showing anything more than marginal increases or declines. British Columbia had the best performance, with $2 6 billion, in 2006, up 5.5% over the previous year.

The highest gains were realized in Nova Scotia, Prince Edward Island and New Brunswick with increases of 6.6%, 6.1% and 5.8% respectively. Newfoundland's R&D outlays dipped slightly in 2006, after a spectacular 54.3% gain in 2005.

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