Decline in industrial R&D continues unabated according to latest StatsCan data

Canadian industrial R&D is on track to produce another gloomy year as Statistics Canada data show a projected 2.6% year-over-year decline in 2015. Industry is slated to perform just $15.5 billion this year, down from $15.9 billion in 2014 and well off the high-water mark of $16.9 billion in 2011.

In 2007 constant dollars, the picture is even more sobering, adjusting the 2014 total downward to $12.1 billion, compared to the 2007 total of $16.8 billion — a 16.1% decline in just seven years.

The latest data are sure to spark debate over the industrial and innovation policies of the Harper government, given that the seven-year period of decline coincides with its control of government decision-making. Even when taking the recession into consideration, Canada's performance is mediocre at best and is steadily losing ground to competitor nations.

The government's reduction of R&D tax credits and (until recently) reliance on raw resource extraction over value-added goods and services are considered by many to have contributed to declining industrial R&D performance.

Industrial R&D and the affiliated metric GERD (gross expenditures on R&D as a percentage of gross domestic product) are considered bellwether indicators for gauging the health of a nation's innovative capacity, although other aspects of the innovation ecosystem are gaining in stature. Some argue that Canada is as innovative and R&D intensive as it needs to be, but with the decline in most commodity prices, a greater focus on manufacturing is beginning to emerge.

Manufacturing plunge

The manufacturing sector needs all the attention it can get. Between 2011 and 2015, R&D spending by manufacturing firms declined from $7.4 billion to $6.4 billion — a drop of 13.5%. When compared to the 2001 peak of $9.2 billion, the reduction is 30.4% before adjusting for inflation.

Even the services sector, which has been increasing its share of the total in recent years, has declined from $7.6 billion in 2011 to $7.3 billion in 2015, down 4.5%. Services R&D accounted for 47% of all industrial R&D compared to 42% for manufacturing.

The oil and gas extraction industries are also experiencing an R&D downturn, likely due to the decline in oil and gas prices. When combined with contract drilling and related services, the sector's $1.3-billion total for 2015 is well off its all-time high of $1.5 billion in 2012.

Agriculture R&D is also well below its previous high, estimated at $73 million in 2015, compared to $120 million in 2011.

Wood product and paper manufacturing are faring somewhat better at $101 million and $132 million respectively, at or near their recent highs in 2011.

Other key sectors - pharmaceutical and medicine manufacturing, chemicals manufacturing and plastic product manufacturing — are all down or stagnant.

Information and cultural industries are faring reasonable well, posting $1.3 billion in 2015. Wholesale trade is also holding steady at $1.3 billion.

The R&D dominance of Ontario and Quebec — Canada's industrial heartland — has been eroded somewhat although the two provinces still account for $11.7 billion or 73% of the total in 2013 (down from $10.5 billion or 85% in 2000). In contrast, the performances of Alberta and British Columbia are vastly improved. Between 2000 and 2013, Alberta's industrial R&D spending more than tripled from $583 million to $2 billion, while BC companies boosted their expenditures from $973 million to $1.6 billion.

The decline in manufacturing R&D is also reflected in personnel data. Between 2008 and 2013, full-time equivalent positions fell from 172,744 to 132,331 with the largest decline (42%) in technical and support staff positions. The drop in scientists and engineers was less than 10%.

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StatsCan Industrial R&D 88-202-x2015000.pdf