Federal cutbacks, weak industry R&D push Canada's GERD-to-GDP to 15-year low

A slowly expanding economy, federal cutbacks to R&D and stagnant industrial R&D spending have combined to push Canada's GERD-to-GDP ratio down to its lowest in 15 years, according to the new preliminary data from Statistics Canada. In 2011, gross expenditures on R&D were $30.04 billion or 1.74% of gross domestic product, down sharply from 1.85 in 2010 and far below the high watermark of 2.07 in 2004.

In the same year-over-year period, federal funding of R&D declined 6.9% and is projected to drop another 3.1% in 2012. As an R&D performer, the federal government's spending was also down 7.2% in 2012 to $2.48 billion from $2.7 billion in 2011. All other sectors tracked by StatsCan — the provinces, private, non-private organizations, higher education and foreign sources — are projected to achieve modest increases in 2012.

The latest data stand in contrast to the assertions of Gary Goodyear, minister of state for science and technology. On November 29th, Goodyear appeared before the House of Commons Standing Committee on Industry, Science and Technology and stated, "our government has invested more in science and technology in real dollars than any government in the history of this country. That includes an $8 billion increase in new funding."

Overall, 2012 represents a holding pattern for R&D. All sectors accounted for $30 billion in R&D spending — 0.3% increase over 2011 and on par with 2010. GERD per capita was $873 in 2011 compared to $886 in 2010.

Business R&D managed a 1% increase to $14.1 billion in R&D funding but that's far below its high of $15.2 billion in 2008. As a performer, business spending was up 0.9% to $15.5 billion, compared to its 2007 high of $16.8 billion.

Canada's business R&D performance has been tagged as a laggard and international comparisons certainly bear this out. The recently released EU Industrial R&D Investment Scoreboard from the European Commission shows that US- and EU-based companies are ramping up spending in the wake of the economic recession. The report found an overall 7.6% increase by the 1,500 firms surveyed (405 EU, 503 US, 296 Japan, 296 other). EU-based firms increased R&D spending by 8.9% (compared to 6.1% in 2010) while US-based firms increased outlays by 9% (compared to 10% in 2010).

Overall, Canada's GERD places it in the middle of the pack among the G8 but well off the front runners. As of 2010, Israel, Finland, Korea, Sweden, Japan and Denmark all posted GERD-to-GDP ratios of 3% or higher.

With the drop in federal R&D funding, the large increases enjoyed by the higher education sector have vanished, although it still managed to achieve a 1% increase in R&D outlays in 2012 to $11.5 billion. In 2012, higher education accounted for 38.4% of the annual total. That compares to 2001, when higher education accounted for a 27.8% share.

Ontario and Quebec remain the R&D engines of the nation, accounting for 77% of the 2010 total. Quebec was up 0.4% to 26.5% while Ontario's slipped 0.2% to 45.4%. Their GERD-to-GDP ratios are also well above the national average at 2.2% and 2.5% respectively. British Columbia's share of the national total inched up 0.3% to 10.1% while Alberta's dropped 0.3% to 9.5%.

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