Impressive projected gains in industrial R&D spending for 2001 will likely be sideswiped by recent technology downturn

Let the good times roll…for now

Canadian industry has told Statistics Canada that it intends to spend a whopping $11.656 billion on intramural R&D this year. That’s up 7.3% from a projected $10.862 billion in 2000 which in turn represents an increase of 10.6% over actual expenditures of $9.820 billion in 1999. The rosy numbers should be music to the ears of politicians and S&T policy makers driving Canada’s bid to move into the top five of nations in terms of R&D expenditures as a percentage of gross domestic product (GDP).

Unfortunately, good intentions don’t always survive the rocky road to reality. The epicentre of the this year’s technology implosion is aimed directly towards Canada’s strongest R&D-performing sector — telecommunications networking gear. According to the most recent StatsCan survey on industrial R&D, telecommunications equipment is slated to account for 22.6% of all R&D spending in 2001. Screaming headlines in the business press over the past few months tell the rest — collapsing sales, record losses and massive layoffs will almost certainly compel Nortel, JDS Uniphase, Alcatel Canada and others to scale back their R&D expenditures in an attempt to stem the flood of red ink.

“The projections contained in the survey are based on company views before they absorbed the full extent of the downturn,” says Dr Fred Gault, director of StatsCan’s science, innovation and electronic information division.

As a snapshot of the false optimism that only recently permeated the business community, the survey indicates the kind of collective R&D performance to expect during good times, when demand for technology most areas of the economy is strong. Of the top 20 industrial R&D sectors, only one (electrical power) shows an intention to spend less in 2001 than the previous year (see chart). Several show particularly impressive increases in 2001 spending intentions over 2000 estimates, notably electronic parts and components (35.3%), finance, insurance and real estate (16.0%), other electrical products (15.4%), and primary metals (non-ferrous) (13.6%).

Since no sectoral milestones have been divulged by the policy drivers of the forthcoming Innovation Agenda Paper (formerly known as the Innovation White Paper), it’s still a mugs game determining whether industry is displaying the kind of R&D activity required to help Canada achieve its lofty goal.

The other key part of a winning equation is R&D personnel. The survey shows that despite the healthy increases in R&D spending intentions, the number of workers en-gaged in R&D is definitely not keeping pace. Between 1997 and 1998, there was a 1% increase in R&D personnel from 83,143 to 84,016. The number decreased 4.2% in 1999, but the report notes that the number for 1999 is understated by about 6%, due to lag time in receiving data from Canada Customs and Revenue Agency (CCRA). The drop is mainly accounted for by technicians and ‘other’, while there is an increase in the number of master’s and doctorate levels.

(The report includes an extensive and very helpful new explanation of the methodology behind the survey, including the impact of using CCRA data for firms spending less than $1 million a year on R&D).

When examined geographically, the data show that R&D spending remains concentrated in Canada’s two largest provinces (Ontario and Quebec), accounting for 55.4% and 30.4% respectively (1998 data, the most recent actual figures available). British Columbia accounts for 6.6% while Alberta is home to 4.4%. The remaining 3.2% is spread over the six other provinces.

Foreign-controlled firms accounted for 398 of the 7,438 firms surveyed in 1999, yet they spent 33% ($3.205 billion) of the R&D total for that year. Foreign-controlled firms were particularly prevalent in the telecommunications equipment, business machines and pharmaceutical and medicine industries.

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