Latest StatsCan data capture major shifts in business R&D as total continues to decline

Changes to the R&D tax credit and Canada's increasing reliance on raw extraction over value-added goods and services have joined forces to perpetuate the continuing decline of industrial R&D, which is projected to decline 0.9% this year to $15.4 billion. While R&D underpinning the oil and gas, mining and scientific R&D services sectors register impressive gains, the much larger manufacturing and services sectors remain soft, according to the latest data from Statistics Canada.

Slumping industrial R&D in Canada stands in contrast to the OECD, whose members have collectively surpassed the R&D the depressed R&D spending levels that followed the 2008 recession. Among the G-7, only Canada and Italy have registered declines over the 2008-2012 period. Business expenditures on R&D (BERD) tell a similar story. Canada's BERD peaked at 1.3% in 2001 before falling to 0.9% by 2012. In the OECD, BERD has increased from 1.5% in 2004 to 1.6% in 2012.

The new data graphically illustrate the fundamental shift in the Canadian economy towards a greater reliance on natural resources. The most dramatic example is the R&D performance of firms undertaking oil and gas extraction. R&D has soared from just $88 million in 1999 to $941 million in 2014. Similarly, firms providing scientific R&D services jumped from $264 million to $1.9 billion over the same period.

Between 2011 and 2012, energy-related R&D increased by 18.4% to $2 billion.

"This is certainly the continuation of a long term trend ... In 2007 constant dollars, business R&D spending peaked in 2007 and there's been a relatively steady decline since then," says Ron Freedman, CEO of Research Infosource. "For R&D capital, it peaked at $1.5 billion in 2012 and there's been a severe drop since then ($1.1 billion in 2014) due to the changes in the SRED (scientific research and experimental development) tax credit."

Freedman notes that the industry sectors experiencing reduced R&D outlays tend to be those that are capital intensive and were negatively impacted by the elimination of capital expenditures as eligible R&D expenses, combined with a reduction in the tax credit for larger firms from 20% to 15%.

Sectors that have experienced large R&D declines include pharmaceuticals, chemicals, primary metals and fabricated metals.

Decreased industrial R&D spending has also taken a toll on the number of personnel engaged in R&D. Between 2008 and 2012, R&D personnel dropped from 172,744 to 145,270 in 2011, with a further decline in 2012 to 132,156.

Over the five year period, R&D professionals dropped from 98,387 to 88,959, technicians and technologists plummeted from 52,075 to 32,954 and other support staff dropped from 22,282 to 10,243.

R$