Slumping business R&D pulls down Canada's spending for third consecutive year

Not-for-profit funding remains strong

R&D spending is set to decline in Canada for the third year in a row. Statistics Canada estimates that total R&D expenditures in 2015 will decline $221 million or 0.7%, with the largest drop registered by business. Companies estimate their cumulative performance of R&D will decline $415 million or 2.6% to $15.5 billion — well off their recent high-water mark of $16.9 billion in 2011.

Business funding of R&D is set to fare even worse, declining 2.8% in 2015 to $14 billion — the lowest level since 2005.

What's prompting the precipitous drop in business R&D is difficult to ascertain. The plunge in oil prices has almost certainly had a negative impact on R&D spending by the oil and gas sector in Alberta, Saskatchewan and Newfoundland, but a provincial breakdown of the data is not available beyond 2013.

The two (relative) sectoral bright spots for 2015 are the higher education sector and federal government. Their spending and performance R&D is set to increase by modest amounts, helping to keep the overall decline for the year below 1%.

However, when examined in 2007 constant dollars, the picture worsens considerably. Performance and funding of business and government R&D stands at multi-year lows. Business funding of R&D is dropping to $11.9 billion in 2014 (the most recent year for which data are available), while federal funding stands at just $2.3 billion.

Spending by the not-for-profit sector is also set to decline by 2.6% to $158 million, but as the chart to the right shows, its spending tends to vary year-to-year. On the other hand, R&D funding by not-for-profit organizations is holding steady and is at an all-time high of $1.2 billion.

Ontario and Quebec continue dominance

When examined by provinces and territories, Ontario and Quebec remain Canada's dominant players, although that dominance has slipped over the past several years. In 2007, Ontario enjoyed a 46.8% share which has dwindled to 44% as cuts rippled through the manufacturing sector. Quebec's share dropped marginally over the same period from 26.5% to 26.2%.

Resource-rich Alberta and British Columbia increased their shares over the same period. BC inched up from 9.4% to a 9.6% share, while Alberta increased its share of the total from 9.1% to 11.3%.

The data call into question federal (and provincial) policies whereby increasing support for higher education R&D — often targeted and aligned with business needs, particularly in the resource sectors — has yet to have a statistically significant impact on boosting business R&D performance.

For the oil and gas sector, international pricing, demand, ease of delivery and regulation appear to trump current policies and incentives.

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