Western Economic Diversification Canada
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Section 3: Relevance

3.1 Continued Need for Programming

Canada underperforms

Canada continues to underperform in terms of productivity which is defined as “the amount of value (as measured in contribution to GDP) created by the average worker in an hour of their time.”8 Many economists believe per capita GDP is the most important indicator of a country’s standard of living.

Canada’s productivity levels began to lag those of the United States (U.S.) in the 1980’s, creating a gap that persists today. “From 2009–2011, U.S. productivity continued to grow at a healthy 2.1% per year, while Canadian productivity grew an average of 1.1% per year. By 2011, Canada’s output per worker was only 78.3% that of the United States.”9

Productivity disparities are also evident across Canada. Although labour productivity in Western Canada, particularly in Alberta and Saskatchewan, exceeded the national average over the 2009–13 time period, Canada’s labour productivity remains a concern as it lags behind that of many other countries. Between 2001–2009, Canada’s annualized labour productivity growth was in the bottom quartile of the OECD and far below comparators like Australia, Austria and Israel.

Through its Business Productivity and Growth sub-program, the department supports initiatives that enhance productivity and growth of small and medium-sized enterprises (SMEs), an important input into Canada’s GDP and, by extension, Canada’s productivity.

Small and medium-sized enterprises need support

Research10 shows that Canada’s small and medium-sized enterprises (SMEs) are struggling and need assistance. SMEs, defined as companies with less than 100 employees, comprise 99% of companies in Canada and are significant drivers of economic growth.

There are recent trends that point to the need for greater support of SMEs in Canada:

  • Unemployment in Canada is on the rise and SMEs represent a major source of employment. In 2012, 89.9% of Canada’s employees (10 million individuals) worked for SMEs: 69.7% (7.7 million) worked for small businesses and 20.2% (2.2 million) worked for medium-sized businesses11.
     
  • In terms of job creation, small businesses created, on average, 100,000 jobs per year (2002–12), accounting for almost 78% of all private jobs created. Medium sized businesses account for 1.6% of all firms and created 12.5% of net new jobs over the same period. In total, SMEs, therefore, were responsible for creating 90.5% of all private jobs between 2002 and 201212.
     
  • A 2013 study by the Business Development Bank indicates that mid-sized firms are on the decline. This shifts the burden of job creation onto small firms. There was a 17% decrease (i.e., from 9370 to 7814) in the number of mid-sized firms between 2006 and 201013.
     
  • Business Development Bank’s Index of New Entrepreneurial Activity shows entrepreneurial activity has decreased since 2006 across all regions of Canada14.
     
  • Over 6000 goods producing firms declined between 2000 and 2010. “Given that goods-producing firms are responsible for the largest share of R&D in Canada, their decline is tantamount to a decrease in the country’s innovative capacity.”15

Canadians support federal government assistance to SMEs

Canadians support entrepreneurship and business creation. The Global Economic Monitor (GEM) Report on entrepreneurship in Canada reported: 1) the majority of Canadians consider entrepreneurship to be a good career choice; and 2) experts knowledgeable on entrepreneurship in Canada agree, to some extent, with the statement: “the support of new and growing firms is a federal government high priority.”16 Despite federal government support, there is an opinion among Canadian executives of high-growth firms that Canadian entrepreneurs lack motivation to grow their businesses, citing examples of small Canadian firms “selling out to larger firms, rather than opting to build their company into a viable international competitor.”17

The Business Productivity and Growth programming fills an important gap

Respondent comments support the literature findings and confirm a continued need for the Business Productivity and Growth programming. Survey respondents indicated there is a need for programming which helps SMEs to attract and retain skilled labour and other workers, to improve access to capital and other investment attraction, to access markets and to strengthen internal marketing capacity. In addition to access to labour and capital, some key informants and focus group participants listed issues such as business management training and capacity building. Focus group participants also highlighted the need to create and strengthen collaboration across government and industry stakeholders. All departmental representatives confirmed the continued need for the programming, primarily because there is significant demand for this type of programming relative to the available funding and given that western Canadian SMEs lag in terms of business productivity and growth compared to other jurisdictions.

The programming effectively meets needs

As further confirmation of the need to support SMEs, 81% of project proponent respondents indicated that the department’s assistance met their needs and they were very satisfied with the assistance. Surveyed proponents and representatives of unfunded projects rated the department’s effectiveness in addressing their needs as 3.5 on a 5-point scale. Key informants thought the programming addressed needs and issues to some extent, particularly in regards to increasing access to skilled labour, adopting sound management practices and advanced technology, and business management training and capacity building. Focus group participants agreed that the department has been successful in responding to major needs.

However, some participants commented that more could be done to promote economic diversification and develop emerging sectors, particularly in British Columbia and Alberta where the economies remain largely dependent on resources. The department could develop other industries which, although risky, may ultimately contribute to diversifying the western Canadian economy. Departmental representatives suggested that the programming could address issues such as increased focus on adoption of sound management practices and advanced technology.

The programming complements other programming

The department’s programming forms an important component of the total SME support network in Western Canada. Key informants identified over 143 organizations and initiatives (24 national or federal, 24 in Alberta, 50 in BC, 24 in Manitoba, and 21 in Saskatchewan) that support business productivity and growth in Western Canada. The types of organizations and activities supported are described in Table 3.1.

Most key informants (86%) perceive that the department’s Business Productivity and Growth activities do not overlap or duplicate other similar programs, since the support is coordinated and leveraged with other sources of assistance. Western Economic Diversification also funds different types of costs (e.g., equipment) and has a different mandate and focus than the other organizations. The department coordinates and partners with other organizations at the project level (both directly and indirectly through contribution requirements in funding applications) and sub-program level (regular meetings with partners to find areas of complementarity and leverage support).

 

Table 3.1 Types of Services Offered by Organizations that Support Business Productivity and Growth in Western Canada
Type of
Organization
Description and Examples of Services/Programming
Federal Government Departments
  • Funding for collaborative research between post-secondary institutions, researchers and businesses.
Provincial Government Ministries
  • Funding for delivery organizations (innovation, industry associations, business services organizations), business advisory services, economic research.
  • Funding for colleges and universities (skills training).
  • Small business loans program, venture capital program, grant program for petroleum producers, tax credit to support mineral exploration.
Provincial Government Crown Corporations
  • Funding for independent film and music, marketing assistance.
  • Operating funding for innovation institutions (partnerships).
Sector Councils and Associations
  • Education and training (i.e., lean manufacturing, value added), advocacy, economic research.
Non-profit Development Funds
  • Funding for initiatives that would create economic sustainability in communities.
Chambers of Commerce /
Boards of Trade
  • Seminars, advocacy, networking, mentorship/business counselling, research information on business needs (i.e., survey members), information for businesses, projects, job fairs, employment coordination.
Regional economic development organizations
  • Catalyst/matchmaking/opportunity identification (working with industry, municipal, and provincial partners), market research, sector guidance and strategic advice, business and investment attraction, business retention and expansion, business services
Business services organizations
  • Business counselling, referrals, education and training, market research, matchmaking, information, networking, office space for rent, funding (i.e., to cover cost of travel to trade show).
Research and innovation centre
  • Technical services and collaborative research.

 

Out of 51 proponents consulted, 69% of proponents estimated that there was 0 to 25% chance that their project would have proceeded in some form even without WD assistance and only 12% indicated that their project would have proceeded in the absence of WD funding. In the absence of WD support, proponents estimate only three projects would have proceeded as planned; most projects would have been cancelled (23 projects or 39%), reduced in scope (18 projects or 31%), or delayed (9 projects or 15%). Of the 18 projects that were not approved for departmental funding, two (11%) proceeded as originally planned, four (22%) were cancelled, seven (39%) were reduced in scope and five (28%) were delayed. When asked why their projects were not funded, four indicated they did not know and six had been told their project did not align with the department’s funding priorities or criteria.

3.2 Alignment with Departmental and Federal Government Priorities

WD’s Business Productivity and Growth programming aligns with the federal government’s priorities to help Canadian businesses grow, innovate and export so that they can spur economic growth, create good quality jobs and broad-based prosperity for Canadians in all regions across the country. Small and medium sized enterprises play an important role in filling the gap between research and the marketplace and creating jobs for Canadians.

The Business Productivity and Growth programming supports the department’s strategic outcome of growing and diversifying the western Canadian economy. Key informants agreed that the programming supports the current priorities of the department and of the federal government, particularly with respect to economic growth, job creation, innovation, trade, and economic development for Indigenous Peoples.

3.3 Consistency with Federal Roles and Responsibilities

The federal government is committed to increasing prosperity across Canada. Increases in business growth and productivity create new jobs and industries, improving prosperity. Key informants noted that the federal government has a role in assisting the economy to grow and there is a need to invest in SMEs, innovation and productivity for various reasons including increased ability to compete successfully in international markets.

Forty-eight (81%) proponents and 15 (79%) representatives of unfunded projects indicated that the federal government’s support for small and medium-sized enterprises (SMEs) is appropriate. SMEs contribute to the economic growth of the country, provide employment, and contribute to economic diversification. SMEs also face particular barriers to improving productivity and attaining growth. The federal government can act as a catalyst in business development by helping SMEs address these barriers.

 


[8] Deloitte. "The future of productivity: Clear choices for a competitive Canada". 2012.

[9] Deloitte. "The Future of Productivity: A wake-up call for Canadian companies". 2013.

[10] Centre for Digital Entrepreneurship + Economic Performance (deepcentre). "Driving Canadian Growth and Innovation: Five Challenges Holding Back Small and Medium-Sized Enterprises in Canada". 2013.

[11] Industry Canada. "Key Small Business Statistics". 2013

[12] Industry Canada. "Key Small Business Statistics". 2013.

[13] Business Development Bank. "What's Happened to Canada's Mid-sized firms?" 2013

[14] Business Development Bank. "BDC Index of New Entrepreneurial Activity". 2013.

[15] Centre for Digital Entrepreneurship + Economic Performance (deepcentre). "Driving Canadian Growth and Innovation: Five Challenges Holding Back Small and Medium-Sized Enterprises in Canada". 2013.

[16] Global Economic Monitor (GEM). "Driving wealth creation and social development in Canada". 2013 GEM Canada National Report. As part of the research presented in the GEM report, an adult population survey of randomly selected Canadians aged 18-99 years and 42 experts were interviewed. The experts were from different professional perspectives where they gain considerable knowledge of entrepreneurial activities. The expert questionnaire was an instrument developed for the global GEM project. The questionnaire asked the expert panel for their views on various aspects favorable to entrepreneurship in Canada including: that the support of new and growing firms is a federal government high priority (on a 5 point scale of completely false, partially false, neither true nor false, partially true, completely true).

[17] Centre for Digital Entrepreneurship + Economic Performance (deepcentre). "Canada's Billion Dollar Firms: Contributions, Challenges and Opportunities." 2014. Interviewees included executives from fast growing billion-dollar firms, stalled and growing mid-tier firms and fast-growing young firms.