Higher education R&D rises but struggling technology sectors drag down GERD

Significantly higher R&D spending in the higher education sector has rescued what is an otherwise gloomy projection on Canadian gross expenditures on R&D (GERD). With the exception of academic R&D, virtually every other performing sector is estimated to be stagnant in 2003, according to the latest data from Statistics Canada. Canada’s total R&D expenditures are projected to be $22.45 billion in 2003, up 3.4% from $21.70 billion in 2002 and only marginally better than the 2001 total of $22.12 billion.

As a result, Canada’s GERD-to-GDP ratio fell from an all-time high of 2.0 in 2001 to a projected 1.88 in 2002, increasing the government’s already imposing challenge of moving into the top five industrialized countries by 2010. That compares to other industrialized nations like the US and Germany, which registered 2002 GERD-to-GDP ratios of 2.82 and 2.5 respectively.

As the only bright spot in the data, institutions of higher education benefitted from recent dramatic increases in federal and provincial funding, increasing 10% in 2003 to $7.83 billion. That compares to a paltry 0.6% increase in the amount of R&D performed by the business sector for 2003. Even worse, R&D performed by the federal government is estimated to decline 2.2% in 2003 to $2.17 billion as the slow starvation of federal laboratories continues to inhibit Canada’s capacity to conduct R&D for the public good.

The report also captures the extent of the tech meltdown on the R&D spending of the business sector. Outlays for 2001 — the latest year for which data are available — represent the high point for R&D expenditures by business, which racked up $13.18 billion and helped Canada’s GERD-t.o-GDP reach 2.0. The tech slump cut deeply into private sector R&D spending in 2002, with a forecast drop to $11.99 billion. Therefore 2003 represents something of a recovery. And with encouraging signs coming from some of Canada’s bigger R&D players, there’s optimism the worse could be over.

As the home to several major technology companies, Ontario suffered the most from the downturn. For example, Brampton ON-based Nortel Networks Corp — easily Canada’s largest R&D spender — suffered a $1.49-billion drop in R&D spending between FY01 and FY02.

Unfortunately, StatCan and other organizations do not make forecasts or estimates at the provincial level, so only actual expenditures up to 2001 are included in the report. For that year, Ontario accounted for $10.3 billion or 46.6% of the Canadian total, achieving a GERD to provincial GDP ratio of 2.3. Following in second place is Quebec, with $6.16 billion or 27.8% of the national total, for an impressive GERD-to-PGDP ratio of 2.6. Quebec’s share could also drop in 2002 with cuts in R&D spending by major players in the aerospace and information and communication technologies sectors.

Ontario and Quebec are the only provinces whose percentage share of R&D spending exceeds its percentage share of the population.

On the funding side of the ledger, all sectors registered estimated increases, with the largest percentage increase achieved by private, non-profit organizations. They increased their R&D funding 9.8% to $641 million Federal funding was up 2.9% to $4.37 billion.

Foreign funding of R&D is estimated at $2.643 billion in 2003, virtually the same as in 2002 and down slightly from 2001. The foreign funding totals for both 2002 and 2001 have been significantly reduced from StatCan’s report from last year when it was estimated at $3.5 billion and $3.7 billion respectively. The report did not provide an explanation for the changes.

The national capital region (NCR) accounts for the largest single share of federal R&D expenditures. In 2001, $926 million was performed in the NCR, an increase of 4.2% over 2000. That includes $907 million from federal sources, $16 million from business and $3 million from provincial governments. Ontario accounts for 95.6% of the total. The NCR breakout only applies to federal R&D.

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