Parliamentary Budget Officer’s pessimistic report on innovation superclusters used outdated data

In a widely publicized report released on October 6, the Office of the Parliamentary Budget Officer (PBO) determined that the five federally funded innovation superclusters are unlikely to attain their goals for job creation and GDP growth. But the findings fail to account for the last seven months of accelerated activity, say supercluster CEOs.

The PBO's “preliminary analysis” of the Innovation Superclusters Initiative, for which Budget 2017 allocated $918 million, relied on government data up to March 6, 2020 that is now seven months old, the CEOs say.

According to the PBO’s report, actual spending by the superclusters up to March 6 was $30 million, compared with $104 million the government anticipated by then in the original budget. In addition, some $97 million had been committed by that date, but not necessarily spent, on 45 announced projects.

However, the PBO didn’t contact any of the superclusters in preparing the report to obtain more up-to-date information, the CEOs told Research Money.

“The numbers in the report are from March and don’t reflect our supercluster’s experience,” said Sue Paish, CEO of the Digital Technology Supercluster based in British Columbia.

The Digital supercluster’s portfolio of projects as of July 8, 2020, stood at $223 million, including $118 million invested by industry partners and $105 million by the supercluster. That portfolio consists of 67 projects, including those to support the federal response to COVID 19.

In comparison, the PBO reported a total portfolio of only $69 million for the Digital supercluster up to March 6, Paish said.

However, at the end of March, the supercluster dedicated $60 million of its budget just to support its COVID-19 program and projects, on top of non-COVID projects. “We fully invested that $60 million by July 1,” Paish noted.

The Next Generation Manufacturing Canada supercluster, based in Ontario, committed $50 million of its budget to COVID projects.

None of the superclusters’ COVID funding or projects was captured in the PBO report.

“We’re significantly ahead of our plan in terms of overall portfolio value, the number of projects we have, and the level of industry investment,” Paish said. The Digital supercluster will have fully invested its original federal funding in projects co-funded by partners by March 2021, which is 18 months ahead of schedule, she said.

Julien Billot, CEO of the Scale AI supercluster in Quebec, called it “strange” that the PBO ended its assessment as of March 5, rather than wait until the fiscal year ended on March 31.

Between March 6 and March 31, for example, Scale AI committed $30 million in funding for nine projects – data not included in the PBO report.

As for the $30 million in the five superclusters’ actual spending compared with $97 million in committed funding, as reported by the PBO, the CEOs said it’s not surprising given that no project funding advances are provided. Rather, project partners have to spend their money first, and then submit expenses every quarter to be approved for payment.

“The way we pay on projects is to protect public money,” Billot said.

There’s a big difference between “engagement,” or committing supercluster funding for a project, and paying expenses that are typically claimed five months after a project begins, he said. “Our money spent is going to accrue over time.”

Too early to forecast superclusters' outcomes, CEOs say

The federal government had predicted the superclusters initiative would lead to the creation of 50,000 jobs and increase GDP by $50 billion over 10 years.

However, the PBO’s report said based on the data as of March 6, 2020 just over 27,000 direct jobs (excluding indirect jobs and jobs created through superclusters’ worker training programs) would be created and GDP would increase, optimistically, by about $18 billion.

Federal funding agreements with the superclusters were signed in late 2018. The contribution agreements end in fiscal year 2022-23.

The PBO assessing the superclusters at such an early stage and saying they’re not going to deliver on the 10-year federal goals “makes absolutely no sense,” Billot said. “Our trajectories are planned. Our deliveries show that we are perfectly on time and on target on what we are to deliver.”

Kendra MacDonald, CEO of Canada’s Ocean Supercluster in the Atlantic Provinces, said that since March the supercluster has approved 26 projects. There are now a total of 32 approved projects with a total value of $180 million, including about $80 million invested by the supercluster, she said.

Also since March, there have been 250 expressions of interest in two project calls, more than 400 organizations engaged, and membership in the ocean supercluster has doubled, she said.

The PBO report is a snapshot of where the superclusters were at almost the end of year two of the five-year contribution agreement with Ottawa, MacDonald said. “It was early in the [superclusters initiative] to be extrapolating where we’re going to end up.”

“The PBO report is taken from a moment in time. A lot has been accomplished since early 2020,” Bill Greuel, CEO of the Prairies-based Protein Industries Canada supercluster, said in an email to Research Money.

Protein Industries Canada now has $99.9 million committed to 14 active projects, with another seven working through the approval system, he said. This investment has leveraged a further $172 million from industry.

“We are on track to meet our investment targets of having our funds fully committed by the end of this fiscal year,” Greuel said.

As for the superclusters’ impact on innovation, the PBO requested but didn’t receive the quantifiable performance indicators used by Innovation, Science and Economic Development Canada to measure this impact. “As such, the absence of quantifiable objects prevents PBO from drawing conclusions about the impact of this initiative on innovation,” the PBO said.

Paish said based on other jurisdictions’ experience, such as Silicon Valley or the Fraunhofer Society in Germany, building technology innovation ecosystems is a long-term objective.

“I’m confident that the Digital supercluster will hit the jobs and GDP forecasts that were done in 2018," Paish said. And I’m confident that my colleagues in the other superclusters are working toward hitting those [targets] as well.”

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