Terry Matthews weighs in on the future challenges of growing Canada’s tech sector

Terry Matthews predicts that 2004 to be an extremely busy year for his technology businesses, so don’t expect him to make time for high level meetings with Canadian politicians. The Canadian technology entrepreneur and chairman of Mitel Networks expresses considerable optimism that the business environment will improve under the leadership of prime minister Paul Martin. But categorically states that CEOs are too busy to devote time to the larger, longer-term issues related to innovation.

Technology companies are just beginning to emerge from a series of economic shocks, downturns and currency fluctuations and CEOs are struggling to measure up to tough new reporting and performance standards. That provides precious little time to schedule one-on-one meetings with either the prime minister, his senior Cabinet ministers or provincial premiers.

NO TIME TO MEET WITH POLITICIANS

Those meetings were a key recommendation of last year’s report by Dr Douglas Barber on behalf of the Information Technology Association of Canada. The report – entitled Can the Private Sector Get Canada into the Top Five Innovative Economies of the World by 2010? – argued that private meetings between technology executives and senior politicians would lead to pragmatic decisions and lessen the temptation to re-locate technology companies outside Canada (R$, September 16/03).

“CEOs have zero time to spend outside of their core functions or trying to gather business … They are just burning it harder than they’ve ever burned before,” Matthews told RE$EARCH MONEY. “There’s been downsizing everywhere so there’s less people but the work hasn’t gone down. It’s gone up so the people left are having to put more hours in … You’ll get no response because nobody has time. They don’t even have time to respond to the question. Many people who don’t run export businesses or technology businesses have no idea about the pressures.”

That said, Matthews suggests that he and other industrialists have already met with Martin and he praises the prime minister for his business savvy, track record as Finance minister and ability to listen. He’s also impressed with the team Martin has assembled to lead Canada into the 21st Century As well as his first round of appointments.

“The Martin team is doing a good job with respect to looking at the Canadian technology industry. They know that it’s tough to get funding for technology companies right now. The message has gotten through and they know they need to do something,” he says. “I really like Arthur Carty becoming the science advisor for Martin. Good choice. He’s bloody good, he’s dedicated and he’s active as hell.”

Matthews is more positive when it comes to the Barber report’s call for policy, regulatory, fiscal and programmatic changes that enhance the business environment. He reiterates his contention that the most important change should be the elimination of capital gains taxes for angel investors (R$, December 1/03).

“It’s the angel investor that we have to look after somehow. I think the government is amenable to a program reducing capital gains (taxes) to zero for this sector, which encourages funding into R&D,” he says. “I’m convinced that this is the direction the government will take and it’s a good thing for Canada. It’s a way to give Canada a considerable differentiator to the US, rather than giving incentives to VC where the funding is mainly from the US anyway.”

Matthews prefers incentives for angel investors over venture capital, chiefly because of the latter’s behaviour since the bursting of the technology bubble and the era of gross over-evaluations came to an end.

Going forward, Matthews says that the government should enact or encourage changes in the macro-economic environment, particularly as they relate to trading and competing with the US. The perceived wave of anti-American sentiment triggered by the invasion of Iraq has led to a backlash against Canadian business interests, compounded by the appreciation of Canadian currency and relatively high interest rates.

Matthews encourages any initiatives that will erase barriers to goods and services crossing the border, and welcomes Martin’s initial efforts to improve Canada-US relations.

“I think the prime minister understands that the relationship with the US is such a dominant issue for Canadians. We have to track every little movement in terms of what taxes are applied, how they are applied and so on,” he says. “Ever since I founded my first company called Mitel, which I happen to be chairman of today, I didn’t even think about the border. That is my domestic market. I just take it automatically.”

R$