Analysis
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Business enterprises in Canada anticipate spending $15.4 billion to perform research and development (R&D) in 2014, down 0.9% from 2013. Recovery of industrial R&D spending since the 2008 economic downturn remains slow. Since 2008, the only year to year increase in industrial R&D spending occurred in 2011 (CANSIM 358-0024).
Industrial research and development (R&D) performance consists of two main spending categories: current costs and capital costs. Current costs include wages, salaries and other current costs, such as non-capital purchases of materials required to support R&D activities; security costs; and costs of on-site consultants, who were not employees of the firm, but were performing R&D at the performing firm's facilities. Materials comprise reference materials, such as books, journals and subscriptions to libraries, scientific societies, costs of developing prototypes or models made outside the reporting firm, materials for laboratories, as well as administrative and other overhead cost. Capital expenditures are composed of land, buildings, machinery and equipment.
In 2014 current R&D spending will be $14.3 billion with wages and salaries at $9.5 billion and $4.8 billion directed to other current costs, such as the purchase of non-capital materials, contracts for on-site consultants and products required to support R&D activities. Current R&D spending will represent 93% of total industrial R&D spending (CANSIM 358-0024).
Spending on capital R&D, such as machinery, equipment, land and buildings, is anticipated to account for 7% of total industrial R&D spending at $1.1 billion in 2014. In 2001, spending on R&D capital accounted for 11% of total industrial spending and since then this proportion has been hovering around 7% (CANSIM 358-0024).
Industrial R&D is concentrated
Canadian industrial R&D spending is concentrated with the top 100 business enterprises anticipated to comprise one-half (50%) of all industrial R&D performance in 2014. (table 4)
Six industry groups will account for over half (54%) of industrial R&D spending in 2014, with two of the six industries in manufacturing and four in services. These six key industry groups have been leading industrial R&D performance since 2008 (CANSIM 358-0024).
In manufacturing, aerospace products and parts manufacturing ($1.4 billion) and communications equipment manufacturing ($1.3 billion) will lead manufacturing R&D spending, which is expected to total $7.1 billion in 2014, down 0.4% from 2013 (CANSIM 358-0024).
In services, scientific research and development services ($1.9 billion); computer systems design and related services ($1.3 billion); wholesale trade ($1.2 billion); and information and cultural industries ($1.2 billion) will lead R&D spending. R&D spending in services is expected to reach $6.9 billion in 2014, down 0.5% from 2013. Despite this decline, the share of R&D spending by service industries has generally been expanding since 2001 (CANSIM 358-0024).
Propensity to perform industrial R&D by industry sectors
The propensity of businesses to perform R&D varies by sector also. Research and development was performed by 2.3% of all enterprises in Canada with one or more employees in 2011, the most recent year for which these data are available. The two leading sectors by this R&D propensity measure were the manufacturing sector, which had the highest propensity of enterprises to perform R&D at 18.3%, followed by information and cultural industries at 10.3%. Enterprises in transportation and warehousing were least likely to perform R&D, with 0.4% performing R&D. Retail trade (0.5%) and finance, insurance and real estate (0.6%) also comprised few R&D performers. (Table 14-3)
Shifts in industrial R&D in Canada
Although industrial R&D is highly concentrated by industry, over time this concentration has shifted, reflecting changes in needs and interests. For example, R&D by businesses in oil and gas extraction has increased, from $88 million, in 1999, to $827 million, anticipated for 2014.Similarly, R&D by businesses in scientific research and development services also has increased from $264 million to $1.9 billion over the same period (CANSIM 358-0024).
Aerospace products and parts industry group performed $925 million of industrial R&D in 2007, but for 2014 is anticipating to perform, $1.4 billion (CANSIM 358-0024).
Information and communications technologies (ICT definition) historically has been a significant component of industrial R&D in Canada. Peaking in 2001 at $6.1 billion, ICT R&D is anticipated to fall to $4.6 billion in 2014. The decline is mostly attributable to lower R&D spending within communications equipment manufacturing, where R&D spending has fallen from $3.2 billion in 2001 to an anticipated $1.3 billion in 2014 (CANSIM 358-0024).
Industrial R&D in other countries surpass pre-recession highs
The economic uncertainty, which began towards the end of 2008, reduced industrial R&D performance across the Organisation for Economic Co-operation and Development (OECD), with R&D spending declines reported by most member countries in 2009 and 2010. However, by 2011, overall industrial R&D spending by OECD members exceeded the 2008 level, and estimates for 2012 increased further. (Source: OECD (2013), Main Science and Technology Indictors vol.2–BERD in purchasing power parity dollars) By 2012, total industrial intramural R&D expenditures across the OECD had increased by over 10% from the levels of 2008.
While Canadian industrial R&D increased in 2011, after contracting in both 2009 and 2010, it has yet to return to levels reported in 2008. Among G-7 countries, France, Germany, Italy and the United States reported increases of over 10%, between 2008 and 2012, while industrial R&D in the United Kingdom followed a pattern more like that of Canada, but still increased slightly from 2008 to 2012.
Canada’s business enterprise expenditure on research and development (BERD) to gross domestic product (GDP) ratio reached a peak of 1.3%, in 2001 at the height of the ‘tech bubble’. It dropped to 1.2% in 2002. As of 2012, Canada’s ratio was 0.9%. In contrast, the overall OECD ratio has risen from 1.5%, in 2004 to 1.6%, in 2012. (Source: OECD, Main Science and Technology Indictors (2013, vol.2)–BERD as a percentage of GDP).
In comparison, Australia, like Canada, is a country with a significant resource sector, and moved from a BERD ratio of 0.7%, in 2000 to 1.2%, in 2011. The United States’ ratio peaked in 2000 at 1.9%, fell to 1.7%, in 2004, but has since rebounded to 2.0%, in 2012. (Source: OECD, Main Science and Technology Indictors (2013, vol.2)–BERD as a percentage of GDP)
Industrial R&D funded predominantly by performing firms
Businesses in Canada continued to finance most of their R&D activities through business operations, with internal corporate funds covering $13.8 billion (or 85%) of all industrial R&D spending in 2012. Funds from foreign sources followed, at $1.7 billion (CANSIM 358-0207).
Funds from government sources increased 6.4% from $605 million in 2011 to $644 million in 2012, as an increase in provincial funding more than offset a decline in federal funding. (CANSIM 358-0207)
Major fields of science or technology
Engineering and technology has remained the dominant major field of science or technology for industrial R&D since 2009, the first year for which data on field of science or technology became available. In 2012, the most recent year for which these data are available, engineering and technology R&D accounted for $12.7 billion (79%) of industrial R&D performed. Natural and formal sciences and medical and health sciences each accounted for 10%, while agricultural sciences comprised the remaining 2% (CANSIM 358-0140).
In 2012, the most significant fields of science or technology as measured by R&D spending, were electrical engineering, electronic engineering and information technology at $3.6 billion, software engineering at $2.6 billion and mechanical engineering at $2.3 billion. Together these three fields of science or technology, each part of the engineering and technology major field of science, comprised more than half (52%) of all industrial R&D (CANSIM 358-0140).
Field of science or technology by sector and industry group
In 2012, industries with high levels of spending in engineering and technology reflected the highest R&D performing industries overall, led by aerospace ($1.5 billion), communications equipment manufacturing ($1.5 billion) and scientific research and development services ($1.2 billion) within this major field of science or technology. (CANSIM 358-0140).
Different industry groups predominated within the three fields of science or technology with the highest overall R&D spending. Electrical engineering, electronic engineering and information technology ($3.6 billion) was performed principally by enterprises in communications equipment manufacturing ($978 million), scientific research and development services ($671 million), wholesale trade ($400 million), information and cultural services ($328 million) and navigational, measuring, medical and control instruments manufacturing ($263 million) (CANSIM 358-0140).
The majority of software engineering R&D ($2.6 billion) was undertaken in computer systems design and related services ($674 million), information and cultural industries($596 milion) and scientific research and development services ($209 million) (CANSIM 358-0140).
Manufacturing industries ($1.7 billion) comprised the largest share of the $2.3 billion dedicated to mechanical engineering R&D) in 2012. Mechanical engineering R&D was down from $2.8 billion in 2011 to $2.3 billion in 2012 due to declining spending by manufacturers (CANSIM 358-0140).
Of the $1.5 billion spent on R&D in natural and formal sciences the largest share was undertaken by enterprises in service industries, $912 million (59%). This was followed by the manufacturing sector, which accounted for $391 million (25%) (CANSIM 358-0140).
R&D spending in medical and health sciences reached $1.6 billion in 2012, with four industries accounting for 91% of such R&D spending: scientific research and development services ($522 million), wholesale trade ($493 million), pharmaceuticals and medicine manufacturing ($360 million) and health care and social assistance ($66 million) (CANSIM 358-0140).
Research and development in agricultural sciences was divided between the manufacturing sector (42%), service industries (33%), and all other sectors (26%) (CANSIM 358-0140).
In 2012, $745 million was spent on environmental engineering and $280 million on earth and related environmental sciences R&D. Mining, oil and gas extraction performed 64% ($178 million) of all R&D spending in earth and related environmental sciences, as well as 77% ($577 million) of spending in environmental engineering R&D (CANSIM 358-0140).
Industries within which research and development activities were most broadly distributed across the major fields of science and technology included wholesale trade and research and development services. Just over one half (52%) of the $1.3 billion in R&D performed by enterprises in wholesale trade in 2012 was attributed to engineering technologies, while medical and health sciences accounted for 40%, with the remainder split between agricultural sciences (6%) and natural sciences (5%). Enterprises in scientific research and development services performed $1.9 billion in 2012, of which engineering technologies accounted for 63%, followed by medical and health sciences (28%), natural sciences (7%), and agricultural sciences (2%) (CANSIM 358-0140).
Energy R&D increased
While industrial intramural R&D spending fell slightly between 2011 and 2012, R&D related to energy technologies increased substantially to $2.0 billion, up 18.4% from 2011.This increase was largely attributable to increases in R&D related to fossil fuels technologies, which increased by 24.9% to $1.5 billion in 2012. R&D relating to fossil fuels technologies was concentrated in two areas: oil sands and heavy crude oil technologies, which increased by 53.6% to $886 million as well as crude oil and natural gas technologies, which remained almost unchanged at$554 million (up from $553 million from 2011) (CANSIM 358-0214).
R&D related to electric power technologies rose by 9.9% to $100 million in 2012 (CANSIM 358-0214).
In contrast, R&D spending for energy efficiency technologies fell 5.9% to $80 million and renewable energy resources technologies fell 18.9% to $86 million between 2011 and 2012 (CANSIM 358-0214).
R&D spending by province
Nationally, industrial R&D spending was $16.2 billion in 2012. Industrial R&D spending in Ontario of $7.3 billion was down 4.0% from 2011 and in Quebec spending of $4.6 billion was also down 3.6% from the previous year.Spending in these provinces continued to account for most (74%) of industrial R&D spending performed in 2012. Ontario experienced declines in R&D spending across most sectors. The decline in Quebec occurred mainly in the services (CANSIM 358-0161).
Industrial R&D rose 7.8% to $2.0 billion in Alberta in 2012. The increase was entirely attributable to the mining, oil and gas extraction sector, where R&D spending rose by $234 million (CANSIM 358-0161).
In Manitoba, industrial R&D spending increased 9.7% in 2012 to $215 million, mainly as a result of higher spending in the manufacturing sector. Meanwhile, R&D spending in Saskatchewan fell 2.6% from 2011 to $188 million in 2012, as current R&D spending—spending on wages, salaries and other current costs—edged down (CANSIM 358-0161).
British Columbia also experienced lower industrial R&D spending in 2012, down 4.4% from the previous year to $1.6 billion. Spending on R&D in services industries declined, most notably in scienctific R&D services which decreased from $300 million to $266 million and information and cultural industries which decreased from $168 million to $143 million, offsetting a moderate rise in the province’s manufacturing sector (CANSIM 358-0161).
Newfoundland and Labrador ($95 million) and Nova Scotia ($81 million) continued to spend the most in R&D among the Atlantic provinces. Spending on industrial R&D in Prince Edward Island was also up, reaching $24 million in 2012 (CANSIM 358-0161).
In contrast, industrial R&D spending in New Brunswick declined 29.6% to $69 million between 2011 and 2012, mostly as a result of declines in R&D spending in services industries (CANSIM 358-0161).
Research and development personnel
In 2003, the number of research and development (R&D) personnel was 127,230 full-time equivalents (FTE). Similar to R&D spending, R&D personnel rose steadily until 2008 when it peaked at 172,744 FTEs. In 2009, the number of FTE R&D employees began to decline, and totalled 132,156 in 2012 (CANSIM 358-0024).
R&D personnel are classified into three categories: professional, technicians and other. The ‘professional’ category includes researchers, such as scientists and engineers, and R&D administrators. ‘Technicians’ includes technicians, technologists, and trained staff who assist scientists and engineers in R&D. ‘Other’ R&D personnel consist of administrative support staff directly engaged in R&D activities. In 2012, R&D personnel were 67% professionals, 25% technicians and 8% other employees (CANSIM 358-0024).
In 2012, 70,044 R&D personnel worked inservice industries. Computer systems design and related services employed the most R&D personnel (16,692 FTEs), followed by scientific research and experimental development services (14,273 FTEs) (CANSIM 358-0024).
The manufacturing sector employed 56,445 R&D FTEs in 2012. The communications equipment industry had the most FTEs working in R&D (8,684), followed by the aerospace industry with 7,294 (CANSIM 358-0024).
At the provincial level, Ontario employed 61,200 R&D FTEs (46%) in 2012, Quebec 42,951 (33%) and British Columbia and Alberta 14,167 (11%) and 7,774 (6%) respectively. Manitoba employed 1,787 R&D FTEs. In the Atlantic provinces in 2012, the number of FTE R&D employees was as follows, in order: Nova Scotia (980), New Brunswick (867), Newfoundland and Labrador (617) and Prince Edward Island (256) (CANSIM 358-0161).
Technology payments
Businesses that either perform or fund R&D also made and received payments for the use of technologies. Expenditures for technology, in 2012, were $952 million, while receipts were $1.6 billion. Expenditures for patents ($563 million) accounted for the largest share of expenditures in intellectual property, while payments for technical assistance, industrial processes and know-how accounted for most of the remaining technology payments, at $320 million. Receipts from payments for technology followed a similar pattern, with patents accounting for the largest amount ($1.0 billion) and technical assistance, industrial processes and know-how, accounting for most of the remainder ($512 million) (CANSIM 358-0212).
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