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Industrial intramural R&D spending down in 2015

Businesses in Canada anticipate spending $15.5 billion on intramural research and development (R&D) in 2015, down 3.6% from 2013 actual expenditures of $16.0 billion. Annual expenditures on industrial R&D peaked most recently in 2011at $16.9 billion, but have declined each year since then.

Businesses perform R&D to create and commercialize new technology, products, and processes. Industrial intramural R&D is composed of two categories: current and capital R&D spending.

Current R&D spending of $14.2 billion will account for 92% of industrial R&D spending in 2015, a relatively stable share since 2003. Wages and salaries are anticipated to total $9.6 billion in 2015 and constitute the largest component of R&D expenditures. The remaining current costs, such as the purchase of non-capital materials, contracts for on-site consultants, and products to support R&D, are forecast to receive $4.6 billion.

Spending on R&D capital, such as machinery, equipment, land, and buildings, is anticipated to be $1.3 billion, or 8% of total industrial R&D spending in 2015.

In 2013, the most recent year for which these data are available, the majority of the funds directed towards industrial R&D, were from the performing businesses, $12.8 billion. From 2000 to 2013, the share of R&D spending funded by the reporting companies has grown from 66% to 80%. Foreign financing constituted the second largest source of funds for industrial R&D ranging from 28% in 2000 to 11% (or $1.7 billion) in 2013. Government funding has ranged from 2% to 4% over the period, amounting to $674 million in 2013.

In 2008, 63% of industrial R&D was performed by Canadian-controlled businesses down from 70% in 2000. During this period, there was a shift towards foreign-controlled businesses performing R&D in Canada. After 2008, there was a redirection towards R&D performance by Canadian-controlled businesses that ended in 2012.

In 2013, 89,165 full-time equivalent (FTE) R&D professionals, consisting of scientists, engineers and R&D administrators, made up two-thirds (67%) of industrial R&D personnel. Technicians and technologists—technically trained personnel who support the activities of scientists and engineers—accounted for 33,551 full-time equivalents and other support personnel comprised the remaining 9,615 full-time equivalents.

Since 2008, the number of industrial R&D personnel fell from 172,744 full-time equivalents to 132,331 in 2013. Notable decreases in the number of R&D technical and support staff which together dropped 42% between 2008 and 2013 have driven this overall decline. The number of full-time equivalent scientists and engineers dropped less than 10% in the same period. This shift towards up-skilling R&D positions explains, in part, why wages and salaries at $9.7 billion for R&D performance in 2013 have continued to be over 60% of total intramural R&D expenditures.

Canada’s industrial intramural R&D intensity declines

Business enterprise expenditure on research and development (BERD) to gross domestic product (GDP) ratio is the international measure of the intensity of R&D spending in the business sector. Since 2008, this ratio has generally declined, both in absolute terms and in relation to the intensity of business R&D spending in other major industrial economies.

After peaking at 1.26% in 2001, Canada’s BERD-to-GDP ratio declined steadily during the 2000s, to its most recent low of 0.82% in 2013. Between 1997 and 2009, the BERD ratio in the United States averaged 1.84%, while in Canada it averaged 1.09%. Since 2010, Canada’s BERD-to-GDP ratio has averaged 0.90%, compared to 1.91% in the United States.

From manufacturing to energy: Major developments in Canadian industrial intramural R&D spending

The R&D performance of manufacturing industries peaked at $9.2 billion in 2001, but declined in 2002, when the output of information and communications technology (ICT) goods-producing industries contracted. Manufacturing R&D has declined $2.8 billion from its peak in 2001 to its forecast R&D spending of $6.4 billion in 2015. The decline in R&D spending by ICT goods-producing industries from their peak of 2001 equals the net decline between 2001 and 2015 within manufacturing.

The rise and fall of R&D spending in selected manufacturing industries, 2000 to 2015

Communications equipment manufacturing, a large component of ICT manufacturing, was the largest R&D performing industry in Canada, from 1999 to 2008. Peaking in 2001, at $3.2 billion, intramural R&D spending in communications equipment manufacturing declined steadily to $1.4 billion in 2005. With the exception of a low of $1.1 billion in 2010, it largely remained in the range of $1.3 billion to $1.5 billion, from 2005 through 2014. Communications equipment manufacturing R&D spending is forecast to decline to $939 million in 2015.

Aerospace products and parts manufacturing showed steady increases through the 2000s, from $860 million in 2002 to $1.6 billion in 2013, and is forecast to be just under this new peak through 2015 ($1.5 billion).

Pharmaceuticals and medicine manufacturing dedicated $1.2 billion to intramural R&D in 2002 with this level of investment subsequently declining by more than one-half, to an anticipated $441 million in 2015.

Semi-conductor and other electronic components manufacturing performed $872 million of R&D in 2001, but, by 2015, is anticipated to spend only $429 million.

Motor vehicle and parts manufacturing R&D peaked at $657 million in 2004, but has since declined to an anticipated $253 million in 2015.

Service industries outspend manufacturing on R&D

Intramural R&D expenditures in service industries were less than one-half the amount reported in manufacturing as recently as 2001, but they grew steadily every year, from $2.5 billion in 1997 to $7.5 billion in 2008. This growth was due to industrial reclassification of larger businesses into service industries, increased intramural R&D spending by ongoing R&D performers, and new R&D performers. In 2009 the R&D spending in service industries contracted and returned to its most recent peak of $7.6 billion in 2011. Since 2011, the level R&D spending by service industries has exceeded that of the manufacturing sector, to a forecast $7.3 billion in 2015.

Since 2004, intramural R&D spending in ICT services has exceeded that of ICT manufacturing. While R&D in ICT manufacturing declined after 2001, R&D in ICT services increased every year from 2000 through 2008, more than doubling from $1.4 billion to $3.1 billion. Thereafter R&D spending in ICT services has remained in the range of $3 billion and is anticipated to continue at this level through 2015 ($3.1 billion).

Part of ICI services, computer system design and related services, known for developing custom software applications for their own use or for other organizations, experienced strong growth in intramural R&D spending in the two years preceding 2000 or ‘Y2K’. In 2001, R&D spending on computer system design and related services surpassed $1.0 billion to peak a decade later, in 2011, at $1.6 billion, with 2015 preliminary R&D spending intentions of $1.4 billion.

Amongst all industries, intramural R&D spending has grown the most in scientific R&D services between 1997 and 2015. Businesses in this industry are dedicated to performing R&D on their own account or under contract for other organizations—in which it is a leader among all industries. In 1997, R&D spending by scientific R&D services was $211 million, peaking at $2.0 billion in 2011. It is anticipated that spending by scientific R&D services will continue to perform $1.8 billion in R&D from 2013 through 2015.

R&D in wholesale trade experienced the second most rapid increase in the 2000s—after scientific R&D services. In wholesale trade, there are many foreign-controlled multinationals whose global activities span goods production and services provision. R&D by the wholesale trade sector occurs across a wide range of fields of science or technology, from basic and clinical medicine to electrical, electronic, software, mechanical and materials engineering and information technology. A large R&D-performing industry at—$556 million in 1997, spending increased to $1.4 billion by 2008, and is anticipated to be $1.3 billion in 2015.

R&D spending in mining, quarrying and oil and gas extraction industry up since 2000

R&D spending in mining, quarrying and oil and gas extraction is anticipated to be $1.4 billion in 2015, down $246 million from its most recent peak of $1.6 billion in 2012. R&D performance in mining, quarrying and oil and gas extraction grew rapidly from $182 million in 2000 to $980 million in 2008. With a slight contraction to $929 million in 2009, R&D spending in mining, quarrying and oil and gas recovered to its 2008 level by 2010, and continued its growth, peaking at $1.6 billion in 2012.

R&D for energy-related technologies

R&D expenditures on energy-related technologies have grown since the onset of the commodities boom in the early 2000s. Between 2009 and 2013, R&D spending on energy-related technologies increased from $1.3 billion to $2.0 billion. These increases have been largely due to increases in R&D for fossil fuel technologies, which grew from $928 million to $1.4 billion during this period. Fossil fuel-related R&D accounted for over two-thirds (71%) of all energy-related R&D in 2013, the most recent year for which data are available.

R&D expenditures for other energy-related technologies have shifted since 2009, with increases in spending on nuclear energy R&D (from $18 million to $77 million), energy efficiency (from $68 million to $128 million), and “other energy-related technologies” (from $68 million to $110 million). R&D related to hydrogen and fuel cells shifted from predominantly hydrogen-related technologies ($44 million of $60 million total in 2009) to mostly fuel cell-related technologies ($60 million of $74 million total in 2013).

Geographically, industrial R&D spending is concentrated in Ontario and Quebec

While Ontario and Quebec continue to account for the majority of industrial R&D performed in Canada, their combined share declined slowly but steadily from 2000 to 2013, from $10.5 billion or 85%, to $11.7 billion or 73%. In these two provinces, the majority of industrial R&D has historically been performed in the manufacturing sector. Declines in manufacturing R&D, mostly in Ontario, mirror the declines in the overall share of R&D performed in Quebec and Ontario.

R&D performed in Alberta and British Columbia, increased during this period; from $583 million in 2000 to $2.0 billion in 2013 in Alberta and from $973 million in 2000 to $1.6 billion in 2013 in British Columbia. In 2000, the four western provinces accounted for $1.8 billion or 14% of industrial R&D but, by 2013, these four provinces accounted for $4.1billion, or 26%. This shift paralleled the growing importance of R&D in the oil and gas extraction industry in Alberta and the focus on R&D in service industries in British Columbia.

Between 2000 and 2013, Atlantic Canada has also seen its industrial R&D spending grow from $132 million to $222 million, but it remains a comparatively small share (1%) of total industrial R&D in Canada in 2013.

Industrial R&D spending focused on engineering and technology

In 2013, engineering and technology R&D accounted for $12.9 billion (80%) of industrial R&D performed. Natural and formal sciences and medical and health sciences each accounted for 9%, while agricultural sciences comprised the remaining 3%. Since 2009, when these data became available, most industrial R&D has focused on engineering and technology. The share of industrial R&D in these fields increased from 71% in 2009, to 80% in 2013. In contrast, R&D in the major science fields (natural and formal sciences, agricultural sciences and medical sciences) has declined from $4.6 billion to $3.1 billion.

Within engineering and technology, the top four detailed fields: electrical engineering, electronic engineering and information technology ($3.5 billion); other engineering and technology ($2.7 billion); software engineering ($2.6 billion); and mechanical engineering ($2.0 billion) together accounted for two-thirds (67%) of all industrial R&D in Canada in 2013.

Electrical and electronic engineering and information technology led industrial R&D spending from 2009 to 2013

Electrical and electronic engineering and information technology has led industrial R&D activities from 2009 to 2013. This field of technology encompasses a broad range of objectives, including telecommunications, flight instruments, computer systems and electrical circuits; engineering related to power generation, transmission and design of related equipment; design of control systems that monitor performance and integrate feedback into the system; signal processing, such as signal compression, error detection and error correction. In 2013, these expenditures accounted for $3.5 billion of performed R&D or 22% of total industrial intramural R&D in Canada.

Software engineering, the second-largest field of technology at $2.6 billion in 2013, is the application of systematic, disciplined and quantifiable approaches to the development, operation and maintenance of software. Software engineers perform R&D activities related to computer programming, computer systems, and integration of software into physical systems. This field of technology has grown from $1.9 billion in 2009 to $2.6 billion in 2013, however, this increase has been mirrored by decreases in R&D spending in computer and information sciences (down from $1.4 billion in 2009 to $581 million in 2013)

R&D in mechanical engineering involves exploring the boundaries of materials, machines and systems to produce safer, less expensive and more efficient machines and mechanical systems. Mechanical engineering R&D expenditures increased between 2009 ($2.6 billion) and 2011 ($2.9 billion), but subsequently declined in 2012 and 2013 ($2.4 billion and $2.0 billion respectively).

Emerging technologies such as biotechnology and nanotechnology accounted for a smaller share of industrial R&D (3%), with biotechnology as the leader in R&D spending at $386 million. Nanotechnology remains a specialized area of industrial R&D, ranging from $13 million to $18 million during the period from 2009 to 2013.

There are four detailed fields of technology dedicated to biotechnology: medical biotechnology ($295 million in 2013), industrial biotechnology ($38 million), agricultural biotechnology ($36 million) and environmental biotechnology ($17 million). Medical biotechnology accounted for three-quarters (76%) of biotechnology R&D performed by businesses in 2013.

Computer and information sciences remained the most important natural and formal science for industrial R&D

Natural and formal sciences accounted for 9% of industrial R&D expenditures in 2013. Computer and information sciences accounted for the largest share of natural and formal sciences. In 2009, it accounted for $1.4 billion of all natural and formal sciences R&D but, by 2013, it had fallen to $581 million. R&D in physical, chemical and biological sciences together accounted for $539 million in 2013, with chemical sciences ($259 million) representing the largest share of these sciences.

Overall medical and health sciences industrial R&D spending down since 2009

Spending on medical and health sciences R&D declined each year from 2009 to 2013, from $1.8 billion in 2009 to $1.4 billion in 2013. The leading industry performing medical and health sciences R&D continued to be scientific R&D services at $498 million or 37% in 2013, followed by wholesale trade at $362 million and pharmaceutical and medicine manufacturing at $305 million.

In 2009, three-quarters of all medical and health sciences R&D was for basic medicine or clinical medicine (together $1.4 billion), with health sciences, medical biotechnology and other medical sciences accounting for the remainder ($451 million). In 2013, basic and clinical medicine R&D accounted for just over one-half of all medical and health sciences R&D at $699 million. Each of health sciences, medical biotechnology and other medical sciences increased between 2009 and 2013, together increasing from $451 million to $667 million over the five years.

Agricultural sciences together accounted for $402 million in 2013, with agriculture, forestry and fisheries the largest field of science at $272 million. Both amounts were largely unchanged from 2009. The leading industry performing agricultural sciences R&D was scientific R&D services at $134 million or 33% in 2013, followed by agriculture $57 million and wholesale trade at $52 million.

Canadian industrial R&D spending patterns are evolving

In 2015, industrial R&D spending is anticipated to reach $15.5 billion, a decline from the most recent peak of $16.9 billion in 2011. Industrial R&D rebounded from 2008/2009, but has since shown signs of decline, with R&D spending intentions for 2015 down by 7.1% from 2008 levels. Performing businesses continued to be the main source of funds for industrial R&D performance. The majority of Canadian industrial R&D spending is focused on engineering and technology, with a notable concentration on information and communication technology-related fields, in which Canada is well-known.

While employment in R&D occupations, in terms of full-time equivalents, has also declined since 2008/2009, there is evidence that R&D employment is undergoing professionalization with less of a need for supporting positions, which could be connected to the increasing importance of R&D in service industries and natural resources.

Industrial R&D spending patterns over the longer term have mirrored significant developments in the national economy. For example, intramural R&D spending has shifted from manufacturing industries to service industries and the mining, quarrying and oil and gas extraction industries, as these sectors have gained importance in the Canadian economy. It follows that energy-related intramural R&D spending also expanded between 2009 and 2013 with fossil fuel R&D at the forefront. While industrial intramural R&D spending remains concentrated in Ontario and Quebec, there has been a westward shift in R&D performance, due, in part, to the doubling of industrial R&D spending in the Albertan mining, quarrying and oil and gas extraction industries between 2009 and 2013.

Note to data users

Collection period for reference year 2013

Data for industrial R&D 2015 intentions were collected from September 2, 2014 to February 6, 2015. Most of the data collection took place before the sudden decline in oil prices that occurred in late 2014. R&D spending intentions for 2015 may be revised in subsequent collection periods.

Upcoming changes to Statistics Canada’s industrial R&D statistics program

Survey reference year 2014 will mark important changes to the industrial R&D statistics program. The survey will undergo conceptual, methodological, processing and output changes.

The Research and Development in Canadian Industry (RDCI) survey has been a census of all known R&D performing or funding businesses. Prior to 1997, the data were obtained from questionnaires with long forms sent to the largest R&D performers and short forms sent to businesses with smaller R&D programs or projects. Since reference year 1997, the RDCI survey methodology has combined research and development data from two sources: RDCI questionnaires and the Scientific Research and Experimental Development (SR&ED) Tax Incentive Program records of approved claims (the latter is administered by the Canada Revenue Agency (CRA)). The current reference year, 2013, is the last survey cycle of the RDCI that employs this methodology.

Budget 2012 made expenditures for purchased and leased machinery and equipment for R&D activities ineligible under the SR&ED program, beginning January 1, 2014, changing the nature of the data contained in the SR&ED tax records. As a result, a new survey methodology has been developed to ensure that all required R&D expenditures data, including capital expenditures for R&D, remain available.

Starting in reference year 2014, the RDCI will be a weighted sample survey, supplemented by administrative tax data from SR&ED tax records. The reference year will change from the business’ fiscal year ending in the calendar year to its fiscal year ending within the fiscal period from April 1, 2014 to March 31, 2015, using reference year 2014 as an example. The sample of companies receiving a questionnaire will be expanded from 2,000 to 8,250. The SR&ED tax data will be used to maintain the survey frame, to represent the smallest R&D performers thereby reducing response burden and assisting in imputation for non-response.

In addition to the new survey methodology, the RDCI questionnaire has been modified to obtain data on R&D in the social sciences and humanities, previously excluded from measures of industrial R&D. New questions on the nature of R&D (basic research, applied research and experimental development), results of prior R&D spending, on-site R&D consultants and contractors, and details of R&D spending activities have been added.

Questions on the level of education of R&D personnel, postal code of R&D locations, detailed breakdowns of the components of planned current and capital R&D spending, during the two years following the reference period, will be discontinued to reduce response burden.

The dissemination of industrial R&D expenditures and personnel data, beginning in reference year 2014, will reflect the changes to survey methodology and questionnaire content. In addition, changes to the industry groups reporting research and development in Canada will enable more detailed information about R&D activities across the business enterprise sector.

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