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Canada's tech sector already positioned to benefit from federal budget

Morneau Watchers of this year’s Easter budget are already speculating about whatever “surprises” might be lurking that haven’t already been leaked or announced. But an awful lot of these eggs have already been scattered around the country over the past few months, signalling clearly where the federal government’s priorities lie.
Minister of Innovation, Science and Technology Navdeep Bains has been criss-crossing Canada since the election, announcing investments not only in particular companies but also in incubators and tech hubs, showing very explicitly that the current government intends to place its eggs in several baskets, favouring innovation and technology as the sector most likely to drive long-term economic growth.
As forecasts over the deficit target has crept upward in recent months, leaping from $10 billion in September to $18.4 billion to $30 billion and perhaps higher, pundits have wondered whether such significant investment will provide adequate returns and set the stage for future growth, or be sunk into a series of low-return make-work projects.
A confluence of circumstances ebbing from the election until now have provided strong signals to where the long-term focus of the federal government’s priorities are likely to be, and those signals are positive for stakeholders in Canada’s technology and innovation sectors.
In January, Bains took a tour of Shopify headquarters in Ottawa, shortly before partnering with the Atlantic Canada Opportunities Agency in February to announce $2.7 million in funding for individual companies through Halifax’s Volta Labs incubator, and then using the FedDev Ontario fund to offer $483,480 directly to human resource tech company Plum.io, before also announcing $350 million for research at Cape Breton University in addition to $513,000 for the Newfoundland and Labrador Association of Technology Industries (NATI).
Prime Minister Justin Trudeau, for his part, has signaled his preferences through appearances with Bains at the ceremonial opening of Google Canada’s Kitchener headquarters in January and also a recent visit to Ubisoft, a Montreal gaming company with 2,700 employees.
Bains’ activity has been a helpful barometer, indicating that federal money has already started flowing in the direction of companies and sectors that the government has already prioritized.
Finance Minister Bill Morneau, speaking in the House of Commons on February 23, indicated that “we have an absolute commitment to making our country more innovative. We have an absolute commitment to dealing with the productivity challenge in this country. We are moving forward to do what has not been done for the last decade, and that is to invest in innovators, invest in innovation across this country.”
The federal government has already spent a fair amount of time talking up the importance of spending on “unsexy” infrastructure like the roads and sewers that have been more or less ignored since their post-war construction.
But it would be a mistake to ignore “sexy” infrastructure, such as research and development spending, improving our telecommunications infrastructure, and investing in easier transport between tech clusters like Kitchener-Waterloo and Toronto.
5G is the backbone on which the Internet of Things is going to depend, which the South Korean government has already announced it will be spending $1.5 billion U.S. on over the next five years, while Japan hopes to roll out 5G in time for the 2020 Olympics.
The U.K., meanwhile, is sneakily placing an early bet on 6G “quantum technologies”, whatever that’s supposed to be.
News of a five-year, $303 million co-investment between the government of Ontario and Chinese telecom company Huawei into research initiatives relating to 5G is certainly welcome news, but it places us somewhat behind our European counterparts and far behind South Korea and Japan.
According to the OECD, Canada spends 1.6% of its GDP in Research & Development spending, way behind first-place Korea (4.3%), Israel (4.1%), Japan (3.6%), Sweden (3.1%), Denmark, Germany, Slovenia, Taiwan, the United States, Belgium, and other countries spending well above the OECD average of 2.37%.
Incentivizing an increase in spending on research and development should also go hand in hand with strengthening the federal Scientific Research and Experimental Development Tax Incentive Program (SR&ED), which doles out $4 billion in investment tax credits to 18,000 research-focused claimants.
Of particular interest, too, will be investments made in Canada’s cleantech sector, as the government has clearly signaled that it intends to move away from Canada’s historical dependence on oil & gas and towards sustainable energy and “smart city” initiatives.
Navdeep Bains has already announced an over $206 million investment in 36 cleantech projects across Canada, again clearly signaling the government’s preference for moving away from the fossil fuel energy sector.

“We are moving forward to do what has not been done for the last decade, and that is to invest in innovators, invest in innovation across this country.” – Finance Minister Bill Morneau

Another problem confronting Canada’s tech sector is attracting and retaining talent, both foreign and domestic, a situation not helped by the low Canadian dollar.
Canada’s much lauded Startup Visa program has only brought 100 people to Canada so far, including dependents, a low figure that it ought to be easy to improve upon, keeping in mind that we’re competing with the United States for immigrants who can participate in the knowledge economy.
Only 22 start-ups have benefited from the Startup Visa program as of the end of 2015, with many others citing the minimum $200,000 investment on the part of each company ($75,000 if an immigrant is sponsored through a designated angel investor group) and overlong processing time as obstacles to participating in the program.
While priorities for tomorrow’s budget will by necessity focus on the future, they’re also divided by the need to help parts of the country that are struggling to pivot away from their past.
CIBC Chief Economist Avery Shenfeld made the case on BNN that on the one hand, if you’re going to spend money to help centres where there have been major job losses recently, then you’ll be targeting spending in Alberta, Newfoundland and Saskatchewan.
“We’re going to see some effort to patch up weak labour markets in those three provinces,” he says. “We’re going to see, and I think we’re going to see not this year but the following year, some infrastructure aimed at longer-term growth where that growth needs to support.”
Just as important as propping up Canada’s flagging provincial economies, however, will be to ensure that those provinces prepare themselves for the future.
“If you’re looking at longer-term growth,” he says, “you’re trying to spend money on infrastructure that’s going to support longer-term growth, and maybe some parts of those provinces are not where that longer-term growth is going to be,” an obvious reference to those province’s oil & gas sectors.
Shenfeld sees no harm in Canada’s deficit this year reaching as high as $40 billion, since Canada’s debt-to-GDP ratio is currently the lowest in the G7.
Whatever happens tomorrow, Canada has already signaled that it has its eyes fixed firmly on the future, key to which will be to ensure that investment today leads to growth down the road by keeping strict account of how those investments perform according to credible benchmarks.
Promise for that kind of return on investment lies most obviously in the Canadian tech sector’s wheelhouse.

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