Canada’s ICT Sector and Innovation: Are We Doing Enough?
As a nation, Canada’s economy and quality of life are some of the best worldwide. According to the 2021 Best Countries Report, Canada was ranked the #1 best country in the world while also ranking #1 for other subcategories such as quality of life and social purpose and #3 for agility and business-friendliness (Source: Invest Ontario).
Although we rank impressively high overall and for these categories, this article intends to dive further specifically into how Canada’s ICT sector is currently performing compared to other countries.
What does our ICT sector look like compared to other countries? How does our innovation compare to other countries? How do our tech adoption rates compare to other countries?
But, before comparing and contrasting Canada’s ICT sector outputs compared to others, let’s discuss what our ICT sector currently looks like.
ICT in Canada
Canada’s Information and Communications Technologies (ICT) sector are just one of many working within Canada’s economic system. In 2020 alone, Canada’s ICT sector made up 3.7% of Canada’s workforce with 671,109 workers and produced 5.1% of Canada’s GDP at 96.8 billion dollars (Source: Innovation, Science and Economic Development Canada).
Canada’s ICT Subsectors
Four main subsectors make up Canada’s ICT sector, including:
- ICT Wholesaling
- ICT Manufacturing
- Communications Services
- Software & Computer Services
In total, most of Canada’s ICT sector consists of software and computer services taking up 91% of the industry as a whole! However, the software and computer services sub-sector only produced 47.6% of the industry’s GDP in 2020, with communications services producing 40.6%.
Although small compared to other sectors such as manufacturing or mining, Canadian ICT sector growth rates have continued to climb faster than the overall economy since 2013. In 2020, the ICT sector’s GDP contribution grew by 2.9% compared to the Canadian economy which shrunk by 5.1% due to COVID-19.
Canada’s ICT sector’s growth will continue to increase even after COVID-19 due to a large amount of “innovation” currently happening in technology.
Defining the Innovation Buzzword in the ICT Sector
“Innovation” is everywhere today.
Whether LinkedIn, Twitter, the news, or mentioned in your last meeting, the word “innovation” has skyrocketed in our business vocabulary. If you’re working in the ICT sector, you’ve probably been bombarded with the word more than anybody else.
But, there’s a good reason for this.
Even though it’s a vague buzzword (haven’t we been innovating since the dawn of time?), ICT and “innovation” go hand in hand. The ICT sector’s investment is critical to expanding our current products and services through two main areas (Source: The Conference Board of Canada): Digital Infrastructure and Productivity Growth.
Investing in ICT provides us with the digital infrastructure needed to build upon ideas, transmit data, and take action in our everyday lives. Without the proper digital infrastructure, it becomes a challenge to improve our current products and services.
It becomes a challenge to invent and innovate.
Without basic innovations like the smartphone, GPS technology, wireless service, and the internet, ordering an Uber would be impossible. Building digital infrastructure is crucial to move innovation forward, and it can’t be done without the ICT sector.
Innovation doesn’t just come from the creation of the technology itself. It comes from people using technology to be more productive. However, this isn’t new information. Since the beginning, we’ve been building and creating new ways of improving our productivity. Whether it’s the invention of the wheel or the idea behind artificial intelligence, it’s all meant to do work faster, more efficiently and with improved quality.
Investment into the Canadian ICT sector isn’t building technology for the sake of building it. It’s meant to help other sectors such as agriculture and finance become more productive by using the tools created by the ICT sector.
Invention vs. Innovation: They are Not the Same
Quite often, we see confusion between what invention and innovation are. Contrary to what some may think, invention and innovation are not the same.
Invention ≠ Innovation
As Kenneth Morse, the previous Managing Director of the MIT Entrepreneurship Center said, “Innovation is invention plus commercialization. It’s very important to understand that creating new ideas and new technologies is important, but we also need commercialization.”
When inventions are created, it doesn’t mean they’re innovations. To be called an innovation, the invention needs to be commercialized.
The digital infrastructure we use helps build inventions, but for innovations to truly bloom, the inventions need to be brought to the public market increasing productivity growth and economic development.
Now that we know what an invention is vs. an innovation, how is the ICT sector in Canada doing?
How well are Canadians innovating?
ICT in Canada and “Innovation” Compared to the World: Where Are We in the Race?
According to the latest Conference Board of Canada’s Innovation Scorecard, Canada sits in 11th place out of 16 countries with a grading score of C.
As you can see, Canada’s scoring is low compared to similar first-world countries.
Before diving into why this is the case, let’s examine how all the provinces are doing within Canada.
Conference Board of Canada: Canada’s ICT Sector Innovation Grade and Ranking Provincially
Breaking Down the Categories – What the Grading Means
Looking at the scorecard, each section is broken down into three main areas with three grading indicators including:
- Public R&D: Public research and development spending as a % of GDP
- Scientific Articles: Scientific articles per million of the provincial population
- Automation Vulnerability: Workforce vulnerable to automation
- Entrepreneurial Ambition: % of the population between 18-64 who report being early-stage entrepreneurs
- Venture Capital: Venture capital investment as a % of GDP
- Business R&D: Spending as a % of GDP
- Patents: PCT patents per million population
- Enterprise Entry: Number of new firms as a share of active firms
- Labour Productivity: GDP per hour worked
Capacity measures Canada’s resources and expertise needed to provide a strong foundation for scientific progress. The capacity category also includes a measure of the productivity of the scientific community.
Referencing the scorecard, Canada’s innovation capacity sits at mediocre. Nova Scotia leads the country in public R&D and scientific articles released. Still, Quebec leads Canada with the lowest vulnerability to automation. Unfortunately, most of Atlantic Canada’s workforce is at risk of automation.
Activity measures investments made by businesses and other investors to develop innovative ideas further and implement productive technologies. This category includes the early steps taken by entrepreneurs to start new ventures and enterprises.
Canada’s activity ranks quite poorly. Although entrepreneurial ambition is Canada’s (and many provinces) biggest strength, the amount of capital invested and business R&D lags as some of Canada’s lowest grades. Ontario leads the way in ambition, with B.C not too far behind. Venture capital investment and business R&D rank highest in Quebec, but all other provinces have no higher than a D grade.
Results measures signals that the innovation process has produced products, services, or processes worth protecting and new ventures worth starting. It includes labour productivity as an indicator of innovation performance.
Canada’s results are unsatisfactory, showing that a lot of innovation leads to minimal effects.
Alberta leads the way with a D grade in patents and labour productivity. Based on the A-grade given, Prince Edward Island sees the most significant jump in enterprise entry.
ICT in Canada – Overall Innovation Analysis
From a worldwide view, Canada has room for improving ICT innovation and development. Ranking 11th out of 16 proves the competition is intense. Competing with major tech powerhouses such as Switzerland and the United States is no easy task.
Provincial performances vary across the country. Ontario and Quebec may have the highest overall grade, but it isn’t optimal. Leading Canada’s ICT innovation with a C grade, Ontario and Quebec are sluggishly leading Canada’s ICT Innovation.
Canada’s high entrepreneurial ambition is positive to see. Still, without enough financial and informational resources, Canada’s entrepreneurs and innovative leaders will struggle to create new ideas and productive technologies – something we already see in the “Activity” results previously mentioned.
So, Where Can Canada Improve the ICT Sector and Innovation?
Above, we discussed lots of information on where Canada’s ICT Sector stands. Compared to other first-world countries, we’re behind.
So, where can Canada improve its innovation score? How can we increase our productivity, outputs, and GDP?
In their 2021 report card, the Conference Board of Canada lists four areas of needed improvement, including:
- Continuing government spending on innovation
- Improving technology adoption and usage
- Creating a healthy business ecosystem
- Preparing Canadians for automation
We’ve also included one of our own:
- Basic access to digital services such as internet and cell phone plans
Continuing Government Spending on Innovation
Although ranking with a B in Public R&D, Canada’s government needs to continue investing in innovative technologies such as artificial intelligence, digital infrastructure, 5G development, cloud computing. Without government spending on innovation, Canada could see a slowdown in economic and social growth compared to other countries. Government tax subsidies and grants could be used to incentivize public R&D within Canada. Still, it’s up to policymakers to work out the details.
Spending on ICT innovation doesn’t help the tech sector alone either. It helps the dozens of industries in Canada, including mining, agriculture, manufacturing, finance and more. Helping each of these sectors develop in innovation builds Canada’s economy and benefits the way we Canadians live/work.
According to The Conference Board of Canada, policymakers should:
- investigate whether the current mix of tax incentives and direct support stimulates spending and investment
- examine how structural features of national and provincial economies affect spending on business R&D and technology
- explore new ways to improve spending—including looking at practices in top-performing countries
Improving Technology Adoption and Usage
The saying “If you build it, they will come” couldn’t be any more false when it comes to building innovative technologies.
Unfortunately, it’s not that easy. There are numerous barriers to adopting new technologies, such as (but not limited to) costs, training requirements, integration time, lack of skilled employees who can use the technology effectively, updates, technology lifecycles, and more.
Some of these barriers can be psychological too.
For example, some people may not want to use artificial intelligence because they believe their intuitive decision-making would drive better results (Source: Harvard Business Review). Others could feel threatened by the technology or may prefer to stick with what they are already using because it’s already familiar.
Canadian entrepreneurs should understand that innovation isn’t just about building new technologies. New startups need to address why their future customers will have objections to their technologies and find a way to work around it, whether it’s a technical objection or a personal one.
At the same time, the Canadian government needs to educate various industries on the benefits of technology to help startups and innovative entrepreneurs work around these barriers.
Striving for innovation is more than just building technologies. We need people to use them too.
Creating a Healthy Business Ecosystem
Entrepreneurial ambition is high in Canada, with numerous Canadians looking to build new ventures and innovative technologies.
But can they act on these ambitions in our current Canadian environment?
As with any economic situation, building a healthy business environment is crucial to building a strong economy. Canadian entrepreneurs need all the assistance they can get when it comes to building new businesses. By helping them, we can rapidly increase the supply of innovative technologies in Canada and grow our economy by making our home-grown innovations global exports. According to The Conference Board of Canada, Canadian entrepreneurs need:
- A healthy climate for new ventures, including adequate market demand and access
- Reliable supply chains, transportation, and communications infrastructure
- Favourable tax rates and tax regime clarity
- Appropriate regulation
- Access to capital and expertise
- A proper mix of core capabilities
As of July 2021, the Nova Scotian government announced that it plans to eliminate regulatory fees for new businesses during their first two years of operation (Source: Atlantic CTV News). Although not specifically targeted towards tech innovation in Canada, this is a primary example of how the government can create a healthy business environment to start new ventures and grow businesses.
Preparing Canadians for Automation
It’s inevitable to say that multiple jobs and career paths in the future are becoming automated. Artificial intelligence and robotics are taking over some fields of work such as bookkeeping, data entry, and office administration, to name a few. As some industries and occupations become more vulnerable than others, Canadians (and the Canadian government) should begin to prepare themselves.
However, there is good news.
According to a World Economic Forum report, over 85 million jobs are being displaced by 2025 worldwide, but automation will create 97 million new jobs in return (Source: WEF).
Surprisingly, the “robot revolution” creates more jobs than it takes away, but there is a learning curve. Although requiring technical expertise, ICT jobs in Canada are already in high demand due to labour shortages. Thousands of job openings are available, with many more to come soon.
Anybody within a high-risk industry should prepare themselves for a career change, and the government should be prepared to assist. Workers should consider the possibility of going back to school or receiving training for ICT careers, but it shouldn’t be up to them alone. The government should provide students and career changers funding to help them with their schooling and transition into an ICT career.
As of July 2021, the Quebec government has already taken a significant initiative by paying students to study within an ICT-related field (Source: Montreal Gazzette). Under the program, students will undergo accelerated training while being paid $650 a week with a bursary of $1950 once the training is complete.
This funding is a prime example of how the government can prep the public for change and drive innovation simultaneously.
Primary Access to Digital Services
It’s estimated that only 45.6% of rural Canadians have access to high-speed internet (Government of Canada). Even with access to the internet, many of these communities don’t meet the minimum download and upload speeds to keep up with today’s online data. Canadians in rural areas experience download speeds twelve times slower than Canadians living in urban centres. (Source: CIRA) This low-speed internet can’t keep up with today’s modern way of business and social services, leaving some rural Canadians no better off than those without access at all.
According to Stats Canada, 6% of Canadians don’t have internet access at home.
Considering that the Canadian economy is reliant on the rural community, not having high-speed internet access is a critical problem for the country’s long-term growth goals.
If we are to drive ICT innovation in Canada, everybody should have access to the internet no matter where they live. Giving these essential tools in rural areas will allow current businesses to innovate and startup ventures to begin. According to a 2012 study by the World Bank, every time internet penetration rises by 10% in developed countries, GDP rises 1.19%. (Source: World Development Report)
Without basic access, these areas will remain stagnant, hindering Canada’s ICT innovation and GDP growth. In good news, the Canadian government announced in 2019 that 95% of Canadians would have high-speed internet access by 2025, and 100% of Canadians will have access by 2030.
The COVID-19 pandemic widened Canada’s Digital Divide increasing the gap to the furthest we’ve ever seen. Find out why in our past article, “How COVID-19 is Impacting the Digital Divide.”
ICT Sector in Canada – An Opportunity to Improve
Canada is a bit behind compared to other first-world countries competing for innovation in the ICT sector. Placing 11th compared to other countries such as Denmark, Sweden, and the United States, Canada has multiple areas for improvement in contributing to the world’s ICT sector.
As depicted by The Conference Board of Canada’s report, Canada’s entrepreneurial ambition is firm but not enough. Without crucial areas such as R&D and startup capital, Canada’s ICT innovation is disorganized and will lack the patent and productivity output seen in a healthy innovation economy. Canada should also watch its vulnerability to automation. Canadians need to prepare for career changes depending on their work, and governments need to support them.
Canada’s commitment to providing internet access to all Canadians needs continuation. Internet access will help increase jobs, grow GDP, and drive ICT innovation – giving thousands of Canadians the ability to build startups and innovate.
Canada has a long way to go, but with the right government policies, access to resources, and entrepreneurial spirit, Canada’s ICT sector will drive innovation, help grow our economy, become more efficient, and create new jobs.
Interested in learning more about how Canada’s ICT sector will help drive innovation?
CENGN launched a national study to better understand the Canadian NGN ecosystem and its needs. The International Data Corporation (IDC), a world-renowned global market intelligence firm, was commissioned to complete this study.