The Covid-19 pandemic and the emergence of the second wave have significantly impacted the Canadian economy. Last December, the OECD published its latest economic update that showed Canada’s economy contracting by 5.4% in 2020 — worse than the United States, which saw a 3.7% reduction in economic growth. The OECD forecasts that Canada’s economy will grow by 3.5% in 2021 and perform better than the United States, which is expected to see a 3.2% growth next year. However, despite the positive recovery signals, the fallout from the Covid-19 crisis has negatively impacted Canada’s fiscal balance and employment figures. In December, Canada’s Fall Economic Statement 2020 reported that the federal government’s deficit is expected to reach C$381.6 billion in 2020-21 — the largest deficit in dollar terms on record — with the federal debt-to-GDP ratio rising from 31.2% in 2019-20 to 50.7% in 2020-21.
Meanwhile, Statistics Canada’s latest monthly update shows the unemployment rate steadily declining to 8.5% in November 2020, down from a peak of 13.7% in May 2020 — but comparatively, Canada’s current unemployment rate still lags behind the OECD and G7 averages that stand at 7.1% and 6.1%, respectively. As part of the economic recovery, Canada has introduced programmes to support individuals, families and businesses facing hardship due to the Covid-19 downturn. The economic recovery measures have helped shore up short-term stability. However, given the continued uncertainty and structural economic changes caused by Covid-19, leading experts are recommending that the government continue to support small businesses to adopt new technologies, help upskill the workforce, and promote a green recovery by enabling cleantech companies to scale up.
Support SME digitisation to advance economic recovery measures
Canada’s small and medium-sized enterprises (SMEs) have had to endure a difficult past year. According to the Canadian Federation of Independent Business index — which measures confidence among small firms — the sentiment among Canada’s SMEs dropped to its lowest in five months after a resurgence of Covid-19 cases prompted another round of closures and containment measures in October 2020. As SMEs account for 60% of total employment and contribute more than 50% to Canada’s GDP, regenerating confidence and enabling SMEs to scale up will be critical in driving future growth. Based on a new report from the Public Policy Forum, Canadian SMEs incorporating digital technologies would adapt better to the “new normal” and be in a position to scale their business in the coming years. In an interview, Nick Van Weerdenburg, Founder and CEO at Rangle.io, stated that “using digital technologies has become necessary for SMEs to succeed in today’s economy”. He mentioned that from now on, “SMEs leveraging digital solutions would benefit from productivity gains that would allow them to improve their products and services to grow in the future”.
For SMEs to take advantage of digitalisation, Mr Van Weerdenburg suggested that “policy measures that help SMEs integrate technology into their business will be important steps”. He recommends that the government make “grants, tax credits and interest-free loans available for SMEs” to adopt digital technologies into their business. Through these measures, he pointed out that SMEs would reduce their upfront costs and invest in long-term solutions that would drive business growth. For Canada’s economy, the steps to support SMEs digitalisation could also have broader benefits because it could enable more SMEs to integrate with global markets and global value chains (GVCs). The OECD’s SME and Entrepreneurship Outlook 2019 highlighted that digitalisation helps SMEs reduce size disadvantages in international trade and capitalise on growth opportunities abroad. Because trade plays a vital role in Canada’s economy — representing 66% of GDP and with one in every five Canadian jobs being directly linked to exports — the adoption of digital technology among SMEs could enable more firms to export their products and promote long-term economic growth in Canada.
Provide equal access to skills training for inclusive growth
According to the OECD’s latest report on Canada’s economy, the adoption of digital solutions across sectors in response to economic challenges will likely continue to accelerate post-Covid-19. Although the shift to integrate new technologies offers firms the opportunity to boost productivity, it also creates segments in the workforce that become vulnerable to the changes. This results in jobs changing over time, requiring the workforce to access upskilling opportunities to remain employable. Simultaneously, firms need the talent to grow, and having a productive workforce is vital to their success. In the Business Development Bank of Canada’s latest survey, 67% of the firms surveyed indicated challenges to recruiting now that was not necessarily an issue before the pandemic, with specialised workers being the most challenging hiring category. Given the pace of technological change, Canada will need to help firms leverage technology and help workers access skills training to generate productivity growth. To prepare the workforce for the changes in the economy, Pedro Barata, Executive Director at Future Skills Centre, stated in an interview that “strong collaboration among governments, academic institutions and businesses will be necessary to develop and deliver programmes that allow workers to acquire the skills needed in their region and industry”.
As technology is playing an increasingly important role in today’s economy, Mr Barata pointed out that “the focus of skills training has to shift so that learning and upskilling become a permanent feature of any job”. Given the diverse nature of Canada’s economy, with multiple sectors playing a critical role in certain parts of the country, providing equal access to ongoing skills training will be vital in promoting inclusive growth. One way to deliver skills training programmes at-scale is through online education. In Canada, high-speed broadband coverage lags behind in rural regions where it is often needed the most, especially among youth, Indigenous and senior populations. JP Gladu, former President and CEO of the Canadian Council for Aboriginal Business, said in an interview that “high-speed internet infrastructure is an essential component to ensure reskilling and upskilling opportunities reach rural and Indigenous communities”. Through improvements in broadband infrastructure and access to skills training in the region, Mr Gladu underscored that these initiatives would “promote economic development and enable more people, especially the Indigenous communities, to build innovative businesses and contribute to the Canadian economy”. This could go a long way towards meeting the goal of equal access to skills training for inclusive growth.
Improve demand for cleantech products through structural changes
Mark Carney, former Governor of the Bank of Canada and England, recently said that the transition to net-zero “is creating the greatest commercial opportunity of our age”. As a signatory of the Paris Climate Agreement, Canada has taken steps to achieve net-zero emissions by supporting clean energy technologies through various programmes that promote green growth and seize growth opportunities both at home and abroad. In Canada’s economic strategy, the federal government set a target for the cleantech sector to reach C$20 billion in annual exports and become one of Canada’s top five exporting industries by 2025. For Canada to achieve these goals, cleantech companies will need to overcome the challenges and barriers of scaling up to capture a sizeable portion of the US$2.5 trillion in the global cleantech market. Nicholas Parker, former Chairman and Co-Founder of the Cleantech Group, who coined the term “cleantech” in 2002, said in an interview that “Canada’s cleantech sector has made great progress in recent years, but to scale up, the government needs to incentivise an increased demand for cleantech products among consumers”. To achieve this, Mr Parker suggested that reforming critical areas that “strengthen building codes and fuel standards, incentivise large pension funds to divest from fossil fuels and level the playing field by phasing out fossil fuel subsidies” will be essential steps from now on.
By adopting these reforms, Mr Parker projects that the “demand for clean energy products will increase and help cleantech companies to scale up”. For Canadian cleantech companies to compete in global markets, Mr Parker recommends that companies look to “build niche cleantech products” that leverage Canada’s existing expertise in “artificial intelligence, manufacturing and high-tech engineering”. He referred to the upgrading of Ford’s assembly plant in Oakville as an excellent example, noting that Canada’s established history in automaking enables it to be well-positioned to lead in electric vehicle production. But in Mr Parker’s opinion, the most critical component for cleantech companies to scale up lies in “integrating their high-tech solutions with existing industries to facilitate broader decarbonisation efforts”. He highlighted that Canada needs to improve corporate reporting on climate change to help cleantech companies integrate their solutions with businesses and industries. Through greater visibility into climate-related data and information, Mr Parker said that “cleantech companies would be able to develop tailored products for businesses, especially in heavy industry sectors, to decarbonise large parts of the economy and promote a green recovery”.