June 9, 2020

The Hill Times – We’ll need the capability to restart the economy once pandemic fades

We’ll need the capability to restart the economy once pandemic fades

This means ensuring that we have the companies ready to drive future growth—ensuring they survive the pandemic world to help lead growth and job creation in the post-pandemic world.

TORONTO—The first priority is to do everything we can to protect the health of Canadians. The second is to ensure Canadians have enough income to meet basic needs so long as the pandemic prevents them from working.

But there is a critical third priority, which is to make sure that we have the capability to restart the economy as the pandemic fades.

This means ensuring that we have the companies ready to drive future growth—ensuring they survive the pandemic world to help lead growth and job creation in the post-pandemic world. It is through companies that we innovate, produce tradeable goods and services for sales at home and for export, and create jobs as well as the tax revenues governments need to provide the public goods we value.

This is why there is so much concern over the precarious state of many of our most promising tech companies that were on the scale-up path before the pandemic hit. They now find themselves with slumping revenues and a lack of capital to continue innovative investments and are at risk of losing their teams of talent, one of their most important investments. Without talent, there is no innovation.

The innovative tech world is not just the world of information and communication technologies. It includes, for example, clean technologies, new forms of energy, safe and sustainable water systems, new housing technologies, genomics to improve agricultural yields and sustainability, medical technologies, pharmaceuticals, new materials, production processes and technologies, and the circular economy of waste elimination.

It has taken time for governments to pay attention. The unique position of innovative tech companies meant they did not benefit from many of the early federal initiatives to help businesses. For example, many tech companies found they did not qualify for the Canadian Emergency Wage Subsidy, which was designed to help companies keep employees on the payroll or rehire them.

To some extent, government has responded. But more remains to be done. For tech companies that could not retain employees under the emergency wage subsidy, a new initiative under the Industrial Research Assistance Program, or IRAP, has been provided with $250-million to provide a similar benefit. As National Research Council president Iain Stewart told the Council of Canadian Innovators (CCI), the goal is to help tech companies that are R&D-intensive, technology-focused and innovative, or part of supply chains, to retain highly qualified personnel.

This should help technology entrepreneurs “stay afloat,” says Ben Bergen, executive director of the CCI. But more is needed. Moreover, it remains to be seen how well the government’s Business Credit Availability Program meets the needs of tech companies.

Likewise, it remains to be seen how well the promised $962-million in funding through regional development agencies will help the tech world.

The government has responded to concerns that some Canadian companies might be subject to foreign takeovers because of their weakened position. The government says that “certain foreign investments” will be subject to “enhanced scrutiny” by Investment Canada. “Direct investments of any value, controlling or non-controlling, in Canadian businesses that are related to public health or involved in the critical supply of goods and services to Canadians or to the government, will be subject to review,” with even greater scrutiny where the foreign investor may be a state-owned enterprise.

But it is not clear what the government means by “critical goods and services.” In particular, will this apply to the large number of tech companies that are at risk because of the economic lockdown? That is essential. Moreover, simply blocking foreign takeovers, while important, is not enough.

Our promising growth companies also need capital as they scale up. One reason that so many Canadian tech companies have been sold off in the past is that this was the only way to obtain the equity or patient capital needed to take the next step for growth.

Some of this need can be supplied through improved access to capital. The Canadian Advanced Technology Alliance has called for a $3.6-billion fund to provide zero-interest loans, with a forgivable portion, for tech firms with a proven track record. This could help.

But scaling up tech firms need equity as well as loans. One way to provide equity, if financial markets are on hold, would be to set up an arm of an existing federal corporation, the Canada Development Investment Corp., to make investments in tech companies with growth potential, selling these shares into the market or back to the invested company at a future date.

Another way to get more money into the hands of small and midsize innovative companies is to accelerate the payment of refundable tax credits under the federal R&D tax incentive. At the end of March, there were 1,755 companies across Canada that had applied for $231.6-million in refundable credits. This is money that in effect belongs to the companies themselves and, says CATA, payouts could be accelerated because the Canada Revenue Agency already has records of most companies that use the program. That should make it easier to fast-track payments now.

What else? We have to keep thinking. For example, how well can the federal and provincial governments use procurement to help tech companies prove up technologies and create markets by being an early customer?

The post-pandemic world will be difficult and there will be no overnight recovery—it won’t be V-shaped. But one thing we can do now is to make sure that our future drivers for growth—our innovative tech companies—are well-positioned to play their key role in our post-pandemic world.

David Crane can be reached at crane@interlog.com.

The Hill Times