Keynote Address

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Canada's Digital Economy: Moving Forward
Industry Canada
Ottawa, June 22, 2009


Sir Terence Matthews
Chair, Wesley Clover
and Chair, Mitel and March Networks

Sir Terence Matthews, whose companies are active in developing Internet protocols, said Canada was once ranked first or second in high-tech uptake, with a large proportion of the population having regular Internet access. Now, however, recent international rankings by The Economist and the OECD (the Organization for Economic Cooperation and Development) have placed Canada well down the list in Internet access and other measures.

"Recently, we seem to be standing still—parked on the side of the information highway while other nations pass us by—at a time when the underlying technologies that make the digital economy possible are changing and growing faster than ever before."

Matthews expressed disappointment that this meeting's agenda did not include a discussion on the need for a vibrant Canadian ICT industry as a major contributor to the digital economy. He likened this to organizing an agricultural conference but forgetting to invite farmers—the ones who actually produce the goods.

Most products today are made in countries that have invested in technology development and reduced the cost of research and development (R&D) and manufacturing. Without a vibrant internal ICT industry, Canada's digital economy will rely completely on foreign products. Matthews questioned why companies such as Nortel were sold to foreign interests or failed through lack of funding, and said he was disappointed that Canadian governments are not taking a more proactive stance.

"Are we simply not treating our ICT sector as an essential part of tomorrow's economy?" Matthews asked.

Although Canadian ICT accounts for only 5% of the country's GDP, it carries out 40% of Canadian R&D. Since Canadian corporate R&D is down to sixteenth place in OECD rankings, Matthews questioned what that figure would look like without the contribution of ICT.

The Science, Technology and Innovation Council, of which Matthews is a member, advised the government on priorities within ICT, suggesting a focus on new media, animation and games, wireless networks and services, broadband networks, and telecommunications equipment. Matthews said Canada should now be considering how to support research and commercialization in these areas as part of the national strategy on the digital economy.

In short, he said, if Canadians want well paying, challenging, knowledge-based jobs for their children, Canada must become an innovation nation. Information technology, telecom, new media, and the creation of digital content can become the foundation for Canada's future prosperity.

Matthews suggested setting bold objectives. For instance, he said, goals could include "Canada will have 10 domestic companies in ICT with annual revenues exceeding $5 billion a year by 2020." This would drive a policy debate and establish the conditions that companies need to achieve such a scale. Such companies would push Canada into a leadership position.

He also suggested re-examining the Scientific Research and Experimental Development (SR&ED) Tax Credit system, because it has not kept up with inflation. Other countries are providing generous breaks on taxes for young technology companies. For example, France is reducing 50% of R&D expenditures for start-up companies in their first year, 40% in the second, and 30% thereafter. Canada must address the severe lack of venture capital available, and change the Section 116 certificate.

"Today's system, essentially requiring every investor to register as a Canadian taxpayer, is a major turn-off, and has significantly damaged Canada's high tech sectors," Matthews said.

He noted he was pleased to see an extra $100 million annually over the next two years allocated to the Industrial Research Assistance program, which has been badly under funded. He encouraged the government to maintain the top-up on a permanent basis.

Matthews also raised the issue of training and skills. According to Statistics Canada, he said, university enrolment is up in every major program area except math, computer and information sciences, the base programs for ICT. But even students in other programs should become digitally literate so they can use technology efficiently in their future work lives.

Many of the changes Matthews suggested require government action, which raises the question of whether Canada's federal and provincial governments are properly structured to support and encourage the digital economy. He said he is not proposing a massive reorganization of government, but while Industry Canada organized the conference, ICT is only a small area of that department's responsibilities. On the other hand, Australia has an entire Department of Broadband Communications and the Digital Economy; France has a Minister of State for Development of the Digital Economy; Britain has a Department of Communications, Technology and Broadcasting; India has a department for Communications and Information Technology; and other countries have similar departments.

Matthews concluded that Canada does indeed face challenges but also has many opportunities. "We need to pick up the pace, be bold, focus clearly on what we decide our objectives should be and, to steal a slogan from a certain sportswear company, 'Just do it.'"