Knowledge Economy

Transcript

Volume 20 / Summer 2010 KNOWLEDGE ECONOMY SPECIAL How has the situation evolved since the beginning of the millennium? The many faces of the knowledge economy Perspective Volume 20 / Summer 2010 NOTE TO READERS: In this text, the symbols M and B are used respectively to refer to millions and billions of dollars. DESJARDINS GROUP Economic Studies Division Phone: 418 835-2450 or 1 866 835-8444, ext. 2450 Fax: 418 835-3705 E-mail: [email protected] Web site: www.desjardins.com/economics www.desjardins.com/economics Finance and Treasury Executive Division and Office of the CFO, Desjardins Group I MPORTANT : The opinions and forecasts contained herein are, unless otherwise indicated, those of this document's authors and do not represent the opinions of any other person or the official position of Desjardins Group. This publication is based on data available as at July 2, 2010. MAIN CONTRIBUTORS François Dupuis Vice-President and Chief Economist 514 281-2336 [email protected] Yves St-Maurice Director and Deputy Chief Economist 514 281-7009 [email protected] Joëlle Noreau Senior Economist Document Editor 418 835-8444, ext. 3764 [email protected] Hélène Bégin Senior Economist 418 835-8444, ext. 2850 [email protected] Benoit P. Durocher Senior Economist 514 281-2307 [email protected] Chantal Routhier Economist 418 835-8444, ext. 3683 [email protected] OTHER CONTRIBUTORS Danielle Proulx Desktop Publishing Technician Versacom Linguistic Consultation CONTENTS EDITORIAL 3 The knowledge economy: Has the rug been pulled out from under our feet? THE SITUATION IN QUÉBEC 4 The expansion cycle has already begun THE SITUATION IN ONTARIO 6 The manufacturing sector stimulates growth in Ontario KNOWLEDGE ECONOMY 7 How has the situation evolved since the beginning of the millennium? KNOWLEDGE ECONOMY 13 The many faces of the knowledge economy INTERPROVINCIAL SHOWCASE 19 Every province wants to shine FORECAST TABLES 21 Canada - Québec - Ontario - GDP by sector - Financial forecasts Copyright © 2010, Desjardins Group. All rights reserved. 2 ISSN 1189-3516 Legal Deposit: Bibliothèque nationale du Québec 3rd quarter 1991 Perspective Volume 20 / Summer 2010 www.desjardins.com/economics EDITORIAL The knowledge economy: Has the rug been pulled out from under our feet? At the end of the 2000s, the surge in commodity prices led some analysts to think that this boom might transform Québec into a supplier of metals and energy. They obviously don’t know Québec: while these industries did in fact pick up, it doesn’t mean that Québec was ready to replace the knowledge economy with natural resources. Still, there are some worrisome signs, most importantly, the decline in the value of international hightech merchandise exports, which peaked at the height of the tech bubble in 2000 (e.g., Nortel). While it would be simplistic to draw conclusions about the situation from just one economic indicator, the truth is exports of Québec know-how are a gauge of its competitiveness on the international market and this indicator is disappointing. Another way to take the pulse of the knowledge economy is R&D investments. On this front, Québec invests more as a percentage of its GDP than any other province, but Ontario spends more per capita. That said, R&D expenditures have not grown significantly in the last ten years. Given that there will be clear winners in the knowledge race, Québec has to do better. If Québec businesses, research centres and universities don’t have qualified workers, the province will be hard pressed to succeed in the global knowledge economy. From 2000 to 2009, people with a postsecondary education had an easier time finding jobs than those without. Also, there has been an increase in the number of people assigned to research in Québec; so in this regard, the province scores points. Moreover, by 2018 there will be a greater supply of jobs for university graduates and technicians, which only confirms our belief that we have to do more to support student retention initiatives, education and research. Québec’s knowledge economy is mainly associated with aeronautics, biotechnology and information and communication technologies (ICT), where it is firmly entrenched. However, these sectors are not invincible, as they are coveted around the world and many countries are investing heavily in them. Québec’s competitive position is being threatened and it has to do more than just hang on. Fortunately, Québec has its strengths (star performers, concerted action, etc.) but that doesn’t necessarily mean it can’t be overtaken, hence the urgency to continue innovating. However, to innovate, you need financing and highly qualified workers; that’s where Québec needs to direct its efforts. Québec’s knowledge economy also relies on other less well-known but growing sectors such as composite materials, clean technology, genomics and nanotechnology. Day in and day out, thousands of people work in R&D in the quest for knowledge, but also to create novel products and services that can improve our daily lives. In some respects, Québec is boarding a moving train since some countries embarked on this research path long before it, but the province firmly believes in its potential. Although the vitality of our knowledge economy hinges on many factors, one thing’s for sure: both private and public sector stakeholders will have to work together if they don’t want to see the rug pulled out from under their feet. François Dupuis Vice-President and Chief Economist 3 Perspective Volume 20 / Summer 2010 www.desjardins.com/economics THE SITUATION IN QUÉBEC The expansion cycle has already begun The economy’s recovery was surprisingly fast and strong. January’s 0.6% real GDP gain kicked the expansion cycle off. The province is thus ahead of its major trade partners, including Canada (Graph 1) and the United States. Québec also stands out in terms of the employment market. Employment is now above its pre-recession peak, while the country still has some catching up to do. Québec therefore has a sizeable asset that gives households a stronger foundation, driving consumer spending and the housing market. Graph 1 – Québec recovered more quickly than Canada In 2002 $B In 2002 $B Real GDP 253 1,245 251 1,235 249 1,225 247 1,215 245 1,205 243 1,195 241 1,185 2007 2008 2009 Québec (left) 2010 Canada (right) Sources: Institut de la statistique du Québec, Statistics Canada and Desjardins, Economic Studies For now, the focus is on employment’s spectacular rebound and its ripple effect on consumer spending (Graph 2). After bottoming out last July, the number of workers grew by 86,100. The gain has more than offset the 69,200 jobs lost during the recession. Like the economy, almost all sectors have taken back all of the ground lost during the recession. Graph 2 – The rise in employment stimulated retail sales In $B In thousands 8.6 3,930 8.4 3,910 8.2 3,890 8.0 3,870 7.8 3,850 7.6 3,830 7.4 3,810 7.2 3,790 2007 2008 2009 Re tail sale s (le ft) Sources: Statistics Canada and Desjardins, Economic Studies 4 Employme nt (right) 2010 Hiring is mainly coming from the private sector and about 80% of the new jobs are full time. The employment market’s improvement is based on a solid foundation. As with the overall economy, employment’s swift recovery period will give way to more modest gains. Consumer spending will also have a hard time keeping up this frenetic pace. Retail sales literally exploded in the first quarter, posting a much stronger gain than in Canada. The pace is expected to slow to a more sustainable level, in conjunction with the forecast flagging of the employment market. A major correction can be ruled out, as consumption’s recent growth is well aligned with income growth. The speed at which the labour market has recovered solidified consumer confidence. Confidence has also rebounded after abruptly plunging in April in the wake of the provincial budget and abrupt rise in mortgage rates. It seems that concern about the state of Québec’s public finances dissipated rapidly. This year, the higher gas tax will be taking a bigger bite out of consumers’ pockets. Increases to the Québec sales tax (QST) and some rates come into effect in 2011, however, slowing consumer spending growth somewhat. It will be 2.7% next year, compared with 4.4% this year. The real estate market, which has been on the same trajectory as consumption, should pull back somewhat in the second half. A number of factors have already started to cool demand for housing. Although mortgage rates edged down in May and June, they are still appreciably higher than their mid-March low. The rate posted for a five-year term is, for example, around 6%, compared with the floor of 5.25% reached this spring. Note that the increase in interest rates had been widely expected and many households moved their purchases up in order to capitalize on extraordinary credit terms. The new federal legislation on loans with down payments of 5% to 20% will also curb the housing market. About one third of borrowers usually turn to the Canada Mortgage and Housing Corporation (CMHC) to secure their loans. Households with down payments of at least 20% will not be affected by the more stringent rules, in effect since April 19. The rules will primarily hinder first-time buyers, who generally have less money to put down. Perspective Volume 20 / Summer 2010 The fact that starts dropped below the 50,000-unit mark in May confirms that the expected slowdown has already begun. We had also been calling for a lull after the year’s outstanding start. Our forecast for 48,000 new homes in 2010 still holds. The risks of a collapse are limited, as the economy has entered another expansion phase and employment’s recovery period is now over. Activity in resales slowed somewhat in May. The expected pullback is materializing and should last for the next few months. The annual increase in the average price, still close to 10%, will shortly weaken, dropping to around the inflation rate as of next year. As prices are not overvalued in Québec, no pullback is anticipated in the near future. The increase in the cost of borrowing, which will continue to rise over the next few years, will cut into households’ ability to buy property, however. If demand for housing were to drop too far, it could bring prices down. The labour market’s strong performance should, however, continue to offset the increase in interest rates. The positive impacts can already be seen. After hitting a cyclical peak of 9.1% in the summer of 2009, the jobless rate fell to 8.0% in May. This helped to put personal bankruptcies—which jumped 20% last year—on a down trend (Graph 3). Although somewhat of a lull is materializing, the number of bankruptcies will remain high in 2010. Households’ delicate financial situation and the gradual rise by interest rates will prevent personal bankruptcies from declining next year. www.desjardins.com/economics There are some ongoing soft patches in exports. Although March’s 4.0% increase by international shipments is encouraging, further gains are needed to make up for the ground lost during the recession. Even though the U.S. economy is doing better, it is taking some time for demand from our primary customer to firm up. Given the elevated dollar, export firms are facing an additional obstacle. Manufacturers will have to make productivity gains to become more competitive, particularly in the American market. The recovery by global trade, which reflects the upswing by most of the planet’s economies, is having a positive impact on our trade. Exports abroad have started to turn around from the low reached in October 2009 (Graph 4). Let’s hope that the global economy will get through the European financial crisis without too many pitfalls. A lasting recovery by Québec exports— which seems to be on the doorstep—could be compromised. Graph 4 – Exports overseas are starting to benefit from the recovery by global trade 2000 = 100 In $B 165 1.8 160 1.7 155 1.6 150 1.5 145 1.4 140 1.3 135 130 1.2 125 1.1 120 1.0 2005 2006 Global trade (le ft) 2007 2008 2009 2010 Québec exports excluding the United States* (right) * Five-month moving average. Sources: Netherlands Bureau for Economic Policy Analysis, Institut de la statistique du Québec and Desjardins, Economic Studies Graph 3 – Personal bankruptcies have started to dip In thousands In thousands 36 36 34 34 32 32 30 30 28 28 26 26 24 24 22 22 20 2000 20 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Sources: Office of the Superintendant of Bankruptcy Canada and Desjardins, Economic Studies Hélène Bégin Senior Economist __________________________ Detailed forecasts are on page 21. 5 Perspective Volume 20 / Summer 2010 www.desjardins.com/economics THE SITUATION IN ONTARIO The manufacturing sector stimulates growth in Ontario Ontario was hard hit by the last recession, with its real GDP contracting by 3.4% in 2009, a much steeper decline than the national average (-2.5%). Contrary to expectations, however, Ontario was not the province hardest hit by the recession. Data recently released by Statistics Canada show that output plunged even more steeply in Newfoundland and Labrador, Saskatchewan and Alberta. However, the winds have shifted for Ontario’s economy and the results published in April by the Ministry of Finance show that the province’s real GDP jumped by 6.3% (quarterly annualized) in Q4 of 2009. Not only did consumer spending make a substantial advance, but government spending made a big contribution to economic growth as the impact of government stimulus plans was being felt to the full. Up by 41.8% for the quarter, residential construction also posted its strongest growth since the summer of 1985. Finally, exports of goods and services rose 19.1%, much faster growth than posted by imports (+10.8%). The trade balance thus improved by $5 billion in 2002 dollars, contributing to economic growth. The recent improvement to economic conditions in Ontario largely comes from the upswing in manufacturing, finance and insurance (Graph 5). Many manufacturing industries saw their output rise in the fourth quarter as demand accelerated in the United States and Canada due to the lively domestic economy. That said, our focus is primarily on the quarterly annualized 58.4% increase in auto and parts production. This strong growth adds to the advances made in previous quarters, consolidating the auto industry’s rehabilitation. Graph 5 – The rebound by the manufacturing and financial sectors boosts Ontario’s econom y Contributions to real GDP by industry – Q4 2009 Agriculture , fore stry, fishing a nd hunting Mining Utilitie s Construction Ma nufa cturing W hole sa le Re ta il Tra nsporta tion a nd w a re housing Inform a tion a nd cultura l industrie s Fina nce, insura nce, re al estate se rvice s Profe ssiona l a nd adm inistra tive se rvice s Educa tiona l se rvice s He a lth ca re a nd socia l a ssista nce Arts, e nte rta inm e nt and re cre a tion Accom m odation and food se rvice s Othe r se rvice s Public adm inistra tion -0.5 Goods sector __________________________ Detailed forecasts are on page 21. 6 In thousands In thousands Residential Housing Starts in Ontario 90 90 80 80 70 70 60 60 50 50 40 40 30 30 2008 2009 2010 Sources: Canada Housing and Mortgage Corporation, and Desjardins, Economic Studies It seems that the manufacturing sector continued to grow at a fairly swift pace in early 2010. This is also the sector that made the biggest contribution to Canada’s 6.1% real GDP increase last winter. As Ontario’s manufacturing sales were above the national average in the first quarter, everything suggests that Ontario also saw strong economic growth during that period. Economic growth is still expected to slow substantially in the second half of 2010. Firstly, as everywhere else in Canada, the winding down of government stimulus plans will reduce governments’ contribution to Ontario’s real GDP. Secondly, the real estate market slowdown that is forecast for the second half of 2010 will likely be steeper in Ontario. Along with the disappearance of some one-off factors that will affect the entire Canadian real estate market, the launch of the new harmonized sales tax no doubt intensified the impact of the moving ahead of some home purchases in the province. This means that the drop could be steeper. Already, the number of housing starts appears to be cresting. After hitting 73,300 units in February (annualized), the latest results point to about 65,000 units a month. Services sector 0.0 0.5 1.0 1.5 In % points Sources: Statistics Canada and Desjardins, Economic Studies Graph 6 –– Housing starts starts appear appear to to have have stabilized stabilized in in the last few few months 2.0 2.5 3.0 Like the Canadian economic scenario, the Ontario economy’s outlook for growth has been revised upward due to a more robust first half of 2010 than initially predicted. Ontario’s real GDP should go up by 3.9% this year, followed by a 2.8% increase next year. Benoit P. Durocher Senior Economist Perspective Volume 20 / Summer 2010 www.desjardins.com/economics KNOWLEDGE ECONOMY How has the situation evolved since the beginning of the millennium? Just what is the knowledge economy? Few can explain this concept and fewer still agree on a definition. The term “knowledge economy” has almost disappeared from our collective vocabulary, perhaps because our dreams of a technological revolution evaporated when the tech bubble burst in 2000. In fact, the very concept of knowledge economy seems to no longer exist. Yet, there is broad-based consensus that a vast amount of knowledge will be needed to succeed in the 21st century. How has Québec fared in this regard? It’s hard to say. We can get a better idea by looking at certain statistical indicators. Still, no matter how useful, these figures don’t tell the whole story and can only be used as reference points. Our goal in this issue of Perspective is not to analyze this topic in depth but rather to look at where Québec stands 10 years into the new millennium. THE EXPORT BAROMETER International exports can be broken down by the technology level of the goods shipped. This metric, created by the Institut de la statistique du Québec (ISQ), shows whether Québec’s high-tech exports have increased or decreased this last decade. The ISQ divides goods into four export categories: high technology, medium-high technology, medium-low technology, and low technology. The content of each category is detailed in the box on page 8. Graph 7 – The value of Québec high-tech merchandise exports is dow n In $M 24,000 In $M 76,000 By Level 22,000 71,000 20,000 66,000 18,000 16,000 61,000 14,000 56,000 12,000 Four sectors dominate the high-tech category. In 2009, aeronautics and aerospace led the way, accounting for two thirds of the exports in this category, followed by radio, television and communication equipment and apparatus (11.8%), pharmaceutical products (8.8%), and medical, precision and optical instruments, watches and clocks (8.7%). This ranking is quite different from the one at the beginning of the decade, before the restructuring of the information and communication technology (ICT) sector. Back then, radio, television and communication equipment and apparatus accounted for half of Québec’s high-tech international exports, and aeronautics and aerospace was in second place (36.8%). Telecom equipment manufacturers were firmly entrenched in Québec, with Nortel leading the way. AN UP-AND-DOWN DECADE FOR EXPORTS From 2000 to 2009, the total value of international manufacturing and high-tech exports fell 25% and 39%, respectively. Graph 7 shows that the value of high-tech products peaked in 2000 before the tough restructuring of computer and communication equipment manufacturers, who felt the brunt of the steep drop in 2001 and 2002. For example, from 2000 to 2009, the value of radio, television and communication equipment and apparatus exports nosedived from 51,000 10,000 8,000 46,000 2000 2001 2002 2003 2004 2005 2006 High-te ch (le ft) Me dium -high-te ch (le ft) Low -te ch (le ft) Tota l m a nuf. (right) 2007 2008 2009 Me dium -low -te ch (le ft) Sources: Institut de la statistique du Québec and Desjardins, Economic Studies $11.7 billion to $1.7 billion, a decrease of almost 85%, while exports of office, accounting and computing machinery were slashed in half ($1.3 billion to $0.6 billion). Aeronautical and aerospace exports were affected to a lesser extent, contracting from a high of $11.6 billion in 2001 to $9.4 billion in 2009. Lastly, exports of pharmaceutical products almost doubled, rising $0.6 billion to $1.2 billion from 2000 to 2009, while exports of medical and optical precision instruments, watches and clocks advanced from $1.1 billion to $1.2 billion. These increases were not, however, enough to offset the decrease in the other high-tech sectors. Last year was difficult on every level: exports declined in each sub-category. The value of international manufacturing exports fell 18.1% in one year alone. High-tech exports dropped 8.6% from 2008, to $14.2 billion. Medium-low technology products were most affected, plunging 30%, largely due to the collapse in metal prices. 7 Perspective In summary, this past decade saw a decline in the value and volume of high-tech products, which took a major hit when the communications equipment industry imploded. Despite now holding first place, aeronautics and aerospace has been unable to offset the void left by manufacturers of radio, television and communication equipment and apparatus and makers of office, accounting and computing machinery. Although one might be tempted to conclude that Québec has had the rug pulled from under its feet, this would be premature, since this part of the analysis did not include the services component. DEFINITION OF MANUFACTURING EXPORTS BY TEHNOLOGY LEVEL, QUÉBEC High technology: Aeronautics and aerospace industry Pharmaceutical products Office, accounting and computing machinery Radio, television and communication equipment and apparatus Medical and optical precision instruments, watches and clocks Medium-high technology: Electrical machinery and equipment Motor vehicles, trailers and semi-trailers Chemicals, excluding pharmaceutical products Railroad rolling stock and other transportation equipment Machinery and equipment, n.e.c. Medium-low technology: Coking, refined petroleum products and nuclear fuel Rubber and plastic products Non-metallic mineral products Building and repairing of ships and boats Basic metal products Fabricated metal products, except machinery and equipment Low technology: Manufacturing and recycling Paper, cardboard, publishing, printing, wood and furniture Food, beverage and tobacco Textiles, clothing, furs and leather Source: Institut de la statistique du Québec 8 Volume 20 / Summer 2010 www.desjardins.com/economics R&D EXPENDITURES: ANOTHER INDICATOR R&D spending is another indicator of the efforts made to transform Québec into a knowledge society. However, like high-tech exports, it only presents one aspect of the situation. In current dollars, intramural expenditures are up since the beginning of the 2000s, just as in Ontario. In Québec, they reached $7.8 billion in 2007, the most recent year for which data is available. However, in constant dollars, they grew very little from 2004 to 2007. With respect to GDP, these expenditures accounted for between 2.54% (2000) and 2.79% (2002). In 2007, they represented 2.63%, surpassing Ontario (2.32%) and the Canadian average (1.90%). The pharmaceutical industry’s strong presence in Québec explains the heavy R&D spending. And what about per capita R&D expenditures? In constant dollars, Québec ranked above the Canadian average from 2000 to 2007, with per capita spending of $914 in 2007, compared to $760 in Canada. However, Ontario has been outpacing Québec in this regard since the beginning of the decade. A fact worth mentioning is that not all research leads to an exportable product and therefore no direct link can be established between R&D expenditures and high-tech exports. Approximately 60% of the spending takes place in-house. The purpose of applied research is to make companies more profitable or competitive, or to help them comply with standards or regulatory requirements, without necessarily leading to a product intended for sale. The other part, scientific research, seeks to create new knowledge, which sometimes leads to discoveries, and is primarily conducted in universities, centres, institutes and other public research organizations. If we look at R&D spending as an indicator of Québec’s performance in the knowledge economy, we can say that the province’s efforts have been sustained since the early 2000s. EXPLORING MINDS Although the number of people assigned to R&D does not represent all the workers associated with the knowledge economy, it does provide another measure of Québec’s efforts to become a part of the technology wave. Table 1 compares the total personnel assigned to R&D in 2000 and 2007 (the year for which the most recent data is available). The first thing we notice is that the number grew 40%, from 35,100 to 40,112, a fairly high average increase of 4.9% per year. Perspective Volume 20 / Summer 2010 Almost half of the R&D workers (47.4% in 2007) were found in the service sector, more specifically, computer systems design and related services (5,083 in 2007) and scientific R&D (4,844). Close to 42% were employed in manufacturing, with the greatest number in aerospace products and parts (3,308). Research is not the exclusive domain of specialized centres and universities, although many people there work in areas not usually associated with high technology: agriculture, forestry, fishing and hunting, mining, oil and gas extraction, and construction. A static comparison between 2000 and 2007, much like comparing two snapshots, presents an incomplete version of reality. That said, we still see steady growth in the number of people assigned to R&D in Québec, with the exception of a decrease in 2005, when jobs were cut in pharmaceutical and drug products, communication equipment, and computer systems design. Therefore, Québec earns points in terms of R&D workers. Table 1 – Total personnel assigned to intram ural R&D by industry 2000 and 2007 2000 2007f Agriculture, forestry, fishing and hunting 322 650 Mining, quarrying and oil and gas extraction N/A 133 N/A N/A 19,000 724 532 20,427 - pharmaceutical and medical 1,318 1,891 - machinery - communications equipment 1,119 1,998 1,693 939 2,967 1,966 3,653 3,308 Services - wholesale trade 14,792 1,325 23,293 2,591 - information and cultural industries 1,812 2,773 - architectural, engineering and related services 2,409 1,924 - computer systems design and related services 3,793 5,083 1,492 4,844 - healthcare and social assistance 2,245 2,802 To tal 35,100 49,112 Utilities Construction Manufacturing - measuring and medical instruments, etc. - aerospace products and parts - scientific R&D www.desjardins.com/economics AND PEOPLE? Knowledge is first and foremost a question of people: knowledge holders, manufacturers and users. As we have seen, knowledge economy workers are not only employed in research and development. They are found in all sectors of the economy, even those rarely associated with technology. It is interesting to see how the labour market has evolved in Québec since 2000 in terms of educating these workers. From 2000 to 2009, Québec created 441,400 new jobs, half of which were filled by university graduates (172,900 held a bachelor’s degree and 48,300 a master’s or PhD). During the same period, the number of people on the labour market without a high-school education fell by 39,100. It would be risky to jump to conclusions based on these figures. While more jobs were created for people with post-secondary diplomas and university degrees, the reduction in the number of less-educated workers can also be explained by structural changes (e.g., forestry workers in a rapidly changing industry, fishermen). We can also expect the retirement of a cohort hired 30 or 40 years ago without a high school education and who completed their training on the job. This trend in itself is reducing the number of jobs held by less-educated people. Be that as it may, it is comforting to see that the jobs created from 2000 to 2009 went largely to university graduates, who we could call knowledge holders. Lately, the pickup in employment growth has benefited those with a post-secondary education. As such, when we compare the change in employment based on the level of education for the first five months of 2010 and the first five months of 2009, the gains were made by people with university degrees (Graph 8 on page 10). The second group of winners is those with a post-secondary certificate or diploma who lost jobs from January to May 2009 but secured employment from January to May 2010. However, the group with just a high school education saw jobs disappear during both periods. Lastly, the number of jobs requiring no high school education shrank in the first five months of 2009, but some have returned since the beginning of 2010. It bears mentioning that employment in healthcare (which also includes unskilled jobs such as clerks, and housekeeping), trade and mining has resumed growing since the end of the recession. Sourc e: Ins titut de la s tatis tique du Québec 9 Perspective Volume 20 / Summer 2010 SCIENTIFIC ACTIVITIES ARE NOT THE SOLE PURVIEW OF THE CENTRAL REGIONS Graph 8 – Jobs for university graduates have not decreased Above bachelor's degree Bachelor's degree Univer sity degree Postsecondary cert. or diploma Some postsecondary January-M ay 2009 vs. January-M ay 2008 High school graduation January-M ay 2010 vs. January-M ay 2009 Some high school Less than grade 9 T otal In thousands -40 -20 0 20 40 60 80 p: projection Sources: Statistics Canada and Desjardins, Economic Studies EDUCATION PAVES THE WAY TO A JOB Graph 9 shows the advantage of education on the labour market, resulting in a higher employment rate depending on the level of education attained. From 2000 to 2009, all the rates remained virtually unchanged except the rate for high school graduates, which slowly declined. The fact is that in 2009, the employment rate fell for all workers, hardly surprising considering we were knee deep in the recession. Moreover, the percentage of university graduates on the Québec labour market grew from 1998 to 2008, rising from 18.1% to 20.5%. In education and in professional, scientific and technical services, 58.8% and 44.5% of workers, respectively, were university graduates, proportions that have held fairly steady for the last 10 years. In fact, during this same period, the proportions increased in almost all the other sectors. Is this a sign of growing demand for the type of skills required by a knowledge economy? Although it’s hard to categorically answer yes, what is clear is that a greater number of jobs are going to increasingly educated workers. Graph 9 – Employment rate rises with education In % 80 70 60 60 50 50 40 40 2002 2003 2004 2005 2006 Som e high school Voca tiona l tra ining Unde rgradua te de gre e Gra duate degre e Sources: Statistics Canada and Desjardins, Economic Studies 10 DO RISING COMMODITY PRICES POSE A THREAT TO THE KNOWLEDGE ECONOMY? The 2000s were characterized by a surge in commodity prices, with metal prices rising to the point of reviving mining and mineral exploration in Québec and elsewhere in the world. Some suggested that commodities would become the new driver of the economy, replacing the crumbling manufacturing sector and a technology industry that had lost some of its sheen. But the Klondike never really materialized, despite the jobs created in the mining sector. Can we therefore conclude that since 2000 the labour market has improved in sectors where there are more knowledge workers? Yes, but only to a point. The fact is that most of the new employment created between 2000 and 2009 was in services, as shown in Graph 10. During this time, jobs were created in almost all industries except goods production, due to the decline in manufacturing (-100,700), in forestry and fishing (-11,100), and in agriculture (-2,700). Leading the In % 70 2001 As we have seen, the data required to accurately assess the evolution of Québec’s knowledge economy is hard to come by, and regional data is even harder to find. However, we do have statistics that show that the central regions are not the only ones offering specialized jobs. Table 2 on page 11 shows the proportion of people aged 25 to 64 exercising a scientific or technical occupation out of the total jobs for each region. In 2008, the Québec average was 36.7%. In Montréal, Outaouais and Capitale-Nationale, the proportions varied from 42% to 44%. Most of the regions were above 30%, with the exception of Côte-Nord and Nord-du-Québec which, for the purpose of labour market statistics, are combined, and Bas-Saint-Laurent, due to the strong presence of the forestry industry. Graph 10 – Both low- and high-tech jobs grew from 2000 to 2009 By Level 80 www.desjardins.com/economics 2007 2008 2009 Unive rsity de gree Services Goods-producing T otal Health. & social assist. T rade Prof., scien. & tech. services Construction Finance, ins., real estate Education Business support Inform., cult. & recr eation Accommodation & food Public administration Other services Real estate & leasing Utilities T ransport & wareh. Agriculture Forest. and fish. M anufacturing In thousands 478.7 -37.3 441.4 109.5 92.1 78.9 70.3 43.3 39.0 33.1 29.3 28.3 17.0 8.3 7.9 7.0 -0.1 -2.7 -11.1 -100.7 -160 -60 Sources: Statistics Canada and Desjardins, Economic Studies 40 140 240 340 440 540 Perspective Volume 20 / Summer 2010 www.desjardins.com/economics Table 2 – People aged 25 to 64 working in a scientific and technical occupation in 2008 Scientific or tech nical occu pation Québec overall Bas-Saint-Laurent Saguenay–Lac-Saint-Jean Capitale-Nationale Mauricie Estrie Montréal Outaouais Abitibi-Témiscamingue Côte-Nord and Nord-duQuébec Gaspésie–Îles-de-laMadeleine Chaudière-Appalaches Laval Lanaudière Laurentides Montérégie Centre-du-Québec Total (in thousands) S hare of total jobs of 25-64 age group (%) Em ploym ent of 25-64-yearolds (in thousands) 1,189.0 23.5 34.8 127.7 30.9 41.1 349.9 69.9 18.0 36.7 29.5 33.5 42.7 31.7 33.5 43.7 42.3 31.0 3,239.2 79.6 103.8 299.2 97.5 122.8 800.5 165.1 58.0 11.7 27.5 42.6 10.6 33.2 31.9 51.8 66.5 58.7 71.2 192.1 31.0 30.2 39.8 32.3 31.5 32.4 31.4 171.3 167.0 181.7 226.1 593.6 98.8 Note: A ll f igures hav e been rounded; theref ore, totals may not equal the s um of the c omponents . Sourc es : Statis tics Canada and Institut de la s tatis tique du Québec More specifically, in professional, scientific and technical services, jobs grew in management consulting services (13,500 to 24,100 from 2000 to 2009), scientific R&D services (9,200 to 15,100), design services (8,900 to 14,400), and software publishing (2,200 to 4,700), to name just a few. Since the beginning of the decade, most of the job losses have been in low-tech industries. Still, not all jobs requiring less education are disappearing, as evidenced by their sharp increase in trade and construction. That said, hiring is stronger in areas requiring more knowledge, and this despite the rebound in commodity prices. A LOOK AT THE FUTURE As we have seen, the Québec labour market seems to be increasingly looking for more highly educated workers. However, will this still be the case at the end of the next decade? Studies conducted by the Centre d’étude sur l’emploi et la technologie (CETECH) give us an idea of what things will be like in 2018. Table 3 presents the situation in 2008 and in 2018 by skill level. CETECH clearly states its position: “Just because the professional skill level is expected to grow the fastest does not mean that it will capture the largest share of the new jobs created.”1 It is estimated that 271,000 new positions will be created between 2008 and 2018, of which 93,000 will require technical training (+63,000 requiring a technical college education and +30,000 requiring high school vocational training). There way are health and social services (+109,500), which have both knowledge workers (health professionals, researchers, etc.) and less-educated workers (cooks, client care or housekeeping attendants). Next in line are the retail and wholesale sectors Table 3 – A window on 2018 (+92,100), where few workers have more Employmen t Employmen t in Ann u al than a high school education, professional, Skill Level in 2008 (in 2018 average rate (in thousands) th ou sands) of ch an ge (%) scientific and technical services (+78,900), areas associated with knowledge, construc- Management 351 362 0.3 tion (+70,300), where recruits typically have Level A - Professional 677 756 1.1 little job training, and finance, insurance and Level B - T echnical 1,182 1,275 0.8 real estate, where most of the employees Level B - T echnical I* 489 552 1.2 Level B - T echnical II* 693 723 0.4 have received academic training beyond 1,186 1,255 0.6 college. The breakdown is hard to determine Level C - Intermediate 485 505 0.4 since hiring took place across almost all Level D - Basic 3,882 4,153 0.7 industries. However, a quick calculation T otal jobs reveals that more jobs were created by those * Technical I c orres ponds to jobs requiring tec hnic al c ollege educ ation. sectors generally associated with the ** Tec hnic al II c orres ponds to jobs requiring high s chool v oc ational educ ation. Sourc e: Emploi-Québec , Le marc hé du travail au Q uéb ec, Pers pec tives à long terme, 2009-2018 knowledge economy. 11 Perspective will be 79,000 new professionals with a university degree on the market. And, 69,000 jobs will be available to high school graduates with on-the-job training. Lastly, there will be about 20,000 jobs for workers with basic skills (retail, restaurants, etc.). These forecasts do not take into account replacements for retired workers. This analysis provides a more realistic look at post-recession labour market statistics. Although new jobs are expected to increase in all skill levels over the next few years, growth will be greater (1.2%) in positions requiring a college education, followed by those requiring a university degree (1.1%). If there is in fact a link between education and the knowledge economy, then it is reasonable to say that Québec will be part of this trend. That said, the efforts made to stem the dropout rate will have to be successful so these future jobs can be filled. A LEADER OR A FOLLOWER? Is Québec’s knowledge economy in better shape now than in the early 2000s? If we look at just merchandise exports, we would have to say no. From an export perspective, particularly high tech, the reality is that the decade began on a very sour note, and Québec has been unable to make up the ground lost. In the knowledge race, the province has been up against other players that also did their best to leverage technology. Québec’s pillar, the radio, television and communication equipment and apparatus industry, was overtaken by aeronautics and aerospace. The question is: Have we simply replaced one vulnerable industry with another? There is a temptation to only look at physical production, but the fact is that the GDP generated by the ICT services sector is more than five times greater than that of the manufacturing component. Moreover, the service sub-sector grew steadily from 2002 to 2008. Volume 20 / Summer 2010 www.desjardins.com/economics The knowledge economy cannot be evaluated solely on its contribution to GDP or on the volume of goods produced for export. There are other indicators, such as intramural R&D expenditures. Although these are up in current dollars, they are stagnating in constant dollars. Knowledge is first and foremost produced and held by people and, in this regard, the picture is brighter. The number of R&D workers is growing in Québec. But knowledge economy workers are not found only in research. A growing number have a post-secondary education and half of all the positions opened between 2000 and 2009 were held by university graduates. Job creation since the recession has mainly benefited more educated workers, translating into higher employment rates among those with a post-secondary education. Moreover, although the surge in commodity prices led to recruitment in low-tech industries, it did not upset the apple cart. For the last 10 years, Québec has been creating jobs in all activity sectors, although to a greater extent in industries that require a higher level of education and more knowledge. What’s more, labour projections point to slightly faster growth in demand for college and university graduates, although there will be more jobs for technicians by 2018. This only reinforces the case for staying in school, promoting education and funding a competitive, world-class education system. In conclusion, these indicators, which do not cover all the aspects of the knowledge economy, paint a mixed picture. Besides the composition of the labour force, which seems increasingly evolving towards educated workers, the fact is that not all the other parameters used in this analysis are reassuring. Much like the rest of the world, Québec needs to enhance its knowledge, products and economic activities. The question is: How much time does it have to do all this? The answer depends on whether it wants to be a leader or a follower. Joëlle Noreau Senior Economist ____________________ 1 CETECH, Le marché du travail au Québec, Perspectives à long terme 2009-2018, November 2009. 12 Perspective Volume 20 / Summer 2010 www.desjardins.com/economics KNOWLEDGE ECONOMY The many faces of the knowledge economy In Québec, the knowledge economy has its star performers, usually associated with three sectors: aeronautics, pharmaceuticals and information and communication technologies (ICT). However, these three “classic” high-tech sectors do not tell the whole story. For some 20 years now, Québec has attempted to stand out by getting involved in emerging or growing fields of research and in the production of high-tech goods and services in a bid to stem the erosion of Québec’s traditionally industrial base. Besides being a defensive strategy, this move was aimed at fending off the competition delivered by both advanced and emerging economies around the world. While knowledge may seem to be an elusive concept, the companies and workers in this industry are all too real: here is an overview. AERONAUTICS, A STRONG LINK IN THE KNOWLEDGE ECONOMY Typically associated with high technology, the aeronautical industry has a strong presence in Québec both in terms of jobs and world-class corporations. However, quantifying its presence poses a problem since it is defined in more than one way. For example, the Institut de la Statistique du Québec (ISQ) has a more narrow description that lends itself to international comparisons. For its part, the Ministère du Développement économique, de l’Innovation et de l’Exportation (MDEIE) has a broader definition. As such, the number of aeronautical jobs in Québec ranges from 24,300 (in 2007, according to the ISQ) to 40,200 (in 2009, according the MDEIE). In the same vein, the number of companies varies from 76 (those with primarily aeronautical activities) to 200 if the broader definition is applied. In general, the number has declined, especially for SMEs with fewer than five employees. This situation has also been observed elsewhere in Canada and is explained by the fact that large companies have sought to cut expenses and limit the number of suppliers. Approximately 60% of the country’s aeronautical activity is based in Québec and, in this regard, the main Canadian competitor is Ontario. However, the fight to preserve and grow this sector is international and there is no shortage of competitors. In North America, the rivals are Washington, California and Texas (Table 4). Elsewhere in the world, Brazil is a formidable opponent and China is working on becoming a leader. In short, just because Québec has a strong aeronautical industry does not mean it can rest on its laurels. From the looks of things, it will have to continue working hard to keep this sector strong. According to the ISQ, about 3,800 people worked in aeronautical R&D between 2004 and 2006. Table 4 – Total aerospace jobs (2001-2007) Can ad a O ntario Q uébec U.S. Arizona California Kansas T exas Washington 2001 2005 2006 2007 48,788 15,376 24,997 41,838 10,851 23,951 42,574 10,780 23,801 42,617 9,813 24,331 506,002 30,227 85,051 47,736 41,037 87,243 453,136 26,569 72,690 36,308 48,315 65,616 470,696 26,706 72,664 38,164 48,993 73,180 487,201 27,426 71,971 41,092 47,871 80,036 Sourc es : Ins titut de la s tatis tique du Québec and Bureau of Labor Statis tics THREATS, BUT ALSO STRENGTHS Québec has strengths and has no intention of giving up any ground. In this regard, the aerospace cluster Aero Montréal and consortiums such as CRIAQ (Consortium for Research and Innovation in Aerospace in Québec) are levers that help improve production processes, make supply chains more competitive and stimulate SME innovation. If Québec is to remain among the best, everyone from the industry and its workers to educational and research institutions must understand the urgency to innovate. The aeronautical industry has been around for a long time and therefore has more than one weapon in its arsenal. For instance, it is not only active in aircraft assembly but also in software, surface treatment, composite materials, rapid prototyping, hydraulics, avionics (aviation electronics) and electro-optics. Another asset is a well-educated labour force, thanks to the close ties between the industry and academia. However, this could change if recruitment becomes tougher as young people shy away from aeronautics, due to the industry downturn in recent years. 13 Perspective Being among the best right now is not enough to ensure the future of this key sector of the knowledge economy. Companies must always be forward thinking in every aspect of their business. “What will the next generation of commercial aircraft look like?” is an example of questions being pondered by the industry. In this regard, the Future Major Platforms (FMP) initiative is aimed at introducing the Canadian aerospace industry to supply programs for aircraft in development. At the same time, the industry must meet a growing imperative for energy efficiency and sustainable development, which is no small feat considering it also has to be competitively priced. Lastly, the trend is toward globalized R&D as the value and innovation chains become more integrated. Will Québec be able to keep up? BIOTECHNOLOGY: A KALEIDOSCOPE OF ACTIVITIES Biotechnology is a catch-all term that encompasses many sectors. In order to better define this sphere of activity, we have chosen to use the MDEIE’s breakdown, which comprises three categories: biopharmaceuticals, medical devices, and natural health products. Other sources include genomics. In Québec, the biopharmaceutical industry is the figurehead of the biotech sector, the one that immediately springs to mind when you think about biotechnology. The biopharmaceutical industry includes basic and applied research (pre-clinical and clinical) as well as the production and marketing of medications and preventive and diagnostic products. In 2008, it had about 145 companies (including 28 large biopharmaceutical firms) and provided 20,900 jobs. There were also 10,500 biopharmaceutical researchers and student researchers in public and parapublic organizations. This industry has been hard hit in recent years as financing problems, mergers and fierce competition have eliminated many jobs in Québec and elsewhere. The biomedical equipment industry covers a broad spectrum of activities that encompasses the development of products to diagnose, treat or prevent disease and restore or correct organic function or body structure. In Québec, about 100 companies, most of them SMEs, are active in this field and employed 4,000 people at the end of the 2000s. As for natural health products, 140 companies were involved in manufacturing or commercialization in 2009. Of this number, 58 manufactured or produced active ingredients. The industry employed about 3,500 people, two thirds (2,180) of whom worked in production of natural products and ingredients. There were 130 R&D workers. Volume 20 / Summer 2010 www.desjardins.com/economics Biotechnology also includes genomics.1 In the second half of the last decade, over 600 researchers were directly or indirectly involved in projects in Québec. There were about 40 companies and more than 15 research centres or institutes. Great hopes are being pinned on this science, which has applications in medicine, microbiology, forestry and agriculture, to name just a few. THE FUTURE OF QUÉBEC’S BIOPHARMACEUTICAL INDUSTRY The biopharmaceutical industry has lost some of its appeal in recent years, and the slowdown is quite perceptible: labs have shut down and jobs have disappeared almost everywhere in the world. However, Québec hasn’t fared too badly compared to other places (Graph 11 and Table 5). Although 45% of all Canadian R&D investments are made here, there is still a threat, namely, rising R&D costs due to the increasingly complex composition of drugs today. Graph 11 – Employment grew in Québec’s biopharmaceutical sector in the 2000s Jobs Jobs 22,000 22,000 20,000 20,000 18,000 18,000 16,000 16,000 14,000 14,000 12,000 12,000 10,000 10,000 2001 2003 2005 2008 Source: Ministère du Développement économique, de l‘Innovation et de l‘Exportation Table 5 – Québec biopharm aceutical industry - 2008 145 compan ies / 20,900 job s Larg e b io ph armas: - 28 companies (several multinationals) / 9,200 jobs (44%) He alth bio te chn o lo gy - 67 companies / 2,300 jobs (11%) Ge n e ric an d co n tract p h armace u tical manu facturin g - 21 companies / 4,800 jobs (23%) Co ntract re se arch - 29 companies / 4,600 jobs (22%) In a ddition to the 20,900 industry jobs, the re w e re 10,500 biopha rm a ce utica l re se a rche rs a nd stude nt re se a rche rs in public a nd pa ra public orga niz a tions. Sourc e: Ministère du Dév eloppement éc onomique, de l'Innov ation et de l'Ex portation 14 Perspective Volume 20 / Summer 2010 At the same time, financing sources are drying up. First, patents that protect certain flagship medications are about to expire, which will reduce pharmaceutical revenues that finance research. In fact, many patents developed by Québecbased companies will expire this year. Second, biotech venture capital investments fell from $256 million in 2007 to $88 million in 2009. The darling of the 2000s, biotech has since lost its appeal: the efforts of the last few years have yielded few commercial successes. In the spring, the media reported that roughly 70% of Québec’s biopharmaceutical companies were in such financial straits that they were not expected to last another year. Moreover, competition is fierce. The weaker euro is giving large European pharmas a chance to regain their past glory. As well, 43 U.S. states have made biopharmaceuticals one of the two priority sectors for development. As such, the fight has been on for some time now and it’s a fight to the finish. In addition to competition, a strong loonie, rising research costs and patents set to expire this year, the Québec industry is facing its own set of challenges. Inclusion on the list of drugs covered by the Régie de l’assurance maladie du Québec and other provincial governments is the gateway to commercial success for newly discovered drugs. However, with governments looking to trim spending, nothing is guaranteed. As well, the industry must finance its innovations and boost productivity. More mergers and acquisitions can be expected in this race for efficiency and dominance. However, large firms might be more tempted to buy out small innovative companies to meet their objectives: companies here at home must find ways to be flexible in order to catch the next wave and remain on the crest. www.desjardins.com/economics INFORMATION AND COMMUNICATION TECHNOLOGIES ARE PERVASIVE ICT, as it is commonly known, is a pillar of Québec’s knowledge industry. Since the tech bubble burst in the early 2000s, this sector has lost some of its prestige in the public’s eye. This perception is due to a lack of understanding of the sector. ICT is typically associated with the manufacture of telecom and other equipment. The fact is that ICT services contribute six times more to GDP than ICT manufacturing (it was five times more in 2002) (Graph 12). While manufacturing GDP averaged $1.86 billion (in constant dollars) from 2002 to 2008, the corresponding figure for services rose 28% during this period (still in constant dollars). This sector therefore continued to grow during the first decade of the 2000s, contrary to the general impression that it was struggling. According to the MDEIE, Québec had 7,300 ICT companies in 2008 generating revenues in the vicinity of $34 billion and providing 146,000 jobs. Other sources place the number of jobs at closer to 160,000. According to the ministry, this industry accounted for 5.1% of Québec’s GDP and 3.7% of workers that year. With annual R&D investments of $1.6 billion, it is truly a big part of the knowledge industry. And what’s more, it’s spread across Québec thanks to the regional niches of excellence strategy, although a heavy concentration of activities is found in the Montréal metropolitan area. Graph 12 – ICT services contribute more to GDP than ICT manufacturing In $M In $M 11,000 11,000 10,000 10,000 9,000 9,000 8,000 8,000 7,000 In response to complaints from the industry, and faced with mounting competition from both developed and emerging countries, the Québec government came up with a biopharmaceutical strategy in 2009 whereby $122.8 million will be granted over three years. Five areas of intervention were defined in addition to manpower and promoting Québec’s image in this sector, and the lion’s share of the money will go to supporting the development of large pharmas ($50 million), research ($39 million) and biotech firms (roughly $31 million). More investments could be forthcoming. In short, the plan is to fight tooth and nail to make sure this sector of the knowledge economy remains strong in Québec. M anufacturing 7,000 Se rv ice s 6,000 6,000 5,000 5,000 4,000 4,000 3,000 3,000 2,000 2,000 1,000 1,000 0 0 2002 2003 2004 2005 2006 Sources: Institut de la statistique du Québec and Desjardins, Economic Studies 15 2007 2008 Perspective Volume 20 / Summer 2010 In 2008, four industries dominated on the production side (Table 6): microelectronics (8,200 jobs), telecommunications equipment (12,000 jobs), instrumentation (4,300 jobs) and optics, photonics and laser (3,700 jobs). www.desjardins.com/economics Graph 14 – No dominant sub-sector in telecommunications equipment in 2007 Employment Breakdown - 2007 Specialized systems and software 36% Wireless and mobile telecommunications 34% Table 6 – ICT industries Man ufactu ring Services . Microelectronics . T elecommunication services . T elecommunications equipment . Instrumentation W ireline telecommunications 30% . IT services Source: Répertoire des entreprises d’équipements de télécommunication au Québec, 2007 . Software . Optics, photonics and laser . Multimedia Sourc e: Minis tère du Dév eloppement éc onomique, de l'Innov ation et de l'Ex portation That year, the main activity in microelectronics was semiconductor production (Graph 13). Québec had many assets, including the presence of global leaders and a dynamic research environment (associations, universities, university research centres, technology cluster, and more). Graph 13 – Semi-conductor sector dominates microelectronics industry Circuits and specialized systems for design, inspection and fabrication (730 jobs – 56 companies) Semi-conductors (4,575 jobs – 13 companies) class companies, expertise in high-tech niches such as fibreoptic transmission and test equipment, a creative, experienced labour force, and both public and private research infrastructures. Québec also offers tax incentives. This sector is booming: around the world, there are now more wireless than wireline connections, and the industry must do more than just follow the trend. To do so, it must invest and innovate. In instrumentation, Québec boasts over 200 companies, mostly SMEs. These produce, among other things, telemetry systems and measurement and analysis devices. Promising developments are taking place in the fields of scientific, navigation and detection instruments as well as electromedical devices. In optics, photonics and laser, some 100 Québec companies are supported by eight research centres that alone provide 800 jobs. While Québec is a powerhouse in this field, it is not alone. The first place in Canada goes to Ontario, home to 60% of the country’s establishments. British Columbia and Alberta are also active in this area of expertise. All to say that the competition is not only from abroad. ICT SERVICES: AN UNDERESTIMATED PRESENCE Assembly services and accessories (2,907 jobs – 35 companies) Source: Répertoire de la microélectronique au Québec, 2008 In telecommunications equipment, 160 companies worked to supply wireless and wireline (with wires) networks as well as telecommunication systems and software (Graph 14). Here too Québec has advantages, including the presence of world- 16 According to the MDEIE, in 2008 Québec had approximately 350 companies operating in the software industry, accounting for 18% of all such companies in Canada and 23% of Canadian jobs in this industry. According to KPMG, Québec had a major comparative advantage that year with 25% lower operating costs for advanced software companies than in the U.S. (Graph 15, page 17). Perspective Volume 20 / Summer 2010 KNOWLEDGE, THE STUFF OF DREAMS Graph 15 –– Annual Annual operating costs costs of of advanced advanced software companies companies are lower in in Québec Québec - 2008 Besides aeronautics, biotechnology and ICT, a host of activities has been spawned by research and innovation in Québec. A prime example is composite materials. Companies active in this segment with the help of research centres develop and manufacture semi-finished or finished products made of new or recycled plastic resins to which reinforcing elements are added to increase their properties. There are countless applications, including aeronautics. Index: U.S. = 100 74.5 Québec Canada 83.8 Australia 84.1 Ontario 86.3 U.K. 94.8 France 97.4 U.S. 100.0 Netherlands 100.3 www.desjardins.com/economics 106.1 Italy 111.8 Germany 117.2 Japan 0 25 50 75 100 125 Source: KPMG, Guide to International Business Location, 2008 In 2008, there were approximately 550 multimedia companies providing 12,400 jobs, of which half were in video or interactive games. In addition to a creative, multilingual labour force and close ties with specialized training centres, the sector can count on tax incentives. However, like elsewhere, the past is no guarantee of the future, and in order to remain healthy and vibrant, the industry must keep up with current trends. In the case of video games, on-line gaming is the wave of the future, as is mobile telephony. Québec is not alone in the frenetic race for market share. Ontario has been particularly active in the past three years as it seeks to reduce its reliance on the auto industry. Québec must therefore wage an all-out war, and industry stakeholders are calling for the Québec government to quickly come up with a policy to support ICT development. As for telecommunication services, Québec had roughly 550 such companies, employing more than 38,000 workers. This industry alone accounted for 45% of the ICT contribution to GDP, a third of the industry’s revenues, and almost 25% of its jobs. It includes proximity services, popular with consumers: telephony, broadcasting, Internet, data hosting and messaging. Québec must get in on the shift towards wireless, IP (Internet Protocol2) and broadband.3 The key is to invest in order to remain in the game. Next, IT services accounted for almost 67,000 workers in 2008. Seventy-five percent of the companies in this industry were SMEs with fewer than five employees. The knowledge economy is not just a matter of size, even though we tend to associate research with big companies and large centres. A sub-sector of the plastic processing sector, this unique industry generated about 10,000 jobs at the end of the 2000s. Its current success is due to its quality production, ability to innovate and the flexibility of its plants. To avoid losing its position, Québec companies must fend off growing competition from BRIC countries (Brazil, Russia, India and China), particularly China. A strong loonie and higher raw material prices means productivity will have to improve, which requires modernizing production techniques. Research will be needed to develop new processes and investments will have to be made in new equipment. This is a tall order for Québec companies, which are much smaller than their competitors. Among the promising sectors of the future, clean technology, often referred to as “cleantech,” is truly emblematic. The expectations of this sector are huge: a revolution in industrial production processes, and green product design and waste disposal, to name just a few. The goal is to fight climate change while improving the quality of the environment. The industry feels that there are now enough cleantech companies in Québec to form a cluster just like aeronautics, life sciences and ICT. There are about 1,000 companies with activities in eight different industries (Table 7, page 18). However, many cities in the world already have such an industry and are way ahead of us in North America, Europe and even Australia. The race is on. Research must be funded and processes developed and tested. They must then be commercialized, not an easy task. The sector’s vitality hinges on the availability of qualified workers and financing. In this regard, clean technologies are attracting growing attention from venture capital investors who in the last few years have turned away from biotechs. Québec is creating a dedicated seed fund that will give priority to energy and energy efficiency projects, which generate faster ROI, and whose primary objective is to create companies that will need less than $15 million to break even. 17 Perspective Table 7 – Clean technology com panies - 231 in water treatment - 194 in water conservation and transport - 164 in air management - 294 in residual materials - 166 in soil and groundwater - 190 in renewable energy - 161 in energy efficiency - 450 in environmental management Note: A c ompany may operate in more than one sec tor. Sources : Minis tère du Dév eloppement éc onomique, de l'Innov ation et de l'Ex portation, Répertoire des entreprises du Q uéb ec 2009 Volume 20 / Summer 2010 www.desjardins.com/economics According to the MDEIE, Québec is well positioned in terms of cohesion among the players, the public’s receptiveness to nanotechnology, and the availability of highly qualified workers. In this regard, five colleges in the Montréal region offer vocational programs with a view to meeting future needs, and Québec universities are also offering programs in nanoscience. Québec is at a crossroads: it must choose the scientific and technology niches for which it wants to be recognized. It must do more to assert itself and raise its profile in the nanotechnology market, both in Canada and internationally. In order for this sector to continue growing at home, it must establish its credibility. For its part, NanoQuébec has already identified three avenues: transportation, life sciences and electronics/photonics. NANOTECHNOLOGY: GUARANTEED THRILLS IS QUÉBEC’S ECONOMY A KNOWLEDGE ECONOMY? Nanotechnology is also part of the knowledge economy landscape. This science of the infinitely small (nanometre: one billionth of a metre or about one hundred thousandth the diameter of a human hair) is stirring a lot of hope and fear as questions are being raised about its effect on human and animal health and the environment. More than $200 billion has been invested in infrastructures and research projects in the last decade or so. In the second half of the 2000s, Québec had 175 university researchers and some 40 companies working in nanoscience, particularly nanoelectronics, nanobiotechnology and nanomaterials. In many respects, the Québec economy could be considered a knowledge economy insofar as it is constantly upping its requirements in terms of goods production and service delivery. Doing better, supporting development of cutting-edge technology and creating new production or processing methods are now requirements that all economies must set for themselves. Training workers and researchers, and promoting and supporting basic and industrial research are indispensable. Investing more and continuously, and supporting commercialization efforts are just some of the actions governments must take if they want their economies to prosper. Québec is no different. Although a small player compared to a leader like Japan, which injects more than $6 billion a year into nanotechnology, Québec believes it stands a fighting chance. The Québec industry already has a trump card, cellulose nanocrystals, which are extracted from wood, are stronger than steel and whose properties enhance, for example, the resistance of varnish. Beyond this success, the industry has decided to channel its strengths through the organization NanoQuébec in order to increase cohesion between researchers, manufacturers, financiers and governments. The developments are very promising and have multiple applications, including ultra-light and ultra-resistant materials, self-cleaning coatings, rapid diagnosis tools and new targeted treatments for certain illnesses. In this issue, we painted a broad picture of the knowledge economy, which encompasses many more sectors than those presented. It is difficult to break down all the activities associated with knowledge and harder still to provide an accurate picture. Knowledge is in every sphere of activity, which makes the term “knowledge economy” somewhat redundant. Without a doubt, the Québec economy is modernizing and new indicators are needed to better understand this trend. Joëlle Noreau Senior Economist ____________________ 1 Génome Québec: “Genomics is the science that studies the genome. The genome is the entirety of an individual or species’ hereditary information, encoded in its DNA.” 2 Dico Info: IP: Internet Protocol. Protocol used on the Internet to establish the addresses of connected computers. 3 Dico Info: Broadband: Communication equipment that transmits at speeds higher than 2 Mbps. 18 Perspective Volume 20 / Summer 2010 www.desjardins.com/economics INTERPROVINCIAL SHOWCASE Every province wants to shine Research and the knowledge economy are not the exclusive domain of Ontario and Québec. Canada’s eastern and western provinces are now also in the game. According to the statistics on exports, employment and research, it looks like everyone is in the race to get the most out of the knowledge economy. EAST-CENTRAL CANADA DOMINATES Canadian high-tech exports reached a record high in 2000, a performance unmatched since. At the time, tech firms were the darlings of the economy, before the restructuring of the country’s big communication and computer equipment manufacturers. In Canada, Ontario accounted for 50% of the value of hightech exports, excluding the auto industry, followed by Québec (35.2%) and British Columbia (just 3%). The remaining provinces accounted for the remainder. However, the ranking changes when we look at high-tech products as a proportion of each province’s total merchandise exports (Graph 16). As such, thanks to its aeronautical industry, Québec topped the list, with high-tech exports accounting for 27.7% of the total in 2009. Next in line at 17.1% was Ontario, which has been growing solidly in this regard since 2006. This upward trend is largely owed to the expanding aeronautical industry but also to the drop in exports of medium-high-tech automotive products. In British Columbia, forestry products stole the show, accounting for 46.7% of exports, totally eclipsing high-tech products, which came in at 7.9%. If we add up high- and medium-high tech products, we find Ontario way ahead of the pack, with 63.9% of international shipments in these two categories. Québec comes in second (46.6%), once again thanks to aeronautics and aerospace, which accounted for two thirds of the exports in these two categories. THE LABOUR MARKET IS CHANGING EVERYWHERE, BUT NOT AT THE SAME PACE One indicator of the knowledge economy is employment growth in professional, scientific and technical services. However, this metric does not present the entire picture, since it takes into account neither manufacturing jobs that require scientific training and knowledge nor researchers who work in manufacturing. Lastly, employment data can be volatile in sub-sectors such as this one and should be interpreted carefully. Therefore, in order to get a better picture, we’ve provided a graph of the entire decade (Graph 17). From 2000 to 2009, the number of professional, scientific and technical service jobs1 rose 28.9% in Canada and is now estimated at 1,202,600 in 2009. At 40.3%, Québec posted the strongest growth in this sector, bringing the total number of such jobs to 274,500 last year. British Columbia also fared well, with an increase of 24.7%, followed closely by Ontario at 23.4%. The latter had over a half million workers in this sector that same year (510,000) whereas British Columbia had just one third as many (169,000). The greatest number of workers in this industry is found in computer system design. Their numbers rose 16.9% in Canada over the past decade. Once again, Québec stood out with an increase of 32.3% while Ontario and British Columbia recorded respective gains of 11.7% and 5.7%. Graph 17 –– Québec stands stands out out in in professional, professional, scientific scientific and and technical technical services services Graph Graph 16 16 – High High tech’s tech’s share share of of provincial provincial exports exports varies widely In % In % 35 35 30 30 25 25 20 20 15 15 10 10 5 5 0 0 1998 1999 2000 2001 2002 Qué be c Canada British Columbia 2003 2004 2005 2006 2007 2008 Else whe re in C anada O ntario Sources: Statistics Canada and compilation of the Institut de la statistique du Québec 2009 Index 2000 = 100 Index 2000 = 100 Employment 145 145 140 140 135 135 130 130 125 125 120 120 115 115 110 110 105 105 100 100 95 95 2000 2001 Q ué be c 2002 2003 2004 Canada 2005 2006 O ntario Sources: Statistics Canada, Labour Force Survey, and Desjardins, Economic Studies 19 2007 2008 2009 B ritish Columbia Perspective Volume 20 / Summer 2010 RESEARCH, A LIFELINE www.desjardins.com/economics Faced with intense competition, a wish to diversify their economic activities, a desire to grow the resource processing industry, and a firm intention to beat the competition, all the provinces have invested in research. Although they don’t tell the whole story, the comparative data does give us an idea of the efforts made in this regard. banking on chemical and petrochemical products, environmental services and aeronautics to help diversify its economy. Besides ICT, Manitoba is also promoting its aerospace and life science (biotechnology, pharmaceutical and agricultural research) industries. Not to be outdone, the Atlantic Provinces have strengths in bio-industries (notably food processing), biofuels (particularly in Nova Scotia), and advanced manufacturing and aerospace (New Brunswick). In terms of research expenditures per capita in constant dollars (2002) (Graph 18), Ontario led the way for the entire period analyzed, coming in at $971 in 2007, a decrease from the record high of $1,004 in 2005. Down just a tad from 2006, Québec placed second at $914. British Columbia was next at $585 in 2007 (the most recent data available), followed by the Prairies and the Atlantic Provinces, which fell below the Canadian average ($760 in 2009). Noteworthy is the fact that in Québec and Ontario, R&D expenditures as a percentage of GDP, exceed the national average (Graph 19). Québec leads the way in this regard, although British Columbia and the Atlantic Provinces have stepped up their efforts. Graph Graph 18 18 – Ontario Ontario leads the way way in in intramural intramural R&D expenditures expenditures (GERD) (GERD) on a per capita basis basis Constant $ (2002 = 100) Constant $ (2002 = 100) Graph Graph 19 – Québec Québec is is first first in intramural R&D R&D spending (GERD) (GERD) as a percentage of of GDP In % 3.0 In % 3.0 2.5 2.5 1,000 2.0 2.0 850 850 1.5 1.5 700 700 1.0 1.0 550 550 400 400 250 250 1,000 0.5 2000r 2001r 2002r 2003r Atlantic Prov ince s Q ué be c B ritish Columbia 2004r 2005r 2006r 2007f 2008f O ntario Prairie s Canada* 0.5 2000r 2001r 2002r 2003r Atlantic Prov ince s Q ué be c B ritish Columbia 2004r 2005r 2006r 2007f 2008f O ntario Prairie s C anada* r: revised f: forecasts * * Includes the Yukon, the Northwest Territories and Nunavut. Also includes R&D spending by the not-for-profit private sector which is not broken down by province since the 2000 year of reference. Sources: Statistics Canada, and compilation of the Institut de la statistique du Québec r: revised f: forecasts * Includes the Yukon, the Northwest Territories and Nunavut. Also includes R&D spending by the not-for-profit private sector which is not broken down by province since the 2000 year of reference. Sources: Statistics Canada, and compilation of the Institut de la statistique du Québec Moreover, we know that Québec and Ontario are particularly strong in such industries as information and communication technologies (ICT), life sciences and aerospace. As for the other provinces, they all claim to be active in ICT. British Columbia, for its part, is also at the forefront in biotechnology and life sciences, as well as in “viable technologies,” namely, energy management and energy-efficient devices. In Alberta, the health sciences and bio-industries are being encouraged with an endowment fund of over $1 billion to finance R&D in medicine, engineering and life sciences. The province is also All the provinces are trying to develop their knowledge economy even though some have enough natural resources to fill their coffers for decades to come. However, those that do cannot afford to rely solely on their mining: they must also optimize their use, develop less invasive mining methods and ensure they are not depleted. Joëlle Noreau Senior Economist ____________________ 1 Legal and accounting services, architectural, engineering and related services, specialized design and computer systems design services, management consulting services, research and development services, advertising services, etc. 20 Perspective Volume 20 / Summer 2010 www.desjardins.com/economics FORECAST TABLES Table 8 Canada: Major econom ic indicators 2007 2008 2009 2010f 2011f 2.2 4.6 2.8 3.3 12.2 3.2 1.2 5.9 4.0 0.5 2.9 -3.7 3.4 9.0 4.1 -4.6 1.2 2.8 -2.5 0.4 -8.2 -19.9 -2.9 5.1 -14.2 -13.9 -1.8 3.6 3.8 13.3 -1.3 11.2 4.4 8.8 12.6 4.0 3.0 3.1 1.7 4.6 19.9 0.2 5.1 5.0 2.5 4.0 4.3 2.3 6.0 228.3 1.9 2.8 2.2 2.1 15.4 12.8 3.7 2.9 1.5 6.1 211.1 8.0 3.6 2.3 1.7 -1.1 6.9 1.2 1.6 -1.6 8.3 149.1 -32.3 4.0 0.3 1.7 -39.9 -43.5 0.0 1.4 3.4 1.7 8.0 181.7 21.9 2.7 2.1 1.8 -38.5 -24.7 3.0 4.2 2.2 7.5 173.5 9.4 3.1 2.6 1.8 -33.8 -15.9 A nn. var. in % (ex c ept if indic ated) Re al gro ss d o me stic p ro d u ct* Personal consumption expenditures Residential construction Business fixed investment Inventory change ($B) Public expenditures Exports Imports Final domestic demand Oth e r ind icators Real disposable personal income Weekly earnings Employment Unemployment rate (%) Housing starts (1) Corporate profits*** (2) Personal savings rate (%) Total inflation rate (2) Core inflation rate** (2) Federal gov’t balance ($B) (3) Current account balance ($B) f : f orec as ts * 2002 $ ** Exc luding the eight mos t v olatile *** Bef ore tax es (1) Thous ands of units on an annualiz ed bas is (2) A nnual change (3) National ac c ounts Sourc es: Datas tream and Des jardins , Economic Studies Table 9 Québec and Ontario: National accounts 2007 2008 2009f 2010f 2011f Qu ébe c Real gross domestic product Personal consumption expenditures Residential construction Business fixed investment Inventory change ($M 2002) Public expenditures Exports Imports Final domestic demand 2.8 4.3 5.2 6.3 2,057 3.7 1.2 4.0 4.5 1.0 3.3 -2.3 -0.8 679 6.4 -3.4 0.5 3.3 -1.4 0.6 -1.5 -13.2 -1,535 4.9 -11.4 -8.6 0.1 3.0 4.4 4.8 3.4 550 3.3 4.2 7.5 4.1 2.5 2.7 -0.8 4.4 500 1.2 4.4 3.6 2.3 On tario Real gross domestic product Personal consumption expenditures Residential construction Business fixed investment Inventory change ($M 2002) Public expenditures Exports Imports Final domestic demand 2.3 3.7 2.2 3.5 5,410 3.7 1.5 4.0 3.7 -0.5 2.6 -2.3 -0.5 4,334 2.5 -6.3 -2.8 1.9 -3.4 0.3 -8.0 -15.3 -4,414 3.9 -14.5 -14.4 -1.0 3.9 3.6 9.6 -1.7 5,150 4.8 9.5 13.1 3.9 2.8 3.0 -3.8 3.9 8,438 1.5 4.0 4.4 2.4 A nn. var. in % (ex c ept if indic ated) f : f orec as ts Sourc es: Statis tic s Canada, Ins titut de la s tatis tique du Québec , Ontario's Minis try of Financ e and Des jardins , Ec onomic Studies 21 Perspective Volume 20 / Summer 2010 www.desjardins.com/economics Table 10 Québec: Evolution of GDP by sector 2005 2006 2007 2008 2009 1.7 0.9 2.1 1.2 2.1 -8.2 2.7 3.4 -0.8 1.3 3.6 3.5 3.3 2.4 -0.3 0.7 1.8 1.6 1.5 -2.2 3.0 -2.6 -2.1 -2.1 -0.1 0.3 -0.8 -3.0 4.7 5.7 1.6 3.5 1.4 1.8 -1.2 3.2 2.8 2.3 3.0 0.3 -2.3 8.0 4.2 4.0 11.7 -1.0 4.8 4.5 1.8 3.3 3.4 2.3 1.6 2.0 1.3 -0.9 2.2 -2.2 -3.9 0.7 -0.2 -0.3 4.6 -2.9 0.8 4.4 0.5 2.3 2.8 2.4 3.1 2.7 -1.0 -5.1 0.7 -7.7 -4.0 0.9 -2.9 -2.8 2.6 -9.4 -4.7 1.5 -2.9 2.4 1.7 2.8 -1.5 2.5 Ann. var. in % All industries Goods-producing industries Services-producing industries Industrial production Agriculture, forestry, fishing and hunting Mining and oil and gas extraction Utilities Electricity prod., transp. and distrib. Construction industries Manufacturing Wholesale trade Retail trade Transportation and warehousing Finance, insurance and real estate services Educational services Health care and social assistance Accommodation and food services Public administration Sources: Institut de la statistique du Québec and Desjardins, Economic Studies Table 11 Canada: Major financial indicators 2009 2010 2011 End of period in % Q1 Q2 Q3 Q4 Q1 Q2 Q3f Q4f Q1f Q 2f Q3f Q4f Ke y rate s Overnight funds 0.50 0.25 0.25 0.25 0.25 0.50 1.00 1.50 2.00 2.50 2.50 2.50 Prime rate 2.50 2.25 2.25 2.25 2.25 2.50 3.00 3.50 4.00 4.50 4.50 4.50 M o rtg ag e rate s 1-year 5-year 4.50 5.55 3.75 5.85 3.70 5.49 3.60 5.49 3.60 5.85 3.60 5.89 4.30 6.30 4.65 6.40 5.05 6.40 5.10 6.50 5.05 6.60 5.25 6.65 Tre asu ry b ills 3-month 0.40 0.25 0.23 0.19 0.29 0.50 1.25 1.80 2.30 2.50 2.50 2.80 F e d e ral bo n d s 5-year 10-year 1.75 2.78 2.46 3.36 2.58 3.31 2.77 3.61 2.91 3.57 2.33 3.08 3.20 3.70 3.40 3.90 3.50 3.95 3.65 4.00 3.80 4.05 3.90 4.15 Can adian d o llar Am eric an dollar (CA D/USD) 0.7918 0.8600 0.9353 0.9506 0.9849 0.9393 1.0200 1.0000 1.0200 1.0300 1.0100 1.0400 11,746 (+30.7% ) Targe t: 13 ,100 (+11.5 % ) (rang e: from 11,800 to 1 3,800) Target: 14,330 (+9.4% ) (rang e: from 13,33 0 to 15,330) Can ada S&P/T SX index f : f orec as ts Sourc es: Datas tream and Des jardins , Economic Studies 22 Perspective Volume 20 / Summer 2010 www.desjardins.com/economics Table 12 Canada: Major econom ic indicators by prov inces 2007 2008 2009 2010f 2011f Re al GDP g rowth – Can ada Atlantic Québec Ontario Manitoba Saskatchewan Alberta British Columbia 2.2 3.1 2.8 2.3 3.6 3.6 2.5 2.9 0.5 1.0 1.0 -0.5 2.0 4.2 0.0 0.0 -2.5 -3.1 -1.4 -3.4 -0.2 -6.3 -5.1 -2.3 3.6 2.7 3.0 3.9 3.0 3.7 3.5 4.0 3.0 2.6 2.5 2.8 2.7 3.0 4.2 2.8 In flatio n rate – Canada Atlantic Québec Ontario Manitoba Saskatchewan Alberta British Columbia 2.2 1.8 1.6 1.8 2.0 2.8 5.0 1.8 2.3 2.6 2.1 2.3 2.3 3.3 3.1 2.1 0.3 0.1 0.6 0.4 0.6 1.0 -0.1 0.0 2.1 1.6 1.9 2.5 1.7 0.8 1.2 2.0 2.6 2.5 2.7 2.8 2.0 2.2 2.4 2.6 Emp lo yme nt g rowth – Can ada Atlantic Québec Ontario Manitoba Saskatchewan Alberta British Columbia 2.3 1.4 2.3 1.6 1.6 2.1 4.7 3.2 1.5 1.2 0.8 1.4 1.7 2.2 2.8 2.1 -1.6 -0.6 -1.0 -2.4 0.0 1.5 -1.3 -2.4 1.7 1.6 1.8 1.9 2.5 3.0 1.2 1.0 2.2 1.4 1.7 2.6 1.8 2.5 2.8 2.5 Un e mp lo yme n t rate – Can ad a Atlantic Québec Ontario Manitoba Saskatchewan Alberta British Columbia 6.0 9.1 7.2 6.4 4.4 4.2 3.5 4.2 6.1 9.3 7.2 6.5 4.2 4.1 3.6 4.6 8.3 10.5 8.5 9.0 5.2 4.8 6.6 7.6 8.0 9.9 7.8 8.7 5.2 4.5 6.5 8.0 7.5 9.6 7.2 8.1 4.9 4.2 6.0 7.5 Re tail sale s g ro wth – Can ad a Atlantic Québec Ontario Manitoba Saskatchewan Alberta British Columbia 5.9 6.0 4.5 3.8 8.9 13.6 9.9 7.1 3.7 5.7 4.9 3.9 6.9 11.8 0.2 1.5 -2.9 0.6 -1.1 -2.5 -0.4 -0.5 -8.3 -4.4 8.6 9.5 10.6 7.1 9.0 5.0 9.5 8.0 6.7 5.5 7.3 6.4 6.0 7.0 7.5 6.5 228.3 12.4 48.6 68.1 5.7 6.0 48.3 39.2 211.1 12.2 47.9 75.1 5.5 6.8 29.2 34.3 149.1 10.9 43.4 50.4 4.2 3.9 20.3 16.1 181.7 14.4 48.0 57.6 5.0 5.5 27.0 24.0 173.5 11.3 46.0 56.9 4.3 5.0 28.0 22.0 Annual average in % (except if indicated) Ho u sin g starts – Can ada ( thousands of units ) Atlantic Québec Ontario Manitoba Saskatchewan Alberta British Columbia f : f orec as ts Sourc es: Statis tic s Canada, Ins titut de la s tatis tique du Québec , Canada Mortgage and Hous ing Corporation and Des jardins , Ec onomic Studies 23