In the run-up to the federal election campaign this summer, the Liberal government gave out more than a billion dollars from its flagship innovation-funding program. Much of that money, however, will go to firms that had already been awarded money through the program. It’s a pattern that has some policy experts worried Ottawa is using the Strategic Innovation Fund to prop up troubled sectors.

The Liberal government unveiled the SIF in the 2017 federal budget. The fund’s awards reimburse companies for their expenses on things like labour and materials for R&D and expansion projects. With an initial $1.26 billion in capital, it replaced four funding programs for the auto and aerospace industries, but was open to all sectors.  

“This fund will help Canadian innovators build in areas of economic strength, expand the role of Canadian firms and regional and global supply chains, attract investments, and create new, good-quality middle-class jobs,” then-innovation minister Navdeep Bains told a parliamentary committee in May 2018, adding that the SIF was designed to “diversify our economy and to look at the areas of high growth.” 

The government has since increased its size to $13.9 billion, including $8 billion for a new Net Zero Accelerator (NZA) stream that backs cleantech firms and heavy industrial emitters looking to decarbonize.

However, not everyone thinks it’s living up to its initial promise.

The SIF “was supposed to transform, at least partly, the structure of the Canadian economy,” said Dan Breznitz, co-director of the University of Toronto’s Innovation Policy Lab. “And it is used as a slush fund for industries and companies in crisis.” 

The government has so far awarded $4.8 billion in SIF money to 98 projects, according to The Logic’s ongoing analysis of the fund. Nearly a third of that—more than $1.4 billion—has gone to seven companies that have received more than one award. None of those firms completed their existing projects before the federal government approved fresh funding. 

Ottawa has targeted some money from the SIF to sectors facing economic challenges. In June 2018, it allocated up to $250 million for steel and aluminum companies affected by U.S. tariffs; four of the seven repeat recipients are in metals. Two of the remaining three companies are in the aerospace sector, for which April’s federal budget set aside $1.75 billion in SIF funding, citing the impact of the COVID-19 pandemic.   

Prior to the election campaign, The Logic sent questions about the SIF to Innovation Minister François-Philippe Champagne, but received an answer from a spokesperson for Innovation, Science and Economic Development Canada (ISED). “It is not unusual for federal programs to work with companies on more than one project at [a] time,” said Sophy Lambert-Racine. “Projects often span several years and can have a range of priorities and focus.”

Companies can reapply for new SIF projects before existing ones are complete, said Hans Parmar, another department spokesperson. “All project proposals are assessed discretely based on their potential to generate benefits for Canada’s economy and for Canadians.” ISED projects the total size of the seven repeat firms’ 15 projects to be almost $6.8 billion.

While the SIF was initially industry-agnostic, Ottawa has also set aside portions of the fund for companies that make low Earth orbit satellites, and for the agri-food, energy, forestry and life-sciences sectors. 

There’s a rationale for the government to support firms or industries hit hard by the pandemic or by other countries’ protectionist trade measures, or which are being asked to make capital investments to help meet Canada’s emissions-reduction goals, said Daniel Schwanen, vice-president of research at the C.D. Howe Institute think tank. “​​There’s a coherence to the program.”

Breznitz isn’t convinced. “It’s the same companies that get it again and again and again, and if you look back, you will find that [they] were always receiving very large sums from the federal government,” he said. “I would call it the ‘Business as Usual in Innovation Fund.’” 

The SIF’s biggest beneficiary to date is the Canadian division of Luxembourg-headquartered steel giant ArcelorMittal, which has been promised $461 million across three projects. In July, the firm was awarded $400 million from the SIF-NZA to convert its Hamilton, Ont., plant to greener furnaces. Earlier that month, Prime Minister Justin Trudeau announced up to $200 million for Sault Ste. Marie, Ont.-based Algoma Steel to make similar upgrades; the domestically domiciled firm was previously awarded $30 million from the SIF in January 2019.  

Montreal-based CAE is another major recipient. In August 2018, Trudeau announced $150 million—the largest award in the SIF’s first two years—for the firm to apply AI, cloud computing and virtual reality to its flight simulators and other products. Just under three years later, Trudeau returned to Montreal to promise another $190 million from the SIF-NZA for CAE to develop electric-aircraft and other technology.

CAE received a $250-million loan from one of the SIF’s predecessor programs in March 2009, while federal disclosures show Algoma and ArcelorMittal have both received millions from other federal departments and agencies.

Liberal ministers regularly cite the number of jobs companies receiving SIF money have promised to create or maintain, and ISED publishes those numbers on its project-tracker website. Firms can make new job commitments that extend the length of earlier ones. Lambert-Racine said the two rounds of funding for Algoma Steel and ArcelorMittal—via the steel and aluminium and SIF-NZA streams, respectively—were based on different program priorities. But both have pledged to retain the same positions across multiple rounds of funding. 

The pattern of overlapping employment promises shows the SIF isn’t fostering innovation, according to Breznitz. “This is about sustaining jobs in [particular] industries, without any real thinking about how to make those companies much more successful and grow in the future,” he said. 

Such programs subsidize firms to conduct innovation activities they would have carried out anyway, or incentivize them to set R&D budgets based on anticipated government funding, Breznitz said. 

“SIF does not provide operational subsidies to companies,” said Lambert-Racine. Companies must typically pay back part or all of the funding.

“You don’t want companies to be constantly dependent on government subsidies,” said Schawnen. But it’s “not necessarily bad economics” to provide funding that maintains highly skilled, high-technology jobs, or retains firms that might otherwise invest elsewhere due to incentives, market size or protectionist policies. Aerospace, steel and aluminium and auto are “perfectly good industries,” said Schwanen. “We’re not going to just let them go” because they’re facing barriers abroad.

Projects should be judged on whether they help make the firm or sector “a permanent and competitive part of Canada’s economy,” Schwanen said, describing the SIF as “more focused than past programs on doing the right thing.”

The companies that have received multiple SIF awards said they are pursuing separate projects with the individual rounds of funding. CAE spokesperson Pascale Alpha said the company has met the job commitments attached to the first $150-million award it received, and has “made big strides that led to many new breakthrough technologies related to products and pilot training.

Algoma Steel has complied with the employment terms of its initial $30-million SIF agreement, said spokesperson Brenda Stenta, adding that transitioning to the new furnace technology “will ensure an economically and environmentally sustainable steelworks in Sault Ste. Marie for the next generation of steelworkers.” 

Bell Textron Canada, awarded up to $200 million from the SIF-NZA in July, also leads a 17-company consortium set to receive $49.5 million in non-repayable federal funding from the main program between 2018 and 2022 to develop autonomous-flight technology. The Mirabel, Que.-based helicopter subsidiary of a U.S. aerospace firm has sought government funding “to develop and maintain strong knowledge and highly skilled workforce in Canada [and] Quebec,” said spokesperson Lindsey Hughes.   

ArcelorMittal did not respond to multiple requests for comment. 

While Breznitz said he’s not opposed to the SIF-backed firms receiving government funding, he cited low growth in productivity, real wages and other metrics as cause to question the progress the Liberal government has made on innovation. He’s concerned that its flagship innovation funding program is “completely reactive” to immediate economic conditions and challenges, rather than following a long-term plan to expand the economy. “That’s not a strategy, sorry,” he said.