OTTAWA — As the Liberal government’s supercluster program enters its final year, the five organizations are seeking a renewed mandate and $1.5 billion in new money to continue funding industrial projects.

However, The Logic has learned a government-appointed advisory panel has recommended that if Ottawa extends the program it should instruct the superclusters to focus more on domestically-headquartered firms and creating domestically-held intellectual property.

The superclusters program was designed to foster collaboration between multinationals, small firms and research institutions, encourage businesses to invest in innovation and create jobs. The non-profit consortia back R&D, skills development and other projects; participating firms must provide matching funding. The federal government announced the program in the March 2017 budget, allocating up to $950 million over five years.

The program’s mandate expires at the end of March 2023. The organizations want Ottawa to renew the program for a second term and give them more money to spend, ideally in the budget that’s set to be tabled Thursday.

Collectively, the five superclusters are seeking $1.5 billion in new funding. “There’s easily demand for one-and-a-half times what we did last time,” said Bill Greuel, CEO of Regina-based Protein Industries Canada. The organization has already committed all of its $172.8 million in federal funds, including a $20-million top up in the April 2021 budget. It’s seeking around $260 million. 

“We’ve only just begun,” said Sue Paish, CEO of the Vancouver-based Digital Technology Supercluster (DTS). “The momentum is building, and there is a big benefit to Canada and Canadian industry to continue to build on that.” The DTS has also fully committed its $172.8 million budget. Projects have focused on healthcare, natural resources, the digitization of traditional industries and worker training. It’s seeking an additional $300 million over five years, which Paish said matches their pace of spending in 2021. 

Hamilton, Ont.,-based Next Generation Manufacturing Canada (NGen) could bid for as much as $650 million. The organization has a pipeline of projects in areas including automation, electric vehicles, industrial decarbonization and circular production, according to CEO Jayson Myers, and has pledged its entire $249.8-million allocation from the first cycle.  

“Industry will not stop in March 2023, obviously,” said Julien Billot, CEO of Scale AI. The  Montreal-based organization has been the slowest to spend; by the end of the fiscal year, it will have committed almost $200 million of $283 million pledged by the federal and provincial governments. While the organization hasn’t finalized its ask for Ottawa, its “starting point” is $50 million annually, or $250 million over a five-year extension.

The St. John’s-based Ocean Supercluster has stopped accepting new projects because its $153-million federal allocation is “fully committed … for all practical purposes,” said CEO Kendra MacDonald. She said the organization is “looking for a bigger number” in any second mandate, but declined to disclose how much.   

The supercluster CEOs say the federal government has not committed to renewing the program, but that they’re received positive feedback about their progress. “It would be inappropriate for ISED to expand on pre-budgetary discussion,” said industry department spokesperson Alison Reilander. 

But the department appears to be considering the prospect of extending the supercluster program. “Momentum and industry engagement is at risk” for all five organizations without “strategic reinvestment,” because funding is either fully committed or set to end in March 2023, warns a December 2021 internal presentation, which The Logic obtained from a source. 

In September 2021, Innovation, Science and Economic Development Canada (ISED) appointed an advisory panel to assess the superclusters program and provide recommendations for a potential second mandate. Members of the panel—which was never publicly announced and which has not previously been reported on—included Armen Bakirtzian, co-founder and CEO of Intellijoint Surgical, a Kitchener, Ont. medtech scale-up; Pierre Boivin, CEO of Claridge, a Montreal private equity firm; and former University of Alberta president Indira Samarasekera. 

“A further five or ten year investment has the potential to generate outsize returns,” the three concluded in a February letter to Innovation Minister François-Philippe Champagne The Logic obtained from a source, praising the superclusters for encouraging industrial collaboration, developing their target sectors and inspiring businesses to spend on innovation. 

The panel was “generally encouraged by the level of activity that had happened after the slow start [and] in the midst of a pandemic,” Bakirtzian said in an interview with The Logic. 

But the group also called for changes to the supercluster program. Instead of simply renewing it, it recommended the government “incorporate elements of competition into allocation” of follow-on funding, basing the distribution of capital between the five organizations on their performance to date and on new 10-year plans with “compelling goals” that each would be required to present. 

Several supercluster CEOs told The Logic they expect to have to make fresh applications for any new money. ISED spokesperson Reilander said department officials have been directed to “to discuss [with the superclusters] how to advance” the advisory panel’s recommendations.

IP lawyers and scale-up lobby groups have publicly criticzed the program for lacking proper policies to ensure that the large foreign firms involved in some supercluster projects don’t capture most of the benefits of any new ideas generated. 

In its letter the advisory panel called for the superclusters to “build in a ‘home court advantage’ that creates favourable conditions and benefits for Canadian headquartered firms,” and to target efforts to commercialize data and IP in a way that will benefit domestic businesses. The panel also said Ottawa should measure the program’s success based on their revenue and employment growth.

Making Canadian-headquartered firms a priority is the “most significant improvement that can be made” to achieve the program’s goals, Bakirtzian told The Logic. Such companies “certainly deliver more value to Canada than the Canadian arm of a foreign multinational,” he said, noting that their IP and revenues are more likely to stay in the country, be taxed here, and finance more innovation spending locally. Focusing on them is likely to “improve [the program’s] return on investment” and “yield an increase in R&D spend over time that doesn’t require continued co-investments by any government.” 

Small businesses make up a plurality of the firms participating in initiatives funded by each of the superclusters, but high-profile multinationals are also involved. As of September 2021, Redmond, Wash.-headquarted Microsoft was associated with 22 DTS projects, the second-most of any member, and Indianapolis-based Corteva had committed the most funding of any Protein Industries partner at $13.9 million, according to the ISED presentation. 

The documents reveal ISED’s internal analysis judged that each supercluster had delivered “strong results on generating IP in Canada,” with their projects producing a total of 863 new patent applications, trade secrets and other rights, significantly more than the target of 114.

Policy experts have also previously warned the program’s lofty economic goals may not be achievable. “Superclusters will contribute over $50 billion to our GDP and create an estimated minimum of 50,000 jobs over the next 10 years,” Bains said at the February 2018 announcement. An October 2020 report from the Office of the Parliamentary Budget Officer projected the program would generate just over half that much employment and was “highly unlikely” to hit the growth target, though the five superclusters disputed its findings.

An ISED-commissioned Ernst & Young (EY) economic analysis of the superclusters estimates the program will come closer to its goals. It is “currently expected to sustain 23,900 FTE jobs in Canada’s economy during its initial funding period” through March 2023, states a summary deck The Logic obtained from a source. That includes positions directly involved in supercluster projects, as well as those paid for by the spending of participating businesses and workers. Over a decade, EY projected the employment impact at 35,000 FTE jobs on the current trajectory, with potential for as many as 58,800 if technology adoption speeds up. 

The EY deck does not provide an estimate of the superclusters’ GDP contribution. Reilander said the superclusters are “on track to meet or exceed program targets,” including for job creation. She cited sections of the EY analysis which found that the organizations “are proving to be successful in creating connection among companies,” which is “key to helping companies scale and long term economic success.” The study will continue for two more years.  

The superclusters say they’re providing plenty of other benefits to the economy and companies. Participants in agri-food-focused Protein Industries’ projects have committed $322 million according to Greuel, spurred by $172.8 million in public funding. “If you go back to the original objectives of the superclusters, it was really to increase private-sector investment in innovation,” he said. “I think we’ve done that quite successfully.” NGen’s 40 completed projects to date, which received $45 million in public funding, have generated over $1.85 billion in revenue for participating firms from sales and licensing, according to Myers.

The superclusters say they plan to become financially self-sustaining in the long term, but need one or more additional rounds of funding to get there. The advisory group called for provincial governments to provide more support. And while all five superclusters have exceeded the 1.2-to-one matching requirement for industry co-investment, the panel recommended Ottawa should increase the ratio for the second mandate “to reduce government funding and diversify revenue sources.”

Bakirtzian said he hopes the advisory panel remains in place, to study the program, refine its suggestions and “ensure that the recommendations are implemented.”