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Ottawa’s flagship Strategic Innovation Fund paid out just $313 million in first three fiscal years

Innovation Minister Navdeep Bains announces $66.7 million in funding from the Strategic Innovation Fund for ENCQOR, a 5G R&D project, in Ottawa in March 2018.
Innovation Minister Navdeep Bains announces $66.7 million in funding from the Strategic Innovation Fund for ENCQOR, a 5G R&D project, in Ottawa in March 2018. The Canadian Press/Justin Tang
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Ottawa’s flagship innovation program paid out $313 million to companies over its first three fiscal years—a small fraction of the $2.06 billion in awards ministers announced over that time.

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The Strategic Innovation Fund (SIF) is designed to help domestic firms grow and commercialize as well as attract foreign investment to Canada and encourage R&D collaboration between business and academia. The government said it’s backing long-term projects, and can only push the money out as fast as companies qualify for it. But NDP innovation critic Brian Masse said the program fits a pattern of the government not delivering on the spending it announces with great fanfare. “They get the ribbon cutting … and very small amounts of it have to be paid later,” he said. 

Talking Point

The federal government’s Strategic Innovation Fund (SIF) disbursed $313 million to companies between the 2017–18 and 2019–20 fiscal years, a period over which Prime Minister Justin Trudeau and members of his cabinet announced $2.06 billion from the program for 65 projects. The innovation department said the SIF’s claims-based design explains the pace of payments, but NDP MP Brian Masse sees it as part of a longstanding pattern of the government not delivering on the spending it announces.

The federal government launched the SIF in July 2017 with $1.26 billion over five years, rolling up four existing programs for the automotive and aerospace sectors. It’s since increased the size of the fund to $3.5 billion, and extended its life to the 2023–2024 fiscal year through subsequent budgets, economic updates and emergency industry measures. That includes $792 million in new money for COVID-19-related medical R&D and manufacturing projects.

Prime Minister Justin Trudeau and 19 members of his cabinet between them announced $2.06 billion for 65 SIF projects between the 2017–18 and 2019–20 fiscal years. Successful early applicants included Guelph, Ont. auto-parts giant Linamar ($49 million in January 2018) and Montreal aerospace simulator manufacturer CAE ($150 million in August 2018); scale-ups like Charlottetown biotechnology firm BioVectra ($37.5 million in March 2019) and Ottawa AI firm MindBridge Analytics ($14.5 million in June 2019) have also been awarded funding.

Innovation, Science & Economic Development Canada (ISED) paid out $313 million from the SIF over that period, according to its response to a parliamentary request from Masse. In each of those three fiscal years, the department dispensed significantly less to companies than was budgeted for the SIF and its predecessors in the department’s annual plans. (The total disbursed does not include funding to still-running projects approved under the legacy programs).

ISED’s 2019–20 departmental plan calls for it to spend $581 million on the SIF and its predecessor programs this fiscal year, and $462 million next. 

The department said the pace of payments reflect the SIF’s design—it doesn’t hand over the full amount of the award upfront. It’s “a claims-based program,” said spokesperson Erika Zeroual. “Once an agreement is reached, SIF disburses funds over the life of a project’s work phase which generally spans two to five years.” Companies pay for eligible expenses—including labour, equipment and overhead—and then file their receipts quarterly for reimbursement.

Masse is unconvinced by that explanation. “The discrepancy of the announced funds and the used funds is too broad,” he said, calling for transparency measures like biannual reporting. ISED and its predecessor department have a longstanding pattern of underspending, the longtime Ontario MP said. “Industry Canada has routinely returned billions of dollars as we’ve watched a crumbling manufacturing sector,” he said. “Ironically now [during the COVID-19 pandemic], we see how valuable it is.” 

In the past, the government has used unspent industry program funding to fuel more project announcements, or to reduce the size of its deficits, Masse said, arguing that the government gets the “bang for their buck in the press and all the local glamour [of appearing] that they’re doing work” without “having to pay for it.” In March, The Globe and Mail reported that ISED spent $1 billion less than planned in the 2018–19 fiscal year; much of the unspent money had been allocated to the department’s broadband-access and supercluster programs.

Some SIF companies say they haven’t faced any payment delays. In September 2019, ISED announced $12 million for Rockport Networks, an Ottawa-based networking-technology company. Earlier this year, it submitted its first invoice under the program for a year’s worth of expenses; contribution agreements are often backdated to projects’ start dates. The program typically conducts an audit of the introductory claim, said Pam Heneault, Rockport’s vice-president of public affairs. “We’re anxious to see their capacity to verify that it satisfies all their diligence requirements, but we’re also anxious to see the cash in the bank,” she said in March. 

Two months later, Rockport has received payment for that invoice, as well as another for the first quarter of 2020. “I understand there is great pressure in the system to maintain accountability while simultaneously accelerating payments,” Heneault said. “Our experience continues to be extremely positive.” 

However, more than half the money ISED paid out over the last three fiscal years—nearly $171 million—was through its stream for attracting large, primarily foreign, investments. Zeroual said those projects are “often large scale and capital intensive,” citing Toyota, LNG Canada and Nova Chemical, to which the government has allocated a collective $365 million for undertakings worth a total of $29 billion. “Over 40 per cent of the disbursements to date can be attributed to claims to these very large projects,” she said, saying that spending has resulted in benefits including R&D investments, job creation and greenhouse gas reductions.

Masse said the large share of spending going to attract big projects shows the program has a complicated qualification process that benefits firms with “access or capabilities” to meet those demands. “It’s really difficult to [determine] what the objective is in terms of a national strategy,” he said. “What’s been successful is low-hanging fruit.”