November 2013

MAC Economic Commentary

Focused spending on mining innovation required

By Pierre Gratton

Canada’s productivity performance as a country is worsening due to a struggle to innovate, and the mining industry is no exception in this regard. This is made more acute in the mining sector by increasing regulatory requirements, rising energy costs, and deeper, lower grade and remotely located reserves, and it needs to be addressed. Further support to the Canada Mining Innovation Council (CMIC) – the industry’s response to this challenge – would help reverse this trend.

Innovation matters because countries that do it well are surpassing Canada on performance measures like income per capita and productivity, and with the quality of their social programs. A recent Deloitte report indicates that the average Canadian worker contributes US$47.66 in gross domestic product (GDP) per hour compared to US$60.77 per hour in the United States. This is a large gap with significant economic potential lost.

The Organisation for Economic Co-operation and Development has indicated in a report that lagging productivity is one of Canada’s most significant economic hurdles. Specifically, the study explains that Canada’s multifactor productivity (MFP) has been stagnant for decades, and has been declining since 2002.

MFP infers technological advancement by holding that innovation improvements account for the increase in output from a fixed level of labour and capital inputs, which enhances economic growth. Since 1980, the United States has improved its MFP by 40 per cent, while Canada’s has decreased by four per cent.

Using 21 innovation indicators, the Conference Board of Canada ranks Canada 13th out of 16 peer countries. Despite notable Canadian mining innovations, our mining industry’s MFP fell throughout the 2000s, alongside drops to both labour and capital productivity. According to a 2009 report by the Centre for the Study of Living Standards, U.S. mining labour productivity has been higher than Canadian worker productivity since 1995.

Innovation matters to the Canadian mining industry because technical progress and productivity are key competitiveness ­factors. By its very definition, the mining industry faces environmental and technical challenges that require innovative solutions.

Canada ranks above its peer countries on overall public R&D spending as a percentage of GDP, but it does not necessarily follow that spending more on R&D will make the difference. Spending that money differently may stimulate an increase in business-related investment in research, development and innovation, an area where Canada underperforms compared to other countries.

CMIC was formed with the aim of investing mining industry R&D dollars more strategically. A non-profit organization comprised of a unique partnership between industry, academia and government, CMIC is Canada’s national mining innovation ecosystem, designed to enhance industry’s global competitiveness through collaboration and alignment of resources in education, research, innovation and commercialization.

The council represents the mining industry’s recognition for a need to compete more intelligently in the global market. Many of the innovation avenues the organization was mandated to follow closely reflect focus areas of the federal government’s 2012 and 2013 Economic Action Plans. These include support for responsible resource development, Canadian small businesses as innovation drivers, and the need to create a larger skilled and professional domestic labour force that includes all Canadians.

In 2011, Canadian mining and metals companies invested $590 million in R&D, surpassing various sectors such as motor vehicles and parts, machinery, and wood products and paper. The industry also employs over 6,000 people in R&D, more than the aerospace and pharmaceutical sectors, both of which receive extensive financial and policy support from government.

Today, the mining sector is a primary contributor to government coffers, featuring multi-billion dollar investments, around which national governments are building strategic policies to attract global investment. Based on need, and by embracing outside-the-box thinking, the Canadian mining industry has reshaped its approach to innovation and created a new institution to deliver on that vision.

The 2014 federal budget should include a funding commitment to enable Canada’s only open innovation mining ecosystem to help deliver new national programs focused on research, product and process development and commercialization and innovation crucial to industry’s competitiveness. Federal science and technology spending for the fiscal year 2013-14 is anticipated to be around $10.5 billion. The major funding agencies for research and innovation (NSERC, CIHR, SSHRC and CFI) have a combined budget of roughly $4 billion. CMIC’s request accounts for a fraction of Ottawa’s investment in research and innovation and could easily be achieved by redirecting existing funds, thus presenting a real opportunity to enhance innovation in a key Canadian sector.

Pierre Gratton is president and CEO of The Mining Association of Canada.

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