Ep.45: Canadian Railroad Trilogy – Pandemic Edition
With Lisa Raitt and Yves Desjardins Siciliano
The COVID-19 pandemic and resulting economic crisis have revealed two very different entrepreneurial experiences in Canada. Businesses that have been able to access high-quality digital infrastructure and technological expertise have been more resilient and have weathered the worst of the economic crisis. By contrast, businesses that have been unable to make the shift to digital commerce—because of insufficient connectivity, financial limitations or expertise—have suffered, with many going bankrupt and others at risk of doing so. The gap between connected and disconnected entrepreneurs is wide, and prevents many from generating prosperity and employment for themselves and their communities.
Canada’s future competitiveness and prosperity depend on dynamic entrepreneurs and a robust digital infrastructure to support them. The pandemic has put that infrastructure to the test and revealed substantial inequities in entrepreneurial opportunity. An entrepreneur’s geographic location and their access to networks, mentorship, and human and financial resources all shape their chances of success. Entrepreneurs in rural and remote areas, as well as Indigenous peoples, racialized minorities, women and people in lower-income households have had less access to critical resources than others. We have an entrepreneurial ecosystem that works for some, but requires others to compete with one arm tied behind their back.
If we want Canada to have the thriving and inclusive entrepreneurial economy it requires to support prosperity and well-being for all, we need to build and expand high-speed, accessible digital infrastructure, enhance digital skills and attitudes, and ensure that high-potential entrepreneurs have the financial resources they need to succeed. And we need action in these areas not only to survive the current economic crisis, but also for long-term entrepreneurial success and prosperity well into the post-COVID future.
Prior to the pandemic, Canada had some of the ingredients necessary for a promising start-up and scale-up economy. Our entrepreneurial ambition is strong. In 2019, nearly one in five Canadians said they were considering starting, or were in the early stages of setting up, a new business venture—more than any other country in the world. Moreover, nearly 60 percent of Canadians aged 25 to 64 have completed some form of post-secondary education—higher than any other country in the Organisation for Economic Co-operation and Development (OECD)—which means that Canadians’ entrepreneurial ambition is backed by advanced skills and knowledge. More students than ever before are majoring in management, business and finance, and students across many disciplines are encouraged to see entrepreneurial potential in the skills and knowledge they have acquired. At the same time, financing for some entrepreneurs has been improving. Over the past decade, Canada has gone from having very low access to venture capital (VC) to having the third highest level (as a share of GDP) in the OECD, lagging behind only Israel and the United States. But there are gaps, and many resources and opportunities are unevenly distributed.
Despite high ambition and talent, start-up and scale-up rates continue to be mediocre in Canada, and adoption of technology by businesses has been weak for decades. With a business start-up rate of 8 percent, Canada lags the OECD average of 10.5 percent, sits behind G7 peers like the UK (13.9 percent) and France (11.4 percent), and is well behind leading OECD countries like Poland (17 percent), Hungary (16.5 percent) and Korea (15.1 percent). Canadians have entrepreneurial initiative, but execution lags initiative.
Technology adoption and use among Canadian businesses is another troubling issue. At 2.1 percent, Canadian businesses’ information and communications technology (ICT) investment (as a share of GDP) is below the OECD average of 2.2 percent, and well behind the United States (3.1 percent). Moreover, ICT investment in Canada has been declining since the 2008–2009 recession. On e-commerce more specifically—the selling of goods and services online—Canada’s track record is even more troubling. Only 18.5 percent of Canadian businesses offered e-commerce options to customers in 2017—lower than the OECD average of 23 percent, and far behind leading countries like New Zealand (50 percent) and Australia (46 percent).
The economic crisis sparked by COVID-19 has accelerated and exacerbated some trends in entrepreneurship in Canada—both good and bad.
Many entrepreneurs have been resilient, quickly embracing e-commerce and digitization to serve customers online. Prior to the pandemic, fewer than one in five Canadian businesses were set up for e-commerce, but e-commerce has accelerated dramatically over the last six months. While retail sales overall declined by nearly 18 percent from February to May, e-commerce sales nearly doubled. Many entrepreneurs who have embraced and prepared for the digital age are not just surviving, they are thriving.
Source: Statistics Canada, Retail E-Commerce and COVID-19.
While some businesses and consumers are thriving in the age of digital entrepreneurship, many are still locked out of opportunities to succeed. Insufficient access to reliable, high-speed internet is a key barrier. The internet is a necessary tool for accessing information, e-commerce and even educational opportunities, but one in 10 Canadian households remains unconnected. Those excluded are more likely to be rural and lower income households, Indigenous communities or racialized minorities. Insufficient internet connectivity limits opportunities for people to participate as equals in social, political and economic life—including opportunities to start and grow a business as an entrepreneur in the digital age.
There are especially large gaps in connectivity in rural and remote locations in Canada, leaving whole communities behind. While nearly 85 percent of Canadian households have access to the minimum speed targets set by Canada’s Connectivity Strategy (50 Mbps download/10 Mbps upload), only 37 percent of those in rural communities and 28 percent on First Nations reserves have access to those speeds. These structural barriers to engaging in a digitally enabled economy are limiting not only the social and economic well-being of those communities most affected, but also all of Canada. Where only some are excluded, all face lost opportunity.
Source: CRTC, Communications Monitoring Report 2019
While venture capital climbed prior to the pandemic, and business loan programs during the pandemic allowed many businesses to survive, access to these resources has been unequal. According to one analysis, nearly 90 percent of VC deals in Canada went to businesses founded exclusively by men, revealing difficulties for women seeking support. According to the Canadian Black Chamber of Commerce, barriers to accessing capital—whether in the form of loans or VC—is a major challenge for Black entrepreneurs as well, limiting their ability to digitize and grow.
Even businesses that recognize the need to digitize and are able to access critical funds find it difficult to access talent to help implement and maintain digital platforms. Canadian businesses—and especially technology-oriented firms—have long raised concerns about shortages of digital talent to support their operations and growth. Some analyses suggest that Canada’s lagging rates of ICT and e-commerce adoption is directly related to shortages of digital talent—shortages that are being felt even more acutely as so many businesses try to adapt to COVID-19 realities. Some digitization initiatives are less skills-intensive than entrepreneurs might realize, such as establishing an e-commerce presence on an external platform versus maintaining internal digital hardware and infrastructure. In those cases, the mere (mis)perception of digital talent gaps might be holding some entrepreneurs back.
A growing recognition of the need to adapt business sales platforms and strategies to the COVID-19 economy and beyond has led federal and provincial governments in Canada, along with private sector partners, to launch a number of support programs. Initiatives to help businesses establish an online presence—including support on the technical and managerial sides of transformation—have been among a suite of highly subscribed programs.
The federal government has also renewed its promise to ensure that rural and remote communities will have better connectivity. In addition to renewing its commitment to its Connectivity Strategy, initially launched in 2019, the government has signalled that it is considering making high-speed, reliable internet an “essential service.” Both initiatives are critical if rural businesses and consumers are to participate equally in the digital economy. Yet, progress on rural connectivity and recognizing the internet as an essential service has stalled, leaving many rural and remote businesses lagging compared to businesses in urban areas. Shorter timelines, urgent action and regular reports on outcomes are needed to ensure that rapid progress is being made to improve connectivity for all Canadian entrepreneurs, consumers and communities.
While governments across Canada have quickly developed and deployed a range of measures to address the pandemic and economic crisis, longer-term initiatives to support equitable and effective entrepreneurship in the digital age are still needed. Visions of an online economy by 2030 have been pulled forward to 2021 by our pandemic realities. Previous connectivity recommendations and action plans that used a 5 to 10 year horizon for implementation need to shift to a 5 to 10 month horizon—or sooner. Securing opportunities for all interested and motivated Canadians to be successful entrepreneurs, and building an economy in which entrepreneurship effectively underpins Canadian competitiveness and prosperity, depends on accelerating connectivity, digital skills and financial investments.
Gaps in connectivity contribute to the exclusion of racialized minorities and Indigenous peoples (and others who live in rural and remote communities) from participating in the economy as entrepreneurs, consumers, workers and learners. To repair these deficits and exclusions, and to tap into the full range of entrepreneurial ambition in Canada, the federal government should move quickly to:
Effective and accessible entrepreneurship requires a skills strategy. We need immediate action on initiatives to:
Entrepreneurship requires substantial resources, especially in the digital age. But not all potentially successful entrepreneurs have access to adequate financial support. To support a dynamic and prosperous entrepreneurial economy, we need initiatives that:
COVID-19 was a wake-up call for Canada’s entrepreneurial economy. It showed us that some entrepreneurs have resources to be resilient and thrive, while others have seen their existing challenges and barriers accelerate, further limiting their chances of success.
The gap between these two experiences in Canada must be closed. Canada’s future prosperity and well-being depends on supporting entrepreneurship, including readying businesses for the digital age, and ensuring that historically excluded and marginalized communities have the same entrepreneurial opportunities and support as other Canadians. We not only need Canadians to be more entrepreneurial, we also need to ensure that entrepreneurial Canadians have the digital, financial and other resources they need to succeed. To compete for gold in the global digital economy, Canadians will need gold standard resources, talent and connectivity.
Consulting Partner: Deloitte
Federal Government Partner: Government of Canada
Provincial Government Partners:
Foundation Partners: Metcalf Foundation
PPF would like to acknowledge that the views and opinions expressed in this article are those of the author(s) and do not necessarily reflect those of the project’s partners.