Canada’s new Innovation Agency – Blog #27

18, April 2022

Canada’s new Innovation Agency

The Federal government announced that it will create a “Canada Innovation and Investment Agency” in the 2022 Budget.

This is how it was described:

  • It will proactively work with new and established Canadian industries and businesses to help them make the investments they need to innovate
  • Operationally independent
  • $1 billion over five years to support its initial operations.
  • Modeled on approaches that have been successful in Finland (TEKES) and Israel (Israel Innovation Authority).
  • With private sector leadership and expertise
  • It will also enable innovation and growth within the Canadian defense sector and boost investments in Canadian defense manufacturing.

This initiative has broadly been welcomed by the business community. It is one among a suite of measures in the budget aimed at improving Canada’s dismal performance in innovation, productivity and economic growth. (See Blog 22 and 24.) It also represents a change in thinking from a passive support role (SRED) to a more active investment approach.

A key point is that it is being modeled on approaches in Finland and Israel. What have these approaches been?

First of a couple of caveats:

  • Both Finland and Israel are very small unitary countries (populations of 5.6 million and 9.2 million). Canada is a much larger country with a federal structure.
  • Transferring ideas that work in one place to another place is notoriously difficult (think of the many failed attempts to replicate Silicon Valley).

TEKES

TEKES was founded in 1983 in response to recessions in the 1970s as a funding agency to promote technology development. TEKES merged with the Finnish export promotion agency in 2018 to form Business Finland. It currently has about 750 employees. Finland joined the European Union in 1995.

Business Finland functions as a funding agency for research and technology development as well as export promotion. Receivers of the funding are universities, polytechnics, research institutes such as VTT Technical Research Centre of Finland, the European Space Agency, startups, small and medium-sized enterprises (SMEs), large corporations and public bodies. In enterprise projects, funding is given to transform research-stage ideas into viable businesses, and may combine direct unconditional funding with guaranteed loans conditional on the success of the resulting business. It funds up to 50% of project costs.

In addition to funding, Business Finland provides companies with advice on networking, finding new markets and customers, help with joint offerings and connections with international investors.

Business Finland is well regarded by SME’s in Finland. According to a survey, 38% of SMEs considered this service to be central for their business activity.

Business Finland has some current weaknesses. The Confederation of Finnish Industries says it should focus more on companies with export potential.

In 2021, Business Finland’s R&D funding is estimated to be EUR 740.4 million ($1.01 Billion CDN) that included EUR 200 due to COVID expenses.

Israel Innovation Authority (IIA).

The IIA was founded in 1965 as the Office of the Chief Scientist of Israel’s Ministry of Economy, charged with fostering the development of industrial R&D within Israel. It became the IIA in 2016.  It currently has about 150 employees.

Its mission is to assist the advancement of Israel’s knowledge-based science and technology industries in order to encourage innovation and entrepreneurship while stimulating economic growth.

“The Israel Innovation Authority, an independent publicly funded agency, was thus created to provide a variety of practical tools and funding platforms aimed at effectively addressing the dynamic and changing needs of the local and international innovation ecosystems. This includes early-stage entrepreneurs, mature companies developing new products or manufacturing processes, academic groups seeking to transfer their ideas to the market, global corporations interested in collaborating with Israeli technology, Israeli companies seeking new markets abroad and traditional factories and plants seeking to incorporate innovative and advanced manufacturing into their businesses.”

The Israel Innovation Authority produces a comprehensive annual report: https://innovationisrael.org.il/en/sites/default/files/Israel%20Innovation%20Authority%20-%202021%20Innovation%20Report%20-%20English%2017.6.pdf

In 2019 Israel joined the network of Centers for the Fourth Industrial Revolution (C4IR), a body set up by the World Economic Forum to share knowledge, experience and best practices related to innovative technologies’ regulation by establishing collaborations between governments, leading corporations, private sector, and experts from around the world. The IIA is the focus.

Annual budget is 1.6 Billion NIS, or about $630 million CDN. It describes itself as “an independent publicly funded agency”

Comparison

TEKES and the IIA have some similarities:

  • They both provide grants and loans to businesses and universities as well as advice.
  • They both operate as “independent publicly funded agencies”. Business Finland is part of the Finnish Ministry of Employment and the Economy; and the Chair of the Board of the IIA is Israel’s Chief Scientist.
  • Both have a strong international focus. Business Finland has 42 offices abroad, and the IIA has an International Collaboration Division.
  • Both have a strong R&D and technology development focus.

But there are also differences:

  • Israel has had an influx of highly skilled immigrants from various countries, including Russia, that is not the case in Finland.
  • A factor affecting Israel’s innovation performance is military spending. Israel spends 5.6% of its GDP on military spending (about four times as much as Canada), and that includes significant R&D that has spillover to the civilian economy.

Conclusion

Whatever form the Innovation Agency takes, it will be one part of a complex innovation ecosystem. To improve innovation performance other aspects of the ecosystem need to be enhanced, in particular the supply of talent and the limited competitiveness in many sectors of the economy. And announced funding for the Agency is significantly less than in Finland or Israel, which are much smaller countries.

Peter Josty