1.2 – The Role of RDAs
Small and Medium-Sized Enterprises (SMEs) and Economic Development
Located all across western Canada, SMEs are the heart of economic activity in urban centres and rural areas alike, but their full growth potential remains untapped.
Growth is a critical step in the development of many SMEs, whether to move beyond a start-up phase, meet increasing demands for products and services, or strengthen the company’s competitiveness:
- Expanding revenue, profit, and jobs among SMEs benefits the Canadian economy through tax revenues, investment, and local employment.
- Promoting competition and market entry among SMEs can stimulate innovation and productivity.1
- SME growth can also lead to the development of new technologies to address social or environmental challenges.
Spotlight: SMEs and Employment
Small and medium-sized enterprises (SMEs) play a vital role in employing western Canadians, and represent the most dynamic sector of the economy.
Small businesses – those with fewer than 100 employees – make up 98.1% of all businesses in the West, and employ over 2.8 million western Canadians.2 When combined with medium-sized businesses with 100 to 499 employees, this number rises to nearly 3.5 million, or 92.4% of all private sector workers.3
Some SME owners with established businesses and feelings of financial security are less inclined to take on the personal risks associated with business growth, despite the potential for wider job creation. Others have expansion ambitions, but may face difficulty overcoming challenges associated with growth.
Growth can be especially difficult for businesses in sectors where market failures are prevalent. For example, market adoption of new clean technologies can be impeded by the risk of high upfront investment with no guaranteed return, and competition against conventional alternatives that are already strongly entrenched in the market. Governments have a critical role in distributing the tax benefits of firm scale-up, and can also share risks in some cases, providing a stronger incentive for scale-up activities.
However, care must be taken. Subsidizing businesses can lead to less focus on creating customer value and more focus on getting government funding. It also reduces incentive for businesses to lower production costs through innovation.
Nevertheless, investing in high-potential SMEs can help them reduce costs to become more competitive in the long term. It can also help them become more resilient to overcome unforeseen economic circumstances like global trade disputes and natural disasters. When businesses have a greater capacity to withstand changing conditions, this helps communities recover and thrive. With their regional knowledge, networks, and targeted investments, Regional Development Agencies (RDAs) play an important role in fostering the growth environment for SMEs.
A Place-Based Approach
Western Economic Diversification Canada (WD) is one of six federal RDAs in Canada. RDAs are unique in applying a place-based lens to federal programs and policy.
A place-based approach recognizes the distinct assets and needs of local economies, including the business environment, talent and training opportunities, infrastructure, and economic conditions. It acknowledges that a one-size-fits-all approach to economic development often does not work in a country as vast and diverse as Canada. Rather, communities respond differently to interventions for economic prosperity, given their varying structures of people, businesses, governance, and resources.
RDAs can lead a place-based approach with:
- Federal Presence: RDAs are a key presence of the Government of Canada oustside of Ottawa. RDAs enhance coordination between departments and other orders of government that share priorities, and strengthen key partners’ relationships with the Government of Canada.
- Policy Analysis: By applying a regional lens to problem solving and national policy and program discussions, RDAs pinpoint the impacts of new measures on communities. This promotes responsive program design and identifies investment gaps.
- Service Delivery: Business service networks and targeted programs leverage local assets to strengthen local economies. For instance, advisory services help SMEs implement new technologies, diversify into new markets, and assist those that may have difficulty organizing or financing these activities on their own.
Across the federal government, departments are responsible for national priorities such as infrastructure, natural resources, transportation, and investment attraction, among others. With the work of these standalone departments intersecting with regional economic development activities, achieving integrated, community-level access and delivery of policies and programs is challenging.
A place-based method of tackling complex policy issues enables horizontal collaboration across federal departments and other levels of government. It can address unemployment, respond to infrastructure deficits, diversify the economy to overcome market downturns, build cluster growth, and promote other initiatives that contribute to regional economic competitiveness4. WD has a vital role in navigating this complexity to promote economic development in communities across the West.
Spotlight: Investor
C-FER Technologies, based in Calgary, received $225,000 from WD to develop and implement a pipeline monitoring program to train Indigenous people in pipeline monitoring and leak detection.
This project will provide employment opportunities for Indigenous people and improve the environmental performance of the pipeline industry.
This project supports Indigenous economic growth, one of WD’s strategic priorities.
The Role of Regional Development Agencies
RDAs address key economic challenges by incorporating local knowledge and expertise into national initiatives to create regionally-tailored programs, services, and policies.
RDAs play four major roles:
Investor: RDAs make targeted investments in businesses and not-for-profit organizations to spur diversification, innovation, and community economic growth.
- WD invests in regional innovation hubs and funds business scale-up using repayable and non-repayable contribution programs.
- Using WD funding, local business service organizations promote economic participation among women, rural entrepreneurs, Indigneous peoples, entrepreneurs with disabilities, and official language minority communities.
Delivery Agent: RDAs help deliver on national priorities and respond to regional economic dynamics.
- RDAs advance Government of Canada priorities by delivering regional and national programs and regionally tailored initiatives, such as Regional Economic Growth through Innovation, the Canadian Experiences Fund, and Women’s Entrepreneurship Strategy.
- WD responds to regional economic disruptions by assisting communities and industries facing challenges like trade disputes, market transitions, and businesses impacted by unprecedented natural disasters.
Spotlight: Delivery Agent
Small businesses impacted by the 2017 and 2018 wildfire seasons in British Columbia received help through WD. These were the worst wildfire seasons in the province’s recorded history.
The Community Futures Development Association of BC received $1.3 million from WD in 2017, followed by $540,000 in 2018 to assist businesses impacted by the BC wildfires with the economic rebuilding of communities.
The project partners, the Community Futures Development Association of BC (CFBC) along with local Community Futures Organizations (CFs), provided business development support and resilience training through coaching and advisory services.
Strategic Advisor and Intelligence Gatherer: RDAs use place-based research and knowledge to advocate for regional interests in national policy discussions.
- On-the-ground knowledge of challenges and opportunities promotes sound investments and policy decisions.
Pathfinder and Convenor: RDAs connect key economic actors, including governments, industry, post-secondary institutions, and Indigenous groups, with federal departments and other partners.
- WD’s networks span governments, post-secondary institutions, not-for-profit organizations, and industry stakeholders across western Canada.
- These partnerships allow WD to co-invest alongside other funders to promote economic growth, and to connect businesses and organizations to opportunities.
Spotlight: Pathfinder and Convenor
Support from WD enabled a historic partnership to invest in the long term prosperity of northern Manitoba.
The private-public partnership, the Arctic Gateway Group Limited Partnership, blends First Nations and community ownership and Canadian private sector leadership.
WD’s investment of $127 million under the Western Diversification Program allows the partnership to take over ownership of the Hudson Bay Rail Company, the Hudson Bay Port Company and the Churchill Marine Tank Farm. The project is expected to spur investment in this important transportation hub.
The Hudson Bay Rail line is a critical piece of transportation infrastructure for nearly 30,000 people from First Nations and other communities. It brings security for food, fuel, jobs and the economy. A safe and reliable rail line also provides certainty for industry and supply lines to grow and prosper over the long term.
WD’s Impact At a Glance
WD was created in 1987 as part of the federal response to provincial and public pressure to better account for regional economic disparities.
Since its creation, WD has delivered numerous federal and regional initiatives to support western Canadians, including:
- Since 1995, WD has supported Community Futures Organizations (CFs), which take a grassroots approach to economic development in communities across western Canada by providing business advisory services and loans to SMEs.
- Analysis of key business performance metrics between 2003 and 2016 demonstrate signficant impact for CF-assisted firms, namely:
- CF-assisted firms experienced an annual average of 9.1% employment growth compared to 4.3% for non-assisted firms.
- CF-assisted firms grew their annual sales by 13.6% versus 6.8% for non-assisted firms.
- Since 2014, WD investments in innovation and business development have signficantly assisted western Canadian businesses, by:
- Generating $572 million in sales growth resulting from commercialization of a product, process or service.
- Increasing export sales by over $2.25 billion, based on client surveys following their participation in export development activities supported by WD.
- Attracting over $1 billion of foreign direct investment into western Canada.
- The Canada 150 Community Infrastructure Program was created to celebrate the 150th anniversary of Confederation. This program benefitted 747 communities across western Canada by improving existing community infrastructure while creating jobs and improving the quality of life for western Canadians.
- In response to the worst wildfire seasons in British Columbia’s history in 2017 and 2018, WD supported over 3,500 impacted businesses to rebuild in their communities. This included 912 women-led enterprises and 625 Indigenous businesses.
- The department’s capacity to adapt to western Canada’s changing economic landscape and pursue growth opportunities is among its key strengths. This responsiveness allows WD to tailor its programming to meet the evolving needs of western Canadian businesses and maximize its impact. For example:
- Earlier this decade, attracting early stage capital (pre-commercialization) was identifed as a key challenge for western Canadian SMEs. WD shifted its innovation-related programming and focused on filling this gap in the innovation continuum. It successfully addressed a vital market need and assisted firms to bring new knowledge-based products and services to market.
- To date, investments addressing this market gap have resulted in the following outcomes for WD clients:
- 1,425 jobs created (including 1,128 highly qualified personnel [HQP])
- $396 million in business sales growth
- $120 million in export sales growth
- Total expected results in this area are expected to reach:
- 2,747 jobs created (including 1,917 HQP)
- $1.89 billion in revenue growth
- $817 million in export sales growth
- Over the last few years, WD has again adjusted its programming to maximize the benefits for the western Canadian business community. In addition to focusing on the pre-commercialization stage, WD’s innovation programming has been broadened to include other stages of the innovation contiuum by targeting more mature companies who are pursuing business scale-up and enhancing their productivity.
- Total expected results in this area are expected to reach:
- 2,314 jobs created (including 1,405 HQP)
- $2.4 billion in revenue growth
- $1.4 billion in export sales growth
- It is important to note that most of the expected results are based on self-reported projections by companies. Consequently, some of the results may be optimistic. However, WD frequently makes one-time investments over a one year period, which generate long-term job, revenue, and sales growth. This suggests that the overall returns are high across the portfolio.
Comparison of Regional Development Agencies in Canada: Key Figures
Comparison of Regional Development Agencies in Canada: Key Figures
- The below table (Table 1) provides a comparison of key RDA metrics, including allocated departmental budget, employee numbers, population, and geographical area served.
- The table highlights variances across RDA funding and capacity to serve regional clients. The following observations can be made:
- On a per capita basis, the other RDAs have nearly 30% more than WD to invest in economic development in the regions they serve.5
- WD’s current departmental funding ($305 million) is comparable to CED ($325 million) as a result of incremental funding for program expansion. However, WD’s funding is expected to decrease to $187.3 million in fiscal 2022-23.
- WD serves the fastest-growing population in Canada (western Canada: 7.3% – Canadian average: 5.0%).
- WD’s geographical coverage is second only to CanNor. However WD represents 31.6% of the national population, whereas CanNor represents less than 1%.
- Despite the large geographical area and population representation, WD has fewer offices than FedNor – an organization with six offices across northern Ontario, and representing 2.3% of the national population.
| WD | ACOA | FedDev | CED | CanNor | FedNor* | |
|---|---|---|---|---|---|---|
| Departmental budget6 | $305,317,000 | $342,608,000 | $261,500,000 | $325,245,000 | $65,021,000 | $64,100,000 |
| Planned full-time equivalents (FTEs)6 | 300** | 578 | 240 | 342 | 74 | 69 |
| Population served (2016 census) |
11,091,947 | 2,333,322 | 13,300,000 | 8,164,361 | 113,604 | 811,000 |
| % of national population | 31.6% | 6.6% | 38% | 23% | 0.35% | 2.3% |
| Population growth rate (2016 census) | 7.3% | 0.24% | 4.6% (all of Ontario) |
3.3% | 5.9% | N/A |
| Geographical area (km2) | 2,703,448 | 500,531 | 105,853 | 1,356,625 | 3,496,285 | 802,846 |
| # of regional locations | 4 regional offices 1 satellite office |
4 regional offices 24 satellite offices |
4*** | 11*** | 3 regional offices | 6 regional offices |
| RDA headquarters | Edmonton, Alberta | Moncton, New Brunswick | Waterloo, Ontario | Montreal, Quebec | Iqaluit, Nunavut | N/A |
| Budget per capita | $27.53 | $146.83 | $19.66 | $39.84 | $572.35 | $79.04 |
* FedNor is not a legislated RDA and therefore is not an official RDA, but functions as an RDA from within ISED.
** This number is not adjusted to reflect additional FTEs (23 total) expected through Budget Implementation Vote 2019.
*** Ottawa representative office also functions as a regional office, serving the surrounding area.
Footnotes
1 Centre for the Study of Living Standards, 2008. Competitive Intensity as a Driver of Innovation and Productivity Growth: A Synthesis of the Literature.
2 Statistics Canada, Table 33-10-0037-01; Canadian Business Counts, with employees, December 2017.
3 ISED Small Business Statistics - January 2019, from Statistics Canada, Labour Force Survey.
4 Brookings, 2018. Place-Based Policies for Shared Economic Growth.
5 The population-weighted average RDA budget is $38.14 per Canadian country-wide.
6 Source: GC InfoBase 2019-20.
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