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Experts warn that Ottawa's latest innovation funds could fall under political influence

OTTAWA – There is a familiar ring for an announcement made by Minister of Natural Resources Amarjeet Sohi in Calgary on December 18, when he promised $ 1.6 billion in funding for the damaged oil and gas sector.

Among the loans and grants offered are $ 100 million for "projects related to energy and economic diversification." The source? The Strategic Innovation Fund (SIF), a collection of money set aside by Ottawa in 2017 to "spur better innovation for Canada," according to its website. Just a few months earlier, SIF was used to provide as much as $ 250 million for steel and aluminum companies hammered by US President Donald Trump's trade rates.

The expenditure has caused observers to question the ruling philosophy behind SIF. Some warn that newborn funds could fall into a pattern that is too familiar in the past, when Ottawa's "innovation" funding coincides with support for the private sector in a crisis – whether it is oil and gas, steel, or space.

"This is a bad sign of what SIF has designed to do over the next five years," Dan Breznitz, a University of Toronto professor and longtime expert on innovation policy in Canada, said in response to Sohi's announcement.

Other investments under the fund include $ 110 million for Toyota Motor Manufacturing Canada to modernize the plant where it manufactures the RAV4 model, and $ 3.4 million for the numbered company, based in Nanaimo, British Columbia, to convert Boeing 737 jets into aircraft used to fight forest fires. So far, the government has spent $ 845 million on 32 projects, according to public databases.

Breznitz said SIF, managed under the Minister of Innovation, Science and Economic Development of Navdeep Bains, would ideally operate free from any industry-specific focus, and choose investments based on capability, with the aim of commercializing promising ideas.

"This is specifically not sector-oriented because the government does not have businesses that find out which companies have the best projects," Breznitz said. "However, even before it began to function properly, this government has now registered [the SIF] became an act of political community relations. "

Thirty-four years veteran of the Alberta pipeline and oilfield, Jerret Wiens gave a thumbs up when he witnessed a press conference in which Minister of Natural Resources Amarjeet Sohi announced $ 1.6 billion in support from the Federal government for the Canadian oil and gas sector, at NAIT in Edmonton. Tuesday December 18 2018.

David Bloom

This argument is part of an old debate about innovation policy in Canada.

There are many ways in which governments can channel money to companies or innovative ideas, but they usually come in the form of direct or indirect funding.

Indirect expenditures, often in the form of tax credits, are long-favored mechanisms among policy makers, and especially those that tend to be conservative. But in a world where governments are increasingly willing to rely on direct stimulus as a way to provide excellence to their most innovative companies, experts are increasingly pushing for more direct spending measures such as those adopted by Ottawa since 2016.

SIF was launched in the summer of 2017 and was initially set to spend $ 1.26 billion over five years. This will be used to help companies expand and attract capital, and subsidize the costs of research and development, according to the website. Finance Minister Bill Morneau then increased funding for SIF by $ 800 million last month in an economic statement on his fall.

Technology executives have quickly praised Ottawa's innovation efforts in recent years. Some point to a number of expenditures under SIF that appear to be adapted for innovative products.

Hamid Arabzadeh, CEO of Ranovus Inc. based in Ottawa, received $ 20 million under SIF in November. The company makes fiber optic products that can substantially reduce GHG emissions from the data center, one of the fastest growing sources of atmospheric pollutants.

Minister of Natural Resources Amarjeet Sohi, Minister of Diversification of International Trade Jim Carr, and Edmonton-Center Parliament Member Randy Boissonnault arrived for a press conference where the Federal government announced $ 1.6 billion in support for Canada's oil and gas sector, at NAIT in Edmonton, Tuesday December 18 2018.

David Bloom

"It's really not an investment in oil, or gas, or natural resources," Arabzadeh said. "In our sector, in what they do with us, it is very forward looking," he said.

But some people in the technology sector, who asked not to be identified because of the sensitivity of the topic, said that Ottawa had used funds to support the injured industry. This instinct is very familiar to people who are following Canadian public spending efforts for innovation.

"Basically all government funding in one industry or another is politics," said Aaron Wudrick, director of the Canadian Taxpayers Federation.

This organization has criticized all public expenditure programs, under many different governments. Wudrick said part of the problem was how these expenditures were characterized: While government support for steel and aluminum producers might be a generally sound idea, Ottawa should try to avoid packaging these expenditures as explicit, explicit policies.

"I think people will be less cynical if they just come out and say the industry has been unfairly hammered by trade disputes," he said.

In an interview with the Financial Post in November, Jack Mintz, a colleague at the University of Calgary Public Policy School, said that government-led innovation efforts have historically been ripe for political interference. He specifically quoted SIF as a type of fund that could be misused when Ottawa found itself in an emergency.

"The only criticism of grants rather than tax credits is that they can be used politically," Mintz said, adding that he became increasingly supportive of direct expenditure efforts to spur innovation if managed in a fairly long way.

Minister of Innovation Bains defended SIF as the creator of important jobs in Canada, in an opinion published on the Globe and Mail website on Christmas Day.

"Simply put, the Strategic Innovation Fund makes our government a better business partner with industry to create good middle-class jobs throughout the country," he wrote.

One criticism of grants rather than tax credits is that they can be used politically

In the article, Bains said the government withdrew "investment from our partners" worth $ 7.2 billion and retained or attracted 50,000 jobs in 2017, claiming that it was a direct result of Ottawa's innovation spending.

However, according to access to information documents distributed to the National Post, the government could not provide employment numbers for all but one project funded under the first $ 571 million SIF. In the document, the government said that "recipients are not required to report the number of jobs created."

When asked about SIF's criticism, Hans Parmar, spokesman for Bains, wrote in an email that Ottawa is "take decisive action to help restore competitiveness, support innovation, improve environmental performance and create more middle-class jobs. "

During the announcement of Minister of Natural Resources Sohi earlier this month, he said $ 100 million for oil and gas projects would come as part of a collection of new funds added to $ 800 million. Sohi suggested spending might be used for petrochemical plants in Alberta.

The biggest amount of expenditure under SIF:

Cost: $ 110 million

Company: Toyota

For manufacturing facilities to build RAV4 sport utility vehicles

Cost: $ 150 million

Company: CAE

To use artificial intelligence (AI), cloud computing, big data, and virtual reality to create the next generation training program

Cost: $ 49.9 million

Company: ArcelorMittal Canada

To modernize company facilities as a way to reduce fuel consumption

Cost: $ 60 million

Companies: Alcoa and Rio Tinto

For a joint venture, Elysis, which will help develop the process of making aluminum which produces oxygen and removes greenhouse gases

Cost: $ 49 million

Company: Linamar

For additive manufacturing and AI technology that will be incorporated into the company's manufacturing process

Cost: $ 49.3 million

Company: General Fusion

To develop "nuclear fusion energy" affordable, abundant and safe "in the face of global economic challenges."

Cost: $ 49.5 million

Company: Bell and 18 other industrial and academic partners

To develop a fully autonomous helicopter with a low emission profile

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