Intangible Assets Driving Economic Growth but Ontario Risks Falling Behind
New research warns of missed opportunities if steps not taken to prepare Ontario for the future
TORONTO, ON – Intangible assets are the key driver of productivity and growth in today’s digital economy. Companies that invest in intangibles are proven to grow more and faster compared to those that don’t. New research released today shows Ontario’s ability to turn high-growth, intangible-powered businesses into global competitors is lacking.
Economic indicator research developed by Economist Impact, commissioned by CPA Ontario, The Scale and Potential of Ontario’s Intangible Economy, finds there is capital and infrastructure, a pipeline of skilled talent and plenty of intangible assets being developed. But when start-ups look for growth capital and for entrepreneurs with experience managing exponential growth, they’re too often left hanging. Without the ability to manage and fund their own growth, Ontario’s potential unicorns and their scalable intangible assets are snapped up by foreign buyers.
“The research shows Ontario is an excellent environment for launching intangible-driven businesses, but more needs to be done if we’re to compete with more dynamic, better capitalized and skilled markets in the global economy,” said Carol Wilding, FCPA, FCA, President and CEO of CPA Ontario. “We need to up our game and better coordinate public and private efforts to support the scaling of intangible businesses and retain ownership or the province risks becoming little more than an incubator for economies with a better approach. Losing ownership of our intangible assets isn’t good for the province, the country or our long-term economic potential.”
The moment is now
The OECD predicts the Canadian economy will grow at the slowest rate among advanced economies with a 0.7 per cent average annual real growth rate over the next decade. Intangibles are a key driver of growth—Ontario’s digital sector achieved 6 per cent annual growth from 2014 -2019—a point further underscored during the pandemic, yet we remain behind other advanced economies in harnessing their power. Across Canadian companies, the share of intangible assets to total market capitalization reached 53 per cent in 2021, whereas the U.S. reached 76 per cent. Ontario and Canada must realize the growth potential of intangible assets to avoid the anemic growth predicted by OECD.
Owning our future
Ontario is mediocre within Canada at cultivating high-growth companies, and Canada lags well behind the U.S. and China. The province also struggles to translate intangible investments into intangible assets, generating only 4.6 new patents per C$100 million invested in R&D—sixth in Canada and a far cry from the 19.7 patents generated for an equivalent investment in California, setting aside differences in U.S. and Canadian patent regimes. Translating investment into revenue-generating assets—via patents, trade secrets or IP—and then retaining ownership in Ontario will be critical to drive our future prosperity.
A solution for scaling: the virtuous cycle of homegrown growth
Currently, the province doesn’t scale fast enough. For example, just 0.66 per cent of companies in Ontario scale to 50 employees in under ten years, performing worse than all 50 U.S. states. Limited access to growth capital and expertise in managing exponential growth prevents innovators from making the leap to become global players. Removing barriers to scaling will create an environment where one generation of success seeds the next in terms of investment and know-how.
This new research calls for a four-pronged strategy by business leaders, governments, and educational institutions to grow Ontario’s intangible economy: translating intangible investment into productive assets, scaling up commercialization of intangibles, adapting to new digital realities in the wake of COVID-19 and boosting intangible economy-specific education and skills training. CPA Ontario believes the accounting profession and CPAs can play a critical role seizing this opportunity, helping to unlock the capital, talent, and innovation necessary to grow the industries of the future.
About the Chartered Professional Accountants of Ontario
We protect the public. We advance our profession. We guide our CPAs. We ensure that our more than 97,000 members and 21,000 students meet the highest standards of integrity and expertise. We help them stay ahead of global market trends and abreast of regulatory change. CPAs represent a globally recognized, premium designation. Our Chartered Professional Accountants are valued by organizations in all industries for their financial expertise, strategic thinking, management skills and leadership. We believe that success happens when both business and society benefit.
About Economist Impact
Economist Impact combines the rigor of a think-tank with the creativity of a media brand to engage an influential global audience. We work with corporations, foundations, NGOs and governments across big themes including sustainability, health and the changing shape of globalization to catalyze change and enable progress. With the power of The Economist Group behind it, Economist Impact crafts bespoke engagements using a potent portfolio of capabilities including policy research and insights, branded content, media and advertising, design thinking and data visualization, and global and bespoke events. We bring a 75-year track record of evidence-based policy research across 205 countries.
For further information, please contact:
Communications Manager, CPA Ontario