The Canadian Chemicals Industry

April 2002
Innovation Profile

The Industry

• The chemicals industry is Canada's third largest manufacturing industry in terms of value-added. It provides materials to virtually all sectors of the Canadian economy and is crucial to Canada's economy.



• The chemicals industry can be divided into three broad categories: industrial chemicals (including petrochemicals), specialty chemicals, and formulated products. (For statistical purposes, the chemicals industry is described according to the North American Industry Classification System as 325, Chemical Manufacturing, net of 3254, Pharmaceutical and Medicine Manufacturing Industry).



• In 2000, there were 1,200 establishments operating in Canada. They employed approximately 72,500 employees. Canadian shipments in 2000 were valued at $30.2 billion.



• Globally, business related to chemistry is worth US$1.6 trillion annually, and provides jobs for more than 10 million people. The region covered by the North American Free Trade Agreement represents approximately 29% of global sales and was worth US$496 billion in 2000.



• Of the 25 largest chemicals companies in the world, 23 have operations located in Canada. However, most of the headquarters are outside of Canada. Between 1988 and 1998, foreign direct investment in the Canadian chemicals industry increased by more than 20 percentage points to approximately 51% of gross output. By comparison, average manufacturing foreign direct investment intensity in Canada was 30% in 1998.



• From 1992 to 2000, shipments for this industrial grouping increased at an average annual rate of 5.71%. Exports during the period grew at an average annual rate of 11.10% to $16.7 billion. Imports grew at an annual average rate of 12.2% over the same time period to $23.2 billion.



• Labour productivity in the chemicals industry in Canada grew by an average of 2.7% per year over the past 10 years. Despite this level of growth, the productivity level for the chemicals industry as a whole lags that of the United States.



• The performance level of the industrial chemicals was significantly better with an average annual growth rate of over 3.9%. The productivity level in this sector is significantly higher than that of its U.S. counterpart.



• The chemicals industry in Canada is dominated by firms with over 200 employees. These firms account for 45% of shipments, 47% of value-added and 50% of employment.



• Activity in the chemicals industry in Canada is mainly concentrated in three provinces: Alberta, Ontario and Québec. These three regions represent 93% of employment, 94% of manufacturing shipments and 93% of manufacturing value-added.



• Each of these regions differs in their advantages such as feedstock, proximity and infrastructure as well as their varying cost advantages, which have influenced the development of its respective industry.



• Ontario originates over 54% of shipments and 59% of employment, Québec 16% of shipments and 21.9% of employment, and Alberta 24% of shipments and 12% of employment.

Innovation

• Total intramural research and development expenditures, as reported by Statistics Canada, have been relatively stable at $150 million per year over the recent five-year period.



• In 1999, there was a relatively large jump in capital intramural research and development (R&D;) expenditures as a result of the completion of an ethylene styrene interpolymer pilot plant in Sarnia, Ontario.



• Of those identified levels of total intramural R&D; activity in Canada, over two-thirds of this activity occurs in the industrial chemicals sector (defined as 3251 and 3252 in the North American Industry Classification System).



• In the chemicals industry, Canada's R&D; intensity level remained constant at just over 1% of gross output. This level of activity lagged behind the R&D; intensity level of the U.S.



• Within Canada, Canadian-controlled firms have a significantly higher R&D; intensity level than foreign-controlled firms.



• Two-thirds of R&D; activity in Canada is concentrated among the top 10 firms, and 85% is undertaken by the top 25.



• Firms with revenues in the range of $100-400 million annually undertake the largest average R&D; expenditures, valued at $4.8 million. This is closely followed by firms whose revenues exceed $400 million annually, with an average expenditure of $3.8 million.



• Three out of every 10 employees of the Canadian chemicals industry have a minimum of a university degree. This ratio ranks far higher than the total manufacturing average of 10%.



• Of the 10,721 engineering degrees awarded in 1998, approximately 10% were chemical engineering degrees.



• Three of the top 10 chemical engineering schools in North America are located in Canada: McGill University, University of Toronto and University of British Columbia.



• Customized training through local community colleges such as the Southern Alberta Institute of Technology is also available.



• Research-specific funds and centres or institutions are available among the provinces to promote R&D; activity.



• Canadian R&D; is cost-efficient. The dollars-and-cents advantages are built around reasonable wage rates plus the most generous tax credits offered by any G-7 country.



• Industry participants continue to utilize and support maintaining the Scientific Research and Economic Development tax credit. Programs such as the National Research Council of Canada's Industrial Research Assistance Program, the Business Development Bank of Canada and Technology Partnerships Canada are also of practical use to firms operating in the chemicals area.

Contact:
Gary McGee
(613) 954-5609
mcgee.gary@ic.gc.ca