2021 Entrepreneurial Activity Review

In 2021 Canada had the highest TEA rate among all GEM Level A economies, 20.1% — its highest level since the country began participating in GEM. The country’s EBO rate recovered to 8.2%, closer to its long-term average, from 7.3% in 2020. These are encouraging signs, both because they reverse a decline in entrepreneurial activity that occurred during 2020, and because they were primarily driven by opportunity-seeking entrepreneurship. Yet this recovery in entrepreneurial activity may have been expected, given the country’s improved conditions in 2021. A growing economy and strong government policy support, including hiring and wage subsidies for new businesses, appears to have encouraged many more Canadians to start new businesses after 2020 proved too difficult.

One clear measure of improved entrepreneurial conditions in Canada is the strong increase in survey respondents seeing good opportunities to start a business where they live. In 2021, this rate was 70.5%, a significant increase from 49.1% in the 2020 survey. This improved sentiment was matched by Canadian entrepreneurs as well. Fewer TEA respondents said it was more difficult to start a business in 2021 than in 2020. Additionally, 67.1% said they saw new opportunities as a result of the pandemic, the highest rate among GEM Level A economies in 2021. This indicates many new entrepreneurs are responding to the changing landscape generated by COVID-19, but with a positive business perspective.

Many new entrepreneurial opportunities have been generated in 2021 by exporting goods and services, particularly to a recovering US market. The rate of Canadian entrepreneurs who plan to generate more than 25% of their income from outside the country nearly doubled between 2020 and 2021, making it the highest exporting country among GEM Level A economies. Export-based businesses tend to generate high revenues and employ many people, so this could be a strong growth opportunity for the economy overall.

2021 Framework Conditions Review

Despite the stronger government policy support in 2021 noted above, experts were less enthusiastic in their assessment of Canada’s framework conditions. On two of the country’s governance related conditions, Government policies: Support and Relevance and Government Entrepreneurial Programmes, experts scored Canada below 5.0, placing Canada near the bottom of GEM Level A economies. However, on the condition Government Policy: Taxes and Bureaucracy experts were more generous, giving a 5.9 score, sixth among this group. This may reflect the manageable levels of bureaucracy entrepreneurs had to deal with to receive their wage subsidies, which the state has continued through the first quarter of 2022.

Other areas experts assessed as constraining entrepreneurship related to R&D and infrastructure. On the condition Research and Development Transfers, Canada received a 4.2 score, lowest among GEM Level A economies. The state should do more to encourage intellectual property and other sharing of research resources between firms, particularly between established and new firms. Otherwise, new firms will be lacking the necessary technology and procedures to effectively scale their operations.

The condition Physical Infrastructure received a 6.6 score, which, while considered sufficient to enable entrepreneurship, was still 15th among GEM Level A economies. Improving infrastructure is an expensive and longer-term process; however, doing so would further boost the export potential of new businesses. This is a significant growth area for entrepreneurs, and an opportunity with high return on investment potential, both for entrepreneurs and the economy generally.