A numbers game: Analysing the health of the Canadian IT sector

Let me share some of the confusing statistics surrounding the health of the Canadian IT sector that make it difficult to effectively diagnose the patient.

First, in a report issued in September, Industry Canada crowed that the ICT industry (information and communications technology) grew by

1.5 per cent versus one per cent for the overall economy (based on gross domestic product). It also proclaimed the ICT sector is up 83 per cent since the first quarter of 1997 (when Industry Canada began issuing its Quarterly Monitor) compared to 30 per cent for the overall economy.

That sounds great until you have a close look at the history spanning 1997 to the present. In fact the bulk of the enormous growth in ICT relative to the overall economy came between Q1 1997 and Q4 2000. At that point the ICT GDP shrank for a year while the overall economy continued to grow. From Q1 2002 to the present, the growth rates in the two measures have been essentially the same. ICT GDP has never regained Q4 2000 levels, while the overall economy has gained virtual every quarter over the entire range — slow but steady.

On the employment front, we see almost the same picture: A 30 per cent increase in ICT jobs looks good compared to a 17 per cent increase in the overall economy (from 1997). But again, most of that happened before Q4 2000. In fact employment in ICT manufacturing (which we commonly still equate with ICT overall) is actually six per cent lower than it was in Q1 1997.

It gets worse. Computer equipment exports are now 30 per cent lower than they were in Q1 1997.

The bright note is in ICT services. There are now 43 per cent more people employed in that group than there were in 1997, and ICT services GDP began outstripping ICT manufacturing GDP in Q3 2001.

Outsourced business processes and, more specifically, offshoring (outsourcing services to other countries) are a major part of this.

An Ipsos-Reid study says that, in spite of cutbacks in IT spending, 28 per cent of companies will be outsourcing business processes in 2005 versus 20 per cent now. And most of that outsourcing will go to providers in Canada, due to a reluctance to send those functions abroad.

What’s more, the latest annual UN World Investment Report indicates that four countries (India, Canada, Ireland and Israel — in that order) control 70 per cent of the global US$32 billion spent on offshored services. So much for the myth that offshoring is going to small developing economies.

In short, we probably have several “”patients”” here with differing prognoses. Computer equipment manufacturers are closest to being terminally ill. Software developers are definitely hurting, given intended cuts of 13 per cent among Canadian companies over 2004-2005 (according to Ipsos-Reid). Telecom equipment providers look as though they’ll pull through, with net gains relative to computer equipment providers. And, computer services companies were probably misdiagnosed as sick in the first place.

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Jim Love, Chief Content Officer, IT World Canada

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