A report by the investment bank found that Canadian SMEs have been creating a more significant share of jobs since 2010, but there is room to improve in a number of critical areas
TORONTO—Businesses with less than 100 employees created 42 per cent of new jobs in Canada between 2010 and 2016, according to the latest CIBC Capital Markets report.
That figure was up from 30 per cent of new jobs created in the period between 2000 and 2010.
While self-employment has risen noticeably slower than paid-employment since the beginning of the decade, the report found that Canadian small- and medium-sized enterprises have been creating a more significant share of jobs since 2010.
“Beyond the threshold of five employees, there is a clear positive correlation between size and growth, with larger firms within the SME spectrum seeing progressively stronger growth recently,” said Benjamin Tal, deputy chief economist, CIBC.
In 2016, more than 350,000 businesses were created and just under 300,000 exited. The rate of businesses entering the economy relative to total businesses has been on the decline since 2004, but the exit rate has been more stable—despite the impact of the fall in oil prices a couple of years ago.
“Small business optimism has been grinding higher since bottoming out early last year and appears headed back to levels seen prior to the oil price shock. With the Canadian economy in recovery mode, the environment for small businesses remains constructive,” Tal said.
Room to Improve
CIBC Capital Markets says the World Bank ranks Canada as one of the best places to start a new business, due to access to capital and a favourable tax regime, but the investment bank’s report highlights several gaps.
Canadians aged 25 to 39 represent less than 15 per cent of small business owners and 10 per cent of medium-sized business owners. Canadians aged 50 to 64, by comparison, represent 47 per cent of small business owners and 51 per cent of medium-sized business owners.
“One reason for this discrepancy could be related to their access to financing. Remember that companies with younger owners face much more difficulty when trying to externally fund their business,” Tal said.
The report also sees women as an untapped resource in the SME space, representing less than 20 per cent of majority ownership in this sector.
Canadian SMEs have also been slow to expand revenue sources outside of Canada and North America.
“Currently, only 10 per cent of SMEs are involved in any sort of exporting at all, and roughly 90 per cent of those companies are sending their wares to the U.S. In the current political environment, it has become a risky proposition to focus solely on the U.S. market,” Tal said.
The report notes that there is room to increase the ratio of Canadian goods and services being exported to Asia and Latin America.
According to Tal, “The age of digital connection has made it much easier to send Canada’s high-end service exports all over the world, something many SMEs could benefit from.”