Entrepreneurial Activity Still in a Post-Recessionary Lull

Entrepreneurial activity in Canada has yet to return to pre-recession levels, according to a new report from the Business Development Bank of Canada.

The report is the first to employ BDC's Index of New Entrepreneurial Activity, which uses data from Statistics Canada's Labour Force Survey to measure the number of people who have become independent workers and hired employees over the past year. For this initial report, the BDC reviewed more than 10 years' worth of data to offer a comprehensive picture of the state of Canadian entrepreneurship before and after the recession.

"We were a bit surprised," says Pierre Cléroux, BDC's Montreal-based vice-president of research and chief economist. "We expected to see the trend go higher because the Canadian economy, without being spectacular, is doing OK."

Of Canada's 19 million workers, only 43,000—or 0.23%—started a new business during 2011 that hired any employees. That's the second-lowest rate since 2000, and almost unchanged from the low of 0.22% in the recessionary year of 2009. "You have to see an opportunity in order to start a business, and Canadians just don't see as many opportunities now as they did before the recession," says Cléroux. In comparison, the rate was 0.29% in 2006.

Construction saw the highest rate of new entrepreneurial activity, charting at 0.49% on the BDC Index, followed by the accommodation and food services industry at 0.42%. The healthcare and social assistance sector displayed lower levels of entrepreneurial dynamism at 0.24%, and rates of manufacturing startups were too low to be measured.

B.C. remains Canada's most entrepreneurial province, with a rate of 0.27% in 2011, and it has stayed above the national average for most of the period from 2000 through 2011. Ontario saw the most dramatic slowdown, dropping from a high of 0.30% in 2000 to 0.17% in 2008. It recovered somewhat to 0.22% in 2011—about the same as the national average of 0.23%.

The report wasn't all doom and gloom, says Cléroux. It did highlight some interesting trends about the changing face of entrepreneurship.

While people 25 to 44 are the most likely to start a new business, at 0.28% in 2011, more baby boomers are taking the plunge. The index for Canadians 45 to 54 climbed from 0.18% in 2008 to 0.27% in 2011—virtually tying the rate for people 25 to 44. And for those 55 or older, the index doubled from 0.09% in 2008 to 0.17% last year. The report also found that immigrants are far more entrepreneurial than their Canadian-born counterparts, at 0.35% and 0.20%, respectively.

Despite the low numbers, entrepreneurs and aspiring entrepreneurs should be confident about the economy, says Cléroux: "There are opportunities out there to start new ventures and we think the index is going to be higher next year."