2002/03 Annual Service Plan Report Ministry of Competition, Science and Enterprise

Ministry Role and Services

Introduction

The Ministry of Competition, Science and Enterprise is the primary agency responsible for initiatives and programs dedicated to creating a strong provincial economy in British Columbia. The Ministry is tasked with:

• establishing and expanding partnerships with entrepreneurs, businesses and organizations throughout British Columbia;
• encouraging a culture of innovation and entrepreneurship;
• developing and enhancing national and international investment and trading relationships; and
• implementing the Heartlands Economic Strategy across the province.

In fulfilling this mandate, the Ministry deals with a broad spectrum of industries including bio-technology, high-technology, ports and marine industries, aero-space and automotive industries. Additionally, the Ministry has specific responsibility for: small business, venture capital, tourism, film and television production, and new media. The Ministry is also responsible for the government-wide deregulation initiative.

This Annual Service Plan Report is the first annual report following the government-wide implementation of rolling annual three-year service plans for the period 2002/03 to 2004/05. Service Plans play an important role in ensuring each ministry effectively plans the future use of its resources, guides ministry endeavours, and creates a range of performance targets. This Annual Service Plan Report describes the Ministry's goals, objectives and strategies, as well as reports on the degree to which the Ministry succeeded in achieving its performance targets in 2002/03.

Ministry Vision, Mission and Values

1. Vision

The Ministry's vision echoes two key elements of the Government's vision statement:

• A thriving private sector economy that creates high-paying job opportunities; and
• The fastest growing technology industry in Canada.

2. Mission

The Ministry's mission statement is focused on three key areas:

Competition

Ensure British Columbia has the most attractive investment climate and business climate in North America.

Science

Encourage a culture of innovation and the development and transfer of new knowledge benefiting individuals, businesses and communities.

Enterprise

Promote economic growth by aggressively pursuing increased marketing of British Columbia which results in the growth of investment and trade.

3. Core Values

The Ministry is focused on establishing and expanding partnerships with entrepreneurs, businesses and organizations throughout British Columbia in order to build a strong private sector-driven economy; foster an innovation culture for science and technology; and develop national and international investment and trade relationships.

We are advocates within Government for entrepreneurs and business, and marketers of our competitive economic climate to national and international investors in the global market place.

Our Ministry believes in customer service. We will be a results-driven organization that measures performance at both the global and individual level.

Ministry Overview

The Ministry of Competition, Science and Enterprise is the primary provincial agency responsible for initiatives and programs dedicated to creating a strong provincial economy in British Columbia. Activities within the Ministry are focused on building a competitive business environment, that gives the private sector the confidence to invest, generate opportunity, and create jobs throughout British Columbia.

The Ministry's responsibilities are to:

• Remove barriers to business;
• Champion competitive business practices;
• Market British Columbia as an attractive investment location;
• Encourage innovation and the development and transfer of knowledge;
• Ensure efficient, effective management and regulation.
• Establish and expand partnerships with entrepreneurs, business and organizations throughout British Columbia;
• Encourage a culture of innovation and entrepreneurship;
• Develop and enhance national and international investment and trading relationships;
• Be the advocate in Government for the competitive interests of entrepreneurs, business and investment community; and
• Focus on expanding pools of venture capital in the Province.

The Ministry is also responsible, through the mandate of the Minister of State for Deregulation, for the deregulation initiative to achieve the New Era commitment to cut red tape and reduce the regulatory burden by one third within three years.

The Ministry delivers its services and programs through four divisions and the Deregulation Office:

Economic Policy — provides for the development, analysis and preparation of policy and strategies relating to enhanced competitiveness and economic development in the Province, particularly trade, tourism, and the film industry, as well as the delivery of federal-provincial economic development programs.

British Columbia Trade and Investment Office — promotes growth and diversity of British Columbia's economic base by actively pursuing new investment, expansion of existing business, and development of trade and market opportunities.

Science, Technology and Telecommunications — develops policies and initiatives to support science and technology including the promotion of new technologies in existing industries and the creation of new knowledge-based industries.

Management Services Division — provides financial, human resources, records management and information systems support to the Ministry.

Deregulation Office — provides policy advice and supports the Minister of State for Deregulation's mandate to set the framework and oversee the government-wide commitment to cut red tape and the regulatory burden by one third within three years.

Ministry Operating Context

The operating context is an assessment of the general economic operating environment that businesses faced during 2002/03. It also includes some external and internal factors that have an impact on the business and investment climate, and by extension, the Ministry's ability to deliver results.

Economic Overview

Fiscal year 2002/03 can be characterized as a year that started with a period of economic uncertainty, then saw substantial job gains through the middle part of the year, before ending with another bout of uncertainty.

In the early part of the year, the US economy was still experiencing the aftershock of the September 11, 2001 terrorist attacks. This, combined with anaemic stock market performance and significant corporate scandals, contributed to low consumer confidence. Some analysts feared that low consumer and investor confidence in the US, along with the US Government indicating an impending confrontation with Iraq, would negatively impact Canada's economic prospects.

By the middle of the fiscal year the Canadian economy had outpaced the US economy by a wide margin, and it was apparent that the Canadian and US consumers had differing views. In Canada, consumer confidence rose to a 14 year high, while in the US it remained just above recession levels. By late summer 2002, the US economy had lost 380,000 manufacturing jobs, and factory shipments had increased by only 1.4 per cent. In contrast, the Canadian economy had created 148,600 jobs, and manufacturing shipments had risen seven per cent.¹ Analysts credit Canada's economic success in 2002 to a combination of low interest rates and tax relief that released pent up consumer demand. This trend was particularly apparent in the housing and auto-manufacturing sectors.

British Columbia's economy also saw significant job growth with a gain of over 85,000 jobs — an increase of nearly five per cent — from the beginning of the year through August 2002. The British Columbia economy experienced strong job gains in construction, manufacturing and small business sectors. While these sectors saw positive job growth, the Province's resource sectors, particularly forestry and fishing, continued to struggle through the year.²

By the last quarter of 2002, the economy showed signs of succumbing to economic weaknesses in the US. Canada's growth tumbled from about 3.6 per cent in Q3 to about 1.6 per cent in Q4.³ British Columbia's economy also started to shed jobs as some rebalancing set in to compensate for huge job gains during 2002.

By the end of fiscal 2002/03, the war in Iraq contributed to plummeting consumer confidence. In Canada consumer confidence fell to its lowest level in a year, while in the US consumer confidence plunged to its lowest level in almost a decade.⁴

In the last three months of the fiscal year, the divergence between the Canadian and US economies pushed the Canadian dollar to recent highs against the US dollar. During the first three months of 2003, the Canadian dollar gained four cents US to stand at over US$0.68. This increase is attributed to weak US economic performance, and higher interest rates prevailing in Canada.

Overall, British Columbia's economy grew by 1.8 per cent in 2002, recovering from a 0.2 per cent decline of 2001.⁵ For the first three months of 2003, British Columbia's economic index grew by 1.3 per cent, indicating improving economic conditions for 2003.⁶

Business Sector Overview

Tourism

Travel to British Columbia is growing despite on-going global challenges. The Province hosted over 5.1 million overnight visitors in 2002, up two per cent from 2001. Overnight entries to British Columbia accounted for more than one quarter of all such entries to Canada.

Entries from the US increased 3.8 per cent in 2002. Visitors from the Asia Pacific region increased 2.3 per cent compared to 2001, while performance in European markets was mixed. However, the outbreak of Severe Acute Respiratory Syndrome (SARS), and war in Iraq depressed global travel in the first quarter of 2003, and also impacted British Columbia. Visitors to British Columbia declined 12.6 per cent during the first three months of 2003, although the decline was less in British Columbia than in the rest of Canada, which declined 18.4 per cent during this period.

British Columbia and its travel industry continue to be recognized as tourism leaders internationally:

• Number 1 destination in North America for kayaking and whale watching (UK's Harpers and Queen Magazine);
• BC Escapes Program garnered its second consecutive RSVP Award for excellence in direct marketing (Canadian Marketing Association);
• Wedgewood Hotel in Vancouver rated as the best hotel in Canada (Conde Nast); and
• Aerie Resort on Vancouver Island rated as the best North American resort (Conde Nast).

Small Business

The 2002 Small Business Profile identified that almost 98 per cent of all businesses in British Columbia were small businesses. An estimated 930,900 people were employed by small businesses. This represents 52 per cent of all private sector jobs in the Province.

Among the provinces, British Columbia ranked first in Canada with the highest proportion of Gross Domestic Product (28 per cent) attributed to the small business sector.

Small businesses exported $11.3 billion worth of merchandise to international destinations, representing 34 per cent of the total value of goods exported from the Province. Small businesses comprised 93 per cent of employers in high technology, the sector experiencing the fastest growth in new small businesses.

Science and Technology

British Columbia's high technology industries faced serious challenges in 2001 as a result of the global economic turndown and continuing financial challenges experienced by the telecommunications industry in particular. It began a strong turn-around in the last half of 2002, ending with high technology service industries growing 7.6 per cent. Gross Domestic Product in the high technology sector grew 14 per cent in the last half of 2002. High technology exports to the European Union doubled in the last half of 2002, with exports to Japan up by a factor of 12.

British Columbia is the third largest centre in Canada for biotechnology research and development and ranks the 16th largest in North America. It is Canada's fastest growing biotech region. For example, exports of life sciences products and services grew from $82 million in 2000 to $186 million in 2002. Our expertise is gaining world recognition — in May 2003 a British Columbia team at the Michael Smith Genome Sciences Centre in Vancouver was the first in the world to complete DNA sequencing on the coronavirus, implicated in SARS.

The Premier's Council on Technology is working to develop industry sector strategies to grow industry clusters based on our science and technology expertise in such areas as fuel cells and information technologies. This, combined with Government investments in both physical and human resource infrastructure in science and innovation, is building a strong foundation for the future.

Venture Capital

Since 2000, British Columbia has consistently received 10 to 13 per cent of the venture capital invested in Canada. In each of the last three years — 2000 to 2002 — approximately $500 million was invested in the province with the cumulative amount totalling $1.6 billion by the end of 2002.

However, venture capital in British Columbia faces a number of challenges. For the past five years, "expansion" investments accounted for approximately 80 per cent of all venture capital transactions in British Columbia. This statistic reflects the acute shortage of early-stage or "seed" capital for new venture start-ups. It is the "equity capital gap" that the programs administered under the Small Business Venture Capital Act and the Employee Investment Act seek to address.

Regional economic development remains a priority. Currently, 98 per cent of all venture capital investment occurs within the boundaries of the Greater Vancouver Regional District and the Capital Regional District. The primary challenge is to balance the need for attractive shareholder returns with the start-up and expansion capital needs of emerging businesses in the Heartlands.

Another challenge to address is the relative scarcity of experienced capital managers. However, recent amendments to the Small Business Venture Capital Act to enable eligible small businesses greater access to capital and the resultant dramatic upswing in venture capital company registrations (i.e. from 30 registrations in all of 2002/03 to 30 registrations in April 2003, alone), combined with the launch of a new fund in the labour-sponsored fund market, have been hailed as positive steps towards increasing the supply of venture capital. This increased activity is expected to ultimately increase the pool of experienced capital managers in British Columbia.

Film and Television

Film and television production in British Columbia reached $993.6 million in 2002. Some 205 productions were shot in the Province. Of these, 140 were Canadian productions worth $163.6 million and 65 were foreign productions worth $830 million.

Three trends emerged in 2002:

• A 28 per cent increase in spending, over the previous year, on big-budget foreign feature films;
• Fewer foreign television series due to the proliferation of reality television; and
• The continuing downward trend in Canadian dramatic television production.
• Introduction of new animation or visual effects enhancements to existing film and TV tax credit programs, as well as the extension of the regional bonus to the Production Services Tax Credit program will help ensure British Columbia maintains its position in an increasingly competitive global industry.

External Factors

The following are factors external to the Ministry that have impacted British Columbia's economy, or specific business areas, to some degree during 2002/03.

• Strengthening Canadian Dollar: The resurgence of the dollar towards the end of 2002/03 could impact some of British Columbia's export-dependent industries such as forestry and high-tech sectors. Also, the strengthening dollar raises issues for British Columbia's film industry. To enhance the film sectors relative competitiveness, the Ministry oversaw the implementation or expansion of regional tax credits and film tax credits for new media, animation and special effects.
• Restricted International Travel: The reduction in corporate travel spending and the increase in international security in the aftermath of September 11, 2001, continued to dampen international business activities in 2002/03. Many business events and missions were cancelled in 2002/03.
• SARS: The outbreak of Severe Acute Respiratory Syndrome (SARS) contributed to a further weakening of international business activity towards the end of 2002/03. The tourism sector experienced the greatest impact from SARS, due in large part to cancelled visits from Asian travellers.
• Kyoto Protocol: There is continued uncertainty over plans to meet Kyoto's stringent carbon emission targets and the potential costs involved. This uncertainty is hampering the private sector's ability to calculate the costs of ratification and make key decisions. It is possible this uncertainty will discourage investment in British Columbia (relative to the US which will not ratify the protocol), particularly in the energy sector.

Internal Factors

The main internal factors affecting the Ministry are:

• Ministry Workforce: Like other ministries across Government, the Ministry of Competition, Science and Enterprise is facing a demographic challenge as a result of its ageing workforce. This presents significant recruitment and succession challenges.
• Shared Services: Implementation of the Government's shared services program has resulted in staff transfers and required staff adjustments regarding roles and responsibilities with respect to finance and human resources functions.
• Communications: Centralization of communications functions across Government has resulted in a reduced number of communication staff supporting the Ministry.

Strategic Shifts and Significant Changes in Policy Direction

This section identifies significant changes in policy, structure or key programs which have occurred in 2002/03.

The Ministry was established in 2001 with a mandate to create the conditions for a thriving private sector economy by eliminating unnecessary regulations and removing the barriers to business. Initial first year efforts focused on identifying the barriers to business, quantifying regulations and setting deregulation targets. In 2002/03, the focus shifted towards removing barriers to business, and eliminating regulations. Other shifts include:

• Embracing the move towards e-government by advancing the electronic single business window approach to business registration and business services.
• Establishing innovative delivery mechanisms for services. The Canada/British Columbia Business Service Centre, the Province's key resource center for business information and services, was transitioned from a federal/provincial partnership to a non-profit society.
• Created the "Invest British Columbia" label to unify and coordinate under a single "brand identity" key investment activities led by the British Columbia Trade and Investment Office, in partnership with urban and rural communities, the Government of Canada and business sector participants in real estate, utilities and other sectors.
• The Altura Growth Fund was selected as the second labour-sponsored investment fund (LSIF) to be registered in British Columbia — opening competition in the LSIF market for the first time.
• The Ministry refocused its marketing activities and moved from developing an overall marketing and branding plan to a more structured approach, targeting priority markets and key sectors in partnership with the private sector.

Update on New Era Commitments

The following table identifies the Government's priorities for which the Ministry is responsible, and describes the current status of each priority.

1	Effective December 31, 2002, a one-time adjustment to the regulatory count baseline improved the accuracy of this groundbreaking performance measure.

Core Business Areas

The Government's overarching aim is for British Columbia to have the best performing economy and the highest quality of life in North America. A key goal of government is to establish a strong and vibrant provincial economy, which includes:

• A thriving private sector economy that creates high-paying job opportunities;
• The fastest growing technology industry in Canada;
• Greater equity and equality for British Columbia in Canada; and
• Responsible, accountable management of public resources and tax dollars.

To support this goal, and its components, the Ministry developed a vision for "a thriving private sector economy that creates high-paying job opportunities; and the fastest growing technology industry in Canada."

In order to effectively and efficiently deliver functions to support the Ministry's vision and its corresponding goals and objectives, the Ministry created four core business areas for the provision of programs and services. The core business areas in 2002/03 are:

1. Removing barriers to business;

2. Economic policy and strategic advice;

3. Marketing and investment; and

4. Encouraging innovation and the development and transfer of new knowledge.

Core Business Area 1: Removing Barriers to Business

The primary role of Removing Barriers to Business is to:

• Oversee the government-wide deregulation initiative to cut red tape to reduce the regulatory burden by one-third within three years and implement the Ministry's three year deregulation plan;
• Conduct a comprehensive cross-government review of provincial subsidy programs with the intention of eliminating subsidies to businesses;
• Review fees and licenses policy to ensure fees and licenses are competitive and the rates levied are appropriate;
• Work with industry stakeholders and community groups to streamline the permitting process, including film locations and land access; and
• Removing barriers to key Government projects and initiatives.

Core Business Area 2: Economic Policy and Strategic Advice

The primary role of Economic Policy and Strategic Advice is to:

• Coordinate the development of strategic options to respond to specific provincial economic development issues and Government initiatives (e.g. ports competitiveness, elimination of business subsidies, etc.);
• Represent the Ministry's mandate and provide a business advocate position during the development of key initiatives by other ministries (e.g. input and comment during the development of the Community Charter, Results Based Forest Practices Code);
• Provide advice to ministries and agencies to ensure emerging policy initiatives do not compromise Government's advances to improve competitiveness such as the elimination of business subsidies (e.g. Economic Measures for First Nations);
• Manage and report on economic trends and conditions including responsibility for updating the "Tax Environment" paper;
• Monitor economic development planning in key competing jurisdictions and maintain an inventory of economic strategies and planning documents from other jurisdictions; and
• Manage British Columbia/Canada Infrastructure program to improve urban and rural local government infrastructure; and manage the Western Economic Partnership Agreement to support economic development in British Columbia.

Core Business Area 3: Marketing and Investment

The primary role of Marketing and Investment is to:

• Develop a global marketing strategy to promote British Columbia as a potential investment location and tourism destination, and market British Columbia as a location for film and television productions;
• Identify, market and promote British Columbia enterprise and technologies, and work with industry on sectoral marketing initiatives;
• Organize and support missions to priority markets;
• Host incoming missions and trade delegations, and coordinate and support the Ministers' and the Premier's trade missions; and,
• Administer programs, under the Small Business Venture Capital Act, to assist small companies raise capital for business start-up and expansion.

Core Business Area 4: Encouraging Innovation and the Development and Transfer of New Knowledge

The primary role of Encouraging Innovation and the Development and Transfer of New Knowledge is to:

• Stimulate the growth of infrastructure that will attract investments in science, technology and telecommunications.

• Work with universities, entrepreneurs and venture capitalists to increase technology commercialization in British Columbia.

• Make British Columbia a magnet for attracting and retaining technology and science researchers.

Key Programs	Outputs
Investment in regional science and technology organizations.	Invested $1.5 million in 12 regional organizations, delivering a range of services, including new business start-up seminars, venture capital workshops, technology mentoring programs, investment matching opportunities, research and technology transfer services, and patent and licensing assistance in all regions across the Province.
Investment in research and development infrastructure.	Invested $4.45 million in five major research and development infrastructure activities. This support resulted in an additional $2.9 million (70 per cent) investment from private and public sector sources.