The centrepiece of Canada’s innovation strategy is the $950-million “supercluster” initiative. The goal, according to the federal government, is for companies of all sizes, academia and the non-profit sector to collaborate on new technologies, to spur economic growth and create jobs. As part of the Innovation Nation series, the Financial Post is taking an in-depth look at each of the five regional projects, and provide continuing coverage of their progress. You can find all of our coverage here.
Sonar images two summers ago revealed a long-lost piece of Canadian history sitting on the bottom of Lake Ontario: one of nine models of the Avro Arrow, the supersonic military jet.
The test models had been fired over the lake on rockets in the 1950s to assess their flight worthiness. Of course, that was before the Arrow program was famously scrapped and the plane was rendered a piece of Canadian folklore — a long lamented what-could-have-been piece of homegrown innovation.
A first Arrow was found lying upside down and thickly covered with zebra mussels in September 2017 by ThunderFish Alpha, an autonomous submarine mounted with high-resolution sonar technology. A second model was later found.
“That was us — that was our sonar technology and our robotic technology,” said Karl Kenny, the founder, chief executive and largest shareholder of Kraken Robotics Inc. “We’re the guys who found the Avro Arrow models.”
Headquartered in St. John’s, N.L., Kraken’s sonar-imaging technology allows operators to see very small objects on the seabed from long distances. “We’re seeing stuff on the seabed that traditional technologies couldn’t detect, that humans couldn’t detect,” Kenny said.
Kraken’s latest plan — to map, in detail, specific areas of the Grand Banks off Newfoundland, and perhaps portions of the Labrador Sea and the approaches to Halifax — could also break new ground if it becomes the first project to be approved through Canada’s Ocean Supercluster, a $300-million research initiative to spur the Atlantic region’s ocean-related industries, including fishing, aquaculture, oil and gas, renewable energy, defence, shipbuilding and transportation.
Considering the potential benefits and backers — including two large fishing companies and oil and gas interests — Kraken’s OceanVision project seems likely to get the go-ahead.
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“It will allow fishing companies to fish with surgical precision, mitigating any environmental impact,” Kenny said.
The project could allow Kraken to greatly expand its product line, revenues and customer base, which already consists of clients in 10 countries, including Lockheed Martin Corp., Boeing Co. and the Canadian and U.S. navies.
The company, formed in 2012, supplies the unmanned, underwater vehicles used to deploy its imaging equipment, and in 2014 was involved in another historical hunt to find two ships, Erebus and Terror, connected to the doomed Franklin Expedition in the Arctic.
If OceanVision is successful, Kraken could also become a case study for why the supercluster strategy exists.
The ocean supercluster, essentially a private-sector research program that’s funded 50 per cent by government, is one of five Innovation Superclusters supported by the federal government. In all, Ottawa is putting $950 million into the superclusters, which also focus on digital technology, protein industries, next-generation manufacturing and artificial intelligence.
Minister of Innovation, Science and Economic Development Navdeep Bains on Nov. 16 announced the ocean supercluster’s cut of that funding over five years will be $153 million. The money will flow through a not-for-profit entity, and private-sector companies will match that total.
The ocean supercluster concept was pitched — and initially funded with about $2 million — by a group of business executives from the energy and seafood sectors, including John Risley, the Nova Scotia seafood and telecom billionaire.
Risley founded Clearwater Seafoods Ltd. (a Halifax-based harvester and processor of lobster, clams, scallops and other seafood) and Ocean Nutrition Canada Ltd., a fish-oil company he sold in 2012 for $540 million.
He said he has now committed $15 million to the ocean supercluster through his private, family-owned holding company, Clearwater Fine Foods Inc.
Other confirmed contributors are: Petroleum Research Newfoundland & Labrador, an oil and gas research group, is putting up $30 million; Cuna del Mar, a U.S.-based family office funded by Christy Walton, of the Walmart Waltons, is contributing $15 million; and Ocean Choice International LP, a St. John’s-based seafood company, is combining with Grieg NL, a Marystown, N.L.-based aquaculture company, to give $15 million.
Risley wouldn’t elaborate on the types of research projects his money would fund, but did mention Kraken Robotics’s seabed imaging technology, which would certainly benefit Clearwater Seafoods, the largest holder of shellfish licences in Canada.
“Obviously, we want to get a return on our money,” Risley said. “The important thing is that this is going to be research that has commercial application. This is not curiosity-driven research.”
But Risley, who helped develop the ocean supercluster concept and holds investments that stand to benefit from the resulting government funding, has also been critical of the boosterism around the idea, saying the region is neither a supercluster nor world-leading when it comes to ocean industries.
Yet Newfoundland Liberal MP and current Minister of Veterans Affairs Seamus O’Regan said, “We will stand without equal in the world,” when his government announced the ocean supercluster’s $153-million funding.
For Risley, that sentiment is too much, far too soon.
“I think we’re guilty here of tooting our horn too loudly and thinking, ‘Oh yeah, we’re special, we’re special,’” he said. “Well, we’re not special.”
Overall, Atlantic Canada’s business sector invests relatively little in R&D compared to other areas of Canada, according to Statistics Canada data, and earns a D- for innovation in the Conference Board of Canada’s 2018 innovation report card (though the public-sector R&D efforts by the four provinces earn much higher scores). The board said all four provinces (plus Manitoba and Saskatchewan) score worse than the United Kingdom, the lowest-ranking country in its 20-country report, when it comes to innovation.
Risley believes Canada in general badly lags other countries in terms of how much economic activity is generated by its ocean industries.
“We have a coastline which is the longest in the world, yet our ocean economy is a fraction of what it is in Norway. Why is that? It’s not because we’re world-leading in everything,” he said.
The problem, Risley said, is a lack of regional collaboration. To help address that issue, ocean supercluster funding applications will only be considered if they involve cross-sector participation. For example, a fishing company seeking funding must partner with at least one other ocean industry player on its research project.
“This region for too long has focused on this idea that the competition is the guy next door. We win at the expense of Newfoundland, or Newfoundland wins at the expense of Nova Scotia — all this sort of nonsense,” he said. “We’re never going to become an important globally competitive area with that kind of myopic vision.”
Megan Bailey, a professor and Canada Research Chair in integrated ocean and coastal governance at Dalhousie University in Halifax, agrees that more collaboration is needed and neighbours must be seen as allies, not competitors, especially in the very competitive fishing industry. She also welcomed the potential for greater partnerships between industry and academia.
Despite the potential upside of the ocean supercluster, Bailey said she struggles to understand exactly what it will do, whether that’s because of the technospeak and entrepreneurship buzzwords that permeate the initiative, or just a lack of clarity from organizers.
“I don’t know what it is,” she said. “But I also find it very amorphous: you don’t really know who it is, what they’re doing.”
Bailey’s confusion is not surprising considering how many key details are still unknown. There isn’t a list of confirmed supercluster members, and it’s unclear how their submissions will be judged or by who. Furthermore, the project selection committee is not yet formed and it’s not known when the first project will be approved.
Risley said the board would be entirely comprised of people from the private sector and there will be no government involvement. “The decisions will be made primarily by the private sector, so the mistakes will be owned by the private sector,” he said.
Kendra MacDonald, the ocean supercluster’s recently appointed chief executive, acknowledges there’s still much to do.
“I’ve been in the role one week,” she said in an interview in mid-November. “There are lots of exciting opportunities and lots of incredible potential. And the rest is working out the details.”
MacDonald’s background is not in the ocean sector. Based in St. John’s, MacDonald previously worked for 25 years at Deloitte, including most recently as Deloitte Global’s chief audit executive.
She said the success of the ocean supercluster will be measured by its ability to boost the economic contribution of Canada’s ocean-based industries, which stands at 1.2 per cent of GDP, according to the Organisation for Economic Co-operation and Development (OECD), far behind Norway (37 per cent) and Iceland (26 per cent).
The global average is 3.2 per cent of GDP, but MacDonald wouldn’t commit to a specific percentage she hopes to achieve.
“We’re not at average globally, so there’s definitely lots of opportunity to do more,” she said.
Overall, OECD data show ocean sector activities generated an estimated $17.7 billion in direct GDP in Canada in 2006 (the most recent year data is available for), creating more than 171,340 direct jobs. (According to Fisheries and Oceans Canada, the country’s oceans are a source of 350,000 jobs and generate $36 billion in GDP through fisheries and aquaculture, energy, shipping, tourism and recreation.)
Although the supercluster has the potential to boost such numbers, the concept — and its distribution — has faced criticism.
Christian Lassonde, a Toronto venture capitalist focused on financial services technology investments, has previously suggested the supercluster initiative is driven by the regional parity considerations that always seem to dominate such federal efforts.
“Given Canadian GDP is so focused on financial services, you would have thought a fintech supercluster would have made sense,” he said in an email.
Back at Kraken Robotics, Karl Kenny said the ocean supercluster project might finally break down the silos that have existed between ocean industry companies. “It’s been very fragmented,” he said.
The high-resolution seabed data from Kraken’s proposed three-year, $25-million OceanVision project could have potential applications in fishing, oil and gas, and even defence by detecting naval mines, improvised explosive device (IEDs) and unexploded ordinance.
“If this works out well, we can then export this capability to the oil and gas, seafood, ocean science and transport companies around the world,” he said.
Navdeep Bains wasn’t available for an interview, but he has previously said the ocean supercluster will create more than 3,000 jobs and add more than $14 billion to the Canadian economy over 10 years (Kenny said Kraken would likely boost its ranks by 30 people to 100).
Are those numbers achievable?
“Yeah, who knows? Your guess would be as good as mine,” Risley said. “But I think that people should take a lot of confidence here that there’s no government money going into anything without a match from the private sector. There will be a level of accountability.”
There’s also the question of just how far $300 million can go. Indeed, the federal government’s contribution is less than the $156 million Clearwater Seafoods has put into its clam vessels over just the past three years.
“This isn’t going to be the last $300 million,” Risley said. “Hopefully, this is the first of billions of dollars that’s going to be committed to ocean research. Is the government going to abandon the program in five years time? Not if it’s been hugely successful.”