The Canadian Space Agency has released its annual State of the Space Sector report for 2016 which shows the Canadian Space Economy grew 4% over the previous year with total revenues coming in at $5.5B.
The Canadian Space Agency (CSA) states that the annual growth rate between 2014-2016 was “relatively low, at 1.36%.”
However, while the growth rate of 4% in 2016 was very modest, it actually represents a better growth rate than the global space economy¹ in 2016, which only grew at 1.9%.
With respect to the global space economy, the Space Foundation released its report for 2017 a couple of weeks ago and global growth was impressive. The global space economy had reached US$383.5B, which was a 16.6% increase over the previous year.
While we don’t have data yet on the Canadian space sector for 2017, it is highly unlikely to reflect that kind of increase. In fact, if the data comes in with another low growth rate, you could ask the question, is 2017 the year Canada’s space economy truly reflected its divergence from the global space economic trend after years of government neglect on the domestic side? As you’ll read below, if not for the export market, the growth rate for Canada’s space economy would not be in positive territory.
The 2016 Canadian space economy
The first thing you will notice in this years report is that it has been reorganized for the better. The report also includes a new subsection on “Patents in Space: Highlighting Innovation in the Canadian Space Sector” which is derived from the recent Canadian Intellectual Property Office and CSA report.
In line with the governments push to showcase the impact a sector has on the economy, the Economic Impact Analysis moves from the back of previous reports to the lead section. The highlighted main talking point is that “In 2016, the space sector contributed $2.3B to Canada’s GDP (Gross Domestic Product) and supported a total of 21,654 jobs.”
However, from industries perspective, an important statistic that speaks to the value of the space sector to the economy is that the GDP multiplier has grown to 1.92 from the last two years of 1.86 and 1.85. The GDP multiplier is calculated by taking the Total GDP Impact and dividing it by the Space Sector GDP Impact. In the case of the space sector, for every dollar that the space sector contributes to Canada’s GDP it generates another “$0.92 in GDP contribution from other organizations in the economy.”
Of the 150 organizations that participated in the CSA survey, the top 10 accounted for 83% of total space revenues and 50% of employment. 97% of the revenues came from the top 30 organizations.
While the CSA categorizes the workforce as stable and decreasing by less than 1% this past year, the workforce has decreased 1.3% over the last three years and is currently trending downward. Did that number pick up in 2017? Unlikely with the mass layoffs at Honeywell (COM DEV) in Cambridge.
Revenue by Markets
The space sector is divided into two market streams, upstream and downstream, and it’s important to understand what that means.
The CSA defines upstream as “the effort required to design, test, build, integrate, and launch assets into space.” For Canada this includes manufacturing equipment destined for space such as satellites or satellite components, ground station components, R&D etc.
The CSA defines downstream as “the effort required for the day-to-day operation of space assets, manufacturing of products and software applications that transform space data and signals into useful end products, and services provided to end-users.” This includes satellite operations, services which includes phone, television, internet etc. and development of hardware and software applications.
in 2016, and unsurprisingly, the downstream segment once again dominates revenues to the tune of $4.6B as compared to $0.9B for the upstream.
Of the $4.6B downstream revenue, satellite communications ($4.2B) accounted for 91% of the revenue, broken down as follows;
- Broadcasting Services: $2.45B
- Satellite Operations: $926M
- Applications and Products (e.g. antennas): $590M
- All other telecommunication services: $250M
Clearly broadcasting and related revenues are important to the Canadian market.
The other downstream revenues came from;
- Navigation: $215M
- Earth Observation: $162M
- Space Science: $11
- Space Exploration: $1M
Satellite communication revenue has been steady with a growth rate of 3% from 2014-16. Navigation revenues grew by 5% in 2016 and 14% between 2014-2016. This increase is reflection in part of the growth of exactEarth.
While Earth Observation (EO) growth between 2014 – 2016 declined by 4%, it should be noted that in 2016, EO revenue rose 17%. This is important as I’ll elaborate on in the future growth section.
Space Exploration and Space Science revenues were down in 2016, 9% and 13% respectively.
Upstream revenue is broken down as follows;
- Satellite Communication: $423M
- Earth Observation: $333M
- Space Exploration: $101M
- Space Science: $50M
- Navigation: $1M
Domestic and Export Revenues
When we start looking at domestic and export revenues we can see how space policy, or lack of domestic space policy and expenditures are effecting revenue.
Domestic revenues were $3.5B, down 4% over the previous year. Over the period 2014-16, domestic revenues were down 3.7%.
Export revenues were $2B and increased 24%. Over the period 2014-16, export revenues were up 13%.
Curiously the report notes that if you exclude out broadcasting revenues “total revenues generated by the Canadian space sector grew from $2.7B in 2014 to $3.1B in 2016. With the exclusion of broadcasting, the average growth rate between 2014 and 2016 was +6.5% for the entire space sector, -2.9% for domestic revenues and +13% for exports.”
The top three export regions by revenues are; U.S. (46%), Europe (24%), Asia (15%). While exports grew in all of these regions, it was Europe which led the way at 33% growth followed by Asia at 24% and the U.S. at 7%.
Canada recently concluded trade deals with the European Union (CETA) and the Trans-Pacific Partnership. It’s unclear what impact these deals will have on export markets, if any.
NAFTA is being renegotiated and it’s unknown if a new deal will materially impact revenues.
As noted earlier, the CSA and the Canadian Intellectual Property Office released a Patents in Space report a few weeks back. This CSA report references that report and provides some useful statistics.
- Business Expenditures on R&D (BERD) settled at $254M in 2016, a minor decline from the previous year.
- Overall, space sector R&D intensity is 25%. R&D intensity for space manufacturing was eight times higher than the average for manufacturing in Canada.
- In 2016, Canadian space companies derived $123M in revenues through the commercialization of externally funded R&D projects, a significant growth from 2015.
- Space sector organizations reported a total of 183 inventions in 2016, of which 42% were patented.
- Patented inventions have an impact on a company’s future revenues. The share of patents filed by downstream segment organizations over the past 20 years has been increasing.
With respect to patents, one interesting data point the CSA used was the Revealed Technological Advantage (RTA) index.
The RTA was developed by the Organisation for Economic Co-operation and Development (OECD) and the CSA states it “was used to better understand Canada’s competitive status in relation to patenting in the global space sector. The RTA provides a ratio of each country’s share of patents within the space technology sector as a share of the country’s total patents produced within a given timeframe. Canada has a value greater than one, suggesting a technological advantage in the space sector. The result presented below is corroborated by previous results from the OECD in their Space Economy at a Glance 2014 report (page 70).”
Where will growth come from in the future?
Clearly Canadian businesses are doing their part in developing export markets. The government is also supporting these efforts. It’s the domestic market that is seeing negative growth.
Space Science and Space Exploration revenues account for only about 3% of revenues but clearly the data shows some apathy on the governments part to invest in these areas. The recent budget did give a big boost to science overall in Canada, so we’ll have to see how that is reflected in future reports.
With respect to growth in the Canadian space economy, where will that come from? Opportunity abounds, but venture capital is very slowly trickling into new space startups. Will the government’s Innovation agenda have an impact?
One key driver for future growth, which the government should be spending more resources on, is updating existing regulations. Updating outdated regulatory frameworks, creating new business friendly regulations, will go a long way in helping growth. While other countries move forward in this area, Canada is mostly silent.
There are definitive opportunities for growth though.
While Canadian revenues are dominated by satellite communications, there is still room for growth in this area. One important example is Telesat’s LEO Constellation of 120 satellites which should provide a long-term boost to Canada’s space economy while serving the needs of remote communities. It’s not a surprise then that the lobbying efforts to convince the government to invest some money in this project resulted in some funds being included in the budget.
The news this week that MDA was part of a consortium to develop a systems design for the Telesat LEO Constellation is also welcome news and will provide additional domestic revenues.
Another area with strong growth potential is the Internet of Things (IoT). Connected devices, moving that data, are here to stay. What we once thought was a connected device is just the tip of the iceberg. Companies like Kepler Communications, Helios Wire and others could become important players.
Where will all this data be stored? It used to be that companies would store all that data locally in their data storage facilities. But more companies are doing a combination of local and cloud storage. And some companies rely solely on the cloud. Does that mean that Amazon Web Services, Microsoft Azure, Google Cloud and other data and cloud computing companies should be included in the space economy? Will the cloud move into space? Some companies think so.
There is one area in particular for Canada where growth can be substantial and sustained in the long term and opportunity abounds. That’s Earth Observation, which is the second largest revenue by market in Canada, and which generated $495M in 2016.
Canada has the second largest land and water area in the world. We must develop more satellites and services to serve the national needs when it comes to observing our land and water area. What we’ve done to date is but to scratch the surface. An added benefit in developing these new upstream and downstream tools and services for ourselves, will be their export value.
We need to think of not only what we need today in terms of data, but look to the future where Canada’s population has expanded and more people are living further north. Climate change is also heating up the country and making the arctic waterways more accessible. To this date, much of Canada is difficult to reach, and from a resource perspective, poorly mapped, especially remote areas.
I’ve illustrated only a couple growth areas, clearly there are opportunities to grow Canada’s space economy. It will however take investments from government, industry and the investment community.State of the Canadian Space Sector report for 2016