Atlantic Canada’s digital technology industry accounted for $6.1 billion in revenue in 2017, up from $5.2 billion in 2014, says a new study of digital industries in the region by the Atlantic Provinces Economic Council.

The study titled Digital Technology Firms: Their Importance and Role in Atlantic Canada’s Economy was commissioned by TechImpact, the Fredericton-based organization that promotes IT across Atlantic Canada.

The study encompassed not only IT companies based in the region but also multi-nationals like Salesforce and IBM that have large operations here, as well as the digital components of traditional Atlantic Canadian businesses like McCain Foods and Sobeys. The report said pure IT companies based in Atlantic Canada reported revenues of $2.1 billion, up from $1.7 billion in 2014 – an annual growth rate of almost 8 percent.

 “The digital technology industry is innovative, export-focussed and attracts a majority of the region’s venture capital,” lead author Patrick Brannon, APEC’s Director of Major Projects, said in a statement. “However, the sector is smaller in Atlantic Canada compared to the rest of the country and there are several factors impeding its full potential.”

Brannon’s report said the Atlantic Canadian industry exports about 60 percent of its production, amounting to about $1.6 billion a year. But it added that the industry is much smaller in Atlantic Canada than in other parts of the country. APEC says digital industries account for about 3.5 percent of the Atlantic Canadian economy, far below the mark of 5.1 percent for Canada overall and 6.5 percent for the U.S.

The report notes the contribution of tech startups, and paints the picture of an IT cluster comprising a lot of smaller, fast-growing companies. APEC, which developed a database of 463 companies with digital operations in the region, said 44 percent of the companies it tracked have revenues of less than $1 million, while two-thirds of the total dataset produced annual revenue growth of more than 10 percent over the last three years.

It concludes that the region’s tech companies need to grow, but they are constrained by funding, a tight labour market and other factors. (See the accompanying story on IT talent.)

The report notes that venture capital is increasing, as there were 64 VC deals totalling $158 million in Atlantic Canada in 2018, citing data from the Canadian Venture Capital and Private Equity Association. But again, the average size of deals on the East Coast was $2.5 million, less than half the Canadian average of $6.1 million.

The report also notes that the IT companies in the region are investing heavily in R&D – an area in which Atlantic Canadian industry overall usually lags.

“There has been a strong improvement in ICT industry investment in R&D across Atlantic Canada but it is still well behind national levels,” says the report. “New Brunswick leads the region in growth between 2010 and 2016 at 27% per year and relative spending by business on ICT R&D at $97 per capita. However, in 2016 it was still only 57% of the national average.”

The statement from TechImpact said the study included the creation of an Atlantic region database of digital technology companies and collected and analyzed online survey and business interview data from companies located throughout Atlantic Canada.

“This report highlights the importance of this sector to our regional economy,” said TechImpact CEO Cathy Simpson. “Our focus at TechImpact has always been on driving economic prosperity through the development of our technology sector. What this report shows us is that it’s crucial that the Atlantic region embrace and accelerate digital adoption and innovation to compete in the global economy. Now that we’ve identified key areas that require our attention to grow the sector, our hope is that stakeholders across the region can make better decisions to maximize the potential of the digital technology industry.”