Immigration is now the primary source of population growth in Canada and while much of the focus on it to date has been about filling gaps in the labour force, immigrants are also an important source of entrepreneurship. Immigrants are more likely to start a business than the Canadian-born population, creating opportunities for others to be employed.
There are more than 1.1 million small and mid-sized businesses in Canada, according to an October 2019 study from the Business Development Bank of Canada. They account for 90 per cent of all private-sector jobs in the country, employ about 10.7 million Canadians and contribute almost $1 trillion to Canada’s annual gross domestic product (GDP). Immigrants account for 33 per cent of all business owners with paid staff.
The contribution of immigrant entrepreneurs is likely to grow. A 2017 Statistics Canada report projects that immigrants will represent between 24.5 per cent and 30 per cent of Canada’s population in 2036 compared with 20.7 per cent in 2011. Immigration is more than an advantage – it is a necessity. Many developed countries, including Canada, face a labour shortage because of low fertility rates and aging populations. This makes it challenging for businesses to hire new workers, thus creating growth barriers and reducing productivity gains. Foreign-born entrepreneurs and workers play a critical role in decreasing labour shortages and creating long-term growth for Canada.
Immigrants face more challenges in entrepreneurship
Generally, immigrant and minority entrepreneurs in Canada share four significant traits. They have a higher self-employment rate, partially due to the difficulty of finding suitable paid employment in the labour market. Their businesses are usually smaller than those owned by Canadian-born small-business owners. They are more likely to be self-employed (for example independent contractors such as Uber drivers) than the Canadian-born population, likely due to language barriers and a lack of both cultural knowledge and social capital networks to help obtain paid employment. Finally, they are less likely to turn to a formal financial institution, such as a bank, for start-up financing.
Many underrepresented entrepreneurs who start a business encounter challenges. This can come from not knowing operations and financing due to language barriers, a lack of understanding about mainstream Canadian legal culture and business practices, or suffering from workplace discrimination. There may also be fewer work opportunities or non-recognition of overseas academic and/or professional credentials, substantial pay gaps, unconscious biases and lack of access to financial capital.
Minority and immigrant entrepreneurs often face difficulty securing bank loans because of business inexperience, deficient professional and social networks in Canada and a lack of professional and credit history. Many underrepresented entrepreneurs are not able to secure sufficient funding to grow their businesses to generate revenues and profits.
To succeed in expanding their businesses, underrepresented entrepreneurs need more effective and targeted government support to enhance their businesses to build wealth and create jobs.
Establishing a foundation for immigrant entrepreneurship success
Governments have many policies and programs in place to support small business, but underrepresented entrepreneurs need targeted policies and programs. I suggest three policy innovations that could kick-start a new wave before Canada’s new immigration levels reach their peak:
1. Start-up grants: The Canadian government could give at least $20,000 as start-up grants to those who are underrepresented to establish their businesses. Because minorities and immigrants tend to come from low-wealth backgrounds, direct funding would allow them to meet planned expenditures in hiring, capital investment, training, payroll, marketing, supplies and/or market growth. This $20,000 grant could give minority and immigrant entrepreneurs a safety net to take risks, creating a new businesses with confidence and foresight.
2. Tax credits: The Canadian government could offer refundable tax credits for businesses not earning revenues, especially for those coming from low-wealth backgrounds. Many minority and immigrant entrepreneurs and small-business owners are not likely to capture the interests of venture capitalists and/or angel investors to obtain start-up and/or growth capital. The tax credits could be up to $40,000 for minority and immigrant entrepreneurs, especially those who earn less than the national median income. Refundable tax credits would offer some capital to assist underrepresented businesses in getting off the ground.
3. Minority and immigrant entrepreneurship equity program: Building on the success of the Black Entrepreneurship Program, the Canadian government could establish an underrepresented entrepreneurship equity program to invest and support minority and immigrant entrepreneurs. Additionally, given the growing minority and immigrant populations, this program could be funded with $500 million over a five-year period from the federal government, organizations such as the minority and immigrant chambers of commerce, and other private-sector financial institutions. The goal is to improve access to capital, business mentoring and strategy, management and growth and other technical services. In return, the underrepresented entrepreneurs could create jobs, opportunities, and wealth to add to Canada’s GDP.
Canada has a chance to plant the seeds for the next wave of immigration to generate a strong source of economic growth for decades to come. Immigrant and minority entrepreneurs can generate more employment, tax revenue, GDP growth and wealth for their families and their communities if they are supported and integrated into Canadian society. With new policies to support underrepresented entrepreneurs seeking to start and grow businesses in Canada, the government can lay the foundations for a better future for all Canadians.