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‘There’s an inevitable headwind against entrepreneurship in Canada’

As Canada’s population continues to age, immigration will play an increasingly important role in the creation of new businesses but it won’t be the only solution.

As Canada's population continues to age, immigration will play an increasingly important role in the creation of new businesses but it won't be the only solution.

A recent study released by the Fraser Institute suggests that the demographic shift towards an older population is already dragging down the number of new businesses starting in Canada.

"There's an inevitable headwind against entrepreneurship, which is this demographic change," says Jason Clemens, executive vice-president of the Fraser Institute and co-author of the report.

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The report, based on data from Statistics Canada, found that in 2004 there were 17.9 new firms for every 100 existing businesses. By 2012, that number had dropped to 15. This decline correlates with a 15 per cent increase in the proportion of Canadians over age 65.

In 2009, there were 120 children for every 100 seniors in Canada, according to Statscan. The federal statistics agency forecasts that those numbers will become equal sometime between this year and 2021.

The demographic shift, which is trending to as few as as 58 children for every 100 seniors by 2036, will have a major impact on the Canadian economy.

While the decline in the number of new businesses will mean less job creation in the short-term, Mr. Clemens says that if nothing is done about the demographic shift, Canada could be in for a stark future. He warns that with a shrinking proportion of the population paying taxes, provinces will struggle to cover growing healthcare costs while also continuing to fund other services.

Immigration will also play an increasingly prominent role, says Michael Bloom, vice-president of Industry and Business Strategy at the Conference Board of Canada.

"In order for us to be able to project economic growth at a desirable level, in the long-term, we must raise immigration to one per cent annual inflow by 2025 to 2030," Mr. Bloom says.

Canada currently accepts around 250,000 immigrants a year, an annual inflow of around 0.7 per cent of the population.

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"In the near future, we're going to depend on immigration for all net growth. We're already at the point now where we're moving into that world," Mr. Bloom says.

Immigration is not only important to maintaining economic growth, it's also important to maintaining entrepreneurship rates.

Immigrants are 1.6 times more likely to start businesses than native-born Canadians according to a report released by the Business Development Bank of Canada in the fall.

"They've self-selected. They've had the will and the initiative to move countries are often the kind of people who have an entrepreneurial propensity," says Mr. Bloom.

That's something Debby Carreau knows first-hand. Her family immigrated to Canada from South Africa when she was a teenager. She now owns Inspired HR, a Calgary-based human resources firm and co-owns seven A&W franchises. All together, her businesses employ over 160 people.

"It's truly a land of opportunity when you're from somewhere that's a developing country," Ms. Carreau says.

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She says that immigrants might not see some the barriers to starting a business that native-born Canadians do.

While most immigrants come as skilled workers, some arrive with entrepreneurship in mind. Alain Kapatashungu moved from Paris, France, to Montreal, Quebec, in 2012 because he says it's easier for a young person to start a business in Canada.

Mr. Kapatashungu, who first arrived to the country under a working visa for people under age 35, is currently launching his second business venture since arriving in Canada, Instavisit, an apartment-hunting app.

"People respect the work you want to put in," he says.

In France, he says, he wouldn't have been taken seriously enough even get meetings with developers and real estate companies that have since led to business deals.

But while attracting entrepreneurial immigrants is important, picking them is a challenge.

"As a country, we're trying to identify entrepreneurs," Mr. Bloom says. "But I don't think we've been enormously successful at it."

Federal programs that were intended to encourage entrepreneurs and investors to immigrate to Canada stopped accepting applications in 2012 and were scrapped in June 2014. The federal government said the programs were ineffective at bringing new money into Canada and creating new businesses.

"Instead of trying to asses the entrepreneurial track-record or skills of people, we've asked them how much money do you have, will you agree to create some jobs in Canada," Mr. Bloom says. "I think we've used those as proxies for entrepreneurship and it's difficult for governments to gauge something like this. How do you quantify the amount of entrepreneurial skills somebody has?"

A new startup visa program, launched as a pilot project and intended to lure high-tech entrepreneurs to Canada, has only issued a handful of visas in two years.

While the Fraser Institute's Mr. Clemens says Canada should be more competitive when it comes to making itself a destination for immigrant entrepreneurs, it will only have limited effect on the coming demographic shift.

"There's almost nothing we can do about the aging population through immigration," Mr. Clemens says.

Canada will have to dramatically increase the number of young immigrants it accepts, he says, and even if it is mathematically possible, there would be practical challenges.

"What you'd have to say to them is you can't bring in your parents," he says. "For every person who is under 30, if they're bringing their parents, you haven't changed the demographic structure."

For Mr. Clemens, other policies need to change to encourage entrepreneurship and investment by both new and native-born Canadians. One policy change he'd like to see is the scrapping of the capital gains tax.

"It's low cost," he says. "The federal government doesn't collect all that much revenue from the capital gains tax."

He says scrapping the tax "would not only improve the incentives for entrepreneurs to be entrepreneurial but also improve the incentives for investors to invest in entrepreneurs."

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