Building Canada’s Tech Cluster in Waterloo

Canada is not on the map. Literally. According to the 2024 Global Innovation Index, Canada has zero entries among the world’s top 50 science and technology clusters. Toronto comes in at number 54, while Vancouver and Montréal remain unmentioned. These are not fringe cities; they are the anchors of Canada’s innovation economy.

But none of them crack the global top 50. That’s not just a data point. It reflects a deeper problem: Canada has not built a single tech or science cluster with enough scale, concentration, and visibility to matter globally. This is a structural failure that demands a BHAG (big, hairy, audacious goal) to fix it. Canada should identify and support one technology cluster that can break into the top 50.

We argue that the only way to do this is to concentrate resources in one place. And we believe the best candidate for elevation is Waterloo. To make that happen, the federal and Ontario governments should collaborate. They can start by expanding research funding for the University of Waterloo. But most importantly, they should create an incentive: Tech start-ups based in Waterloo and firms relocating R&D and innovation production from outside Canada to the region will pay no tax for a decade.

Waterloo is not Canada’s biggest tech hub, but it is the best shot at scale. It ranks as North America’s top small tech talent market for the fourth consecutive year, has added over 9,000 tech jobs since 2018, and boasts a higher concentration of tech workers than Toronto. It hosts Canada’s top engineering school, a robust start-up infrastructure, and a track record of globally relevant firms. The foundation is there. What’s missing is the national policy weight to push it over the top.

Trying to elevate Toronto or Montréal risks spreading investment too thin. Both cities have strong tech sectors, but they’re large and fragmented, with many institutions and priorities competing for attention. Major new incentives to really boost these locations would require significant resources that Canada does not have.

The federal government already funds regional innovation through the Global Innovation Clusters program. But its model—five sectoral clusters across multiple provinces—prioritizes balance over scale. Despite the name, the program has not produced clusters in the economic sense: concentrated, self-reinforcing ecosystems of firms, talent, and capital.

Real clusters are more than proximity. They are dense, place-based systems of innovation and production. They require co-location of firms, active labor mobility, embedded R&D institutions, shared infrastructure, supply chain interdependencies, and a culture of iterative learning between firms and universities. Canada’s current model funds valuable networks, and while it should be continued, it does not build concentration. If everything is a cluster, nothing is.

Canada’s broader innovation model reinforces this pattern. Programs are designed to distribute support broadly, not build concentrated strength. And that’s fine. But an additional and different approach is needed. Clusters offer a way out, not by narrowing participation, but by concentrating capital, talent, and ambition in one place, allowing a sector to build a self-reinforcing gravitational pull.

On its own, a tax exemption will not build a cluster. But it will signal that one is being built. The University of Waterloo should also receive more funding for research and commercialization. Together, these are early incentives while longer-term institutions and infrastructure take shape. This is not about picking winners. It is about backing the conditions that allow winners to emerge at scale, enabling them to compete globally.

The evidence for this approach is strong:

1. In Clusters from the Inside and Out, Wolfe and Gertler show that real clusters emerge when local institutions, civic leadership, and global linkages reinforce one another.
2. In Do Clusters Make a Difference?, Spencer et al. use Canadian data to demonstrate that clustered regions outperform on income, employment, and innovation.
3. In Clusters, Convergence, and Economic Performance, Delgado, Porter, and Stern show globally that strong clusters drive spillovers, increased patenting, and the emergence of entirely new industries.

Additionally, the benefits of clustering are not confined exclusively to the cluster itself. As a strong hub grows, adjacent regions benefit through talent spillovers, supply chain linkages, knowledge transfer, and increased market access. Clusters also anchor strategic sectors, embed key capabilities within domestic institutions, and reduce brain drain by offering high-quality work at home. They make it more likely that Canadian inventions are commercialized domestically, that Canadian IP stays in Canadian hands, and that Canadian workers gain skills that compound within the national economy.

This is not a leap of faith. It is a long-overdue application of what the world’s best-performing economies already know: If you want productivity, you have to build around scale and specialization. You need to create literal, physical zones where excellence is rewarded and where innovation does not have to beg for relevance.

Waterloo does not need a blueprint. It needs a decision. A deliberate policy choice to concentrate growth, reward ambition, and give Canada a place that can compete on a global scale.