Volunteer shortages, a gloomy economic outlook and increasing immigration levels are some of the issues we’re keeping an eye on
New year, new challenges? 2022 was a tumultuous year for the nonprofit sector, which, still reeling from the pandemic, faced rising inflation, increased demand, and labour shortages among other obstacles. 2023 is only just beginning, but it promises to see some of these trends continue while also seeing new opportunities and challenges arise.
In the first edition of our quarterly blog series this year, we discuss some of the macro trends that are impacting Canada’s charities and nonprofits right now.
Gloomy economic outlook will impact nonprofit finances and demand for services
Economists have looked into their crystal balls and made some somber predictions about what 2023, especially the first half of the year, will bring. There is a growing consensus that inflation and high prices are likely to persist and that interest rates will remain high and likely help push the economy into recession early in the year. The impact of this fiscal environment will continue to make life challenging for the nonprofit sector.
Corporate earnings are expected to decline, which is likely to impact stock prices. Those with investments in the market, such as foundations and organizations with endowment funds, will feel the squeeze. Previous research from the US has suggested that foundation granting sometimes dips during recessions, which of course creates challenges for those relying on this funding. However, there is little research on foundation disbursements during recessions available from the Canadian context. Additionally there is a confluence of various economic factors at play right now (e.g. tight labour markets, high interest rates, and supply chain issues) that may mean recent recessions don’t provide a good basis of comparison for the gathering storm we’ll experience in 2023.
With interest rates up, nonprofits who’ve taken on loans may see the cost of servicing their debt increase. In the latest results of the Canadian Survey of Business Conditions, 5% of nonprofits reported applying for a loan over the past year.1 Nonprofits are generally quite averse to taking on debt, and despite the loan-based relief measures offered by the federal government during the height of COVID-19, only 13% say they’re more in debt now compared to the beginning of the pandemic, while 14% say they’re less in debt.2 Additionally, only 13% of nonprofits are concerned that rising interest rates and debt costs will be an obstacle in the near future compared to an economy-wide average of 39%.3 While the sector’s aversion to taking on debt can limit their impact and potential to innovate, it is also currently protecting the sector from some of the financial impact of rising interest rates.
Additionally, we’re expecting to see a continuation of a trend that dominated throughout last year when inflation created a three-pronged impact on the sector, increasing operating costs and demand for services while driving down donations. One part of the sector at the epicenter of this convergence is food security organizations, due to high levels of food inflation. Second Harvest, a food rescue organization, recently released the results of a survey that predicted a 60% increase in demand for food banks and other food charities this year.
However, on a more positive note, the vast majority of nonprofits (93%) report that they have or will be able to acquire the liquid assets required to operate over the next three months.4 Another set of indicators of organizational health - closure and merger plans - have remained low and steady over the past year. Only 0.1% of nonprofits indicated plans to close, and only 1% have merger plans over the next year.5 Overall, 86% of nonprofits reported a positive outlook for the next 12 months.6
Canada’s decision to welcome more immigrants will impact the nonprofit sector’s workforce and donor base while increasing demand for some services
Late last year, the federal government announced that it intends to increase its immigration levels, with a goal of offering 500,000 people permanent residence in 2025. This is a significant increase from pre-pandemic levels; Canada welcomed 341,180 permanent residents in 2019.
This significant increase in immigration levels comes as Canada’s economy is facing widespread labour shortages and the country’s population ages. Immigrants make up a huge part of the nonprofit sector community as workers, donors and service beneficiaries, so this change has important implications for the sector.
Currently, 47% of the nonprofit sector’s workforce is comprised of immigrants and 50% of immigrant women who are employed in Canada work in the nonprofit sector. At a time when 31% of nonprofits see labour shortages as an obstacle,7 an increase in immigrants who can join our workforce could be a part of the solution. However, it’s crucial to bear in mind that many immigrants join our sector not because it’s their first choice, but because of discrimination in other parts of the economy and limited options. The nonprofit sector must take seriously its responsibility to create welcoming, respectful, decent jobs where immigrants can thrive and contribute to our communities.8
Naturally, for immigration settlement organizations, more immigrants coming to Canada over the next few years is likely to increase demand for integration services in the short term.
In a 2020 survey of newcomers to Canada and second-generation Canadians, 74% of respondents reported donating to charitable causes during the 12 months prior to the survey. As Canada’s demographics shift and we welcome more newcomers from around the world, fundraisers should ensure that their efforts are relevant and engaging to first and second generation Canadians.
Volunteer shortages compounding labour challenges for nonprofits
We’ve heard a lot about labour shortages over the past year. However, a huge part of the sector relies heavily on volunteers to deliver their programs and services. A staggering 58% of charities (and many more nonprofits) have no paid staff, and many organizations with paid staff also benefit from volunteer contributions. Unfortunately, the pandemic disrupted volunteerism in a persistent way that has compounded the sector’s labour challenges.
Late last year, 65% of nonprofits reported a shortage of new volunteers while 50% reported struggling with volunteer retention.9 This is having significant impacts on the sector’s paid workforce; 28% of nonprofits report that staff are working more hours to take on work normally done by volunteers and 21% say that the volunteer shortage is leading to employee burnout.10
The lack of volunteers is also impacting communities in a very concrete way; 33% of nonprofits reported that it is leading to a reduction of programs and services offered, while 17% are reporting that it has led to an outright cancellation of programs and services.11 Ultimately, this means that some who need supports aren’t able to access them. In the context of rising demand, this gap in service delivery is especially dire.
Lots of unknowns on the horizon
It’s the dawn of a new year, and if it’s anything like the last few years, it will be an eventful one. Many of the trends we saw last year - like inflation, the healthcare system crisis, high interest rates, labour shortages and conflicts, political polarization, climate disasters and supply chain issues - will continue to evolve and impact the sector this year while unforeseen events are certain to throw us some additional curveballs. With a minority government at the helm of the country, the spectre of a federal election is always looming in the background. Throughout the year, we’ll continue to help you make sense of the rapidly changing environment so you are as well prepared as you can be to face obstacles, seize opportunities and relentlessly pursue your mission.
8 Read Diversity is Our Strength: Improving Working Conditions in the Nonprofit sector to learn more.