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Canada aims to create 125,000 jobs by increasing military spending to 5 per cent of GDP over the next decade and shifting away from US arms manufacturers, according to a new strategy paper.
The paper, which is to be published on Tuesday, will set out Ottawa’s plan to bring production onshore in the latest step in the country’s “Buy Canadian” campaign.
Ottawa’s biggest military push since the second world war will aim to award Canadian firms 70 per cent of the country’s defence spending, up from about 50 per cent, boosting revenues for local businesses by more than C$5.1bn (US$3,7bn) annually, according to a copy seen by the FT.
The strategy paper said it was “a new way of doing business in defence acquisitions”.
“Tariffs and changing trade relationships have placed significant pressure” on critical Canadian industries, the strategy said. “Taking these essential steps will reduce reliance on foreign suppliers [and] foster national champions.”
The release of the strategy paper comes just weeks after Mark Carney’s speech in Davos in which he emphasised the “rupture” of the rules-based international order caused by Donald Trump’s presidency. The Canadian prime minister urged the world’s “middle powers” to unite in response.
Canada and the US have long co-operated on the procurement of military goods and services. But the latest strategy states that Ottawa will be able to make “use of the national security exception to direct work to Canadian firms” instead.
Ottawa is already reviewing a 2023 contract to buy 88 F-35 fighter jets from the US. It is also seeking to buy 12 submarines capable of operating in Arctic conditions with competing South Korean and German bids due to be submitted next month.
“The government’s responsibility now is to build sovereign capability, not to default to incumbency,” said Eliot Pence, founder of Ottawa-based Dominion Dynamics, which develops high-tech military equipment that works in inhospitable environments like the Arctic.
“Prioritising Canadian-owned and controlled firms and using procurement to deliberately scale them is needed,” he said.
Ottawa will build “a new, ambitious, and comprehensive partnership with the EU and the UK”, too, the strategy said. It will also seek similar opportunities to collaborate with partners in the Indo-Pacific, in particular Australia, New Zealand, Japan and South Korea.
Canada is investing C$81.8bn in its armed forces and plans to increase spending on defence and security to 5 per cent of annual GDP by 2035, to meet the target set by Nato member states.
“The rise of new powers, increasing protectionism and shifting dynamics in international relations have also underlined the necessity of thinking differently” about Canadian sovereignty, defence needs and economic development, the strategy said.
Glenn Cowan, founder and managing director of ONE9, Canada’s only defence and security focused venture capital firm, said the lack of capital was one of the industry’s biggest challenges.
“A ‘buy Canadian’ approach will work better when we grow mature, investable companies for government to buy from, and that to achieve maturity we need both patient capital and a credible first customer,” he said.
Canada’s 600 defence companies generated C$14.3 bn in revenues in 2022 and contributed $9.6 billion to GDP, less than 1 per cent of national output, while employing 81,000 people.
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