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Canada aims to create 125,000 jobs over the next decade by increasing military spending to 5 per cent of GDP and shifting away from US arms manufacturers, according to a new strategy paper.
The paper, scheduled to be published Tuesday, will set out Ottawa’s plan to bring production to shore in the latest phase of the country’s “Buy Canadian” campaign.
Ottawa’s biggest military effort since the Second World War will aim to award 70 per cent of the country’s defense spending to Canadian companies, up from about 50 per cent, according to a copy seen by the FT, generating more than C$5.1 billion (US$3.7 billion) annually in revenue for local businesses.
The strategy paper said it was “a new way of doing business in defense acquisitions”.
“Tariffs and changing trade relations have placed significant pressure on vital Canadian industries,” the strategy states. “Taking these necessary steps will reduce dependence on foreign suppliers (and) promote national champions.”
The release of the strategy paper comes just weeks after Mark Carney’s speech in Davos in which he stressed the “breakdown” of the rules-based international order due to Donald Trump’s presidency. The Canadian Prime Minister urged the world’s “middle powers” to unite in response.
Canada and the United States have long cooperated on the procurement of military goods and services. But the latest strategy says Ottawa will instead be able to “use the national security exception to direct work to Canadian companies.”
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 to be submitted next month.
“The government’s responsibility now is to build sovereign capacity, not to default to power,” said Eliot Pence, founder of Ottawa-based Dominion Dynamics. Which develops high-tech military equipment that works in inhospitable environments like the Arctic.
“It is essential to prioritize Canadian-owned and controlled firms and deliberately use buyouts to grow them,” he said.
The strategy states that Ottawa will build “a new, ambitious and comprehensive partnership with the EU and the UK”. It will also seek similar opportunities to cooperate with partners in the Indo-Pacific, particularly Australia, New Zealand, Japan and South Korea.
Canada is investing C$81.8 billion in its armed forces and plans to increase spending on defense and security to 5 percent of annual GDP by 2035, to meet a target set by NATO member states.
“The rise of new powers, rising protectionism and changing dynamics in international relations have also underlined the need to think differently about Canada’s sovereignty, defense needs and economic development,” the strategy says.
Glen Cowan, founder and managing director of ONE9, Canada’s only defense and security-focused venture capital firm, said the lack of capital was one of the industry’s biggest challenges.
“The ‘Buy Canadian’ approach will work better when we buy mature, investable companies for the government, and to achieve maturity we need both patient capital and a trusted first customer,” he said.
Canada’s 600 defense companies generated revenues of C$14.3 billion in 2022 and contributed $9.6 billion to GDP, less than 1 per cent of national output, while employing 81,000 people.
