Overview

According to Innovation, Science, and Economic Development (ISED) in collaboration with the Canadian Association of Defence and Security Industries (CADSI), the Canadian defense industry contributed close to US$7.12 billion in GDP and 78,000 jobs across Canada’s economy in 2020. Of the economic contribution reported, US$5.26 billion is directly attributed to the defense industry and value chain. In general, the total economic contribution by the sector to Canada’s economy between 2018 and 2020, increased by close to US$1.7 billion in GDP, and 13, 900 jobs. The Canadian government is the industry’s single largest customer of defense products and services, accounting for 72% of the industry’s domestic revenues; while in the context of the Five-Eyes partnership, the United States, at 49.1% represents Canada’s top defense export market. Canada has an estimated 94,500 military personnel, including 70,000 active personnel, 19,000 reserve personnel, and 5,500 paramilitary personnel.

Defense Priorities

Key Canadian defense priorities include:

• Canada’s NORAD modernization program offers multiple opportunities for U.S. exporters.  A joint U.S. and Canadian statement in August 2021 committed both countries to modernize NORAD on areas, such as situational awareness, modernized command and control systems, infrastructure upgrades in Canada’s Arctic and northern regions.  In June 2022, Canada committed to investing US$29 billion over a twenty-year period with a focus on modernization of surveillance, command and control, air weapons systems, as well as facilities and support capabilities.
• Canada’s pledge to reach NATO’s requirement of spending a minimum two percent of its GDP on its military also provides U.S. exporters with numerous opportunities. According to NATO’s annual report, in 2022, Canada’s defense spending as a percentage of GDP was approximately 1.29%, well below the two percent target. A June 2022 report by the Parliamentary Budget Office forecast that to achieve the two per cent spending goal, Canada would need to spend an extra US$11.5 billion in 2023-24; US$11 billion in 2024-25; US$10.7 billion in 2025-26; and US$9.8 billion in 2026-27.
• The National Shipbuilding Strategy: a long-term project to renew Canada’s combat and non-combat vessels, including replacing the entire fleet of the Royal Canadian Navy and the Canadian Coast Guard with modern combat surface combatants, icebreakers, coast guard vessels, supply and research vessels. 

Canada’s Defense Budget

The Department of National Defence’s (DND) main budget estimate for 2023-24 is US$19.5 billion. This is expected to increase to approximately US$29 billion by 2026-27. Of particular interest to U.S. exporters are the budget allocations under forces readiness, procurement capabilities, and infrastructure (including for infrastructure bases and IT systems.)  Visit the Government of Canada’s 2023-24 Budget Estimates for more details.

Federal Agency	2020-21 Expenditures	2021-22 Expenditures	2022-2023 Estimates	2023-2024 Estimates
Department of National Defence (DND)	US$18,580	US$19 billion	US$19.37 billion	US$19.5 billion

The Canadian Defense sector has three main domains: marine, land & other, and air & space systems. Of Canada’s four geographic clusters, Ontario focuses on the manufacturing of combat vehicles, aircraft and aircraft parts, airborne sensors, fire-control and countermeasures; Québec develops aircraft & aircraft parts, and aircraft maintenance, repair, and overhaul (MRO); Western and Northern regions of Canada focus on Naval Shipbuilding and Design, Aircraft MRO, and Naval Vessel MRO; Atlantic Canada focuses on Naval Shipbuilding and Design, and Aircraft MRO activities. 

Table: Defense Revenues by Domain (2018-2020)

	Air & Space Systems	Land & Other	Marine
Revenues	$542 million	$309 million	$696 million
Exports	$401 million	$89million	$146 million
Percentage of Export Revenue	74%	29%	21%
Percentage Change in revenue between 2018 – 2020	18%	8%	41%

Source: State of Canada’s Defence Industry Report, Innovation, Science, and Economic (ISED)

Selling to the Government of Canada

The Government of Canada regularly seeks suppliers for a wide range of defense products and services, including equipment, technology, and support services. Tenders, opportunities, and announcements can be found at canadabuys.canada.ca.

Planned Defense Acquisitions

DND’s procurements are highlighted under its Canada’s Strong, Secure, Engaged policy.  Two documents remain key to U.S. exporters: DND’s Investment Plan, which allows industry to find information on funded capital projects and support contracts, and the Defence Capabilities Blueprint (DCB), which features an inventory of 178 major projects for capital equipment, information technology, and infrastructure projects, in-service support contracts, and professional services contracts.  

Canada’s Industrial and Technological Benefits Program

Three agencies are involved in Canada’s defense procurement: Department of National Defence (requirements), Public Services and Procurement Canada (contracting), and Innovation, Science and Economic Development (ISED) Canada (industrial benefits and offsets). The Industrial and Technological Benefits (ITB) policy (known in the United States as offsets) is regulated and enforced by ISED and applies to foreign companies awarded defense and Canadian Coast Guard contracts over US$77 million that are not subject to trade agreements or for which the national security exception is invoked. Defense procurements valued between US$15-77 million are reviewed for the possible application of ITBs. After a contract is awarded, the contractor must begin fulfilling its commitments by identifying business activities in Canada equal to 100% of the contract value. A key feature of the ITB policy is the Value Propositions (VP), which is the bidder’s economic proposed plan of action in Canada at bid submission time.  A 2022 ITB report by ISED indicates the ITBs annually contribute close to 41,000 jobs, and over US$3.5 billion to Canada’s GDP. 

Indigenous Procurement

Canada has established a mandatory target of at least five percent of the value of a federal contract to be awarded to businesses owned and led by indigenous business groups.

The Defense Industry and Demand for Critical Minerals

U.S defense contractors are experiencing vulnerabilities in their supply chains particularly for the sourcing of critical minerals and rare earth elements (REE), which are essential in the manufacturing of permanent magnets required in key military capabilities. Canada holds forty to fifty percent of the world’s known REE reserves and can address supply chain gaps in North America through the adoption of offtake agreements with the Canadian mining industry.

Resources

Major Defense Events and Trade Shows in Canada

• Best Defence Conference, November 15-16, 2023, London, Ontario
• Canadian Armed Forces (CAF) Outlook Events by CADSI, April 2-4, 2024, Ottawa, Ontario
• CANSEC, May 29-30, 2024, Ottawa, Ontario
• DEFSEC Atlantic, October 1-3, 2024, Halifax, Nova Scotia

Key Defense Sector Associations

• Canadian Association of Defence and Security Industries (CADSI)
• Canadian Marine Industries and Shipbuilding Association (CMISA)
• Atlantic Canada Aerospace and Defence Association (ACADA)
• Aerospace Industries Association of Canada (AIAC)

Commercial Service Contacts

For more information on the defense sector, contact Commercial Specialist Mehdi Azeriah at Mehdi.Azeriah@trade.gov or by phone at (613) 688-5176.