Overview

According to Innovation, Science, and Economic Development (ISED) in partnership 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 percent of the industry’s domestic revenues; while in the context of the Five-Eyes partnership, the United States, at 49.1 percent, represents Canada’s top defense export market.

Defense Priorities

Key defense programs of interest to U.S. exporters include the National Shipbuilding Strategy where Canada is committed to replacing the entire fleet of the Royal Canadian Navy and the Canadian Coast Guard with modern combat surface combatants (with Lockheed Martin Canada acting as the Combat Systems Integrator,) icebreakers, coast guard vessels, supply and research vessels.  Another procurement program is the Future Fighter Capability Project (FFCP) by the Royal Canadian Air Force.  On March 28, 2022, Canada selected Lockheed Martin’s F-35 for the “finalization phase” of this Project.  If compliant with all government requirements, Canada will acquire 88 F-35 fighter jets with a final contract estimated at US$15.2 billion.  The NORAD modernization program is another area with opportunities for U.S. exporters.  The integrated nature of the United States and Canada’s supply chains under NORAD, highlights the importance of this strategic bilateral relationship.  A joint U.S. and Canadian statement in August 2021 committed both countries to modernize NORAD on areas like situational awareness, modernized command and control systems, infrastructure upgrades in Canada’s Arctic and northern regions.  A June 2022 budget announcement will see Canada put US$3.8 billion, over the next six years towards this modernization, with a long-term goal of putting US$31 billion over the next twenty years. On January 2022, Canada awarded a contract to the Nasittuq Corporation, for the operation and maintenance of the North Warning System (NWS.) 

Canada’s Defense Budget

The Department of National Defence’s (DND) main budget estimate for 2022-23 is US$20 billion.  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 2022-23 Budget Estimates for more details.

The Canadian defense sector focuses on three main domains: marine, land & other, and air & space systems. Export revenue in the air & space systems reached 74% of the total revenue growth, whereas export sales of land & other represented 29%, and 21% under the marine segment. For the period 2018 – 2022, the Marine segment led in revenue growth both in dollar value and relative terms.

Canada has four geographic clusters of defense expertise.  Ontario focuses on manufacturing of combat vehicles, aircraft and aircraft parts, airborne sensors, fire-control and countermeasures; Quebec 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. 

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

Selling to the Government of Canada

Canada is transitioning from its legacy procurement website, BuyandSell, to a new SAP Ariba-based web platform, CanadaBuys. For now, please continue to visit buyandsell.gc.ca for procurement announcements.

Planned Defense Acquisitions

DND’s procurements are highlighted under Canada’s Strong, Secure, Engaged policy, but two documents remain key to U.S. exporters: DND’s Investment Plan (updated in 2021,) and the Defence Capabilities Blueprint (DCB), which features an inventory of 240 projects for capital equipment, information technology, and infrastructure projects over US$3.9 million, and support contracts which are upcoming in-service support contracts and professional services contracts over US$15.47 million.  DND’s approved delegated contracting authority (effective May 2019) is up to US$3.9 million for goods and services and up to US$193.4 million for non-competitive requirements.

Canada’s Industrial and Technological Benefits Program

Three agencies are involved in Canada’s defense procurement: the Department of National Defence (requirements), Public Services and Procurement Canada (contracting), and Innovation, Science and Economic Development Canada (industrial benefits and offsets). The Industrial and Technological Benefits (ITB) policy (known in the U.S. 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 2021 ITB report by ISED indicates the ITBs contributed close to 42,000 jobs and over US$3.7 billion to Canada’s GDP.  Current ITB projects have resulted in US$33 billion of ITB obligations, with 79 percent of it reinvested in the defense sector. 

Indigenous Procurement

Canada has established a mandatory target of at least 5% 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.

Major Defense Events and Trade Shows in Canada

• Abbotsford International Airshow, August 5-7, 2022, Abbotsford, British Columbia
• Best Defence Conference, September 16-17, 2022, London, Ontario
• DEFSEC Atlantic, October 4-6, 2022, Halifax, Nova Scotia
• Canadian Armed Forces (CAF) Outlook Events by CADSI, April 2023, Ottawa, Ontario
• CANSEC, 2023, Ottawa, Ontario

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 Luz Betancur at Luz.Betancur@trade.gov or by phone at (613) 688-5411.