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Canada's defence spending is set to more than double over the next decade, but much of the early money is likely to flow abroad. That's the conclusion of a new report from the Canadian Chamber of Commerce's Business Data Lab.
Why it matters: The Defence Industrial Strategy (DIS) aims to award 70 per cent of defence acquisitions to Canadian firms by 2035. The report finds most Canadian defence research ends up owned, patented or sold by foreign-controlled companies. Canadian-controlled private firms account for just 18 per cent of industry sales.
Driving the news: Deepening Our Defence is authored by Andrew DiCapua, principal economist at the Canadian Chamber of Commerce, with analysis from U15 Canada, which represents the country's research-intensive universities.
The report projects core defence spending of about $160 billion by 2035 under NATO's 3.5 per cent target, and more than $1 trillion in cumulative spending over the decade.
The details: The sharpest finding is about research that never becomes a contract.
U15 identified 802 likely Canadian firms with at least two records of defence-relevant innovation since 2015. These include patents, publications, tri-council partnerships or IRAP support.
Only 88 of those firms, or 11 per cent, won a related federal contract in the same period.
A foreign-controlled firm was an applicant on roughly three-quarters of patent families with Canadian inventors across eight DIS capability areas from 2014 to 2023.
U15 used AI-assisted matching to classify firms as likely Canadian or foreign. Ammunition and personnel protection were left out of the analysis over accuracy concerns.
The report describes Canada as one of few advanced economies that is a net exporter of R&D services and a net payer for intellectual property. Canadian researchers do contract work for foreign owners, who keep the IP. Canada then pays to license the resulting technology back.
By the numbers: 2024 figures, drawn from the Canadian Defence, Aerospace, Marine and Cybersecurity Industries Survey:
538: firms in the core defence sector
$17.3 billion: defence sales
$3.1 billion: sales by Canadian-controlled private firms
92 per cent: share of firms that are SMEs, which capture about 30 per cent of revenue
47 per cent: share of defence firms' purchases that are imported
$7.9 billion: defence exports, 63 per cent of them to the U.S.
78 per cent: growth in defence exports to Europe, excluding the U.K., between 2022 and 2024
The bigger picture: The report expects Ottawa to follow a "capability-led" path. That means buying proven platforms quickly to meet CAF needs and NATO targets, even if some value leaks abroad.
Poland is the cautionary case. It roughly doubled defence spending as a share of GDP between 2021 and 2025, but sourced an estimated 80 per cent from foreign suppliers.
Near-term openings for Canadian firms sit mostly beyond major platforms, the report says:
Sustainment and maintenance, repair and overhaul
Construction and engineering, including Arctic infrastructure
Software, AI and autonomy
Supplying components and engineering to prime contractors
What they're saying: On whether Canada's industrial base can capture the value of the build-out while building sovereign capability, the report is blunt: "Today it largely cannot."
"This is why defence strategy must now function as industrial strategy," it states.
What's next: The report calls on Ottawa to publish long-term capability requirements. It notes the Defence Investment Agency handles only procurements over $100 million, and there is still no public list of future defence needs. It also urges faster security clearances and procurement rules that reward Canadian content and SME participation.
For businesses, it recommends aligning products with DIS priorities, obtaining clearances early and building relationships with primes. For many SMEs, it says, joining a prime's supply chain will be the most practical first step.
