Exploring the Canadian Defence Sector: Trends and Outlook

Following NATO's recent decision at the Vilnius Summit to re-embrace "the 2% target," debates about a possible surge in Canada's defence expenditure have intensified. However, there's more to the Canadian defence industry than merely its budget. This piece delves into the Canadian defence landscape and its evolving trends.

In 2022, data from the Canadian Association of Defence and Security Industries (CADSI) and Innovation, Science and Economic Development Canada (ISED) highlighted a growing trajectory for Canada's defence sector. Revenues in 2020 surpassed $12.6 billion, a leap from $10.7 billion in 2018.

The upward trend is expected to persist, with the defence budget set to grow in the upcoming years. Yet, the feasibility and necessity of a significant spending increase—approaching the two per cent mark—are subjects of ongoing debate. Factors such as political intent, international pressure, and public sentiment (with surveys by Nanos and Ipsos showing majority Canadian support, albeit with age-related variances) play a role.

Even if a major spending boost doesn't occur, the domestic market is poised for growth, especially with the federal government being a significant client. Their purchase proportion increased from 69% in 2018 to 72% in 2020. Furthermore, equipment supplies to Ukraine from the CAF’s stocks will necessitate replenishment.

On the export front, the scenario is equally intriguing. In 2020, exports accounted for 52% of revenues, comparable to 54% in 2018. Given global developments like Russia's aggression in Ukraine, many nations, including NATO members, the US, and much of Europe, are amplifying their defence budgets. This may lead to a more substantial export market share for Canada.

Zooming in, "Air & Space Systems" is a burgeoning area, even though the "Marine" sector dominated recent revenue data. Yet, the former witnessed an 18% revenue increase from 2018-2020, with exports contributing $518 million of the total $700 million in revenues. Comparatively, the marine exports sat at just 21%.

Artificial Intelligence (AI) is a game-changer, particularly in its potential for exports. Areas such as "Simulation Systems for Aircraft" and "Simulation Systems for Naval Vessels" both incorporate “intelligent software” and rank high in “R&D to revenue ratios.” Additionally, AI-driven "Unmanned Aerial Systems/Vehicles (UAS/V)" are topping charts in both R&D and export to revenue metrics.

In sum, dynamics shaping Canada's defence industry are evolving, influenced by global and internal factors. Samuel Associates remains at the forefront of understanding these shifts, especially in AI and defence-related areas. For in-depth insights and consultation, consider reaching out to us.

Article co-written by: Goran Samuel Pesic and Christopher Maternowski.

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