Chamber Report Establishes a Starting Point for Canada’s Defence Industrial Expansion

The Canadian Chamber of Commerce’s Business Data Lab has assessed the size and structure of the defence industrial base that Ottawa expects to absorb more than $1 trillion in defence and security spending over the coming decade.

Released with U15 Canada on 29 September, Deepening Our Defence: Canada’s Ambitious Task to Expand the Defence Industrial Base describes a relatively small, concentrated sector in which foreign-controlled companies generate most revenue, according to the Chamber.

The Scale of the Spending Ahead

The Chamber forecasts that core defence spending will rise from approximately $64 billion in 2025 to $160 billion in 2035. Annual spending could reach $228 billion if Canada fulfils the complete NATO commitment of 5% of GDP.

Across the decade, the report anticipates cumulative defence and security expenditure exceeding $1 trillion. The question it poses is how much of that money will remain in Canada through expanded industrial capacity, employment and domestically held intellectual property (IP).

Matthew Holmes, the Chamber’s Executive Vice President and Chief of Public Policy, warned that much of the opportunity could be lost if the investment becomes “a series of government purchases instead of a long-term effort to build capacity.”

The Industry’s Current Structure

Canada begins this expansion with 538 core defence companies producing $17.3 billion in annual sales. The 50 largest firms account for roughly 80% of that revenue.

Although small and medium-sized enterprises (SMEs) represent 92% of defence companies, their combined share of industry revenue is approximately 30%.

Canadian-controlled private companies, meanwhile, generate just 18% of defence sales. Consequently, many decisions governing IP, production and exports rest outside Canada.

The sector also depends substantially on imported inputs. Imports account for 47% of purchases by core defence firms, reducing the share of procurement expenditure that reaches Canadian suppliers, employees and communities.

However, the report identifies room to expand in neighbouring industries. Metals, equipment manufacturing and construction have unused capacity that could support additional defence production.

Export Growth, Research and Obstacles to Entry

Defence exports totalled $7.9 billion in 2024, accounting for nearly half of the sector’s revenue. Sales to Europe, excluding the UK, increased by 78% from 2022 to 2024.

The defence industry is also three times as research-intensive as manufacturing as a whole. Yet only 11% of innovative Canadian companies operating in Defence Industrial Strategy priority areas had recorded related direct sales to the federal government.

The Chamber identifies four constraints: lengthy security clearance processes, restricted access to capital, procurement complexity and insufficient visibility into future government requirements.

Its recommendations address each of these issues through clearer long-term purchasing plans, shorter clearance timelines and simpler procurement. The report also calls for purchasing decisions to place greater weight on Canadian content, SME involvement, IP ownership and export rights.

Andrew DiCapua, the Chamber’s Principal Economist, linked that predictability to companies’ willingness to invest. A dependable government demand signal, he said, would give businesses greater confidence to secure financing, enlarge their facilities and recruit skilled employees.

Universities represent another source of capacity that the report considers underused. U15 Canada CEO Robert Asselin said stronger pathways between university research and Canadian companies are needed if higher defence spending is to produce a lasting economic benefit.

The Chamber identifies four areas in which Canadian firms are particularly well positioned: maintenance, repair and overhaul (MRO); construction, engineering and Arctic infrastructure; software, AI and autonomous systems; and specialized components and supply chains.

Reconciling the 70% Goal With the 18% Share

These findings provide context for Ottawa’s stated objective of awarding 70% of defence contracts to domestic companies, reported by CP24 this week. Canadian-controlled private firms currently account for 18% of industry sales.

That gap suggests Ottawa will meet part of its target by treating foreign subsidiaries operating in Canada as domestic suppliers. The first Defence Drone Initiative (DDI) awards already illustrate the broader approach, placing foreign designs licensed or supported in Canada alongside Canadian-designed systems.

How Ottawa defines “Canadian” will therefore shape which companies capture the greatest share of additional spending. For foreign prime contractors with Canadian subsidiaries, that definition could become a central point of competition in each major program.

The figures suggest a different path for SMEs. With approximately 30% of industry revenue, most are likely to find their entry through prime contractors and sustainment activity rather than by securing prime contracts themselves.

The identified opportunities reflect this route. MRO, components, integration and infrastructure largely involve second-tier work, and each has a connection to a program already underway.

GlobalEye negotiations, for instance, will determine the extent of aircraft sustainment and integration performed in Canada. Rankin Inlet demonstrates how Arctic infrastructure funding reaches civil contractors, while the DDI is procuring autonomous systems from companies across the size spectrum.

Outlook

The report establishes a fixed reference point for Canada in 2026. Its principal measures – 538 companies, $17.3 billion in sales, an 18% Canadian-controlled share and 47% imported inputs – provide a basis for tracking the industry as expenditure increases.

A successful Defence Industrial Strategy should raise both the Canadian-controlled share of sales and the domestic share of industry purchases. If additional spending instead goes predominantly to foreign-controlled businesses and imported inputs, those proportions could remain unchanged despite growth in total revenue.

The proportion of innovative firms recording federal sales, currently 11%, could offer an earlier indication of change. Initiatives such as the DDI are intended to bring new suppliers into federal procurement quickly.

Anvil North will adopt these measures as an external benchmark for its Canadian supply atlas and assess their movement as further data becomes available.