Tuesday’s budget began laying the groundwork for what Canada’s new defence industrial base could look like, and it’s heavy on emerging technologies.
The federal government has earmarked $6.6-billion, beginning this fiscal year and spread out over the next five years, to grow Canada’s defence industry. Approximately two-thirds of that funding is already allocated, with the remaining $2-billion set aside but yet to be assigned.
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The initial $4.6-billion earmarked in the budget will be invested under Canada’s forthcoming defence industrial strategy, which Ottawa has promised to deliver before Christmas.
Until then, Budget 2025 offers a glimpse of what’s to come, including initial investments in quantum technology, critical minerals, space and dual-use technologies, which have both military and civilian applications.
The largest of these investments is a $1-billion program under the Business Development Bank of Canada to support small to medium-sized businesses, which make up the majority of Canada’s defence industrial base.
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The BDC-managed program will provide loans, venture capital and advice to smaller firms looking to contribute to Canadian defence, and is one of several initiatives within the broader budget targeted at supporting smaller domestic firms.
Matthew Lombardi, co-founder of defence innovation network the Icebreaker, said the BDC program spells out what industry was hoping for in terms of helping smaller firms enter defence supply chains and acting as the “missing middle” for dual-use firms to “bridge long procurement cycles.”
The program is a marked change for BDC, which has historically avoided defence as part of its investment mandate. A federal Crown corporation, BDC is the largest individual investor in the Canadian tech sector, through in-house funds and as administrator of the government’s Venture Capital Catalyst Initiative.
Another key defence innovation initiative, announced by Prime Minister Mark Carney in April, is the Bureau of Research, Engineering and Advanced Leadership in Innovation and Science. BOREALIS will receive $68.2-million over three years, starting this fiscal year, according to the budget.
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The bureau is seen as Canada’s response to the U.S.’s Defense Advanced Research Projects Agency, or DARPA. The American research and development agency, created in 1958, is best known for its role in creating breakthrough technologies such as the internet and GPS.
DARPA is now overseeing a competition to determine if any company in the hot quantum computing space can build one of the cutting-edge machines at scale by 2033. Three Canadian companies have made the program’s first cut. If they can reach scalability, quantum tech will play a critical role in the future of warfare by improving communications, sensors and computing.
Meanwhile, Ottawa’s ambition to spend $334.3-million to keep its own world-leading quantum companies at home falls short of industry hopes. The federally appointed National Quantum Strategy Advisory Council has called on Ottawa to allocate $1-billion to the sector, or risk losing the momentum it has built to lead U.S. states.
However, Canadian quantum technologies could also stand to receive some of the $656.9-million to be spent over five years, beginning this fiscal year, to develop and commercialize products with both civilian and military uses.
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Other industries that could tap into these funds include aerospace, automotive, marine, cybersecurity, AI, life sciences and biodefence, which refers to the use of biological threats such as disease in warfare.
The government has yet to clarify what’s included under its definition of dual-use or dual-purpose technologies.
Critical minerals will also get some attention in Canada’s defence industrial strategy, with $443-million allocated over five years to develop processing technologies, support joint investments with allies and establish a stockpiling mechanism aimed at strengthening national security.
But Erin O’Toole, former Conservative Party leader, said in an interview that Canada already knows how to do critical minerals well, adding that the government should have paid more attention to securing private capital to back new defence innovation in its budget.
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For example, Canada is the only G7 nation without a domestic space launch capability. Starting this fiscal year, it will allocate $182.6-million over three years to changing this. However, it’s unclear how this investment, led by the Department of National Defence, will work alongside similar continuing efforts by companies such as NordSpace and Maritime Launch Services.
After the launch of its Defence Investment Agency in October, Ottawa has announced it will spend $30.8-million over four years to fund its operations.
This funding will begin next fiscal year, around the same time the agency enters its second phase, at which point it expects to have established clearer objectives and further details around its operations.
The budget also reinforced that the $100-million-and-above limit for procurements under the new agency is here to stay, despite it drawing ire from industry owing to its exclusion of small- to medium-sized businesses.
So far, Mr. O’Toole said, “the investment agency is looking quite vanilla.”