Defence

The opportunity

Canada’s first Defence Industrial Strategy (the Strategy) marks a fundamental shift in how the country approaches defence, industrial policy, and sovereign capability. The Strategy is a generational blueprint designed to prioritize Canadian firms, streamline procurement, and foster investment in Canada’s defence industry. It is backed by $82 billion in new defence spending from Budget 2025.

For investors and companies, the Strategy, together with other related government initiatives, creates a clearer and more predictable investment environment for capital. The opportunity extends well beyond traditional defence manufacturing. Canada is positioning itself as a strategic partner within allied supply chains across aerospace, advanced manufacturing, critical minerals, Arctic infrastructure, dual-use technologies, artificial intelligence, and other priority areas.

Market entry: the Strategy and the Defence Investment Agency

The Strategy includes the Defence Investment Agency (DIA) as a core element. Enabling legislation introduced in May 2026 via the federal Budget will establish the DIA as a standalone entity and grant it expanded authorities.

The DIA will apply the Strategy’s “Build–Partner–Buy” framework to all future defence acquisitions, enabling faster, more coordinated procurement decisions, and accelerating the delivery of military capabilities.

Build. The DIA will prioritize Canadian suppliers and domestically produced solutions to enhance strategic autonomy and reduce reliance on foreign supply chains. The Strategy identifies ten initial “sovereign capabilities” as priority areas for investment and procurement: aerospace, ammunition, digital systems, in-service support, personnel protection, sensors, space, specialized manufacturing, training and simulation, and uncrewed and autonomous systems.

Partner. Where Canada cannot build a capability domestically, it will pursue partnerships with trusted allies and multinational firms to deliver required capabilities for the Canadian Armed Forces. The Strategy prioritizes diversifying Canada’s partnership base, with a focus towards the European Union, United Kingdom, and certain Indo‑Pacific nations. As an example of the partner approach, Canada announced in July 2026 that Thyssenkrupp Marine Systems (TKMS) in Germany is the preferred supplier to replace Canada’s aging submarine fleet. Canada announced that the project will be a long-term partnership between Canada, TKMS and Germany, and is expected to include collaboration on submarine design, construction, and sustainment; technology transfer and skills development opportunities; and close cooperation with allied naval programs.

Buy. Where neither domestic production nor partnership is feasible, Canada will acquire equipment from allies.

Investors should assess how these investment opportunities and the Build–Partner–Buy framework align with their investment strategies.

Financing and investor support

• On March 18, 2026, the DIA and Department of National Defence launched the Canadian Defence Industry Resilience (CDIR) program, which provides funding to help Canadian businesses increase their production capacity for defence-related goods, equipment, services, and materials. Its initial focus is on increasing domestic capacity for ammunition and explosives.
• Canada’s federal government is also modernizing its Industrial and Technological Benefits (ITB) Policy to maximize benefits to Canada’s defence industrial base. By requiring contractors to undertake business in Canada equal to the value of their contracts, the Policy leverages large defence procurements to generate economic activity. The updated ITB Policy is intended to create more high-quality defence jobs in Canada, strengthen the competitiveness of Canadian companies, and direct investment toward priority defence capabilities critical to Canada’s security. This is achieved, in part, by providing multiplier credits for certain activities in Canada.
• In early 2026, the Business Development Bank of Canada launched the $6-billion Defence Platform to support small and medium-sized businesses (SMBs). The Platform provides financing, advisory services, and direct investments, including fund investments in private funds that are aligned with Canada’s defence and national security priorities. It also includes the new $300-million StrongNorth Fund, a venture capital fund dedicated to supporting Canadian early-stage startups that are developing technologies with defence-focused or dual-use strategies or applications.
• The Strategy implements the $357.7-million Regional Defence Investment Initiative, delivered by Canada’s regional development agencies, to help SMBs scale and integrate into domestic and international supply chains.
• The Strategy also commits to creating a dedicated unit within Global Affairs Canada to lead a new whole-of-government strategy to boost Canadian defence exports, and to lead the establishment of dedicated new deal teams to pursue high‑value international contracts. Canada’s global market presence will be elevated by adding new Trade Commissioners in the United Kingdom and key EU markets. For example, collaboration with allies including Ukraine on drone technology has been underway for several years. Export activity in Europe will only accelerate under the new Defence Industrial Strategy.
• The federal government’s Buy Canadian Policy, adopted in December 2025, is also designed to support Canadian businesses and content. Under the Policy on Prioritizing Canadian Materials in Federal Procurement, all competitive and non-competitive construction and defence procurements valued at $25 million or more that require significant quantities of steel, aluminum, or wood products (at least $250,000) must, where available, use materials that are manufactured or processed in Canada. The Policy on Prioritizing Canadian Suppliers and Canadian Content in Strategic Federal Procurement also applies to procurements with a value over $5 million in certain strategic areas, including defence and security. Examples include weapons, vehicles, aircraft, ships, naval systems, electronic warfare, logistics, training, and security services.

Key ongoing developments

Investors and companies should watch for policy developments and announcements in the following areas.

Bill C-31, the Budget 2025 Implementation Act, No. 2

Among other items, the Bill C-31 legislation will formally establish the standalone Defence Investment Agency, presided over by a dedicated Minister. This Agency is intended to carve out defence procurement from routine government procurement under Public Services and Procurement Canada, streamline decisions, expedite the process and make it more agile, and centralize military procurement expertise.

The legislation also makes clear that competitive procurements are still the default for defence procurement, but the new Minister will have more exemptions to dispense with a competitive process. Of note, those exemptions include (i) where warranted, to support a sector of the Canadian economy that is important to national defence or to national security, including economic security, and (ii) defence supplies or defence services that were the subject of Government of Canada funding for research, development, or innovation.

Future location and establishment of DSRB

April 2026 saw a historic announcement that Canada has been unanimously selected by partner countries to host the new Defence Security and Resilience Bank (DSRB) headquarters. The DSRB will provide long-term, low-cost financing for defence initiatives, helping governments and SMEs to address financing gaps.

The objective is to have the DSRB operational by 2027. Investors who seek to expand their role in defence-related projects—within Canada and among allies—will want to track which Canadian city is selected for the headquarters, and the pace at which the DSRB is set up. Note that the Government’s pursuit of allies to support Canada’s bid to host the DSRB is ongoing. Eight nations have thus far expressly supported the initiative, none of whom are G7 members¹.

Federal-provincial cooperation on defence initiatives

Canada’s Defence Industrial Strategy was launched in February 2026. Three months later, Ontario released its own framework, the Ontario Defence Industrial Strategy. The Ontario plan seeks to capitalize on the province’s industrial base, its export reach, and its integrated supply chain, including critical minerals.

Investment decisions will be affected if other provinces follow suit by launching their own defence-related strategies and compete as choice destinations for Canada’s defence industry.

Importantly, Ontario’s strategy also focuses on developing a provincial defence industrial base that will be able to compete for foreign defence contracts. Canada’s recent membership in the Security Action for Europe (SAFE) initiative helps pave the way for this, as Canadian companies are now allowed to bid on large-scale defence projects that will be supported by loans of up to $244 billion to EU member states.

Movement on major projects linked to defence

While 16 initiatives have been referred to the Major Projects Office, in June 2026, three were targeted for the first time for listing (or designation) under the Building Canada Act (BCA). Two of the three, Grays Bay Road and Port and Mackenzie Valley Highway Project, are critical infrastructure projects located in Canada’s Far North, serving dual-use military and civilian purposes. Intended to support Canada’s sovereignty in the North, and to promote important economic development, they will serve as transportation corridors for critical minerals, as well as for military personnel and equipment destined for the region.

Being listed under the BCA means that these projects should move quickly and with certainty through the approvals processes, providing greater predictability for investors.

As the federal government seeks to establish an entire Arctic Economic and Security Corridor in the North, investors should watch for other defence-related projects being targeted for listing.

Indigenous partnerships

The Strategy emphasizes the need for sustained collaboration with Indigenous Peoples and northern communities, including in the Arctic. Successful collaboration requires that the constitutional duty to consult and accommodate is met, and that Indigenous groups derive benefits from the new focus on defence investment, particularly in Canada’s North.

Canada’s emphasis on dual-use infrastructure investments to strengthen defence capabilities includes airports, roads, ports, telecommunications systems, and emergency‑response systems. The Strategy emphasizes the need to balance dual-use infrastructure to promote Canadian sovereignty and generate socio-economic benefits for northern and Indigenous communities, including building a skilled workforce in First Nations, Inuit and Métis communities.

Economic partnerships with Indigenous businesses are expected in energy infrastructure² and in critical mineral development. Notably, a key priority in the Canadian Critical Minerals Strategy includes partnering with Indigenous groups.

All dollar amounts in this primer are C$ unless indicated otherwise.