The Government of Canada is putting up nearly $358 million to strengthen the country’s defence supply chain through its new Regional Defence Investment Initiative (RDII).
Eligible companies, which can now apply for funding through the program, include small and medium-sized businesses (SMBs) with military-focused or dual-use products and services, as well as firms looking to integrate into domestic and international defence supply chains.
Minister of AI and Digital Innovation Evan Solomon
“This is real. This is not a new program. This is a new Canada.”
Canada’s Minister of AI and Digital Innovation Evan Solomon shared the news today from Toronto’s Downsview Aerospace Innovation and Research hub. He and the federal government claim the new funding will drive defence-related research and innovation, bolster the country’s supply chain, and improve access to capital for SMBs in the sector as Canada looks to both shore up its domestic defence capabilities and meet its responsibilities to allies amid a United States trade war.
Federal RDII funding will be directly deployed by Canada’s seven regional development agencies (RDAs), including FedDev Ontario, ACOA, and PrairiesCan, over the next three years.
FedDev Ontario has been given $94.7 million through RDII, and is topping that amount up by reallocating $106 million worth of its existing funds towards the initiative.
FedDev Ontario’s Atlantic Canadian counterpart ACOA will be deploying more than $38 million in RDII funding, while PrairiesCan is investing over $48 million. Canada’s other RDAs have not yet revealed their RDII allocations.
Projects will be encouraged to source Canadian equipment, materials, or services and support domestic suppliers under the country’s Buy Canadian strategy, which is expected to launch next year.
In an interview with BetaKit following the announcement, Solomon said that the RDAs will apply a “wide” definition of defence, and that he expects most of this funding to come in the form of zero-interest loans (also known as repayable contributions) to SMBs. The idea is to help these companies scale up, meet industry standards, and pursue opportunities with major defence contractors.
The feds say that Canada’s defence industry contributes nearly $10 billion to the country’s GDP and supports over 81,000 jobs, with SMBs representing 92 percent of the industry and 40 percent of total defence jobs.
Solomon said that RDII funding will focus on Tier 2- and Tier 3-level Canadian companies that either already provide defence products and services to larger Tier 1 suppliers like MDA and government, or are working to begin doing so.
The US trade war has spurred Canada to fortify the country’s sovereign and military capabilities. Efforts to do so are already underway, and Canada is on pace this year to spend two percent of its gross domestic product (GDP) on defence, hitting NATO’s target as part of a big jump after years of relative underinvestment in the sector.
Earlier this year, Prime Minister Mark Carney promised that the country would hike its defence spending to more than five percent of its GDP by 2035.
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Carney’s first budget earmarked nearly $82 billion over five years to help the country get there, and “rebuild, rearm, and reinvest” in the CAF. That figure includes almost $7 billion to build Canada’s defence industrial base under the forthcoming Defence Industrial Strategy (DIS). According to the feds, the RDII lays some of the groundwork for that initiative.
“We are allocating $6.6 billion over the next five years on a cash basis, starting this year, on our [DIS],” Solomon said today during the announcement. “This is real. This is not a new program. This is a new Canada.”
Solomon did not comment to BetaKit on when Canada will unveil the DIS, saying that decision lies with Minister of National Defence David McGuinty. McGuinty previously promised it would come before Christmas.
Matthew Lombardi of defence newsletter The Icebreaker joined The BetaKit Podcast in September to unpack Canada’s suddenly exploding defence sector. He found a cluster of almost 500 Canadian companies building critical technologies—technologies like quantum, logistics and telecommunications, or aerospace, for example—that have a ‘dual use’ in the defence sector.
Last month, Dominion Dynamics founder and CEO Elliot Pence told BetaKit that he sees this ramp-up as a “generational opportunity” for Canadian entrepreneurs.
Feature image courtesy ISED. Photo by Kheyi Ischei.