Industrial Strategy
Sep 15, 2012

Momentum is building for the creation of a Canadian Defence Industrial Strategy. The federal government is coping with a string of failed and struggling defence procurements – Maritime Helicopter, Fixed Wing Search and Rescue Aircraft, Medium Support Vehicles, and Close Combat Vehicle to name a few – and the benefits of $240 billion in planned ­military purchasing over the next 20 years under the Canada First Defence Strategy have yet to be realized.

The government will quickly point to the National Shipbuilding Procurement Strategy and recent changes to the Industrial and Regional Benefits policy as evidence of success, but establishing a true Defence Industrial Strategy is more ambitious. While it did not call for a strategy for the defence industry per se, the 2011 federal budget did talk about developing “a procurement strategy, in consultation with industry, to maximize job creation, support Canadian manufacturing capabilities and innovation, and bolster economic growth in Canada.” The defence community is very much in favour of this.

CADSI, the Canadian Association of Defence and Security Industries, recently provided the government with additional incentive to produce that strategy. The ­September release of CADSI’s “Economic Impact of Defence and Security Industry in Canada” report, prepared by KPMG, emphasized the defence and security industry’s contributions to the Canadian economy. Today, for every dollar of business Canadian industry receives from the Canadian market, it generates a matching dollar in international exports, but there is much more room to grow. Mike Greenley, CADSI Board Chair and vice president of General Dynamics C4 Systems believes that, with the right policies in place, Canada could double its defence and security exports. “We’d like to see a shift, so that some day, when Canadian industry receives a dollar of business at home, it then generates two dollars in export business,” he says, adding: “We feel we can achieve this export upside through collaboration with government in a whole-of-government approach to exports.”

In a pre-budget submission to the Commons Finance Committee this fall, CADSI stated that only a defined Defence Industrial Strategy and Defence Investment Plan “can effectively leverage federal R&D, defence and security procurement strategies, and defence and security exports, so that the industrial base is strengthened and domestic jobs, innovation and economic activity are maximized.”

A Canadian Defence Industrial Strategy sounds like common sense. If an advanced industrial nation is committed to the purchase of military equipment, it should direct spending to the greatest possible advantage of its domestic industries, provided its soldiers receive the best possible equipment while citizens pay the best ­possible price. How to do that, is another matter.

CADSI president Tim Page says government support in a global market is essential. “Governments around the world,” he says, “treat their defence and security industries as vital players that are integral to both their domestic economies and their national security interests.” Other nations tend to work with and purchase from their industrial base when it meets their specific military requirements, and Page suggests that “Canada should be no less pragmatic in its approach.”

The Office of the Auditor General has addressed military procurement and industrial development with the following comment: “International markets are very competitive, and countries with larger demands usually supply their own needs. This problem is growing as the demand for defence equipment drops in response to declining defence budgets around the world. In this highly competitive market, most CEOs feel that Canada needs a clear industrial strategy and a stable defence policy to guide industrial development ­initiatives. In the opinion of a number of CEOs, government officials need to consider entirely new approaches.” Sounds about right, but that quote is 20 years old; you can find it in the OAG’s December 1992 report.

There was no shortage of advice on those ‘new approaches’ two decades ago, and there is no shortage now.

The first recommendation of CADSI’s 2009 report on military procurement also rings valid today. It called for government to align defence procurement strategies and processes in support of a defence industrial policy, identify and support “critical defence industrial capabilities that are needed to support Canada’s defence, sovereign and economic interests” and to “enable the success of those critical capabilities through ‘cluster’, R&D, IRB, export and procurement strategies.”

Speaking at the CANSEC defence conference last May, the Minister of Public Works and Government Services, Rona Ambrose said the procurement status quo is not an option. In remarks that did not appear in her prepared speech, the minister made it clear that she is tired of delay and obfuscation. “Frankly, when it comes to procurement, I’m a little tired of being told why something can’t be done,” she said. “I am fully aware of all of the internal obstacles to change, but I realize we won’t be able to transform the procurement system overnight.”

According to Tim Page, “CADSI members are convinced that reform must accompany the adoption of an industrial strategy if its implementation is to maximize jobs, innovation and economic activity in Canada from defence spending.”

There are still some building blocks needed to support the linked goals of procurement reform and a Defence Industrial Strategy. In December, the Hon. David Emerson is scheduled to submit the Review of Aerospace and Space Programs and Policies that was commissioned early this year.

In late September, Public Works Minister Ambrose appointed Tom Jenkins as Special Adviser to the Minister to improve defence procurement and support the competitiveness of Canada’s defence industries. He has been asked to engage “stakeholders involved in Canada’s defence-related industries to help develop criteria” but the more important task may be the development of a “supporting process to inform the identification of key industrial capabilities.”

In the words of the CADSI pre-budget submission, “The identification of Key Industrial Capabilities (KIC) in the defence and security sector would allow government to direct federal R&D to KIC areas, to prefer Canadian KIC suppliers in defence procurements when they meet operational requirements, and to grow Canadian KIC suppliers through a whole-of-Govern­ment export strategy.”

Industrial Capabilities are indeed ‘key’. If, as critics suggest, a Defence Industrial Strategy is simply government playing the game of picking winners and directing subsidies, then KICs are how it will be done.

Richard Bray is FrontLine’s Senior Writer.
© FrontLine Defence 2012