CADSI 2012 IRB Report
© 2017 FrontLine Defence (Vol 14, No 1)

CADSI 2012 Report to the Minister of Industry on the Industrial and Regional Benefits (IRB) Program
The full, unedited version of the CADSI report from 2012 is on the FrontLine web site with the above article, so you can decide for yourself if, over the past five years, the government has made enough improvement in the areas identified.

The scope of the review centered on the following four questions:

  1. Do the stated goals and underlying principles of Canada’s IRB policy maximize jobs, innovation and economic activity in Canada’s defence and security sector?
  2. Have the October 2009 announced or implemented changes to the IRB policy positively affected how the program is being managed, and have they resulted in improved outcomes?
  3. What changes would you propose to Canada’s IRB policy, to the program’s strategic and critical technology lists, and/or to the management of the policy to advance the interests of Canada’s defence and security industries?
  4. How could you use the IRB program to incent global defence contractors to develop global lines of business from Canadian soil?

The report outlined challenges and opportunities facing Canada as they relate to economic benefits derived from defence and security procurement. The report noted consensus that a more forward-looking and ambitious IRB policy is required to yield far more valuable benefits to both the industry and the national economy. Unfortunately, the same can still be said today.

CADSI noted that government and industry have become culturally separated, tending towards an almost adversarial relationship when it comes to contracting and offsets, which is highly counter-productive.

IRB projects should ideally be a “grand collaboration between government and industry, with government having the ability to attract business into the economy, and industry having the skills and motivation to best exploit these opportunities.”

CADSI’s suggestion was to work cooperatively to design a higher level of incentive and outcome targets, and with streamlined, time-efficient processes that maximize the net economic advantage while equitably sharing risk. Instead, what has resulted has been many more levels of approval and almost complete risk avoidance, and still no ultimate point of accountability.

The report provided specific advice on how the IRB policy and its administration could be improved to drive higher quality, sustainable industrial benefits to expand innovation, economic and employment growth decades into the future.

The Problem
Canada’s IRB/ITB program is not competitive with offset programs that exist in many other countries. This is a problem because credits are the result of investments in the economy that represent value and are seen as a ‘commodity’ by those who carry obligations through their sales of defence and security materials around the world.

A company’s willingness to invest in strategic technology, and sustain business activity in a country beyond the life of an obligation, depends directly on how attractive Canada’s offset program is – this cannot be stressed enough. Canada’s IRB program, therefore, plays multiple roles. It is a manager of domestic obligations for an OEM (domestic or foreign), an advocate of economic development in Canada of national interest, and is an enabler of Canadian industrial success in international markets. These multiple roles need to combine to create a climate that will attract and retain the investment and business presence of major corporations interested in the Canadian defense and security market.

According to CADSI, the 2009 changes had improved the IRB policy, but that the “current management practice and interpretation of how to implement the enhancements are unlikely to produce the government’s desired outcomes. Significant improvements are required to design more internationally competitive incentives.”

Elements of a Solution
CADSI recommended that IRB policy goals should involve active and coordinated support of the government’s industrial development and export promotion programs, thus creating an internationally competitive dimension to attract investments and global value chain products. Global defence and security companies try to focus more of their long-term commercial investments in countries that offer, within acceptable risk parameters, the greatest commercial potential over the long term.

This commercial logic also applies to the actions of domestic obligors who, although firmly rooted in Canada, are likely to be global companies as well, with investment opportunities and offset obligations in other defence, security, and commercial markets to consider. “IRB policies need to recognize and promote the export potential associated with domestic obligors,” stated the report.

Read the full report here.

Chris Maclean is the Editor-in-Chief at FrontLine Defence magazine.