Meeting NATO’s 2% target; that’s a lot of money. Who could benefit the most? And will it even work out?
This is obviously good news for the Canadian economy, although it has yet to be seen if the money will be spent effectively; there is a definite need for good procurement practices that would prioritize domestic production if we want to see a good impact on the economy. According to RBC, about half of the spend is going to Canadian suppliers today, with 25% to US companies and the rest to other countries…
Coupled to that, the defence industry is usually rich in R&D, which is a good thing since we have to tackle our productivity challenges. Some of our best innovation stemmed from necessity, and when it is brought about by the military, there are many examples of spillover to the civil sector. GPS, radars, duct tape, cybersecurity protocols... There are numerous cases across the past decades. But those positive effects will, again, show up if the money is spent properly. There is a definite chance of capital being used in a less efficient and productive way than if it was directly allocated to markets, if procurement processes are not favoring competitiveness and accountability.
Among the other challenges, it also has yet to be seen if we have the right processes to spend that money; today and according to the Office of the Parliamentary Budget, there is roughly $12bn out of $53 billion that were left unspent… With all the goodwill in the world, it will be complex to reach a 2% spend target although not impossible if there are solid public sector reforms to tackle some of the admin burden related to it while keeping accountability afloat.
Who will stand to benefit the most?
Not all provinces and territories could benefit, and they will benefit in a very different manner:
Quebec, through its aerospace cluster (CAE, Bombardier), could benefit widely, along with the AI/cyber companies (Thales, Palantir…)
Nova Scotia and BC could benefit through their naval infrastructure and shipbuilding capacity. Companies like Irving and Seaspan could see increased growth.
Ontario can benefit as it still holds the military headquarters, and any admin roles created for procurement for example will likely be there. Tech firms in Toronto but also admired vehicle production in London (GLDS) would likely benefit.
Alberta would benefit from the crossover with the oil industry heavy machinery requirements.
Manitoba to a smaller extent through company like Magellan.
All in all, this is still an ambitious target, which will require to maximize the efficiency of procurement processes, the proper allocation of resources to domestic firms (which will likely slow down the process at first as we are building further capabilities), and the elimination of red tape.
Again not, impossible, but very challenging in my view.