TLDR
After 25 years of declining defence spending, Canada met its 2 per cent NATO target in 2026 – and has pledged to reach 5 per cent of GDP by 2035.
The country’s renewed commitment is an economic story as much as a security one – one set to generate jobs, industrial capacity and lasting supply-chain strength across Canada.
The opportunity is wide and businesses across a range of sectors – from manufacturers to technology firms, critical minerals producers and professional services – can capitalize.
Canadian businesses with the right financial structure, relationships and advice in place will be the ones better positioned to act while the window is open.
RBC has committed funds to support economic growth and help Canadian companies in defence-aligned sectors build and scale.
Canada is at an inflection point. After 25 years of declining defence investment, the country has met its 2 per cent NATO spending commitment and pledged to reach 5 per cent of GDP by 2035 – roughly $150 billion in annual spending within a decade.
“These are big commitments and big promises,” says Peter MacKay, former member of parliament and Minister of National Defence. “And much of this is predicated on Canada’s industrial ability to respond to the moment.”
McKay spoke with John Stackhouse, Senior Vice President in the Office of the CEO at RBC; and Thomas Ashcroft, Policy Lead of Global Issues at RBC, at a recent discussion hosted by McInnes Cooper and RBC on Canada’s Defence Moment: Strategy, Capital, and the Road Ahead.
Their conversation ranged across policy, capital and industrial capacity and made one point clear: the investment in defence is really a nation-building project – and Canadian companies are the ones who will deliver it.
This investment in a stronger, more secure country means a once-in-a-generation economic opportunity for Canadian businesses. After all, commitment at this scale creates demand across sectors, from manufacturing to technology, materials to infrastructure, as well as the services that support them.
The challenge for business owners? How to secure the capital, suppliers and capacity to help them scale quickly and meet this unique moment in time – one backed by government commitment and increasingly available capital.
What this investment means for the Canadian economy
Defence spending involves more than buying military equipment. Because the sector is both research- and capital-intensive, its benefits ripple outward – through industrial development, innovation and new capabilities. They touch industries far from the factory floor, from aerospace to Artificial Intelligence. Further, dual-use infrastructure, built for defence but useful for civilian purposes, can strengthen transportation and digital networks and open access to new markets along the way.
Additionally, in Canada, much of the investment stays close to home. Canadian-owned firms largely rely on Canadian suppliers, so dollars committed to defence tend to recirculate through the domestic economy, multiplying the economic benefit and widening the range of industries that stand to gain.
The early numbers tease the potential economic upside. Canada is spending roughly $17.2 billion on defence in 2025-2026, and the effects are already visible at the provincial level. Ontario estimates its Defence Industrial Strategy could create 43,000 jobs, add $6 billion to GDP and generate more than $400 million in annual tax revenue by 2035, with critical minerals, nuclear energy, advanced manufacturing and aerospace emerging as central pillars. For businesses in those sectors, the demand is only beginning to build.
Explore further: What does greater defence spending mean for Canada’s economy?
The widening field of opportunity
Canada’s domestic defence sector is, for now, comparatively small in relation to the U.S. and many European and Asian countries. Roughly 600 firms generate about $14 billion in annual revenue, and the vast majority are small and medium-sized enterprises. The Defence Industrial Strategy (DIS), introduced in early 2026 to put Canadian industry at the centre of the build-up, aims to lift the share of defence acquisitions awarded to domestic firms to 70 per cent, up from 43 today. Closing this gap means drawing in more companies, including those not yet in the sector.
Asked where the greatest potential lies, MacKay points first to technology. “The tech sector is where Canada has a natural advantage, and we are capitalizing on it,” he says. “We are seeing highly educated, skilled people coming out of our universities and colleges with the know-how and the ambition. I’ve met a lot of these young entrepreneurs doing incredible things that integrate well with the needs of the modern military we’re trying to build.”
Also high on the list is Canada’s marine industry. Shipbuilding, paired with a technology overlay, plays to a long-standing Canadian strength – one with both a domestic and an export role supporting allies and NATO. Remote systems and cyber security round out the emerging areas of innovation.
One thread running through each of these areas is intellectual property. MacKay and Stackhouse agree that Canada needs to be a hotbed for IP and industrial technological benefits – and, just as importantly, that IP needs to remain at home.
The dual-use advantage
Some of the most interesting opportunities for business exist where defence and civilian markets overlap. For instance, drones built for surveillance can collect agricultural data or help predict forest fires. Undersea technology that measures ice thickness and coastal erosion can, at the same time, watch for foreign threats in Canadian waters. For the companies behind these technologies, dual use means access to multiple markets, diversified revenue beyond government procurement and, potentially, a stronger credit profile.
We’ve seen the precedent for this kind of adaptability before. “I’m hoping we’ll learn some of the lessons of COVID,” MacKay says. “We saw Canadian industry shift to meet the needs of the day – textile companies making masks and alcohol producers making sanitizer, while tech companies moved quickly to fill the gaps. The defence industrial base is trying to do the same.”
Alongside the promise of a dual-use opportunity, there is some reason for caution. “Dual use opens up economic opportunities for producers and policy opportunities for government, but it also brings complications,” says Stackhouse, referencing the difference in risk characteristics that may change the approach to financing. “We need to think through both the opportunity and the challenge – and make sure a dual use approach is an accelerant for getting more capital into the sector – not an impediment.”
As MacKay and Stackhouse point out, for established firms in automotive, advanced manufacturing, technology and engineering, the move into defence may be smoother than expected. Many already hold the banking relationships and credit facilities that newer entrants struggle to establish – a decided advantage when speed is everything.
Speed and scale: the challenge and the opportunity
Canada is, in effect, trying to build at a wartime pace through institutions built for peacetime, which creates a notable mismatch between ambition and pace. The new Defence Investment Agency is designed to move money faster and help businesses capitalize on today’s open window. For businesses themselves, the timing is both a challenge and an opportunity: those ready to adapt and scale can move quickly into an expanding market, while those without the capacity to act today may find the opening narrowing in the future.
As MacKay acknowledges, speed has not historically been a national strong suit. “We need to get more comfortable with speed,” he says. “This isn’t only a military question; it’s a Canadian challenge. We like to think things through, and that’s one of our strengths. But there are moments in history – and we’re in one – where the world isn’t giving us permission to take our time.”
He cites Canada’s exposure in the Arctic as a timely example of where the country has lacked urgency. “We have not done enough in my view to close the gap in the Arctic, and the exposure we have there,” he says, explaining that active defence is needed in the region, beyond the existing early warning systems in place.
Explore further: Remilitarizing the Maple.
That said, there is reason for confidence in Canada’s ability to deliver quickly on a complex build. MacKay points to the National Shipbuilding Strategy – while slowed at times by delays and competing regional interests, it is working, two decades on.
“We’re seeing Canadian-built ships coming down the slips in Halifax, on the West Coast and at Davie,” MacKay says. “This is a point of national pride – and it shows what’s possible when departments come together to overcome the friction that holds these projects back.”
The green light: readiness is the deciding factor
If the opportunity is wide-ranging and the timing is now, what separates the businesses that take part from those that watch it pass? It’s a general readiness – an established financial foundation, the right relationships and advisory support in place – long before a government contract is ever signed.
The reality is, the financial mechanics of defence aren’t easy to navigate, as companies often need to scale production before orders are confirmed, carrying weighty upfront costs. And, as government payment cycles can leave receivables outstanding far longer than the terms most businesses are used to financing, the strain on cash flow could be considerable.
Those familiar with high-growth companies will recognize the pattern as the “Valley of Death” – the stretch between demonstrating that a product works and producing it at scale, when a business must invest well ahead of revenue. Public capital is moving to help bridge this gap – the Business Development Bank of Canada’s Defence Platform, recently expanded to $6 billion, is designed to carry SMEs through that growth stage. Further, a separate $357.7 million Regional Defence Investment Initiative is meant to support supply-chain integration and dual-use innovation. But government capital alone won’t be enough.
Public lenders can finance a procurement contract. But, as Stackhouse notes, “if you’re looking to invest more capital to expand production – through acquisition or a new build – you’ll need a broader range of capital.”
That, Stackhouse argues, is the case for more private capital – venture and private equity alike – alongside the wider ecosystem of regional development agencies, provincial programs, the NATO innovation accelerator DIANA and incubators such as COVE on the Halifax waterfront. The good news is, the pieces exist already. The task is assembling them around a company’s growth strategy.
In response, RBC is bringing its economics research and geopolitical analysis to the executives, policymakers and business leaders working through these questions. The bank has committed up to $1 billion to support Canadian companies, with a focus on supporting defence-aligned sectors and is building capability for a sector the country has not financed at scale, revising its risk models and preparing to work across the full range of financing these businesses will need.
The alignment of commitment, capital and public will that Canada sees today does not come along often, and the panel was candid that it may not last. For the businesses weighing their place in defence build-up, the time to prepare is now.
“There’s a green light on right now,” says MacKay. “And we need to capitalize on the moment.”
To understand what Canada’s defence investment could mean for your business, speak with your RBC relationship manager about positioning your company for the opportunity ahead.
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