Hard Power, Homegrown: Ottawa Moves To Rewire The Country's Defence Economy With New Industrial Strategy

On Tuesday, February 17, 2026, the Government of Canada released its much anticipated Security, Sovereignty and Prosperity: Canada's Defence Industrial Strategy, less than two years following the April 2024 release of its defence policy, Our North, Strong and Free: A Renewed Vision for Canada's Defence. Read together, these documents signal a clear shift: Canada is moving from defence policy statements to an industrial plan designed to deliver capability at scale.

These policies have been developed and released at a time when Ottawa is quickly ramping up defence spending to meet its NATO commitments: the government has committed to meeting NATO's 2% of GDP target in 2026 and reaching 5% of GDP by 2035. They are also released at a time of evolving security threats to Canada: climate change; threats to the democratic rules-based international order; the deployment of new and disruptive technologies, uncertainty in the relationship between Canada and the United States, unpredictable trade and tariff wars, and heightened threats to Canada's arctic sovereignty.

Last year, the government committed to investing over $9 billion in the Canadian Armed Forces in 2026, with a focus on procurement. These investments include:

• Better pay for Canadian Armed Forces, improved recruitment and retention, and investments to support operational readiness, fleet maintenance, security, and infrastructure requirements.
• New aircraft, armed vehicles, and ammunition, as well as support for projects currently underway.
• Developing new drones and sensors to monitor the seafloor and the Arctic.
• Repairing and maintaining existing ships, aircraft, and other assets.
• More health care funding and staff for Armed Forces personnel.
• Expanding the reach, security mandate, and abilities of the Canadian Coast Guard and integrating it into our NATO defence capabilities to better secure our sovereignty and expand maritime surveillance.
• Bolstering Canada's defence industrial capacity.
• Building capacity in artificial intelligence, cyber, quantum, and space.
• Modern and secure digital infrastructure.

The Canada's Defence Industrial Strategy, which involves $470 billion of investments over the next 10 years, focuses on Canada's long-term domestic production capacity, supply chains, and research capabilities, particularly with respect to small and mid-sized businesses. In that vein, the Industrial Strategy comes with lofty goals for the next 10 years. These include:

• increasing the share of defence acquisitions awarded to Canadian firms to 70%;
• boosting government investment in defence-related research and development by 85%;
• increasing the total revenues of the Canadian defence industry by more than 240%; and
• growing defence revenues for Canadian small and medium-sized business by more than $5.1 billion.

While the Industrial Strategy is lacking in terms of specifics—it appears Canadians will have to wait for further announcements throughout the year—it does give some insight about the government's programming plans and planned investments: $290 billion dollars in defence-related infrastructure and $180 billion in defence procurement by 2035. It promises to use defence investment to generate $125 billion in downstream economic benefits and create 125,000 jobs across the Canadian economy.

Pillar I: Renewing the relationship with Canadian industry

The Defence Investment Agency

In 2025, the government created the Defence Investment Agency as an arm of Public Services and Procurement Canada to accelerate defence procurement, develop strategic partnerships, prioritize manufacturing, attract investment, and improve operability for Canadian suppliers. As part of the Industrial Strategy, Ottawa has announced that it will be turning the Defence Investment Agency into a standalone agency.

The Defence Investment Agency will be responsible for coordinating across the Government to facilitate interactions between the government and industry to provide clarity on Canada's security and defence demands, including by facilitating the Defence Advisory Forum, where the relevant Ministers will have regularly scheduled meetings with industry representatives. The Industrial Strategy provides that the Defence Investment Agency will have the authority to "reach decisions rapidly" and "make the appropriate trade-offs" to address Canada's strategic security interests and build domestic capabilities.

Pillar II: Procuring strategically

Build-Partner-Buy Framework

Underlying the entirety of the Industrial Strategy is the new "build-partner-buy" approach to procurement, which reflects Ottawa's focus on buying or "building" Canadian wherever possible. This framework will guide investments in priority areas the government designates as "Key Sovereign Capabilities," capabilities that are essential to Canada's ability to defend itself, where Canada has established strengths (or clear potential to build them), and that are sought by Canada's allies and partners. These include:

1. Aerospace (aerospace platforms, avionics, aircraft communications);
2. Ammunition (common ammunition, battle-decisive munitions, small arms, missiles, bombs);
3. Digital systems (secure cloud, artificial intelligence, quantum computing, integrated command control and communications, high-assurance communications equipment);
4. In-service support (naval, air, land);
5. Personnel protection (medical counter measures;
6. Sensors (marine sensors, quantum sensors, electronic warfare);
7. Space (space-based intelligence, surveillance and reconnaissance, space domain awareness, satellite communications, space launch);
8. Specialized manufacturing (land vehicles, surface ships);
9. Training and simulation (naval, land, air); and
10. Uncrewed and autonomous systems (uncrewed and autonomous land, aerial, underwater and surface systems).

Where Canada cannot build these capabilities itself, the government plans to pursue long-term partnerships with allies and multi-national firms to do so. Only where Canada cannot build these capabilities itself or develop them through long-term partnerships will Canada seek direct procurement. This new framework will be applied to all future defence acquisitions.

Modernizing the Industrial and Technological Benefits Policy

The Industrial and Technological Benefits Policy contractually requires companies awarded defence procurement contracts to undertake business activity in Canada equal to the value of the contracts they have won so long as those procurements are (i) over $100 million; (ii) not subject to trade agreements; or (iii) not subject to the national security exception.

As part of the Industrial Strategy, the government plans to update the terms of the Policy to better incentivize strategic investments in the Key Sovereign Capabilities. Such amendments are expected to be published in early 2026, but the Industrial Strategy has provided some examples of anticipated changes:

• Updating the Policy to replace the current "Key Industrial Capabilities" with the Key Sovereign Capabilities discussed above;
• Creating a "Strategic Investment Transaction" to credit investments that expand industrial output and sovereign capabilities;
• Establishing a "Canadian Company Boost" to increase credits for investments in Canadian firms;
• Increasing the minimum discretionary threshold for applying the ITB policy from $20 million to $25 million;
• Introducing new multipliers to incentivize skills development, training, and direct work with small and mid-sized businesses;
• Simplifying approval processes; and
• Revising the definitions of small and mid-sized businesses.

Pillar III: Strengthening an innovative Canadian defence sector

Investing in research and development

The one area where the Industrial Policy provides more concrete funding announcements is in the areas of research and development. In particular, the Industrial Policy indicates that the Government will be investing:

• $4 billion, through the Business Development Bank, for loans, venture capital, and advisory services for small and mid-sized businesses to contribute to defence and security;
• $357.7 million, through Canada's Regional Development Agencies, to support the growth and integration of small and mid-sized businesses into the defence supply chain;
• $244 million, through the National Research Council's Industrial Research Assistance Program, for small and mid-sized businesses to advance defence and dual-use technologies;
• $105 million over three years to create a Drone Innovation Hub plus $460 million over five years for a new research and development platform;
• $68.2 million over three years, through the new Bureau of Research, Engineering, and Advanced Leadership in Innovation and Science (BOREALIS), for defence research in frontier technologies such as AI, quantum computing, and cybersecurity

Pillar IV: Deepening supply chains

Canadian Defence Industry Resiliency Program

Much of the Industrial Strategy is inherently focused on deepening Canada's supply chains in a world where uncertainty in trade has become a reality of daily life. The Department of Defence and Defence Investment Agency will create a "Canadian Defence Industry Resiliency Program." This program will provide targeted support to Canadian business to increase production capacity for defence related goods, equipment, services, and materials. The program's initial focus will be on ammunition and explosives, with a priority on establishing nitrocellulose production capabilities in Canada by 2029.

Pillar V: Working with key domestic partners

The Industrial Strategyincludes substantial collaboration with the provinces and territories, First Nations, Inuit, and Métis rights holders.

With respect to the provinces and territories, the government plans to leverage new and existing intergovernmental mechanisms to focus defence industry development, workforce planning, and infrastructure spending. Ottawa also plans to make joint investments in education, skilled trades, and partnerships between the Canadian Armed Forces and Canadian Universities and Colleges to strengthen workforce pipelines.

Further, the government commits to working with Canada's Indigenous peoples and to promote their participation in supply chains, infrastructure development, and procurement by supporting indigenous owned firms through direct contracting, public-private partnerships, and regional investment initiatives.

Other significant components

The above represents some of the largest and most detailed announcements contained in the Industrial Strategy. Other key proposals mentioned include:

• Enhancing the government's focus on intellectual property protection by integrating IP into its procurement and partnership frameworks;
• Standing up a dedicated unit to coordinate a whole-of-government approach to pursue international defence contracts;
• Substantially increasing financial support for export promotion efforts;
• Prioritizing defence under existing workforce development, skills upgrading, and retraining programs

Future announcements

The Industrial Strategy very much appears to be guideposts on what Canadians can expect in the coming weeks and months as the government rolls out the newly announced policies and programs. In addition to announcements made when Budget 2026 is released, the Industrial Strategy provides some timelines on when more information can be expected:

• Early 2026: Release of the revised Industrial and Technological Benefits Policy
• Q2 2026: Release of plans to expand the production, processing, stockpiling, and procuring of critical minerals
• Summer 2026: Release of framework for identifying and onboarding select Canadian defence firms as key strategic partners
• Q3 2026: Release of schedule for standing up of BOREALIS and announcement of first funded projects

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