Joly asks Canada’s financial sector to lend to defence companies

Ottawa is encouraging Canada’s financial sector to provide financing for defence companies – a risky industry that lenders have typically shunned – as the federal government ramps up spending to bolster the country’s military and sovereign capabilities, according to Industry Minister Mélanie Joly.

Ms. Joly said that the next step in financing Canada’s defence companies could come in the fall federal budget by providing the Business Development Bank of Canada with the money needed to support Ottawa’s new defence objectives.

“I’m not the Finance Minister nor the Prime Minister, but I can tell you that we need to be able to invest $9-billion in defence spending more than usual before the end of the fiscal year, and therefore I think the BDC can be helpful,” Ms. Joly said in an interview at the Canadian embassy in Berlin, stopping short of stating whether the upcoming budget will include greater financing for the BDC.

Ms. Joly visited Germany this week as part of a Canadian delegation led by Prime Minister Mark Carney aimed at pitching the country’s energy and critical minerals to Europe’s largest economy.

In the coming months, the Minister plans to finalize Canada’s defence industrial strategy, with a focus on stimulating the manufacturing sector, deepening relationships with Europe and building ties with the private sector.

A key part of this effort will require getting capital into the hands of Canadian defence companies – most of which are small to medium-sized businesses. In July, Ms. Joly asked the BDC to work with government on the development of the country’s defence sector, including dual-use technology and military weapons and equipment.

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Financial institutions have typically been reluctant to lend to small defence companies given the higher risks associated with the manufacturing of certain weapons and the uncertainty around Ottawa’s commitment to defence spending in the past.

Ms. Joly said that once the BDC gets involved in defence financing, she hopes that the banks and pension funds will follow suit.

Canada’s defence companies have depended on exporting their products and services – requiring trade financing that demands a high level of sophistication to mitigate risks. With the federal government now backing these companies and helping them secure contracts, Ms. Joly said lenders will have more certainty when lending to defence businesses.

“The mandate is to first and foremost help companies to build local procurement and national procurement for our own sovereignty and our own needs, so it de-risks a lot of decisions that the BDC was not necessarily tooled to be able to make,” Ms. Joly said.

“At the end of the day, what companies are looking for are contracts rather than subsidies, and defence procurement is a way to bring certainty to a company. That’s where banks and different ways of financing can come in.”

As the government’s defence budget balloons, Ms. Joly said she expects that spending to create Canadian jobs. After Mr. Carney toured a German-made 212-A class submarine built by Germany’s ThyssenKrupp Marine Systems (TKMS) – one of two companies bidding for a multibillion-dollar contract to build up to 12 new submarines for the Royal Canadian Navy – Ms. Joly spoke with chief executive Oliver Burkhard to discuss how the potential partnership could create jobs in Canada.

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“We know the submarines will be produced here [in Germany], but there could be service support, maintenance of key parts and training all linked to Canadian companies,” Ms. Joly said, adding that she expects the same of South Korea-based Hanwha Ocean Co. Ltd., the second shortlisted company.

Mr. Burkhard said Tuesday that he assumed the submarines will be built in Germany, but TKMS is open to having some of the manufacturing based at Canadian facilities if the company is selected.

Ms. Joly said final decision on the competing companies will also be based on submarine’s fit for the Canadian military and the advantages of strengthening certain geopolitical ties with either Germany or South Korea.

The pending deal is part of a broader effort from the federal government to reduce the country’s reliance on the United States for security. The Liberal government decided to review its planned purchases of U.S. defence equipment after President Donald Trump launched a tariff dispute.

Ottawa has also been looking to redraw its trade routes to wean itself off U.S. suppliers. While in Germany, Energy Minister Tim Hodgson urged German companies to choose Canada as a stable, reliable source of energy and critical minerals.

Germany has been under pressure to find new sources of energy since Russia turned off natural gas taps after it invade Ukraine in 2022. The German government is also trying to reduce the country’s dependence on China for critical minerals required to power its green, digital and defence goals.

“We are now a potential new source of supply they can rely on – a source of supply that shares their values,” Mr. Hodgson said in an interview after addressing a delegation of Canadian and German companies in Berlin.

“What I’m seeing is a number of German manufacturers lining up to become buyers of Canadian critical minerals and German energy companies looking to source Canadian [liquefied natural gas].”

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Representatives from large Canadian energy companies, including Ovintiv Inc., Pembina Pipeline Corp., Teck Resources Ltd. and TC Energy Corp., joined Mr. Hodgson on the trip to Germany. At a networking event at the embassy, Mr. Hodgson urged Canadian companies to broker deals with the German businesses in the room, which included defence giant Rheinmetall AG and energy powerhouse RWE AG.

But securing those partnerships requires building the infrastructure to harness and export Canada’s natural resources. Ottawa recently passed Bill C-5, which allows projects to receive expedited approvals if they meet a certain conditions.

“We are moving from delay to delivery – delivery to Canadians at home and allies abroad,” Mr. Hodgson told the businesses in a speech.

“For investors in this room, that means more certainty that once you commit capital, projects will actually get built. It means Canada is once again open for business.”

With a report from Bill Curry.