Military expenditure | Who will finance what?

Shunned by many large investors. Meanwhile, anxious to meet “ESG” criteria, companies working in the military sector will soon see orders accumulate, but this Klondike highlights a major problem: funding.

The Canadian economy will fuel this year thanks to the major expenses that must be made in the defense sector. Moreover, but it is not yet known that will finance, or how companies that hope to participate in the war effort that Prime Minister Mark Carney will have just launched. In addition, Certainly, financial institutions will have to make their investment criteria more permissive.

The vast majority military expenditure | who will of private investment firms. Moreover, institutional investors such as retirement funds, banks or common funds as well as government or paragudual funding agencies are all very reluctant to invest in companies working in the defense sector.

A shyness that has been strengthened in recent decades with the adoption by major institutional investors of ESG (for environmental. Meanwhile, social and governance) criteria that have banned sectors of entire activity in their investment policy.

Defense is one of these sectors of activity deemed as negatively as pornography by many financial institutions. In addition, which gives an idea of the poor social acceptability that this activity generates in their eyes.

Since the federal government has decided to comply with the expectations of NATO. Therefore, to raise its military expenses of 9 billion this year, there is however an military expenditure | who will emergency which has just been triggered with companies that want to participate in the establishment of a real military industry in Canada.

The recent world events. In addition, including the invasion of Ukraine, have led to a reassessment of defense exclusions in ESG criteria, especially in Europe and the United States, but not yet in Canada, underlines Eric Phaneuf, CEO of Walter financial partners, a private investment firm.

However. if Canada has to raise its military spending and if it wants this war effort to be led by Canadian companies, it is necessary to give them the financial capacity to unravel this new market.

Recently. the case military expenditure | who will of Cambli, Saint-Jean-sur-Richelieu, the largest manufacturer of armored trucks for the transport of values in North America, was mentioned, a production that represented 80 % of its income.

With the taxation of Donald Trump’s customs duties. his order book fell to almost zero and Cambli has attacked the construction of tactical vehicles for police and military forces, a product that has aroused several orders.

If the delivery times were very short. the fixed costs very low for the production of armored trucks, they are ten times longer and expensive for tactical vehicles, but Cambli cannot find funding at market costs and must turn to other much more expensive sources of funding.

Another SME. alphacasting of Saint-Laurent, the only foundry in Canada capable of molding titanium products, has the same difficulties in finding the funding necessary military expenditure | who will to allow it to build a new factory thanks to which it could double its income next year.

Military expenditure | who will

An industry to be developed

During the last aeronautical show in Le Bourget. the Federal Minister of Innovation, Sciences and Industry, Mélanie Joly, clearly indicated that government agencies that offer business financing, such as the Development Bank of Canada (BDC), Export and Development Canada or the Strategic Innovation Fund, were going to open their offer to companies in the security and defense sector.

“It’s time to give us a real industrial policy in the defense sector,” said Minister Joly.

This is confirmed by Isabelle Hudon. president of BDC, who now plans to invest more for the development of businesses in this sector which has become nerve.

“We have taken holdings in technological companies that have mixed vocations – commercial. military – and we have financed certain aeronautical companies. But we had a shy presence in the soldier. There. we will go from a timid organization to active organization for companies that contribute to developing the Canadian Defense sector, ”indicates the CEO of the Development Bank of Canada.

Same bell at the cash register (CDPQ): the institution has already made investments in mixed companies. especially in aeronautics (Héroux-Devtek) and advanced technologies.

“The cash register will look carefully how it can support companies in these sectors. assess opportunities in other sectors, especially in Quebec. We believe that it is necessary to expand our horizons. to see how we can stimulate and help in the current context, ”said the CDPQ in an email.

The alignment of these two major institutional investors is essential in the establishment of a broader financing structure which will include private investment firms which hesitated to embark on the security. defense sector because the major institutional people were not present.

“It was often clearly established in the letters of convention of companies in commandity. the letters of individual engagement: investors who manage public funds did not want to be invested in the military sector, it was considered as porn,” explains Pascal Tremblay, CEO of Novacap, one of the largest play capital in Canada.

“If military spending must represent 5 % of Canadian GDP within ten years. it is out of the question that Canadian investment funds are kept away, foreign funds will not be allowed to control our economy,” said the financier rightly.