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Doing business with Canada’s Defence Sector

Doing business with Canada’s Defence Sector. A presentation to:. Düsseldorf, Germany November 30, 2011. A.N. Cooligan Senior Trade Commissioner and Commercial Counsellor Embassy of Canada, Berlin. ~10 Millionen Quadratkilometer.

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Doing business with Canada’s Defence Sector

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  1. Doing business with Canada’s Defence Sector A presentation to: Düsseldorf, Germany November 30, 2011 A.N. Cooligan Senior Trade Commissioner and Commercial Counsellor Embassy of Canada, Berlin

  2. ~10 MillionenQuadratkilometer Muttersprache: * English(57.8%)* French(22.1%)* Chinese (3.3%)* Deutsch (1.5%) Einwohner: * 34,3 Millionen* 90% wohneninnerhalb 160km von der USA Grenze British Columbia (BC) Alberta (AB) Saskatchewan (SK) Manitoba (MB) Ontario (ON) Québec (QC) New Brunswick (NB) Nova Scotia (NS) Prince Edward Island (PEI) Newfoundland and Labrador (NL) Yukon Territory (YT) North West Territories (NWT) Nunavut (NU)

  3. Current Federal Government • Prime Minister Stephen Harper (Calgary Southwest, AB) • Minister for Defence Peter MacKay (Central Nova, NS) • Minister for Foreign Affairs John Baird (Ottawa West, ON) • Minister for International Trade Edward Fast (Abbotsford, BC)

  4. Aktuelle Regierung Prioritäten: Arbeitsplatzbeschaffung & Wirtschaftswachstum • KontinuierlicheSenkung der Unternehmenssteuer (ab 2012 die geringste der G7 Staaten) • Abschluss des Freihandelsabkommensmit EU (2012) & Indien (2013) • Eliminate manufacturing tariffs by 2015 to become 1st country in G20 that is tariff-free zone for manufacturers • Expand Canada Excellence Research Chairs Program at Canadian universities & increase funding • Support Clean Energy initiatives

  5. Wirtschaft • 2010 BIP: 1,12€ Billionen • Ungefähr 30% des BIP ausExporten • Exporte • USA 75% • GB 4,1%, China 3,3%, Japan 2,3%, Mexiko 1,3% • Importe • USA: 50% • China 11%, Mexiko 5,5%, Japan 3,3%, Deutschland 2,8% • Dollar • Nov 2011: 1$ CAN = 0,97$ USD • Nov 2011: 1$ CAN = 0,72€ • Arbeitslosenrate: 7,3% (October, 2011) *Basierend auf Wechselkurs von 1,4

  6. Fastest growing economy in G7 U.S. 1.5% U.K. 1.5% France 1.2% Germany 0.5% Japan 0.5% Italy0.2% Canada 1.7% On average, Canada’s economy grew 3x faster over the last decade than Germany’s Source: Statistics Canada and other national data sources.

  7. Kanada – DeutschlandGesamtwert der bilateralenwirtschaftlichenBeziehungen ~ € 27Milliarden Handel und Investitionen *based on exchange rate of 1.4

  8. Kanada – Deutschland Wert der bilateralen wirtschaftlichen Beziehungen Source: Statistics Canada *Zahlen basieren auf Wechselkurs von 1,4 ~ 27€Milliarden

  9. Kanada – DeutschlandWechselseitigeArbeitsplatzbeschaffungdurchKapitalanlagen Source: Canadian Embassy, Berlin

  10. Global Defence Context • Global defence sales exceeded US $1.5 Trillion in 2009 • Defence expenditures are 2.7% of World’s GDP • Top 10 largest military spenders account for 74% of the world’s military spending • Canada’s $19.8 Billion (2009) military expenditures ranks Canada in 6th place among NATO countries (15 Milliarden€) • Defence is “managed trade” • Canada spends 1.5% of GDP on defence • US represents 43% of the world’s spending, 4% GDP

  11. Canadian Defence Context • Canada First Defence Policy – € 370 Milliardenbiszum 2028

  12. Canada’s Defence and Security Industrial Base • The Canadian defence and security sector is a highly skilled, knowledge based industry • Comprises over 1,000 companies • Employs more than 90,000 people • Generates revenues in excess of $10 billion in annual sales. • Approximately 85% of these firms are small and medium enterprises (SMEs). • Exports account for about half the annual turnover, or $5 billion per year • Approximately 85% destined for the US market.

  13. Business Drivers - Defence • Canadian defence industrial base • Government R&D programs: • Strategic Aerospace Defence Initiative (SADI) • Defence Research and Development Canada (DRDC) • Scientific Research and Experimental Development (SRED) • Defence Procurement Environment: IRB and ITAR • Industrial Regional Benefits (IRB) • International Traffic in Arms Regulations (ITAR) • FDI in Canada and beyond: Potential for Growth • Global product mandate • Potential for export – G2G sales • Export Development Corporation (EDC) • Canadian Commercial Corporation (CCC)

  14. Royal Canadian Navy: 3 Bases Royal Canadian Air Force: 13 bases Canadian Army:10 bases

  15. DRDC Suffield Weapons Effects Vehicles Autonomous Systems Military Engineering Chemical & Biological Defence DRDC Centres DRDC Valcartier Electro-optics Combat SystemsCommand & ControlInformation Management Systems of Systems DRDC Ottawa Radar, EW Space SystemsInformation Operations CommunicationsSynthetic Environment Centre for Operational Research and Analysis Operational Research Scientific and Technical Intelligence DRDC Atlantic Underwater Sensing MaterialsAir Vehicles Marine Vehicles Signature Management DRDC Toronto Human Factors Decision Support Command Effectiveness Operational MedicineSimulation & Modeling Centre for Security Science Military Personnel Research and Analysis

  16. € 25 Milliarden

  17. Current Canadian Defence Programs Medium Support Vehicle System – 1,500 trucks Light Armoured Vehicles III Upgrade Tactical Armoured Patrol Vehicle (500) & Close Combat Vehicle (108) Joint Support Ships Joint Strike Fighter – F-35 Fighter Arctic & Offshore ships >$15-$20 billion in new programs

  18. Government R&D Programs:Strategic Aerospace and Defence Initiative (SADI) • SADI Program Objectives: • Encourage strategic R&D that will result in innovation and excellence in new products and services • Enhance the competitiveness of Canadian aerospace and defence companies; and • Foster collaboration between research institutes, universities, colleges, and the private sector • SADI was launched April 2, 2007. • Typically contributes 30 percent of a project's eligible costs • Conditionally repayable contributions, rather than loans • Eligible costs relate to direct labour, material, and equipment expenditures. • Has so far funded 21 projects • SADI is expected to invest nearly $1.1 billion (€.8 Milliarden), with funding to reach a maximum of $240-310 million per year (€ 225 Millionen pro Jahr) from 2011-2014.

  19. Government R&D Programs: Defence Research and Development Canada (DRDC) • DRDC is an agency of the Canadian Department of National Defence (DND) which provides science and technology (S&T) to the Canadian Forces. • Operates seven research centres across Canada, each with a unique combination of expertise and facilities to carry out world class science and technology research. • Research capabilities are grouped into 3 main domains: Physical, Human and Infrastructure, with 11 core areas. • Applied Research Program (ARP) – typically 5 year project period and range from $3 to $6 million. • Defence Industrial Research Program (DIR) : • supports transition projects from the laboratory to the experimental phase, proof of concept • 50% funding level • Technology Demonstration Program (TDP): • Demonstrates the military utility of emerging concepts and technologies • Current portfolio comprises more than 40 active projects with an average of $10 million per project

  20. DRDC - Partnerships • Collaborative partnerships with both the private and public sectors. Partnerships include: • Contributions in-kind towards a common objective; • Joint applications for external funding from national and international granting agencies; • Shared cost initiatives in pursuing a common science and technology objective; and • Exchanges of personnel at the cost of the parent employer

  21. DRDC – Partnerships • Partnerships with Germany • Interaction between radiological contamination and surfaces and the effects on decontamination - Bundeswehr Research Institute for Protective Technologies and NBC-Protection – WIS Münster and DRCD-Ottawa (2010-2015) • Propagation effects and background clutter in the littoral – WehrtechnischeDienstelle für Schiffe und Marinewaffen, Maritime Technologie und Forschung, Eckernforde and DRDC Atlantic (2010-2013); • Underwater Gated Viewing System 3D imaging and scene reconstruction – Fraunhofer IOSB, Ettlingen, und WehrtechnischeDienstelle für Schiffe und Marinewaffen, Maritime Technologie und Forschung, Eckernfordeand DRDC Valcartier (2010-2013) • Investigations into the mechanism of action of Chemical Warfare Agents and medical counter measures – Ministry of Defence Medical Staff 1, Bonn and Bundeswehr of Pharmacology and Toxicology, Munich and DRDC Suffield (2010-2015) • Advanced Magnetic Fields (WehrtechnischeDienstelle für Schiffe und Marinewaffen, Maritime Technologie und Forschung, Eckernforde and DRDC Atlantic

  22. Government R&D Programs:Scientific Research and Experimental Development (SRED) Program • Canada offers one of the most favourable tax treatments for R&D among the G7. • Canada provides a system of tax credits and accelerated tax deductions for a wide-variety of R&D expenditures. • Eligible costs include: salaries, overhead, capital equipment, and materials. • These tax-based incentives permit firms to significantly reduce R&D costs through direct investment or sub-contracting in Canada. • Foreign companies qualify for the Canadian SR&ED tax benefits • Through a Canadian subsidiary of a foreign parent • Through a Canadian-controlled private corporation • Federal tax credits are complemented with additional provincial R&D tax credits. • Combined federal and provincial tax credits range: • For large Public or Foreign-controlled Corporation from 20% to 36% • For Small Canadian-controlled Private Corporations from 35% to 60%

  23. Canadian Defence Procurement Environment: Industrial Regional Benefits (IRB). • Canadian government does not have a ‘buy domestic’ policy preference and seeks out more competition from foreign firms to maximize return on expenditures. • IRB Policy provides the framework for using federal government procurement to lever long-term industrial and regional development. • An IRB is a contractual commitment by prime contractor to place work in Canada as a result of successfully bidding on a Canadian defence program. (100% of contract value) • IRBs are mandatory for projects over $100 million (usually Major Crown Projects), discretionary in the $2-100 million range, and are not applied to small projects.

  24. Canadian Defence Procurement Environment: International Traffic in Arms Regulations (ITAR). • ITAR is a set of U.S. government regulations controlling the export and import of defence-related goods and services on the United States Munitions List. • ITAR regulations dictate that information and material pertaining to defence and military related technologies may only be shared with U.S. citizens unless authorization from the US Department of State is received or a special exemption is used. • Article 126.5 - Canada enjoys exemptions for certain less sensitive goods controlled under ITAR, meaning these items can be exported to Canada licence free provided certain requirements are met. • Canada enjoys “an exemption for temporary imports of defence articles originating in Canada for use in the United States, an exemption for temporary and permanent exports of defence articles to Canada, and a limited defence service exemption”.

  25. FDI in Canada - Global Product Mandates • Growing a defence business in Canada means exports • Domestic base is small • Key benefits exporting from Canada • Linkages with the US as largest export (85%) • Role of the CCC in government to government • Possible EDC coverage & buyer financing • Growing with the prime/integrator • Supplying to the prime who then exports • Providing the prime with Canadian kit for IRB credit

  26. Export Development Corporation (EDC) • Export Development Canada (EDC) is Canada's export credit agency, offering financing, insurance and risk management solutions to help Canadian exporters and investors expand their international business. • EDC provides financing support for three types of investments. • Greenfield Investment – development of a new facility or project • Brownfield Investment with CAPEX (capital expenditures) – purchase of an existing business with plans to expand or modernize the facility • Brownfield Investments without CAPEX (capital expenditures) – purchase of an existing business with no plans to expand or modernize the facility but where the foreign acquisition either prevents closure of an exporting business or allows for initiation of exports by the business

  27. EDC –Cont’d • Support for inbound foreign investment is provided where the investor is: - domiciled outside of Canada - invests at least 10% of the common equity in a greenfield development or purchasing at least 10% of the assets/equity of an existing Canadian entity - takes an active role in directing and/or managing the investment, including influencing either: (i) the initiation of exports to affiliates, or (ii) integrating the Canadian company's exports within an existing global supply chain or global sales network with unrelated entities • In addition once a foreign company is operating and exporting from Canada, EDC can also offer support to the company’s foreign buyers through loans, guarantees and lines of credit.

  28. Canadian Commercial Corporation (CCC) • CCC is the Government of Canada’s international contracting and procurement agency. In this capacity, CCC is involved as either: • The Prime Contractor responsible to the international buyer for satisfying a contracts’ terms and conditions; or • The Contracting Agent responsible to another Canadian Government Department or Agency - or to another international Government - for awarding contracts on their behalf. • CCC’s activities are mainly within the following sectors: • Contracting with the U.S. Department of Defense on behalf of Canadian suppliers; • Contracting with International Buyers for Canadian Goods and/or Services within the Defence, Security and/or Infrastructure markets; • Providing contracting services to other Governments, Canadian Government Departments or agencies; and • Trade financing.

  29. Case of the CCC and GDLS-C • General Dynamics Land Systems –Canada (GDLS –C) has a global product mandate to build LAVs in London, Ontario • Sales of LAVs internationally are through the CCC • CCC provides the US DoD with sovereign guarantee and has a 55+ year track record of performance • GDLS-C sold $3.6 billion between Oct. 2009 and December 2010 via the CCC • Kongsberg makes Remote Weapons Stations for LAVs and announced a new facility in London

  30. Canadian Companies in Germany • AirBossDefence (QB) CBRN, extreme cold weather • L-3 MAPPS (QB), mission control system • Weatherhaven(BC), custom shelters • Rutter (NFLD), enhanced radar, waterside security, oil-spill detection, aboard Polastern 2 • Research in Motion, Blackberry (ON) • Thales (ON), “Autonomy” headset (via Kiel) • CAE (QB), simulation devices

  31. Meet Canadian companies and Defence Personnel at Business Events and keep us in your network • CANSEC (CADSI), May 30-31, 2012, Ottawa, Ontario • Eurosatory, June 11-15, 2012, Paris, France • SecureTech (CADSI), Oct 30-31, 2012 • DSEi, Sept. 10-13, 2013, London, England AND stay in touch: • Trade Commissioners in Berlin, Düsseldorf and Munich • Military Attaché in Berlin • Public Works and Government Services Procurement office in Koblenz Vielen Dank für Ihre Aufmerksamkeit! https://www.defenceandsecurity.ca/

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