Good afternoon.
Thank you for having me. In my opening remarks, I would like to give you a Canadian defence industry perspective on the national shipbuilding strategy, or NSS.
When the government unveiled the NSS over a decade ago, the core principle was that the recapitalization of the Royal Canadian Navy and the Canadian Coast Guard would be carried out in Canada. The objectives behind the principle are twofold.
One is to bring predictability to federal vessel procurement, and the other is to end the boom-and-bust cycles that have characterized Canadian shipbuilding in the past. Together, the result should be a sustainable, long-term shipbuilding plan that benefits the Royal Canadian Navy and Coast Guard, the Canadian marine industry and the Canadian economy.
CADSI, the Canadian Association of Defence and Security Industries, and I, as its CEO and president, fully support the basic principles and objectives of the NSS, and we have done so since its inception.
Canada is a maritime nation with the largest coastline in the world, at over 243,000 kilometres, including mainland coasts and offshore islands. That is six times Russia’s coastline, 12 times the United States' coastline and 16 times the coastline of China. It's therefore a matter of common sense from a national security perspective that Canada needs a sustainable domestic naval and coast guard shipbuilding industry.
The economics of shipbuilding in Canada are also sound. Innovation, Science and Economic Development Canada has an economic model for the marine industry based on established Statistics Canada input-output multipliers. On average, $1 million of signed NSS contracts contributes $1.3 million to the GDP and 12 jobs to the Canadian economy.
In the most recent Statistics Canada-ISED survey of the state of Canada’s defence industry, we see meaningful growth in the defence industry in 2020, during the pandemic, a good portion of which is attributable to the NSS work really starting to take off.
There are those who say that Canada shouldn't be in the naval shipbuilding industry and that we should buy our vessels offshore and off the shelf. There is no such thing as “off the shelf” in this business. Canada will be buying tailor-made ships, as we have done in the past and as other countries do. Moreover, Canada has a long history in naval shipbuilding. The last two major Canadian naval vessel procurements, the Iroquois-class destroyer program of the 1960s and early 1970s and the Halifax-class frigate program of the 1980s and early 1990s, were carried out in this country at Canadian shipyards and by the Canadian marine industry.
Then as now, there were controversies over these programs, particularly with the Halifax-class frigate with respect to cost, schedule, and the ability of Canadian industry to deliver, yet Canadian industry delivered an impressive capability with the Halifax class that has served Canada and the Royal Canadian Navy for 30 years and has led to significant exports of high-value systems and technologies developed in Canada.
The focus on the costs of the NSS project to date has tended to be on the visible part of the ships, namely the hull. While this is obviously important, hull construction typically accounts for only 35% of the cost of a warship. Half of the value is in the platform and mission systems, and roughly another 15% is in the design and systems integration. These jobs pay, on average, 60% more than the average manufacturing wage. These are the jobs that employ high-wage engineers, technicians, and technologists. They make up 30% of the defence industry’s workforce.
According to studies on the Canadian marine industrial base carried out by ISED and Statistics Canada, Canada has significant capability in the areas of shipbuilding, such as naval ship-borne mission systems and components, maintenance, repair and overhaul, and simulation. Our strength in these capabilities is in part a legacy of previous naval vessel construction in this country. Foreign military buyers are less likely to purchase from Canada when our own government does not buy from our own industry. Decreasing domestic buying opportunities decreases our export potential.
We should not lose sight of the possibilities to drive innovation, high-wage employment and exports in the less visible parts of naval recapitalization. The initial acquisition phase of a contract is a small proportion of the costs in the life cycle of a platform, which include mid-life upgrades, technology insertions and long-term supportability. It's in these areas that Canadian industry can achieve the greatest return on investment.
Cost and changing cost estimates are an ongoing issue that have been documented with NSS projects in various studies and reports over the years. This is to be expected in a strategy of this scale, complexity, and duration. The government needs to be a bit more flexible to adjust cost estimates over time as assumptions alter due to changing circumstances. Neither industry nor government has much, if any, control over the price of steel, foreign exchange rates, other input costs or technological advancements.
Two years ago, no one would have predicted that a pandemic-induced global supply shock and a war in Europe would drive inflation in Canada above 6%, its highest level by far in 30 years; and in some of the commodities and technologies used in advanced shipbuilding, inflation is now many times higher than the CPI. It is uncertainties like these that require governments to have built-in flexibilities for a project whose duration is measured in decades.
It is also incumbent on the media, academics, other experts and parliamentarians who comment on these programs to educate Canadians about these uncertainties rather than offering knee-jerk criticisms of the strategy. To abandon the NSS after a decade in would be, in my view, reckless on economic and national security grounds.
In conclusion, as a country with three coastlines, a significant continental shelf, plus new challenges to its sovereignty in the Arctic, having a first-rate navy and coast guard, along with a sustainable domestic naval shipbuilding industry, should be considered a basic requirement of our sovereignty that is not up for debate. It is the price of admission for a G7 economy and NATO membership. The NSS, while far from perfect, provides a road map to that end state.
Thank you.