War Can Be Profitable for Investors

Imagine this headline, “Canada — an emerging military power!”

I know. I can already hear you cracking up at the idea that Canada could be perceived as such. Well, perhaps in a parallel universe! But, military power or not, that doesn’t mean that Canada doesn’t know how to rake in the profits of war.

According to the Canadian Association of Defence and Security Industries, the defense industry in Canada is currently worth about CDN$7.0 billion in revenues per year. Notably, about 50% of total annual sales comes from the U.S. (we have a convenient little agreement that allows us to bid for U.S. military contracts for years to come).

It is no surprise that our primary trade partner in military “goodies” is the U.S. Consider these statistics: For the past five years, the U.S. spent an aggregate $400.0 billion on the wars in Afghanistan and Iraq. Moreover, it is estimated that $8.0 billion per month is dumped on Iraq. So, of course, Canada has snatched a piece of that “cake” by the good fortune of proximity!

In terms of size, CDN$7.0 billion versus US$400.0 billion doesn’t seem like much. But, we are comparing apples and oranges. Canada’s $7.0 billion in military sales is actually quite a lot.

To illustrate, two years ago, the Stockholm International Peace Research Institute ranked Canada as the number six arms seller in the world. And, we were behind only the “big guns” (pun completely intended!): the U.S., Russia, France, Britain, and Germany. However, in 2005, we were ninth, lagging behind Italy, the Netherlands, and Sweden.

Although we dropped in global rankings, military weapon sales in Canada are not slowing down. Canadian companies have sold ammunition, armored and military training vehicles, specialized armor for military personnel, airplanes, water purifying equipment… you name it. Sales were made to a wide range of customers, too: from our neighbors “south of the border” to Colombia, Egypt, Saudi Arabia, and China.

The bottom line is that if the spoils of war do not make you sick, CDN$7.0 billion is nothing to sneeze at. There are quite a few Canadian companies with active and long-term arms sales contracts, mostly with the U.S. military. In most books, this makes for an investment idea worth looking into.