Australia’s urgent need to develop its defence industry

While Australia has had an election, the events globally remain the same.

Over these last few months, we have been shocked by the events in Ukraine. Not long ago, the notion of a European country suffering a frontal military invasion would have been dismissed as unthinkable, and yet it has occurred. The circumstances have changed, driven by the calculations of an authoritarian leader of a powerful country whose prior statements regarding territorial ambitions were clearly not taken seriously enough. Equally clear is that the support offered by Western nations to the mid-sized nation of Ukraine, ranging from sanctions to limited weapons, has been either too little or too late.

Australia is also a mid-sized country. While we might take some comfort that these events are occurring a long way from our sunny shores, the unfortunate truth is that in our region, there is another authoritarian leader of a powerful country that has also made statements of territorial ambition. Indeed, by comparison to Russia, China is a much more powerful country with 2020 GDP of US$14.7 trillion, approximately 10 times the size of Russia’s GDP (US$1.482 trillion).

So, thoughts naturally turn to what Australia should be doing to ensure that we can’t be caught short if military conflict occurs in our part of the world. 

Any discussion of generating military capability is complex, involving questions of what types of warfare that the ADF might be called on to engage in, and what types of platforms and systems are best suited to those types of operations. 

But the discussion often reaches the question of how best to acquire the equipment for the ADF. And discussions of acquisition in turn involve questions of whether to buy from local industry, or to procure from overseas suppliers.

Everyone understands the economic desirability of utilising a local industry base for supply – this allows local businesses to develop their technological capabilities, creates employment, potential exports and produces economic activity in Australia generating taxation revenue. And with federal government debt at close to $1 trillion, the affordability of military equipment will itself become a factor in the coming years.

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Against these factors there are voices that argue that we must procure equipment from overseas suppliers. This argument suggests that Australian industry can’t be trusted to deliver equipment on time, and we must simply buy “off the shelf” to get the equipment the ADF needs in a hurry. It is beyond Australian industry to develop the high technology capabilities that the US or Europe has already developed, as their economies are much larger than ours, they can afford to invest in the R&D necessary for these systems, so Australia should just piggy-back off that.

These arguments are not well based in fact. We recently entrusted France with developing the Attack class submarine. While commitments to use Australian industry were made, these were variously deferred or outright ignored while that program was underway. Yet, without Australian industry involvement, the program was significantly delayed. We know where that ended. A similar story is currently unfolding with the Hunter class frigate. Again, Australian industry is being pushed aside in favour of overseas suppliers. Again, a program dominated by foreign industry is badly delayed, and balances on a knife edge as to whether it will share the fate of the Attack program.

It seems that it is foreign industry that has problems with delivering our equipment to schedule.

And as for the suggestion that Australia is too small an economy to develop high-end systems, we only have to look at Russia – whose economy is equivalent in size to Australia’s – to see all manner of self-developed technologies. 

And then there are Western powers such as Sweden and Israel, whose economies are significantly smaller than Australia’s, yet can effectively conduct the R&D to achieve world-beating military capabilities.

It is unfortunate that the question of procurement approach carries shades of ideology, as this can cause those new to the subject to oversimplify matters by framing them in terms of concepts that they are familiar with from other fields, but which only partially capture the dimensions of the issue.

For instance, a well-intentioned newcomer, perhaps with an inclination to free-market principles might form the view “the military budget is there to generate military capability, not to generate jobs. Therefore, let’s just go get the stuff off the shelf from overseas”. 

Unfortunately, such over-simplification misses the substance of a complex issue, and leads to a conclusion that can only cause our nation a monumental disservice.

This view misunderstands the nature of military capability in the 21st century. 

Military capability is about more than having equipment; it covers everything needed to provide government with the ability to apply military force of a relevant nature, at the time and for the full duration of the necessity. 

What is needed? Hardware, which to be of use, needs people that can effectively operate it; consumables supplied at the rate required for it to continue to operate, people that can maintain it, people that can repair it that have the necessary spare parts. But other ingredients include personnel, training for those personnel, and (here’s the rub) industry able to support the ADF.

Why? Because in war, your equipment breaks, you deplete your munitions, and maybe, over the duration of conflict, your equipment no longer has the edge over the adversary that it had at the start of the conflict.

Put simply, to keep the ADF in the fight, it needs industry to repair, resupply and redesign its equipment and munitions.

Now while free market theory might deduce that the economically optimal industry to perform such repair, resupply and redesign lies overseas, that theory won’t help Australia if it can’t get supply from overseas.

An example. Budget estimates recently revealed that the availability of our F-35 fighters is well short of what Defence had anticipated, with an inability to access spares suggested as the root cause. ASPI analyst Dr Marcus Hellyer stated, “The US as a global power is always on operations. So, we are competing with the US for spares in the program.” It is worth noting that this is not a new phenomenon, the ADF has on several previous occasions, been the victim of spares or consumables being unavailable due to “others” requiring them.

Is it a surprise that the US prioritises its own supply needs over ours? 

Even if Defence’s promptly issued denials of the problem are accepted at face value (although I’ve had many cynics comment that Defence also denied problems with the Attack program right up to its cancellation), such supply issues during peacetime pale in comparison to such issues during a live conflict, where a capable adversary is actively seeking to disrupt supply lines.

This is a prospect that we cannot ignore. Often cited as the destabilising nation in our region, China has been developing a massive navy, now the largest naval fleet in the world, and the assumption that physical access to US and European suppliers during wartime can be relied on verges on the reckless. And we’ve all read the stories of the prowess of the Chinese cyber warriors and the vulnerability of satellite communications satellites. Network access to US and European suppliers is not a given either.

Put simply. If we are serious about national security, Australia must prepare its military industrial base to be ready to support the ADF during the worst possible situation, that is during a conflict, because Australian industry may be the only industry available to support the ADF in wartime, it will certainly be the only industry that we can rely on.

Yes, the military budget is provided to furnish military capability, but it must not be forgotten that industry has been identified as a fundamental input to capability, which makes it an integral part of military capability. Remember the disbelief when the government announced that Australia was bolstering its fuel reserves by buying crude oil that would be stored in the US? It’s the same principle. The military acquisition budget must draw on Australian industry wherever possible, that’s how you ensure it’s there when “the chips are down” so to speak.

If the strategic situation really is as perilous as it was in the 1930s, then we must accordingly prepare, anything less risks placing Australian warfighters in a situation where they are asked to fight without adequate support. This is unacceptable.

This is an urgent matter requiring immediate action. You cannot create the required industrial capability in months – it takes years to instil the necessary technical knowledge, years to exercise it and develop expertise, not to mention the time to build facilities and obtain the necessary plant and machinery. Australia does not have the luxury of waiting to see whether we really need it. When the time comes that there’s no doubt about the need for industrial capability, it is too late.

Contracting to Australian defence businesses needs to start now. 

Not in one year, and not in two years. Now.

Defence would suggest that its existing “Australian Industry Capability” (AIC) policy is sufficient to steer contracts to Australian defence industry. These policies require the prime contractors – generally foreign-controlled giants – to engage with Australian industry when they tender for Defence contracts. Australian industry, that is businesses that are designing, building, and delivering onshore, has a very different perspective. The reality is AIC is considered, at best, a toothless “best endeavours” policy only.

All too often, the primes will promise to engage Australian industry while they are bidding for work, but once in contract … renege, float excuses like “Australian suppliers aren’t up to the job”, “using our normal supply chain could cut risk and cost” and instead flow the work to their overseas-based suppliers. 

Businesses lie to gain lucrative government contracts. What a shock, hold the presses! 

Alas all too often, Defence is accepting of this behaviour, wilfully ignoring the impact this has on our nation’s ability to support the ADF during wartime.

Yet the explanations that Australian industry is not up to the job do not withstand scrutiny. There are Australian-owned businesses with world competitive technologies in sonar, radar, simulation, cyber and other advanced areas. Instead of building industrial capability by obligating the primes to contract Australian businesses with strong capabilities, by letting the primes off the hook, Defence depletes industrial capability, and world-class Australian businesses wither on the vine.

No other developed nation conducts its Defence acquisition this way, and it is time Australia gives up on a policy idea that has proven to be a failure.

It is for this reason that AIDN is calling for the introduction of a Strategic Defence Industries Act, which will make it legally enforceable that Defence supplies in prioritised areas be provided by Australian industry.

The shocking events in Ukraine serve as a wake-up call for Australia regarding our need to ensure we not only have the military capability we need for our troubled environment, but the industrial capability we need to support that military capability.

In a matter of months, Australians will choose who we will trust to be our government for the next three years, and AIDN calls on all political parties to describe clearly to Australian voters their policies for ensuring that Australia promptly builds up the defence industry capability it needs.

Brent Clark is the CEO of AIDN National.

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