Indo-Pacific uptick calls for industry investment

Over the course of the decade to come, Australia's defence force is set to swell, streamline, and step up sovereign sourcing. 

In June, Prime Minister Scott Morrison unveiled a $270 billion funding package, split into a suite of investments aimed at ADF facilities in all states, cyber security capabilities, intelligence organisations, and hypersonic weaponry. 

And while PM Morrison didn't name the elephant in the room, it was clear that the increase in funding was directed at several state actors, as well as the broader goal of addressing an age of increasing strategic uncertainty.

Much like our allies in the UK and (more so) the US, the move marks a refocus inward, with some analysts going so far as to suggest the coronavirus pandemic has triggered a step away from the integrated, neo-globalised sort of world order that characterised fin de siècle geopolitics towards a world of hard borders and nation-states. 

Yet at the same time, it's been argued that the move could send a different signal around south-east Asia; does it reaffirm our commitment to remain "a robust contributor to a liberal international order in Asia", as one writer puts it? 

While the strategic implications of the update are myriad (and conflicting), what's more clear is that the government seems uncertain that local industry can deliver on its promises. As the former looks to inch defence spending up towards (and eventually over) the 2 per cent line, local defence industry will need to more than triple its output to keep pace.

$2.6 billion is a big number, but it's around one-third of overall departmental spending. $2.6 billion, that is, spent on the local share of Defence's capital equipment spend. 

VIEW ALL

To keep pace with the uptick envisioned by the new force posture, this would need to swell by over one-third, according to a new report by the Australian Strategic Policy Institute. 

"Getting to between 40 per cent and 50 per cent means the local acquisition spend will need to reach around $10 billion per year," says report author Dr Marcus Hellyer. The defence budget, as a whole, is set to swell by a remarkable 87.4 per cent over that period, a marked increase on the rate of growth even in the pre-pandemic era. 

"That's a lot of money for Australian industry to absorb and a lot of capability for it to deliver, but, if it doesn't get there, the government won't achieve the level of sovereign capability that it's seeking and we'll continue to rely on imported systems, with the attendant supply-chain risks."

Lofty goals

Hellyer warns that much of this planned uptick in investment is still a long way off. Yet, it also comes at a time when the strategy document itself outlines that a 10-year lead time is no longer an appropriate yardstick against which preparedness can be measured, and the clarions could sound at any time. 

"It's still 10 years until we get a new frigate, it's more than 10 years before we get the first submarine," he says. 

"To acquire new capabilities, the growth in the funding model in the 2020 update continues the pattern of the 2016 white paper. That means the capital component of the budget grows to 40 per cent of the total budget and stays there. By the end of the decade, if that planned increase is achieved, the acquisition component of the budget will have grown by 148 per cent."

Hellyer adds that while the basic settings of the government’s 2016 defence industry policy statement are well-placed, it’s likely that the government will have to double down on it in order to develop the kind of local industrial ecosystem necessary to deliver the level of sovereign capability described in the 2020 update and force structure plan.

The starting point

On her part, Minister for Defence Linda Reynolds has previously assured the Canberra press gallery that Australian defence industry is "far more capable than we had previously given it credit for".

"We have about 15,000 companies in our supply chain in Australia and at least 70,000 workers, and that number is growing even during COVID," she said.

And while one of the stated goals of the update is indeed the escalation of Australian sovereign industrial capability, it's hard to reconcile with the fact that the most important goal is undoubtedly upcycling our capability.

As Hellyer puts it, in order to meet the lofty goals set out in the update, we'll have to work to avoid "the trap of preferring industrial outcomes to military capability".

If we're investing in sovereign solutions, drawing out projects may have optic appeal, particularly amongst industrial heartlands such as Osborne and Henderson. Promising jobs for generations of future shipbuilders may make for punchy headlines and win over swing voters; but is it worth the shortfall in mid-term capability?

Your thoughts

Investment into industrial and military capability is not so straightforward as it might seem. At times conflicting, the government must look to straddle the line between investing in equipment and manufacturing upgrades.

Question marks have long hung over local industry content promises made out to major defence infrastructure projects, including the Hunter Class build. As the nation takes on more and more such projects over the life cycle of the program, this already-pressing question is likely to grow in importance. 

Get involved with the discussion and let us know your thoughts on Australia’s future role and position in the Indo-Pacific and what you would like to see from Australia’s political leaders in terms of increasing the budget, manpower and capabilities available to the ADF in the comments section below, or get in touch with This email address is being protected from spambots. You need JavaScript enabled to view it.or at This email address is being protected from spambots. You need JavaScript enabled to view it.