Beyond headlines, German Boxer deal is a model for future Australian reshoring

Russia’s invasion of Ukraine so quickly on the heels of the COVID-19 pandemic has served to dramatically reveal a number of uncomfortable and startling truths about the industrial capacity of many once formally great industrial and economic powers, including the United States, the United Kingdom, and Australia.

Meanwhile, the renewed era of great power competition and renewed multipolarity across the geopolitical spectrum has served to only reinforce the growing importance of a reliable, sovereign industrial capacity. This global shift has equally heralded the rise of an increasingly multipolar world, driven in large part by the rise of ancient powers, namely China and India, flanked by an equally formidable array of emerging powers including Indonesia, Vietnam, Brazil, South Africa, and a myriad of others across the globe.

In the face of this rapidly evolving — and as the government is often fond of reminding us — deteriorating strategic environment, Australia’s strategic thinkers and policymakers are now being forced to confront the uncomfortable reality of the new global and regional economic, political, and strategic paradigm.

Australia isn’t alone in staring down the immensity of these mounting challenges, with even the world’s sole superpower, the United States, confronting the very real limitations of its own industrial, economic, and political power following nearly three decades of living the equivalent of a fast-food junkie.

At the cornerstone of this response across the Western world is the concept of “reshoring” which emerged in response to the mounting realisation that much of the Western world’s industrial base, especially its defence industrial base (DIB) requires a period of extensive modernisation and reinvestment, with a shift away from the now well-documented vulnerabilities of “just in time” supply chains championed in the decades immediately after the end of the Cold War.

Highlighting this key vulnerability, Dr Ross Babbage, chief executive officer and director at Strategic Forum and senior non-resident fellow at the US-based Center for Strategic and Budgetary Assessments think tank, explained to Defence Connect, “In 2004, US manufacturing output was double that of China. But by 2020, China’s manufacturing output was almost double that of the United States. This huge change has happened because the United States and its allies, including Australia, have exported most of their manufacturing bases to Asia and particularly to China. In Australia, we have shunned our manufacturing industries, increased their costs in unsustainable ways, forced on them layer upon layer of often unnecessary regulations and made most of our manufacturing sectors uncompetitive. By contrast, China has been doing exactly the reverse.

“Recovering from this disastrous situation is going to mean a different industrial model for the West. The United States won’t be able to do the job on its own. It’s going to need much more international industrial cooperation between allies and trusted friends. This will require new mechanisms, new cooperative understandings, not only between governments but between sectors of industry and individual business between the democracies, not only in East Asia, but also in India, Europe, and so on,” Dr Babbage explained further.

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For Australia, this shift towards greater “sovereign capability” has become increasingly politically viable, with both the previous Coalition government and the current Albanese government respectively attempting to embrace a “whole-of-nation” strategy to build economic resilience and in-country manufacturing capacity through initiatives including the Defence Industrial Capability Plan, the Sovereign Industrial Capability Priorities, and is now the cornerstone of the Albanese government’s Defence Strategic Review (DSR): National Defence.

This is highlighted and explained in the DSR itself, which states, “National Defence must be part of a broader national strategy of whole-of-government coordinated and focused statecraft and diplomacy in our region. This approach requires much more active Australian statecraft that works to support the maintenance of a regional balance of power in the Indo-Pacific.

“Key to successful outcomes in implementing National Defence will be: national leadership, statecraft and diplomatic proficiency; accelerated military preparedness; economic stewardship; scientific and technological prowess; and climate change action and domestic resilience. It will be challenging to effect ... Australian statecraft now requires a consistent and coordinated whole-of-government approach to international affairs and the harmonisation of a range of domestic and external national security portfolios, from trade and investment to education, minerals and resources, clean energy, climate, industry, infrastructure and more,” the Defence Strategic Review adds.

But what does all of this have to do with Australia’s recently announced $1 billion “in-principle” export deal to provide Germany with Australian-built Boxer heavy weapon carrier vehicles? Well, surprisingly, quite a lot.

Who would have thought not reinventing the wheel had benefits

Many will agree that Australia has had a long relationship with doing things the hard way, or better put, reinventing the wheel throughout much of its recent industrial history, particularly in the last three to four decades.

Yet, one of the greatest examples of Australia avoiding that trap has now appeared to be the most successful following the recent announcement of a $1 billion defence export deal with Germany. The government highlights that this deal is a fundamental opportunity for Australia’s defence industry at a critical period in global history.

Indeed, the formal release states, “The deal represents one of Australia’s largest ever defence export contracts, worth over $1 billion to the Australian economy in the production and supply of vehicles, supporting approximately 1,000 local Australian jobs and providing a significant boost to our sovereign defence industry”, highlighting the economic, industrial, and employment impact of the Boxer program initiated by the previous government, which, despite the criticisms, and there are plenty, seemed to be playing the long game.

What makes this announcement all the more powerful is the fact that Britain is also locally building their own fleet of Boxer-based combat reconnaissance vehicles, yet Germany signed the deal with Australia, a nation on the other side of the globe to provide their armed forces with Australian-built armoured vehicles.

So, clearly, despite the rhetoric and the vitriol of the past, we can build things in this country, but why have we seen so much trouble with other areas?

Building under licence may just be the key

By virtue of our geographic proximity to the world’s fastest growing consumer markets, coupled with the vast mineral wealth of the Australian landmass, Australia presents a unique opportunity for world-leading businesses across the globe, across a range of sectors beyond the extraction cycle of the mining industry, whether it is in the advanced energy or battery technologies, additive manufacturing, and now defence.

As luck would have it, there already exists a model we can use to great effect: building under licence. We have also seen an appetite for many global companies to embrace this model, particularly in developing nations, namely China, India, Indonesia, South Korea, Vietnam, and the like, to lower their cost overheads, particularly in the broad-based yet large-scale consumer goods sectors, namely automobiles, consumer electrical goods or refined industrial inputs including rare earth elements and other critical chemical precursors.

Yet for Australia, we seem to have very little interest in working or developing a globally competitive industrial base in this way, why?

Working with industry leaders, particularly global leaders at the cutting edge of innovation provides an effective avenue for reindustrialising and reshoring critical industrial mass and capability to Australia, while also serving to support the local industrial base develop comprehensively by tapping into the global supply chain and corporate networks to deliver outcomes for Australia and the company.

Arguably, both the Albanese government’s Defence Strategic Review and the National Reconstruction Fund, respectively, represent two of the most ambitious, and to paraphrase the government, “consequential” policy initiatives of the Albanese government, which could both provide the funding mechanisms for being able to deliver such a policy.

Indeed, the National Reconstruction Fund identifies a number of key areas of focus, namely:

• Renewables and low emissions technologies (up to $3 billion for renewables and low emissions technologies);
• Medical science ($1.5 billion for medical manufacturing);
• Transport ($1 billion for critical technologies and $1 billion for advanced manufacturing);
• Value-add in the agriculture, forestry and fisheries sectors ($500 million for value-adding);
• Value-add in resources ($1 billion for value-adding in resources);
• Defence capability ($1 billion for critical technologies and $1 billion for advanced manufacturing); and
• Enabling capabilities.

Critically, across these various areas, there are a number of licences that Australian-based subsidiaries of global companies, in collaboration with government, private equity, venture capital and superannuation funds as sources of capital, can draw upon to “reshore” industrial and manufacturing opportunities for long term Australian economic growth and stability in the face of an increasingly multipolar world.

This empowering mandate provides for the development of a true industry policy, one that goes beyond the ideological capture of both sides of Australia’s policymakers and can position the nation to truly embrace the opportunities of this next great industrial revolution.

Major General (Ret’d) Marcus Thompson explained in a piece for ParaFlare the logic behind this thinking, despite public criticism around the government’s rhetoric, not necessarily correlating with actions, particularly as it relates to a whole-of-nation and whole-of-government approach, stating: “Defence, alone, cannot build the capabilities nor the workforce required to meet these challenges head-on. This will take a significant national effort, and there is much to be done — including challenging policy and cultural changes to quickly get the required capabilities into the hands of our warfighters.”

Going further, Thompson adds, “While the review has been developed relatively quickly in contrast to previous Defence reviews, members of Defence industry must be thinking it’s about time ... The Minister for Defence Industry, the Hon Pat Conroy MP, has committed to a sovereign defence industrial base, and this must surely be the priority for government as it sets a course for a ‘Future made in Australia’. The government must not take a backward step in the pursuit of homegrown Defence assets and capabilities.”

This emphasis on certainty is reinforced by empowering policy systems and structures which enhance Australia’s areas of natural competitive advantage, while also serving to open doors to industries of the future, in line with the government’s ambitious “Future made in Australia” agenda.

However, certainty alone can’t guarantee the development of a sustainable, competitive industrial base. We equally need a broader realignment of the nation’s industrial policy and industrial relations systems, combined with a shift in Australian business’ attitude and appetite towards risk and government’s appetite for partnering with industry, to deliver the desired outcomes.

Final thoughts

The rapid devolution of our strategic environment, coupled with the advent of grey zone warfare and hybrid conflict being levelled against us requires a dramatic reimagination of our concept of national security and sovereignty.

This shift is perhaps best explained by US academic Charles Maier, who unpacks the concept of national security as: “National security ... is best described as a capacity to control those domestic and foreign conditions that the public opinion of a given community believes necessary to enjoy its own self-determination or autonomy, prosperity, and well-being.”

However, with renewed emphasis on modernising and expanding the US defence industrial base and the Western defence industrial base more broadly, is it time for Australia to take further real, measurable steps to embrace the opportunities presented by agreements like AUKUS and to take the initiative to build a viable, competitive, and sustainable defence and advanced manufacturing industrial base?

Despite the opportunities to learn from comparable nations, it appears as though Australia is falling back into its default position of “she’ll be right”, while nations across the globe, and in particular in the Indo-Pacific, double down on the disruption wrought by the COVID-19 pandemic and have actively begun to marshall their own national power and cohesively coordinate in preparation for the post-COVID-19, multipolar world order.

While contemporary Australia has been far removed from the harsh realities of conflict, with many generations never enduring the reality of rationing for food, energy, medical supplies or luxury goods, and even fewer within modern Australia understanding the sociopolitical and economic impact such rationing would have on the now world-leading Australian standard of living.

Equally, we have to begin to confront the question of “What sort of region and world do we want to live in and hand down to our children?”, for if Australia does not embrace the opportunities presented by the Indo-Pacific and more broadly the era of competition that is coming to characterise the 21st century, we will have the world created for us by nations that hold their national interests as sacrosanct and put them before all other considerations.

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