By Matt Keogh MP

04 August 2020

The COVID-19 crisis has focused minds at all levels of government on economic stimulus, namely jobs and the need for greater supply chain security; both of which point to the need for a greater manufacturing base here in Australia. What we have before us is an opportunity to help secure sustainable Australian jobs and support a thriving economy – through Australian defence industry.

This is an opportunity that can, and should, be grasped right around the country, including on the Indian Ocean Rim, for reasons both strategic and economic.

Labor welcomed the Prime Minister’s recent announcement that the Government will now spend $270 billion over the next decade on Australian Defence Force (ADF) capability procurement and sustainment. It now must put its money where its mouth is and establish assurances that this increase in spend will guarantee more money is spent in Australia, through Australian businesses, developing Australian sovereign capability and delivering more skilled Australian jobs.

Currently the ADF is an excellent customer of defence infrastructure and industry globally, but we need to be much more than that. In fact, we shouldn’t be a ‘good customer’, we need to be a ‘demanding customer’ that demands more technology transfer, more Australian Industry Capability (AIC) usage, more spending in Australia and more Australian jobs.

In the current context, you might expect that the Australian Government would be doing everything it can to support Australian businesses to develop sovereign capability and win defence contracts. But the value of work being given to Australian defence industry businesses is actually decreasing, despite multiple government initiatives to the contrary.

Supporting local industry is the first step

Australia is one of the few developed nations with a significant defence force that lacks a range of ‘home grown’ prime contractors, with only one naval designer-shipbuilder, Austal, remaining after companies like Australian Defence Industries (ADI) and Tenix Defence were acquired by French company Thales and the UK’s BAE Systems.

Without specific and enforceable AIC requirements imposed upon them, defence prime contractors will naturally prioritise their pre-existing (usually foreign) supply chains over local businesses, because they perceive the investment in Australian industry as risky, especially in the current context.

The critical policy failure here is the lack of any clear, measurable and enforceable Australian industry content requirements being imposed on prime defence contractors by Defence, which are also regularly audited. Under the Morrison Government, Defence relies on “best endeavour” undertakings in unenforceable plans to “maximise” the use of AIC. Any Australian defence contractor or commercial lawyer will tell you – and I was one – only relying on “best endeavours” isn’t worth the paper it’s written on!

But just requiring AIC isn’t enough. The Government needs to be doing the work to ensure businesses that have capability and want to get into the defence supply chain can do so. This should include helping them jump through the hoops of defence procurement requirements and also working with businesses that have applicable skills and experience who want to expand into the Australian defence industry. So far, the Centre for Defence Industry Capability (CDIC) has failed to deliver on these outcomes. However flawed its terms of reference and the make-up of those running it may be, the Government’s current review of the CDIC is very necessary and the Government should commit to making the outcomes of the review public, instead of keeping this conflicted review secret as it currently has planned.

The Morrison Government must also ensure that we have the skilled workforce necessary to support all of this work – there is no point promising jobs if the trained workforce isn’t available for them, as this just gives foreign primes another reason to use overseas suppliers and workers. This means a more targeted and significant investment in training; upskilling and a sustainable workforce is required.

Leveraging natural advantages

Ensuring defence procurement benefits Australian businesses, jobs and the development of sovereign capability is vital; but it is also just one piece of the puzzle. The real opportunity for defence industry policy acting in our national interest is through leveraging our natural competitive advantages.

While there has been much fanfare over Australia’s - Western Australia’s in particular - abundance of critical minerals, the rubber has yet to really hit the road to develop them. These critical minerals have a wide range of strategic uses, from powerful magnets to night-vision goggles, turbine blades and lasers, as well as the manufacture of different types of batteries.

China currently controls around 85% of rare-earths mining, separation and downstream manufacturing, which makes new rare-earths extraction and refining projects in Australia very risky due to demand risk (just ask our barley producers). The Federal Government has not been prepared to sufficiently de-risk or provide financial assistance to the dozens of Australian companies seeking to develop these resources, not just for extraction but throughout the value chain, to facilitate the opening of new markets.

This is a crucial missed opportunity to leverage one of Australia’s unique natural advantages at a time of heightened geostrategic risk; a time where so much of our defence capabilities are increasingly reliant on battery technology.

By committing to the purchase of end-products that will (and must) use batteries, utilising materials produced in Australia, from Australian extracted rare-earths, we (along with our friends) would effectively underwrite the development of these industries and unlock their potential as a secure source of important defence supply and remove our current dependence on a single source.

Of course, this would create the ancillary benefit of providing the necessary business to enable such industries to expand into supply for non-defence goods as well, enabling Australia to further develop general local advanced manufacturing.

If we get the policy settings right, Australia can once again become a country “that makes things.”

Western Australia as a Five-Eyes defence services hub

Western Australia is home not only to an abundance of natural resources, but also to Australia’s only Indian Ocean capital city. Western Australia is in the same time zone as 60 percent of the world’s population, including some of the world’s most rapidly developing economies in East Asia, as well as being proximate to emerging global powers such as India. These nations will require critical minerals for batteries, solar panels, and wind turbines as the world turns its attention to more renewable energy sources. Thus, Western Australia is perfectly placed to become a global hub not only for critical minerals products but the epicentre of a Western Indo-Pacific defence industry and global naval servicing hub.

The Indian Ocean is lacking sufficient Western defence naval and air bases. Those that do exist either provide limited to no sustainment support or are located proximate to areas of conflict.

Australia is the only Five Eyes destination in the Indian Ocean that could provide complete sustainment, maintenance and repair capabilities as well as forward crew/personnel swaps. Australia, specifically Western Australia, could position itself as the destination of choice on the Indian Ocean Rim for maintenance and sustainment operations of our close partner forces, boasting multiple sustainment locations that provide proximate safe harbour.

HMAS Stirling, the largest Royal Australian Navy base in Australia, is conveniently located nearby sustainment and support facilities at the Australian Marine Complex in Henderson. The 2020 Force Structure Plan reveals plans to develop and expand the base over the next decade in direct support of both the Collins and Attack Class submarine programs, the Hunter Class Frigates and the Arafura Class Offshore Patrol Vessels.

Given its proximity to our near Asian nation neighbours, let’s not discount defence facilities based in both Western Australia’s north west near Exmouth, as well as Darwin, both of which are rightfully slated to receive further upgrades in the Government’s 2020 Force Structure Plan.

The Plan also reveals the Government’s intention to build a full second graving dock. If built in Western Australia (which is logical given the only existing one is located at Garden Island, Sydney), the dock would not only provide much needed ancillary economic stimulus benefits that come with such a $1 billion plus infrastructure project, but would also further enhance the opportunity for WA to become a key sustainment port in the “Indo” part of the “Indo-Pacific”.

This opportunity is not just theoretical, as other nations have also recognised the importance of the Indo-Pacific region and are increasing their focus and activity in the zone. For example, the UK has advanced its aim to become a ‘global Britain’ and a renewed presence in ‘the East’ with the recent launch of its newest flagship HMS Queen Elizabeth on its maiden voyage through the Indo-Pacific.

This trend of increasing activity in the region provides a timely opportunity for Australia. But establishing Western Australia as a regional sustainment and repair hub will not just happen. It requires serious engagement by the Government, acting in tandem with our global friends and partners. If they are to be convinced of the hub’s benefits, they will need transparency and guarantees that necessary infrastructure will be commissioned to support its activities.

If the Morrison Government would invest its time and effort into more than just headline-grabbing media releases and start engaging with industry and experts, it might recognise the opportunity that’s right in front of them. We must leverage Australia’s natural advantages; not only to better protect our country in these uncertain times, but to facilitate much-needed economic development, and indeed develop sovereign capability through supporting our local defence industry.

First published in Defence Connect 4 August, 2020