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Optimism in Australia's Defense Industry

 
 

In February, Australia committed to spending A$195 billion on defense over the next ten years and in mid-December announced the new Centre for Defence Industry Capability (CDIC). The February Defense White Paper and the CDIC both make it clear that industry is integral to defense and that opportunities are on the rise across the board.

This is a new move as private industry has not played a big role in defense before and historically many Australian shipbuilders preferred lucrative commercial projects. However at a conference organized by the Chamber of Commerce and Industry in Western Australia (CCIWA), it was made clear that not simply shipbuilders and Primes like BAE Systems would be involved, but also the oil and gas industries and other resource industries which have slowed down thanks to the end of the mining boom and many labor-heavy projects finally coming online.

According to one state senator who spoke, the government is trying to pre-plan and assist these companies so they’re not spread too thin or lose their staff once the commodities sector sees an uptick. Companies in turn should plan according so that midway through a tricky project the swinging-again resources sector doesn’t seem like the better bet.

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There is plenty of optimism, as government announcements, speeches about jobs, and talk of money tend to contain. Innovative industry and a place for it within government thinking are good things.

The conference came with a hefty price tag of some A$400 per ticket, but was sold out early. The large room listened carefully to each speaker, asking targeted questions at the end. Though some attendees had long links to the defense industry others were obvious newcomers looking to diversify. The strongest areas of interest for the CCIWA’s members are in varied areas of future shipbuilding, along with maintenance of the current fleet. HMAS Stirling, on Garden Island, close to Perth is the Australian Navy’s largest port in Australia on the Indian Ocean. The port is currently undergoing a A$345 million redevelopment by local company Doric with multi-sector employment from architects to sewerage and power infrastructure.

Although the focus is obviously naval (see here for a quick list) there’s apparently room for suppliers and other contenders for land or air projects. The boons from shipbuilding in South Australia were a strong election issue. Former defense minister and returned ambassador Kim Beazley pointed out in speech that Australia owed these opportunities in many ways to the electors of South Australia. One speaker from KPMG said that the traditional state rival between South and West was misplaced as there were opportunities for both as well as for collaboration. In fact half the submarine build will be undertaken in South Australia, which may have been far more of a political than efficiency-based decision.

However, another aspect of the new spending and industry focus is not simply in the building of things (and plenty of naval things) but also electronic warfare, for some A$500 million. According to a press release, three quarters of that A$500 million will be spent locally in what the release calls “a boost to Australia’s Defence Industry.” Details are less concrete than industry involvement on builds but the testing of systems will be undertaken in Australia by local companies at a facility in South Australia.

According to the government this is one of the largest defense upgrades in the world (though not as large as Trump’s talked about upgrade of the U.S. forces by US$500 billion and an increase of ships from 270 to 355). Government money and keen industry capability (to build more than canoes) seem like a match made in Malcolm Turnbull’s possibly now-fraying conception of heaven. It even has a ring of Donald Trump: let business take care of business.

Industry involvement and an evolving economy (possibly putting it kindly) have been mentioned throughout defense talk in 2016 as the government has moved away from an off-the-rack submarine purchase (were Soryus ever truly viable?) to local build. The announcement of French DCNS to build the dozen shortfin Barracudas began with: “The Turnbull Government today announces that the next generation of submarines for Australia will be constructed at the Adelaide shipyard, securing thousands of jobs and ensuring the project will play a key part in the transition of our economy.” It ended with, “The Turnbull Government will maximize Australian industry involvement in the program and will work closely with DCNS to identify opportunities for local businesses to integrate into the supply chain.” Plenty of hope there.

Dr. Andrew Davies pointed out in the Strategist blog, in a post-conference sum up, that defense and business is not quite the same thing as doing business with defense. The approvals process can be tricky, the government is wary of smaller names it does not know and getting one’s head around procurement and other processes not always simplified can be difficult. Furthermore, the government now has a three, not two, stage approval process. He said that on the upside there are government portals and centers now designed to assist business in dealing with defense yet, he writes, “… perhaps the biggest change needs to be on the government side. In order to embrace even the most capable of players from the wider industrial sector, defense acquisition and government will have to be less risk averse. That will probably mean the odd embarrassment down the track—but it’s not like that doesn’t happen anyway.”

A preference for local content is strong. Turnbull has also said that he is “determined that every dollar we spend on defense procurement as far as possible should be spent in Australia… Because when we invest in Australian industry and jobs, Australian technology, we are strengthening our whole economy.” As reported here last week in a blog on the same subject the boon to jobs, GDP and industry may not be as high as Turnbull hopes.

That said there are strong hopes here in Western Australia in a state so recently battered by the mining boom downturn and knock-on effects that have seen slower growth across major sectors. With resource jobs on the wane a defense budget shot in the arm seems to have at least added a measure of optimism.

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