Developing Australia’s Defense Industry

With Australia’s conservative Coalition securing a two-seat majority in the House of Representatives after the recent election, Prime Minister Malcolm Turnbull took the opportunity to reshuffle his Cabinet. This was done out of necessity as some former cabinet members lost their seats in the election, but also was an opportunity to set new agendas for his government and the country.

The most significant addition to the cabinet was the creation of a separate “Defense Industry” portfolio. Traditionally the responsibilities involved would fall under the broader Defense portfolio; however, the government decided the new investments that they are making in Australia’s defense hardware warranted a stand alone portfolio.

As outlined in the recent Defense White Paper, in the coming decade, the government plans to spend AU$195 billion (US$146 billion) on conventional sea, air, and land defense capabilities, as well as improvements in intelligence gathering, surveillance, and cybersecurity. This is an increase in the defense budget of around AU$30 billion over the 10 year period.

The major components of this funding will be the building of 12 new submarines, alongside nine anti-submarine frigates and 12 offshore patrol vessels. This will constitute Australia’s most significant naval buildup since World War II. It is also an attempt to create a new advanced defense manufacturing industry within Australia.

"What we are doing in the defense industry is completely transformational,” the prime minister said about the investments and new portfolio. “We are building a defense industry in Australia … People do not entirely recognize how big a change it is. This is a big change, a big reform and it requires additional leadership and additional oversight, additional advocacy and drive."

A senior government minister, Christopher Pyne, has been given the new portfolio. However, it remains unclear whether he has been shifted from a more high-profile, public facing ministry due to an indiscretion, or whether his appointment is an indication of how seriously the government wishes to pursue this path.

In his initial statement as the new minister for defense industry, Pyne highlighted the domestic implications of the move. “Our Defense White Paper identifies and seeks to address the capability challenges we face as nation in the years ahead,” he said. “With this investment in our national security comes opportunities to transform our local economy, particularly in the areas of advanced manufacturing, research, and development.”

Tying this development into the government’s broader attempt to drive greater innovation in the country, Pyne said, “Our defense industry has the capacity to be an economic and innovation driver as we shift from the post mining construction boom period into a new age of innovation.”

These statements from the minister indicate where the initial impetus for this shift toward developing a strong high-end defense industry seems to have come from. With South Australia seeing the decline in its heavy and manufacturing industries, alongside slowing Chinese demand for raw commodities, the state requires major government investment to keep it afloat.

The compromise deal with France's DCNS to build major components of Australia’s new submarine fleet in South Australia was driven by this concern for the state’s viability. The government seems to have taken this situation and decided that with further investment these advanced manufacturing capabilities will hopefully snowball into a significant high-tech defense industry of its own.

The implications of the government’s rhetoric would indicate that they see major export potential and profitability in the future of Australia’s defense industry. However, no pronouncements have been made in this regard.

What is also unclear is the implication of these major investments in defense capabilities for Australia’s overall defense outlook. With Australia’s defense strategy centered around its alliance with the United States, current political instability in the United States is likely of deep concern for Australia’s defense policymakers. Combined with China’s machinations in the South China Sea, the government may be seeing a need to move the country toward greater defense self-reliance.

Other indicators on this trajectory could include the ability of the new French-designed submarines to transition to nuclear propulsion, a factor deemed a major advantage over the Japanese proposals during the bidding period. With the South Australian government investigating using remote areas of its territory as a nuclear storage site, there is potential for a major shift in Australian thinking around the usage of nuclear fuels. While the latter may be driven by South Australia’s economic situation, it has serious implications for the federal government’s nuclear strategy, one currently tied to the U.S. nuclear umbrella.

The convergence of regional economic insecurity, the government’s broad innovation agenda, and shifting within the geopolitical balance has led Australia to attempt a bold shift in its defense architecture. Regardless of whether these investments achieve the goal of creating a viable high-end defense manufacturing industry, they indicate that Australia is laying the groundwork for what could be a more muscular and self-sufficient defense infrastructure.