Sovereignty, speed and capability critical to delivering DIDS: Unpacking the new plan for Australia’s defence industrial base

Since the release of the 2016 Defence White Paper, Australia’s defence industry and the concept of “sovereign industrial capability” has been a central battleground for policymakers, industry, and Defence as they all work to deliver capability outcomes for the Australian warfighter.

This has led to various strategies, policies, and supporting documents aimed at providing Australia’s defence industrial base, which is so used to “valleys of death” and ensuing peaks and troughs of funding, replacing them with certainty, longevity, and clearly defined outcomes.

Yet arguably, much of the intent was actually backed up with much success in the way of materiel outcomes for the Australian Defence Force, particularly in recent years, with all sides often devolving into very public slanging matches that only served to further drive the wedge between all parties.

The urgency driving Australia’s rapid rearmament and modernisation of both its Defence capabilities and its industrial base has been driven, in large part, by the increasing hostility and capability of the People’s Republic of China in the Indo-Pacific and only reinforced by events in Europe and the Middle East.

In response, the freshly elected Albanese government in 2022, in what it described as “the most dangerous period since the 1930s”, commissioned the 2023 Defence Strategic Review, and the supporting initiatives like the Independent Analysis into Navy’s Surface Combatant Fleet have culminated in the government’s Defence Industry Development Strategy as the connective tissue to deliver capability.

Stressing the importance of the findings of the DIDS strategy, Defence Industry Minister Pat Conroy explained, “this strategy I release today also represents a major shift in industry policy in Australia, articulating for the first time the defence industrial base the nation needs in the face of the strategic circumstances outlined in the Defence Strategic Review”.

But what does this all mean for Australian defence industry and its workforce?

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A consistent strategic rationale and a clear definition of ‘sovereign industry’

At the core of the government’s focus for the Defence Industry Development Strategy is the increasingly consistent and importantly bipartisan-agreed strategic rationale driving Australia’s modernisation, with the DIDS report articulating this, “Australia is facing the most complex set of strategic challenges since the end of the Second World War. An intense contest of values and narratives, combined with a large-scale conventional and non-conventional military build-up without strategic reassurance, means the risk of military escalation and miscalculation is rising. The effects of climate change amplify the challenges in Australia’s region, while actions like economic coercion restrict countries’ sovereign decision-making power.”

Adding further colour to this, the report added, “Australia needs to grow its Defence capability, and therefore sovereign defence industrial base in areas of strategic priority, particularly when considering Australia’s diminishing geographic advantage. Once an asset due to its remoteness and separation from the rest of the world, Australia’s geography is less relevant in the face of capability advancements and new threats.”

This established, and in many ways, reinforced the by now hopefully well understood fact that the post-Second World War order is under consistent and considered assault by revisionist, autocratic powers who have their own ambitious designs for the world.

With this context established, the report established an important and long overdue definition for Australia’s “sovereign defence industrial base” and by extension, what constitutes an Australian “sovereign defence industry”, defining it as, “Australian defence industry is comprised of businesses with an Australian-based industrial capability and an Australian Business Number (ABN), providing products or services used in, or which can be adapted to be used in, the Australian Department of Defence supply chain and/or an international defence force supply chain. This is Australia’s sovereign defence industrial base. Only in limited
circumstances is Australian ownership critical to sovereignty.”

At the core of this definition and DIDS is the recognition and push to “grow, support and engage with Australian defence industry” with an emphasis on ensuring that Australian defence industry must be:

• Capable of delivering the capacity, size, and scale to meet Defence’s needs, as well as the agility to rapidly scale.
• Resilient to disruptions beyond our control by strengthening our network of supply chains.
• Competitive by providing the systems, technologies, materials, services, and products Defence needs to support its mission.
• Innovative by maintaining a technological edge and developing the asymmetric technologies needed by Defence.

Rounding out this definition, the review identified the three tiers of Australia’s defence industrial base in simple, easy to understand terms, with, “Tier 1 businesses are the prime system integrators that provide Defence with a platform, system or product. Tier 2 businesses deliver major equipment, systems, assemblies and services. Tier 3 businesses provide parts, consumables and services.”

The government’s approach isn’t solely on the defence and national security side of the equation, with it also seeking to emphasise and expand on the broader economic impacts and opportunities provided by a viable, competitive and resilient Australian defence industrial base – something broader Australia needs to come to terms with.

Expanded scale, competitiveness and industrial prioritisation

Australia’s defence industry will never be self-reliant outside of the horrors of a regional or truly global war (which like all things must come to an end one way or another) involving great powers, but we can expand its scale and its competitiveness, particularly off the back of the mounting tensions characterising global and regional affairs.

This doesn’t mean that defence industry will receive a blank cheque, rather, there will be a “prioritisation” of the nation’s industrial capacity which is critical to supporting the development of a “capable, resilient, competitive and innovative industrial base”, designed to “build the industrial capability required to meet the challenges of our strategic circumstances and secure our sovereignty”.

Fundamental to delivering this outcome is a recognition and commitment by defence industry to delivery capabilities in the timeframe determined by Australia’s strategic circumstances, however, this isn’t without its challenges, something that the DIDS recognises, stating, “As with any modern industrial base, Australian defence industry is constrained by three factors – absolute scale, the rate at which it can adapt or grow, and the acknowledgment we will never be completely self-reliant.”

In order to provide defence industry with the certainty, Defence is required to consider these three factors, this is even more important when measure against three critical outcomes, namely:

• Outcome 1: To meet the immediate needs of Defence, including the delivery of new materiel into service and support to raise, train and sustain.
• Outcome 2: To meet the needs of tomorrow’s ADF, including innovation, integration, and the evolution of Defence capability.
• Outcome 3: To contribute to the enduring prosperity of Australia, including economic value and value to our trusted partners.

Importantly, each of these three outcomes are measured against the “threats and opportunities driven by our strategic circumstances”, which also form the foundation for “successful industrial prioritisation” as described by the DIDS, which stated, “Successful industrial prioritisation means Defence can access the industrial capabilities it needs within available resources. These industrial capabilities must be able to scale rapidly in times of need, and enable the creation and integration of emerging innovative capabilities to maintain our capability edge and deliver asymmetric advantage.”

So we have some clear definitions and more importantly, some clear objectives. But what are our priorities?

New sovereign Defence industrial priorities

Ask many people, the 14 sovereign industrial capability priorities (SICPs) were announced with much fanfare and focus but as time went on, they seemed to fade into obscurity (not for lack of trying to reinvigorate them from within the prior government I might add!) but it is easy to understand when everything is seemingly a priority, nothing actually is.

In response, the government has announced a recalibration of the SICP program to become the sovereign defence industrial priorities (SDIPs), with a scaled back and simplified list of SDIPs, mainly:

• Maintenance, repair, overhaul, and upgrade of Australian Defence Force aircraft.
• Continuous naval shipbuilding and sustainment.
• Sustainment and enhancement of the combined arms land system.
• Domestic manufacture of guided weapons, explosive ordnance and munitions.
• Development and integration of autonomous systems.
• Integration and enhancement of battlespace awareness and management systems.
• Test and evaluation, certification, and systems assurance.

This simplified, streamlined approach “signal the strategic direction of Defence’s demand, they do not deliver the granularity needed by all levels of the supply chain, particularly from Tier 2 and Tier 3 businesses”.

As part of ensuring the continued relevance of the SDIPs, it will be “refined, including through consultation with industry, to ensure continued alignment with the biennial National Defence Strategy” alongside which Defence will collaborate with industry to “identify shortfalls, critical paths and timing of areas for growth”, which will also be backed by Defence using “industry where they offer value for money or offer export, co-development, co-production or co-sustainment opportunities” all critical mechanisms for delivering scale, competitiveness and export opportunities.

This feeds into important industry development opportunities, particularly where Defence identifies “current industrial capability and capacity in Australia cannot deliver an SDIP, Defence, supported by prime contractors where necessary, will identify options to uplift existing providers, or support the entry of new suppliers through targeted support such as grants to help develop the workforce or purchase plant and equipment”.

The objective of this is to help increase the number of businesses considered “Tier 2” as previously mentioned, thus resulting in an expanded sovereign, domestic supply chain and industrial base that can be rapidly scaled to deliver “new equipment and innovations into service and support their operation”.

As part of this, the Office of Defence Industry Support (ODIS) will be “reformed” in order to better “deliver options to close capability gaps in SDIPs, and enhanced industry intelligence to support decision-making. For businesses, ODIS will deliver better access to a broader range of market opportunities in Defence, access to specialist support and services, and accelerated upskilling to be more competitive and capable in priority areas”.

Embracing a whole-of-nation approach

As part of the Defence Strategic Review’s emphasis on “National Defence”, the DIDS formalises a whole-of-nation approach to delivering capability outcomes for Defence and opportunities for Australia’s sovereign defence industrial base.

The DIDS articulated, “This strategy is a key element of the Australian government’s industrial policy and draws on broader policies in the areas of tax, energy, industrial relations, regulation and skills.

“Key to this whole-of-nation approach is the recognition that Defence depends on industry from across Australia’s broader industrial base. As Defence continues to leverage the industrial capabilities it needs from adjacent sectors, it must have a clear understanding of the capacity and resilience of these sectors to support Defence requirements.”

The government aims to achieve this by leveraging a number of initiatives, namely the National Reconstruction Fund, the Industry Growth Program, Cooperative Research Centres Program, and the R&D tax incentives.

These will additionally be supported by state and territory governments, with the objective of ensuring “Defence is implementing collaborative initiatives designed to support the sovereign defence industrial base.”

Final thoughts

Australians are going to be asked to accept a number of uncomfortable realities in coming years. First and foremost, we will have to accept that while the world is increasingly becoming “multipolar”, the Indo-Pacific, in particular, is rapidly becoming the most hotly contested region in the world.

This has been underpinned by the emerging economic, political, and strategic might of powers like China, India, Pakistan, Thailand, Vietnam, and the established and re-emerging capability of both South Korea and Japan, in particular, are serving to create a hotbed of competition on our doorstep.

Second, both the Australian public and our policymakers will have to accept that without a period of considered effort, investment and reform, or as I like to colloquially refer to it, our rocky montage moment, current and future generations of Australians will be increasingly impoverished, living in a nation pushed around by the region’s now rising powers.

In the second part of this analysis series, we will take a closer look at the procurement reforms, innovation, export and workforce development priorities identified in the government’s Defence Industrial Defence Strategy.