Keynote Address: Australian Business Defence Industry Sovereignty Forum

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The Hon Christopher Pyne MP

Minister for Defence Industry

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27 July 2017

It’s a pleasure to be able to give the keynote address at the Australian Business Defence Industry’s Sovereign Industry Capabilities seminar today. 

It gives me an opportunity to acknowledge the importance of the efforts of ABDI as an advocate for Australia’s defence industry and capability. 

The timing is apt, too – coming as the Government seeks to finalise our approach to sovereign industrial capabilities as part of the forthcoming Defence Industrial Capability Plan. 

Your discussions today will inform our thinking, so I want to thank all of you – particularly the presenters – for contributing to these important deliberations. 

Today’s gathering brings together the perspectives of many distinguished contributors to Australia’s strategic and industry policy. 

I am sure that the presenters will spark some very healthy discussion and debate on a topic that goes to the nub of notions of our national sovereignty and defence self-reliance.

The Australian defence industry is front and centre of this Government’s vision and agenda for jobs and growth in the Australian economy. 

We believe economic and military security are inextricably linked. 

Across the nation industry is making the transition to high-tech manufacturing; embracing the innovation that will drive our continued national prosperity. 

Defence industry is a fundamental element of this transformation. 

It is where the jobs of the future will be created and with them the broader growth we need to ensure Australia maintains our position as an advanced economy among the top ranks of nations in the twenty-first century. 

More than at any time before we are all in this together. 

This is about the wellbeing of Australia. 

As part of our defence expansion, we are expecting more of our international partners and contractors. 

We will require them to maximise their involvement with local industry and to look more actively and more broadly across their business groups to seek innovation and export opportunities for Australian small to medium enterprises.  

But at the same time we will also ensure the critical industrial capabilities which need to be under Australian control remain that way. 

This Government is determined to ensure that our defence dollar stays in Australia and benefits the local economy. 

The greater the ability of Australian industry to meet the Australian Defence Force’s capability needs, the greater level of prosperity, security and sovereignty we enjoy. 

Last year, as part of the Defence Industry Policy Statement, the Government flagged its intention to develop a new assessment framework to identify our sovereign industrial capabilities. 

We wanted to be able to provide the Defence Department with a robust – and repeatable – assessment framework to aid defence decision making about our industrial base and its role in enabling the department to achieve its mission. 

There was a general view that while the Priority Industry Capabilities had served their purpose supporting critical elements of our defence industry, it was time to take a fresh view – particularly in light of the significance afforded to the sector by the Government. 

It was felt it was time to more clearly link the most critical elements of defence industry with our broader strategic and capability goals and to manage and support these across our defence planning, rather than only in our capability solutions. 

The Priority Industry Capabilities were a product of their time – a time where defence lacked the strong policy direction and priority it has been given by the Turnbull Government. 

We seek to maximise Australian industry involvement across the acquisition, operation and sustainment of our defence capability – all with a very clear focus on delivering the best capability for the ADF within time and budget.  This policy approach will deliver greater sovereignty to Defence and our nation more broadly.

As you would know, we have recently strengthened the Australian Industry Capability Program for exactly this reason. 

Tenderers seeking to provide services, solutions and material to meet our capability needs must understand the importance to this Government of building our sovereign defence industrial capability.

Ensuring we have the foundational infrastructure, the skills and the technology within our defence industry to be able to support the ADF to fight and win on our terms is absolutely crucial to the Government. 

As the Defence White Paper highlighted we will need a more potent, agile and adaptable future fighting force, a force with a broader set of capabilities we can draw on, so we have an ADF able to conduct the full spectrum of tasks the Government determines are crucial to national security. 

And as part of that strategic approach, we need a sovereign industrial base in Australia that has the skills, knowledge and capability in place to ensure the ADF is able to conduct operations every day of the week, every week of the year, to protect our national interests and maintain a rules-based international order – in our region and overseas. 

We need a sovereign industrial base that is ahead of the technology curve so we can maintain our regional capability advantage today and into the future as we introduce new capabilities and the rate of technological advance in our region grows ever faster. 

We need a sovereign industrial base that can integrate and maximise the joint capability we can achieve from our acquisition of a wide range of very complex and advanced systems from both overseas and Australia. 

And we also need a sovereign industrial base that can support the objective outlined in the Defence White Paper for Australia to adopt a more significant defence posture with our allies and regional partners.

As our strategic circumstances become more contested and we respond to a broader range of threats – as we are increasingly doing today – we understand very clearly that greater capacity, resilience and sustainability within our defence industry is an important means to manage and mitigate strategic risk. 

This understanding – along with the acknowledgement of Australian industry as a fundamental input to capability – lies at the heart of the Government’s defence industry policy.

This is a significant change in the way defence undertakes its capability development planning. 

It places new recognition on the importance of the role Australian industry plays. 

This is something I want very clearly understood: a stronger Australian defence industry is not just to our advantage. 

A stronger Australian defence industry is a strategic asset for our allies and our international partners too. 

I’ve given you this background on the Government’s approach to maximising Australian industry involvement as it provides important context for our thinking about a Sovereign Industrial Capability Assessment Framework and the task of identifying sovereign industrial capabilities themselves. 

Defence has been busy developing this framework as part of the Defence Industrial Capability Plan the Government will release in coming months. 

There has been a range of engagement, both with industry and the state and territory governments, to consider how to identify the sovereign industrial capabilities and how they might best be supported. 

A defence industry capability survey was also launched at the end of last year as a further part of the process. 

While the survey only offered a snapshot of the defence industrial base in Australia, it provided some useful insights. 

It showed Australian industry is already resilient, that it doesn’t solely rely on the ADF for its survival. 

Close to 70 per cent of the survey respondents said that only 20 per cent or less of their annual workload was generated from the Department of Defence. 

It was also clear that our small and medium enterprises are innovative and have an eye to the future, looking to make future investments for growth.

More than 15 per cent of the companies surveyed reported investment of over 10 per cent of their revenue back into research and development, while almost 10 per cent reported an R and D reinvestment of 16 per cent or more. 

We also learned that the Australian defence industrial base is growing and diversifying relative to even just a few years ago. 

Around 40 per cent of the respondents stated that they generate capability in their home state alone, while almost half of the total capabilities were listed as being in two or more states or territories.

This is exactly what we wanted to hear, but it must continue and grow apace if we are to create the right kind of industry we require – the right kind of industry with the right skills.

We live in a world that is changing fast, a world that is far more interconnected than at any other time in human history. 

When we think about sovereign industrial capabilities against this backdrop we must be realistic and strategic in our approach. 

Australia is heavily reliant on overseas providers of major military platforms – particularly our friends in the United States – and this will continue as highlighted in the Integrated Investment Program. 

For all our focus on defence the Government acknowledges we cannot do everything in Australia. 

The nature of modern supply chains and manufacturing processes means it would be extremely difficult for Australia to achieve complete self-sufficiency. 

Even locally produced capabilities are almost all reliant on some components imported from foreign supply chains.  

At the same time we also have finite resources. 

This means we must carefully consider which industries we invest in and single out as key sovereign industrial capabilities. 

With all this in mind the Government has directed Defence to develop a new framework, the Sovereign Industrial Capability Assessment Framework; a frame of reference that will be nimble and responsive to changes in our strategic environment, a frame of reference that will enable defence to target and better manage our key industrial capabilities. 

The Department and the Centre for Defence Industry Capability are working together on the project now. 

The Framework, which is well advanced in its development, will focus on identifying the capabilities that are so important that they must be developed or supported by Australian industry because overseas sources will not provide the required security or assurances we need. 

At the end of the process, we will see a suite of very carefully targeted priorities vital to effective defence and industry management, planning and protection; priorities that draw on key criteria identified in the Defence Industry Policy Statement. 

Key elements you will see underpinning the Sovereign Industrial Capability Assessment Framework include the protection of intent – Australia's ability to employ military capability without divulging military intent. 

You will see independence of action – Australia’s ability to provide unimpeded use of military capability for the purpose of achieving a strategic objective. 

Interoperability limits and benefits will be key considerations – Australia’s ability to conduct missions with and alongside allies and coalition forces. 

Assurance of supply will be represented – Australia’s ability to access industrial capability without risk to security of guarantees of supply. 

Essential skills retention will be important – Australia’s ability to have specialist knowledge and ability essential to delivering industrial capability resident-in-country for reasons of security and supply assurance. 

And leveraging competitive advantage will also be key – the ability of a company with a competitive advantage able to offer scales in production that can be transformed locally, globally and, not least, for civilian application while maintaining the ADF’s position as a priority customer. 

The new framework is intended to operate at two levels in defence. 

There will be a broader, strategic level.

Defence will provide an improved identification and management plan for sovereign industrial capabilities. 

There will then be an individual project investment level. 

Here, Defence will provide recommendations to the Government as part of our consideration of capital investment proposals. 

We will, of course, need to ensure that once sovereign industrial capabilities are identified that they remain effective. 

They will need to be carefully managed and supported systematically and strategically by Defence. 

We will need to ensure we make informed decisions that consider all aspects of sovereign industrial capability from strategic policy and force design through to industry development and capacity lifecycle.  

A clear distinction will also need to be made between the defence industry policy of maximising Australian involvement in meeting our defence capability needs and the purpose of sovereign industrial capabilities.  

It is important that defence takes the time to get this Framework right. 

As I have observed before, the scale of defence is now vastly bigger than anything we have seen in modern times. 

And the Turnbull Government is not just beginning Australia’s but one of the world’s largest defence expenditure processes, a project that will have an impact on our national security and prosperity for decades to come. 

The long lead times of much of this process leaves us with no scope for complacency. 

Time wasted at the beginning of any project is time that must be made up at the end. 

That means we must get matters right from the start, that we must be able to realise our ambitious goals. 

That is my job, the role of my portfolio. 

The sovereign industrial capabilities must be centred around the most critical elements of defence’s war fighting requirements and provide a military-strategic advantage to the ADF. 

We have a responsibility to the nation to ensure that our sovereign industrial capabilities are secured and protected. 

We must also take steps to ensure that our allies and partners continue to have confidence in our abilities to protect these technologies. 

I expect that the sovereign industrial capabilities, once identified, will be regularly reviewed as part of defence’s broader strategic and capability planning and will be refreshed at least every four years – or more regularly where strategic or technological developments demand.  

I also expect that there will a robust management system to support and protect the sovereign industrial capabilities we identify. 

It will need to be a management system with considerable flexibility. 

Its key elements will need to be used at different times for different demands and in different ways depending on the size and scale and robustness of each crucial industrial base that delivers a sovereign industrial capability. 

And it will have to draw on new as well as existing defence policy initiatives as a reflection of the diversity across the sector. 

It will be crucial to consider the security of sovereign industrial capabilities. 

Some may need to be prioritised to support existing defence policy initiatives.  

And it’s very important that the policy initiatives I’ve just discussed with you are placed in the broader strategic context. 

As I’ve said many times before, for the very first time this Government has recognised Australian industry as a whole as fundamental input into defence capability. 

The Government is committed to facilitating the growth of the entire sector, not just simply a subset of industry that operates as sovereign industrial capability. 

At the same time too it’s important not to see these plans as the latest variation on picking winners or an effort to steer Australian industry down a small number of narrow roads.

We are talking about a subset of industry and a subset of policy. 

The real opportunities for our defence sector will continue across our major projects and the Australian Industry Capability Program. 

This Government is putting Australian industry and Australian workers front and foremost in our defence procurement plans. 

There will be opportunities for Australian industry involvement and Australian jobs far broader than those covered by sovereign industrial capabilities. 

The Government’s forthcoming Defence Industrial Capability Plan, our Defence Export Strategy and the range of initiatives we have already put in place – not to mention the size, scope and scale of our Naval Shipbuilding Plan – will provide unprecedented opportunities for Australian industry and Australian workers to contribute to our nation’s future security. 

But today’s focus is on sovereign industrial capabilities. 

The Government has undertaken considerable effort to shape an informed view of the approach it will take towards developing and supporting sovereign industrial capabilities. 

The Department of Defence is now refining these efforts, sharpening that view, for cabinet consideration in the coming months. 

It is crucial that we take the correct path, as it will determine the directions of our defence industry for years to come. 

I anticipate there will be a transition period to ensure that the sovereign industrial capabilities, once announced in the Defence Industrial Capability Plan, provides the starting point we need. 

That adds a new significance to today’s discussion, to your deliberations on the industrial capabilities in Australia that are the vital to our defence mission and how we might best strategically manage these sovereign industrial capabilities and review and refresh our management plans to ensure our interests remain protected. 

The Turnbull Government has put defence at the very centre of our policy agenda. 

We not only want to guarantee our national security. 

We want to play a lead in protecting peace in Asia, in the Pacific, the Indian Ocean and, more broadly, around the world. 

The Government is hard at work on our plan to defend the nation and secure our future prosperity – it is our great national endeavour. 

Sovereign defence capability is one of the most fundamental elements of this mission. 

Thank you again for the opportunity to speak with you today. It has been a pleasure and I look forward to hearing about the outcomes of today’s discussions.


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