ADM ANALYSIS | IN DEPTH CONTEXT

ANALYSIS JULY 2020

FORTRESS – A DEFENCE SOVEREIGN INDUSTRY CAPABILITY POST-COVID-19

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ANALYSIS JULY 2020

FORTRESS AUSTRALIA – A DEFENCE SOVEREIGN INDUSTRY CAPABILITY POST-COVID-19

■ ROB NAPIER | MELBOURNE

EXECUTIVE SUMMARY

2020 has been a year of upheaval. From a cata- a recession stronger and more resilient on the strophic bushfire season that was much longer other side. than planned and the COVID-19 pandemic soon There is an acknowledgement that this needs after, Australia has faced the new decade with to happen from various players within Defence some challenges already on the board. and government, and most certainly industry In the first of the ADM Analysis series, Rob too. But there remains the issue of action fol- Napier takes an in depth look at what the situ- lowing thoughts. ation normal is, how it evolved and where we This will take a range of measures, requiring can go to from here. Speaking to a wide range some sacred cows to be sacrificed across the of experts, this report draws together examples entire Australian landscape, political, economi- of where the Defence systems is working well cally and socially. From trade and power (fuels and perhaps could focus on in the future to make and green technologies) to manufacturing and sure that Australia can cope with the next big services, Australia will have to be a fortress with challenge, whatever that may be. the ability to open and close the doors as needed. It is important to note that this report explores This report looks at both sides of that equation. not only Defence but wider economic, political I would also like to take thank Rob Napier for his and social factors that affect the department’s excellent work in bringing this report together. ability to operate within the nation and the wider global community. We might be an island, but we are not alone. The Whole of Government response to both the bushfires and COVID-19 brings with it the Katherine Ziesing aforementioned challenges but also an oppor- ADM Group tunity to reshape our economy, to come out of Managing Editor

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ANALYSIS JULY 2020

FORTRESS AUSTRALIA – A DEFENCE SOVEREIGN INDUSTRY CAPABILITY POST-COVID-19

Despite Australia’s small population and large land mass, Defence Force (ADF) delivers a significant military capability to maintain a force that can defend the nation. Government spending is based on complex funding, geopolitical, national and international considerations, which is unlikely to change. ■ ROB NAPIER | MELBOURNE

EFENCE has developed a robust and How Defence defines sovereign capability and effective rules-based procurement factors into its acquisition programs has long Dsystem. The same can be said for its been a point of contention. This is a topic likely portfolio and program approach to capability to draw passionate and starkly different opin- development under the Capability Life Cycle ions. This is to be expected where the issues (CLC) and related mechanisms. These systems are complex, nuanced and with so many special may not be perfect but then, what is? interest groups on the field.

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HAS AUSTRALIA SWUNG TOO FAR? Would our economy have grown to the extent that it has without international exports of mining and agriculture? How severely has the movement of secondary industries offshore restricted opportunities for the young men and women who hoped to start apprenticeships in trades no longer needed in this country? How would Australia in general, and Defence in particular, cope if world events shut down our supply chain? Since the onset of COVID-19, these and similar questions have received wide public attention. In this article, QUICKSTEP ADM looks at sovereign capability and offers a balanced view to a debate Australians enjoy the freedom to express that can polarise opinions. their views about almost anything. Public debate about the need for sovereign capability AUSTRALIA’S RESPONSE TO COVID-19 is not new in this country. As far back as the Worldwide, the COVID-19 pandemic has demon- 1860s, David Syme, owner and editor of The strated the vulnerability of all countries to threats Age, caused a furore with his that break essential supply lines. Among devel- ■ attempts to introduce protec- oped countries, Australia has proved to be one “WORLDWIDE, THE tionist policies. Scottish by of the most resilient. While supermarket shelves COVID-19 PANDEMIC birth, he was suspicious of experienced short-term gaps, it was spared HAS DEMONSTRATED THE the power of Westminster the extreme shortages experienced in the US, VULNERABILITY OF ALL and equally suspicious of Europe, Asia and most other countries. COUNTRIES TO THREATS other colonies – particularly Geographical isolation has been our strength; THAT BREAK ESSENTIAL NSW. Fear of competition but it can also be a weakness. Vast areas of SUPPLY LINES.” and a desire to protect local ocean serve as our metaphorical moat, but they ■ industry and jobs fuelled the can also present a barrier to supply lines when the argument for sovereign capa- drawbridge is raised. Throughout history, cities bility then, and it still does today. thought to be impregnable have been besieged Protagonists for sovereign capability argue and then starved into submission. As recent that it increases self-sufficiency, provides local events have shown, not much has changed. employment, keeps profits at home, and pro- The world has become ever more reliant on motes development. Free traders promote the globalisation; but when systems collapse, local benefits of selling to and buying from our interna- and national politics take over, and it’s every man tional partners – the comparative advantage for a for himself. This sobering reminder demonstrates nation when it specialises in industries that have a the need to maintain a strong sovereign indus- natural advantage. World trends over the last 20 try capability for essential supplies and services. plus years show that globalisation currently has Rest assured that the Governors of New York the upper hand. But… and California, the First Minister of Scotland,

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ASC

the Prime Minister of New Zealand and every other to seek assistance from Army was innovative and world leader are considering the same issues. ultimately, proved to be remarkably successful. In response to Australia’s recent need for “What we’ve learned out of this is that there critical medical equipment and consumables, are some areas where we have to be self-suf- Minister for Industry, Science and Technology, ficient; so let’s not just look at what’s going Karen Andrews said, “When we to give us the cheapest price,” began preparing for this crisis, ■ Minister Andrews said. it was clear that Australia could “THE WORLD HAS BECOME Despite recent successes, not depend on overseas suppli- EVER MORE RELIANT Minister Andrews emphasises that ers for critical medical equip- ON GLOBALISATION; Australia is not about to enter a ment. It needed to be more self- BUT WHEN SYSTEMS golden era of local manufacturing. sufficient. The challenge was to COLLAPSE, LOCAL AND “While COVID-19 has brought overcome a lot of scepticism that NATIONAL POLITICS TAKE issues such as sovereign capa- local manufacturers could ramp OVER, AND IT’S EVERY bility to the forefront and, frankly, up production. MAN FOR HIMSELF.” exposed gaps in our manufacturing, “I was told that Australia would not ■ I am not suggesting that complete be able to make more than about 37 self-sufficiency should be our goal. million surgical masks a year — we’re now expect- “Manufacturing has faced its own existential ing to produce more than 200 million this year. challenges over many decades, and while the “I refused to accept the advice that Australian collapse of Australia’s car industry attracted a manufacturers would only be able to fill small lot of attention, other sectors continue to experi- gaps in supply. Capability exists in this country. ence strong growth. What was needed was a change in the culture “There are many things Australia won’t and of how we think about our capability, about how shouldn’t be making, but it is clear we cannot just we challenge the status quo,” she said. rely on foreign supply chains for the essential items While closer cooperation between Defence and we need in a crisis. We can’t supply all our wants Industry has been a growing trend in Australia for locally, but we have to be able to supply, or at least more than 20 years, the Government’s decision pivot our production processes to produce the

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goods we need. In all fields of industry: in Defence, clarity, the three initial priorities are so broad, mining, agriculture, education, research, tourism, they could mean anything: and every other endeavour where Australia com- • those that are operationally critical to the petes in world markets, we need to compete on Defence mission value, not on cost,” Minister Andrews said. • priorities within the Integrated Investment Program (IIP) out to 2023 HOW DEFENCE VIEWS SOVEREIGN CAPABILITY • those in need of more dedicated monitoring, Clarity on Australia’s position regarding sover- management and support due to their indus- eign capability can not be found in the Defence trial complexity, Government priority, or require- Industrial Capability Plan. The Plan aims “to pro- ments across multiple capability programs. vide cost-effective, cutting-edge capability while There are many examples of Defence acquisi- also maximising Australian industry involvement tions that fit one of more of these ‘priorities’, yet … Its framework will provide a repeatable meth- they are sourced from overseas. odology to identify and prioritise sovereign indus- The Plan describes priorities at the capabil- trial capability.” ity level with a focus on technologies rather The Plan’s definition of sovereign capability is than companies or products. It claims that this predictable, though too vague to offer any direc- approach encourages innovation and new devel- tion. It focuses on Defence having access to (or opments. That seems to be more of a justification control over) the essential skills, technology, for the methodologies adopted by the Defence intellectual property, financial resources and Innovation Hub than a probable outcome. In infrastructure within Australia’s defence indus- truth, most innovation likely to appear in Defence trial base. Emphasising access and control, with- spending will flow from companies developing out addressing how it shores up those supply their own ideas, or work sponsored by Defence lines that are more vulnerable when taken off- through Defence Science & Technology Group shore, seems unsatisfactory. Offering no more and other research institutions.

DEFENCE

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Using the Defence Industrial Capability Plan as a veneer of top cover provides scope for the Government to support whatever areas they choose. The plan may well have been devised under the watch of a South Australian Minister, but it can provide almost unfettered freedom for other influ- ential MPs to promote companies whose head- quarters are in their own states. The most remark- able example of this has been the Continuous Shipbuilding Program, for which this Government has taken a remarkably long-range and ambitious view. This demonstrates yet again that competition between the states didn’t end with Federation. It could be argued that the plan gives Australian Industry an advantage, using ■ sovereign capability as an “WHAT WE’VE LEARNED argument for increasing OUT OF THIS IS THAT local content. In reality, this THERE ARE SOME AREAS strategy appears to receive WHERE WE HAVE TO BE minimal consideration within SELF-SUFFICIENT; SO Defence procurement pro- LET’S NOT JUST LOOK AT cesses. As long as Defence WHAT’S GOING TO GIVE planners believe that the DEFENCE US THE CHEAPEST PRICE,” supply chain is secure, this MINISTER ANDREWS SAID. is unlikely to change – unless coalition, and that is increasingly what we seem ■ there is a substantial change to be preparing to do. in Government policy. “That leads me to suspect that the drive for The full extent and impact of the sovereign capa- sovereign capability is primarily intended to jus- bility argument by lobbyists on buying decisions tify paying high premiums for Australian industry is impossible to estimate. But that doesn’t stop involvement that serve economic or political objec- Australia’s Defence suppliers from trying. It’s clear tives, rather than strategic ones. This suspicion is that Governments of both political persuasions do strengthened by the uneven way in which the con- respond when there is a benefit at the ballot box. cept is applied. Little attention is paid, for example, Hugh White AO, Emeritus Professor of Strategic to the need to independently support the F-35, our Studies at the Australian National University, is single most critical capability,” Prof White said. less than optimistic about Defence’s commitment to sovereign capability. AUSTRALIA’S RELIANCE ON “In my view, Defence has no robust definition of COALITION PARTNERS sovereign capability, nor a robust way of setting Logic suggests that minor players can never priorities for it,” Prof White said to ADM. “That prevail in a conflict with a superpower. While is in partly because it remains deeply ambiva- pacts such as the Five-Eyes agreement provide lent about the extent to which Australia should an opportunity to contribute to a shared military be preparing to defend itself alone. Clearly the defence arrangement, there is no guarantee that need to sustain operations independently is much other members will show the same loyalty and lower if we only expect to fight as part of a US-led commitment as Australia has done.

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Addressing EU concerns about the impact of China post COVID- 19, Minister Birmingham countered calls from European politicians to wind back globalisation and rebuild their manufacturing base.

THE RISE OF GLOBALISATION While state and federal govern- ments and businesses reflect public opinion, chasing lower-cost goods from overseas suppliers will continue. However, there is point at which cheaper does not mean better. Conversely, production in Australia does not have to be more expensive. Most developed coun- RUAG tries have lost their manufactur- ing base because they were slow Australia has been the recipient of friendly to invest in new manufacturing technology and fire during the recent war of words between US processes. This could change if governments, President Donald Trump and China. His posture businesses and consumers support local produc- has certainly not helped Australia’s standing with tion; otherwise, Australian sovereign capability its largest trading partner. will continue to decline. Regardless of the outcome of the US To understand the full extent of Australia’s Presidential elections in trading activity, a good place to November, recent events have ■ start is www.worldstopexports. highlighted some of the vulner- “USING THE DEFENCE com. The site gives comprehen- abilities of Australia’s Defence INDUSTRIAL CAPABILITY sive information about recent and trade policies. Trump’s threat PLAN AS A VENEER OF TOP import and export performance. that all F-35 manufacturing would COVER PROVIDES SCOPE Overall Australia generated a return to the US may have lacked FOR THE GOVERNMENT $58.2 billion surplus in 2019 up substance, but it reinforces the TO SUPPORT WHATEVER by 119.3 per cent from $26.5 bil- potential instability that exists AREAS THEY CHOOSE.” lion one year earlier. It would be today in global supply chains. It ■ nice to imagine that all of this is difficult to have confidence in increased wealth stays in coun- long-established arrangements that guided our try to benefit all Australians, but profits can be national Defence commitments. easily reduced by paying ‘licencing fees’ to tax Despite this, the Government has continued to havens overseas. With so many of our large argue for international free trade arrangements. projects in the hands of foreign investors, much Trade Minister has urged gov- of the remaining profits from these investments ernments worldwide not to use the coronavirus return overseas. Nevertheless, the actions of pandemic as a pretext for “sweeping anti-trade both sides of the political divide indicate that measures”, as European leaders look to protect globalisation has been good for the Australian local industries and shift production onshore. economy overall.

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DEFENCE

SOVEREIGN CAPABILITY FIGHTS BACK Prime Minister to provide advice The ADF responded well to the COVID-19 crisis on public-private partnerships and coordination and was largely unaffected by the logistical prob- to mitigate the social and economic impacts of lems that challenged other nations. But it would the COVID-19 pandemic in Australia. be folly to assume that this would always be the “Current problems with global supply chains case. A resilient military force must be certain and a lower currency gives Australia a once in a of its supply lines. Australia’s Defence Industry lifetime opportunity to reboot the manufacturing takes a lead role in sustaining continuity across sector,” Power said. most of its nine fundamental inputs to capability, with some companies also contributing to inter- FUNDAMENTAL INPUTS TO national supply chains. SOVEREIGN CAPABILITY After half a century of decline, there has Nations, communities, the military and individu- been a growing call for a revival of Australian als all have a hierarchy of needs. Recent events manufacturing capability. Former CEO of have exposed the vulnerabilities of essential global giant Dow Chemical/Dow DuPont, goods and services when a state of emergency Andrew Liveris, believes the Australian econ- exists. This is a good place to scope out sov- omy needs a major overhaul. ereign capability: food production, housing, “Australia drank the free-trade juice and decided water, energy, distribution (including road, rail, that off-shoring was OK. Well, that era is gone,” shipping, and air), telecommunications, pub- said Liveris, who joined the National COVID-19 lic health (including hospitals, water treatment, Coordination Commission (NCCC) in March, a garbage collection, sanitary cleaning and sew- strategic advisory body for the national response erage), police and emergency services, educa- to the COVID-19 pandemic by the Australian tional and welfare institutions, prisons, produc- Government. tion and distribution of pharmaceuticals, fuel Chaired by former Fortescue Metals Group and lubricants and other essential chemicals, CEO, Nev Power, the NCCC was established by banking and other financial processing.

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In addition to these basic needs, the ADF also Next Generation Technology Fund. Even with a requires platforms, weapons and munitions to secure Government contract, raising capital to perform its role of defending the nation. Reliable go to market can be difficult. A strong balance supply lines are essential, particularly in times sheet is one of the attractions that Primes offer of conflict. Australia is fortunate to have local when tenders for capital-intensive projects are manufacturing capability at being considered. ■ Rheinmetall NIOA Munitions Foreign investment is a questionable source “AS LONG AS DEFENCE and Thales, which produce of funding for establishing a sovereign capabil- PLANNERS BELIEVE munitions and small arms ity enterprise. Access to investment funding in THAT THE SUPPLY CHAIN for the ADF. While Australia this country is notoriously difficult. But Australian IS SECURE, THIS IS is not fully self-sufficient, a Industry may be able to access the large pool of UNLIKELY TO CHANGE spokesperson for Thales has retirement savings if superannuation fund man- – UNLESS THERE IS A confirmed that they have the agers can be convinced that the investment is SUBSTANTIAL CHANGE IN capacity to expand produc- secure, and the return meets their criteria; though GOVERNMENT POLICY.” tion, if required. the hurdles to be overcome can seem almost ■ Developing sovereign capa- insurmountable. bility does not mean that some But there may be a glimmer of hope: Industry of these products cannot be imported. It simply Super Australia Chair (and former Defence means that local producers are sufficiently com- Materiel Minister), Greg Combet had this to say petitive to be viable and capable of supplying all about super funds investing in Australian busi- of Australia’s needs, if required. This is not about ness: “We’ve got significant funds available and creating a protectionist policy, it’s about building industries that can compete in a free market.

ACCESSING INVESTMENT CAPITAL Successful enterprises are built on knowhow, capital, a drive to succeed and an appetite for risk. Its success also depends on a compatible economic and trade environment. Private equity is driven by the need to protect that investment and to return a profit to its investors. Public investment is driven by complex and sometimes competing political agendas; but once a decision is made to invest, the procurement process is managed under a well-defined and reliable set of rules. This is why government contracts are so prized by the private sector. Let’s be clear, Defence suppliers like other businesses, have the single-minded goal of returning a profit to their investors. In some cases, Governments may be willing to provide seed capital to fund development. For example, Defence has committed $1.6 billion over a decade via the Centre for Defence Industry Capability DEFENCE (CDIC), the Defence Innovation Hub and the

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QUICKSTEP

plans to provide capital to solid Australian busi- always been funds available to dig more holes in nesses and bring forward large investments in the ground and to raise more structures. major projects and essential infrastructure that will create new jobs and sustain many more. A HEALTHY BUSINESS ENVIRONMENT We’re determined to play a key role in helping China, Taiwan, South Korea, India and other low- Australia’s economic rebuild, because that gets cost exporters have operated in environments some members working again and delivers long- that sought market dominance, often by lowering term returns for all.” quality standards and providing poor working con- The experience of many small to medium ditions for their workers. After a century of pro- enterprises seeking investment doesn’t reflect tectionism that did little to advantage Australian this optimistic statement. Investors in Australia industry or consumers, the barriers came down understand bricks and mortar. Build a supermar- and local manufacturing has been the victim. ket or a high-rise apartment complex – lenders But it didn’t stop there: As technology has made understand the business and are ready to invest. international outsourcing possible, the services Submit a proposal to build a nanotechnology fab- sector has also suffered massive loss of busi- rication facility and be prepared for blank stares. ness to low-cost countries – call centres in the Access to key resources is vital when devel- Philippines and bookkeeping services in India are oping any industry capability: knowhow, physical two examples of this. resources and capital. While Australia has had all The business environment is vitally important three in abundance, as a nation, we’ve not had to the success of every enterprise. A recent the risk appetite to back ourselves. We’ve lacked beneficiary of Government and Defence assis- the investment structures to raise start-up capital. tance is MedCon, a small manufacturer based We’ve not educated our engineers, scientists and at Shepparton in . The company has other entrepreneurs to work with venture capital- produced surgical-grade PPE for more than 30 ists (VCs), angel investors, merchant banks and years. Its products have a reputation for high other sources of funding. Of course, there has quality at a fair price. But as Australia opened

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offer from all suppliers. Existing Chinese masks simply don’t compare to the Australian-made product. We can now become a serious competitor overseas. Already, we’ve received enquiries from the US, Germany and yes, even from China. I believe that Government could help to kick- start other Australian companies as they did with us,” Csiszar said.

ECONOMIC BENEFITS OF DEFENCE INVESTMENT IN AUSTRALIA When taking the acquisition of large materiel systems such as aircraft and ships, we are heav- ily reliant on multinational Primes, such as Thales, Boeing and BAE. GETTY IMAGES (Note. Government owned ASC, is the only Prime in ADM’s Top 40 up to lower-priced imports from Asia, hospitals Defence Contractors in the Top 10, is Australian and surgeries chose cheap, often sub-standard, owned and run from top to bottom in Australia.) imported masks as a cost-saving measure. Their To learn how Australia’s Defence Industry market share shrank to a fraction of where it had spending flows through the national economy, been at its peak. economic analysts AlphaBeta Advisers analysed MedCon’s CEO, Steve Csiszar, explained that three-year’s expenditure by Thales Australia. The the company didn’t have the resources to com- report shows significant benefits to its Australian pete head on, but COVID-19 changed all that. suppliers and a strong economic benefit. Here “With government assistance, that included are some key metrics: development grants and accelerated payments • Thales spent $1.3 billion with Australian sup- ahead of delivery, the company is stronger than pliers between 2017 and 2019, with more than it has ever been. By the end of the year, the 60 per cent going to small and medium sized Government’s investment will be fully repaid enterprises. with millions of high-grade MedCon PPE. To sup- • In 2019 Thales Australia spent $522 million with port increased demand, our workforce will have 1,362 Australian firms. grown from 17 to 100 staff by the end of this • Thales spending supported 1,765 direct jobs year. That represents 80 more people in gainful along the Australian supply chain in 2019. employment, paying their taxes and contributing “Prime Defence contractors such as Thales to our community. That’s a win-win for everyone,” are key to translating Integrated Investment Csiszar said. Program spend into effective supply chain and “Increased production has lowered the cost investment programs because they provide a link of our masks. The healthcare industry is now between the Department of Defence’s invest- asking questions about the quality of PPE on ment and the many other Australian businesses

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in the supply chain, many of which may not be increasing spending on Australia’s advanced defence specialists,” AlphaBeta lead researcher industrial capabilities. Dr Andrew Charlton said. “First and foremost, Australia’s sovereign Minister for Defence Industry, Melissa Price, defence industry capabilities are vital to deliv- said the ’s ering a capability advantage to commitment to supporting small ■ the ADF. Secondly, these sov- businesses in the defence supply “REGARDLESS OF THE ereign industry capabilities build chain was having a clear impact. OUTCOME OF THE Australia’s self-reliance and “It has always been this US PRESIDENTIAL the capability of the broader Government’s intention that the ELECTIONS IN NOVEMBER, Australian advanced manufac- $200 billion we’re investing in a RECENT EVENTS HAVE turing sector. And finally, as this record build-up of defence capabil- HIGHLIGHTED SOME OF data clearly shows, there is a sub- ity flows through to the thousands THE VULNERABILITIES OF stantial jobs and economic activ- of small businesses that make up AUSTRALIA’S DEFENCE ity benefit from spending more of our defence industry. This analysis AND TRADE POLICIES.” the Defence dollar in Australia. It ■ by Thales demonstrates how our delivers thousands of jobs spread investments are creating local jobs, through hundreds of business and also building the critical defence capabil- across the nation,” Jenkins said. ity we need to deliver a capable, agile Defence “There is a strong correlation between Force. We’ve been upfront with the prime con- Sovereign Industry Capability and the great- tractors about their obligations to partner with est benefit flowing to Australian suppliers. In Australian businesses, and Thales is leading by our case, the areas where we deliver sovereign example,” Minister Price said. industry capability – notably munitions and small Thales Australia CEO Chris Jenkins said arms, protected vehicles and maritime support the data-driven approach demonstrated – are where the greatest benefit accrues to our there was a triple-dividend for Australia from Australian supply chain,” Jenkins said.

DEFENCE

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PLANNING FOR THE UNTHINKABLE In 2019, a year before the COVID- 19 outbreak, the Directorate of Preparedness and Mobilisation com- missioned a landmark review of Defence planning. The first of its kind since the Cold War, the review addressed preparedness for what a group of Australian industry leaders concluded were credible, but deeply disturbing scenarios. Climate change, international ten- sions and the rise of nationalist gov- ernments were among the key threats that the study considered. Its report lays out a timeline of how essential services would collapse within just three months if a crisis put a halt to NIOA global trade. Planning of this type typi- cally generates worst-case scenarios; but as the COVID-19 threat has demonstrated, With at least 90 per cent of Australia’s spe- be prepared to expect the unexpected. cialist medical supplies imported, the report The review looked at the big issues: If we stated that some specialist medicines could had to go to war, do we have enough fuel? be exhausted within days, with severe reper- Do we have enough energy? Can the national cussions for public health. With a restriction on supply chain and our infra- imported parts for medical equipment, health ■ structure support Defence care would be severely degraded. “CURRENT PROBLEMS in a war or other crisis? WITH GLOBAL SUPPLY To answer these ques- GOVERNMENT ACTION ON CHAINS AND A tions, senior engineers from SOVEREIGN CAPABILITY LOWER CURRENCY Australia’s key industries met For nearly a decade, John Blackburn AO, GIVES AUSTRALIA A to assess whether Australia’s Chairman of the Institute for Integrated Economic ONCE IN A LIFETIME supplies could sustain the Research, has warned that Australia is vulner- OPPORTUNITY TO REBOOT nation through a prolonged cri- able to global forces because of its low stocks THE MANUFACTURING sis, where global supply chains of essential supplies. He is attracting a chorus SECTOR,” POWER SAID. were severely disrupted. In an of supporters from the military and Federal ■ event more demanding than Parliament, who have urged the Prime Minister the current crisis — what to establish a national strategy to make Australia would run out in one week, two more resilient to global shocks. weeks, one month or three months? “The economic fallout from COVID is putting The review found that if Australia’s international us into uncharted territory. We could be talking supply chain broke down, essential services about a failure of the trading system. That is a would quickly fail, and Australia would suffer mas- nightmare we don’t want to go to and requires sive upheaval within one week due to job losses, very close cooperation between governments,” social unease and hoarding. Blackburn said.

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QUICKSTEP

“Ninety-eight per cent of our trade – import essential services moving in a crisis — but it has and export – depends on foreign-owned shipping nowhere in Australia to store it. systems, so we are actually in a pretty fragile “We do want to make sure we have enough position. Australia purchases fuel in the event of an extreme disruption. The ■ 20–30 per cent of its chemi- great challenge at the moment is the world is “DEVELOPING SOVEREIGN cals from overseas. Shipping close to running out of storage for fuel. Right CAPABILITY DOES NOT normally takes about two now, in Australia, our storages are full or close to MEAN THAT SOME months. If Australia’s sup- full, but over time we want to make sure there is OF THESE PRODUCTS ply chain breaks for any rea- storage closer to home. That’s why this is such CANNOT BE IMPORTED. son, shortages of essential an important initiative to ensure Australia is safe, IT SIMPLY MEANS THAT supplies due to supply chain is secure, can control our own destiny and have LOCAL PRODUCERS issues could be disastrous.” real national sovereignty,” Minister Taylor said. ARE SUFFICIENTLY According to Energy Within the Liberal Party, there are hopes among COMPETITIVE TO BE Minister Angus Taylor, the some that the Government’s new focus on supply VIABLE AND CAPABLE pandemic is shifting the chains and sovereignty will translate to broader OF SUPPLYING ALL Government’s thinking on government policy. Even before the pandemic, OF AUSTRALIA’S NEEDS, market intervention. the Prime Minister was facing a push from two IF REQUIRED.” “COVID-19 has heightened former military men on his backbench, Senator ■ our sense of awareness of Jim Molan and Chair of the Parliamentary Joint what is an essential good or Committee on Security and Intelligence, Andrew service. There are critical items where we need to Hastie MP, for a new national security strategy to ensure we’ve got strong control over the supply make Australia more self-sufficient. chain,” Minister Taylor said. “We don’t want to ever be in a position where The Federal Government has taken advantage we’re reliant upon another country for our secu- of the record low prices, spending $94 million rity or our prosperity. We do not want to be stra- on a US stockpile of fuel in an attempt to keep tegically or economically coerced,” Hastie said.

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GOVERNMENT INITIATIVES working capital survive this crisis. Cashflow is Our government may be financially astute but fos- king but even more so in small businesses. tering an environment that accelerates recovery Prime Minister Scott Morrison has established in the current economic conditions is extraordi- a new taskforce, comprising union and industry narily challenging. What that environment might leaders led by former Dow Chemical CEO Andrew look like may evolve over many years, possibly Liveris, to explore ways to rebuild local manufac- decades. Will there be a greater appetite for risk? turing. Liveris has said the Australian model of Will we have better structures and tools to mini- being “willing to export commodities and import mise risk, while fostering investment? How will finished goods is old and broken”. According to UTS we educate our entrepreneurs to capitalise on Emeritus Professor of Business, Roy Green, the aim opportunities when they arise? is “not necessarily” to return Australian manufactur- Looking back at the impact of the ‘recession we ing to where it was, but “like it could and should be.” had to have’ on the national economy, many are Despite the catastrophic circumstances that asking: How long will take to recover financially have led to our current position, Australia is in from this current situation; and what Australia’s a position to challenge business as usual and economy will look like 10 to 20 years from now? remake itself. But only if it is brave enough to If we go back to business as usual, we’re in for a seize the opportunity. n hard ride. COVID-19 offers a chance to be inno- vative. Do we have the courage to stand up to AUTHOR’S NOTE multinationals and rational economic theorists? I wish to acknowledge the following people who Whereas past governments of both persua- have provided invaluable assistance with the sions have kept a close rein on spending, the development of this article: Don Campain (Field Government is now investing billions of dollars Technologies), Stephane Chatonsky (Ivest), Richard in projects to kick-start the economy. Its deci- de Lautour, Andrew Fullgrabe (Defence Innovation sion to accelerate payments to small Defence Partnership), Phil Hayes-St Clair (Drop Bio), John suppliers was smart. The risks were low, but this Longrigg (Senior Business Adviser to Defence), initiative reflected Government’s understand- Mark Reynolds (Defence & Industry Study Course ing of how to help small businesses with limited Alumni) and Phillip Tyrell (JPG Partners).

DEFENCE

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