Australia's Defence challenges in the 21st Century
- Who would have thought we'd see the sudden and dramatic collapse of the booming East Asian economies?
- Who would have thought we'd see India and Pakistan threatening each other with nuclear destruction?
- Who would have thought we'd see the near-collapse of our nearest Asian neighbour, Indonesia?
- And who would have thought we'd see an independent East Timor?
- At least A$200 million in additional, annual GDP
- At least A$150 million in additional, annual consumption
- The equivalent of almost 8,000 full-time jobs
19 April 2000
In a speech at Australia's National Engineering Forum 2000 held in Canberra on 14 April 2000, Paul Salteri, Managing Director Tenix Pty Limited, presented an authoritative and forward looking summary of Australia's Defence & Security issues and requirements for the 21st Century. A transcript of his speech follows below.
Introduction
Australia faces some major national security challenges, which will involve defence industry and civilian engineers very closely, and require some far-sighted national policies. What's more, this is going to attract a lot of public attention. East Timor, coming on top of the Asian economic crisis and the turmoil in Indonesia, has excited a new public interest in defence issues.
Looking back on the last couple of years, you could not be complacent about Australia's security:
All this is quite apart from other developments in the Asia-Pacific region, such as the missile threat in the Korean Peninsula and growing tension between China and Taiwan, and from the potential regional impacts of different scenarios for the future of China generally. In South Asia, there is serious concern at the risk of nuclear escalation between India and Pakistan, and the damage that events there have done to the cause of non-proliferation.
Closer to home, New Zealand's new government has taken a number of decisions, which will alter the capability, and purpose of that country's defence forces. And in our own backyard, the non-military question of dealing with the early detection and apprehending of boat people remains controversial.
Last year in East Timor, Australia learnt a hard lesson. Senior US officials - from President Clinton down - made it clear that the United States was in no hurry to provide assistance. Indonesia and East Timor, unlike the Gulf or even Kosovo, are not on the domestic political radar screen in Washington.
The United States provided logistic support and applied crucial political pressure, but Australia had to play the lead role. Four and a half thousand Australian troops were deployed to East Timor, at a total cost of at least A$2 billion. And for possibly the next generation, the military protection of East Timor is going to be an issue of close interest to Australia.
The response to these strategic developments will be set out in the Defence White Paper, expected later in the year. I expect that at the centre of this response, there will be the type of self-reliant defence policy that Australia has been putting into practice for the last 10-15 years or so. The implementation of that policy will face a number of challenges. The most basic is that of the budget, but I am confident that when it has a clear direction, the Government – and ultimately, the people of Australia, for whom it acts – will find the funds needed to act on that direction.
Defence and the Economy
At the same time, Government needs to ensure those funds are spent carefully. From time to time, there are people who argue that this would best be achieved – that defence would be cheaper – if we relied almost totally on imports for our defence equipment. It's a question that's worth considering now, because it is an important issue, and because there is important new research that demonstrates the contribution defence industry makes to the national economy.
It is not, strangely enough, a question that tends to be asked much in the United States, United Kingdom, France, Germany, Sweden, India, China or most other major or developed economies. Why? Because in most countries, defence industry is recognised both as essential strategically, and highly valuable economically.
Australia's defence industry, built up at such cost before and during World War II, steadily dwindled in the post-war years until by the 1980s it was almost non-existent, except for a few inefficient Government facilities.
In the late 80s, however, a series of Government decisions – the privatisation of Williamstown naval dockyard in Victoria, the subsequent award of contracts first for two FFG frigates and then the ANZAC frigates, as well as the COLLINS submarines, the Jindalee Over-the-Horizon Radar Network and the corporatisation of ADI – created a basis for the rebirth of the Australian defence industry.
I believe there is now a high but not yet universal recognition that a domestic ability to support, repair and manufacture defence equipment is a vital part of national defence capability. There is another factor, which is becoming increasingly recognised also – the contribution the defence industry makes to the economy. I just mentioned the ANZAC Ship Project. This is a co-operative trans-Tasman venture to build 10 frigates, eight for Australia and two for New Zealand, at a total project cost of about A$5 billion in current dollars. The prime contractor for the project is Tenix Defence Systems, the defence arm of the Tenix Group.
Recently, the Australian Industries Group commissioned and released a detailed economic study of the impact of building these ships in Australia rather than overseas. The study determined that as a result of this decision, Australia was generating:
Benefits to New Zealand are proportionate to their one-fifth involvement in the program. As a direct result of basing the project in Australia, over its 15-year construction phase the national economy will benefit from at least A$3 billion in additional GDP and A$2.2 billion in consumption, on top of almost A$4 billion in direct investment.
Putting that another way, the project has already generated enough extra GDP to fund construction of the Darwin-Alice Springs rail link. Every year, it generates enough extra GDP to fund more than 18,000 aged care beds in regional Australia, and by reducing unemployment queues, saves A$66 million in the social security bill.
These are very significant numbers. They do not include the A$520 million in savings over the service lives of the vessels as the result of the development of local suppliers, who can now provide through life support much more cheaply than foreign suppliers.
I am sure that despite the technical difficulties with the COLLINS class submarines, a similar study of that project would tell a similar story. Multiply those numbers across employment of more than 50,000 (according to a recent estimate) and the economic importance of the defence industry is, I believe, beyond question.
Certainly the pressure on costs must be continued. One area where that can take place is more "dual use" capability – industrial capacity with a military and commercial output. Australia has been slow going down this path, but it's essential, both to create economies of scale, and because of the pace and scope of development in commercial technology.
The defence industrial sector risks being left behind unless it is closely linked to its commercial counterparts. Information technology is the most obvious example, but there are a number of areas, several now being explored by the Defence Department, where this capability can be developed by industry.
The Global Picture
Where is that industry going? One of those challenges for the White Paper is how to view the remarkable worldwide consolidation of defence companies over the past few years. Europe has been the centre of these marriages, with Daimler Chrysler Aerospace (DASA) joining with Aerospatiale Matra to form the European Aeronautic Defence and Space Company (EADS) and become the world's third largest defence company. (Boeing and Lockheed Martin, first and second respectively, were themselves created from a series of earlier mergers of US-based competitors.)
SAAB, with its 35% BAe shareholding, was quick to take the cue and acquired Celsius with its shareholding in shipbuilder HDW, and submarine builder Kockums Naval Systems - the IP and Design Authority for the COLLINS submarines. British Aerospace had earlier left DASA at the altar to elope with GEC-Marconi. And these alignments are not the end. Transatlantic alliances are possible, although they will meet a hurdle in the US Congress's reluctance to share technology overseas.
What does this mean for Australia? Since the re-birth of the Australian defence industry in the late 1980s, all major global defence companies have operations in Australia.
Boeing is prominent, winning the recent AEW&C aircraft contract [pictured left], Lockheed-Martin has indicated its intention to become more involved, BAE SYSTEMS is active and successful, Raytheon enjoys a presence, Thomson CSF has its half interest and management of ADI, Rolls Royce is very keen for work, and so on.
The future is looking interesting, and we have not yet seen the newly consolidated huge European defence companies such as EADS.
Australia must Consolidate
I am very strongly of the view that the only appropriate counter to the global consolidation of the industry is for Australian-owned defence companies to consolidate, to gain critical mass capable of effectively competing with the major international suppliers. One example is naval shipbuilding. In peacetime the ADF is barely a big enough customer to sustain one naval shipyard. There are currently five yards relying on naval work in Australia, as many as there are in the US, as well as others doing naval work. From 2003, when current projects are completed, or even earlier, rationalisation is inevitable, and because the defence market is global, need not lessen competition.
International defence industry consolidation has resulted in a vast differential in the scale and spread of such suppliers compared with Australian-owned defence companies. This has reduced the relative capital base and recognition of Australian defence firms, as well as their relative ability to invest in R&D and develop local IP, and therefore, reduced their ability to compete in the global defence market.
This point was recognised by the Secretary, Department of Defence; and Chief of Defence Force towards the end of last year with their joint observation that: "….the ADF in peacetime is not a big enough customer to fully sustain the "ideal" defence industry. This means that in our military/industrial complex, lateral market development, which includes exporting, is essential to the corporate health of most companies."
Australian industry's capacity to export, of course, is limited by its capacity to offer unique IP - something of a catch-22. If Australia's defence industry is not majority Australian-owned, it leaves the field to the international majors, whose global plans would usually be not to grow exports or compete outside of Australia, thus limiting their Australian subsidiary's growth.
It is quite obvious what that does to opportunities for Australian engineers and engineering projects. Not that I think that this sort of thing happens - but exclusive foreign ownership of the Australian defence industry would leave Australia open to cross border sweetheart deals among global operators, with the trading of one deal for another to the detriment of the Australian position.
The relatively large number of small Australian-owned defence businesses is in stark and increasing contrast to the global defence industry consolidation, and highlights the need for the Australian defence industry to address the problem. In terms of competition policy, mergers are usually seen as potentially reducing competition in an industry. The twist for the defence industry is that it would substantially reduce competition in defence, if Australian-owned defence firms were prevented from expanding by domestic acquisitions.
Such acquisitions are required to give the Australian industry the critical mass it needs to compete – in Australia and the region – in a market dominated by the US and Europe. Efforts by Australian companies to rationalise and expand by domestic acquisition should be examined from the global view, and understood as pro-competitive, because the industry is competing in a global marketplace.
Need for Self-reliance
To a significant extent, warfare is a contest between the industrial capabilities of the adversaries. In any major conflict in which Australia might find itself, we would be reliant on others. In lower-level conflicts, we may not be able to obtain such assistance. In either case, we must try to reduce our dependency to a minimum. We need to increase our self-reliance in defence, and I support Dr Paul Dibb's "whole of nation" approach, in seeking to understand and develop the national support base, and his call for development of a master plan, setting down the Government's strategic priorities for industry's support of the ADF.
This is needed to maintain the 'knowledge edge' without which the ADF's task will be greatly more difficult. It is no secret that for Australia, the highest defence priority is the knowledge edge. This is an area where Australia can, with US and selected European assistance, still maintain a clear technological lead in the region. If anything, Australia now needs better intelligence and surveillance, and better real time command and communications for joint force operations.
The increasing capability Australia is developing in this field as its defence industry matures is demonstrated by the Jindalee Over-the-Horizon Radar Network - JORN [pictured left]. Once a prominent problem and regular agenda item at parliamentary committees, it is now turning into a success story.
In 1997, Tenix and Lockheed Martin established a jointly owned company, RLM, which first took over management of the project, and subsequently, took over the contract itself.
A team including more than 350 Australian software engineers has brought the project to the integration phase after a massive effort. Last year, JORN demonstrated initial capability. Transmissions from its Queensland transmit facility were bounced off the ionosphere to part of the Timor Sea, north of Darwin, and the return signal was received and processed at the Queensland receive site, and monitored in the Melbourne Integration Facility, itself a world-class centre.
Conclusions
There is a long way still to go, but a tremendous amount has already been achieved. In the process, there have been a number of important achievements. One is that Australia is getting a strategic capability of great importance. Another is that Australia has an industrial capability of great importance, which is available for work on a range of other projects. A third is that Australia has important intellectual property, here in Australia, which it can exploit in a range of ways – and which would not have been possible without Australian industry involvement.
As I noted earlier, the defence industry in Australia is relatively young. In not much more than a decade, it has grown rapidly in size and capability. With commitment and co-ordination between Government and Industry, it can go a lot further. Industry needs Government commitment to developing and utilising Australian capabilities on a sustainable basis. Government needs Industry commitment to efficiency, effectiveness and support.
Both need to work together closely to see those commitments achieved. In our volatile and potentially dangerous strategic environment, a strong, efficient and sustainable defence industry must be a high national priority. With that level of commitment, the defence industry in Australia can grow as much in the next decade as it has in the last – and in so doing, underpin both the Australian Defence Force and the Australian economy even more strongly than it does today.
REF XQQFS
Copyright(c) 1996 - 2000 Defence Data Ltd. All rights reserved. Reproduction in whole or in part in any form or medium is prohibited except as provided in the Conditions of Use.The Defence Data logo is the trademark of Defence Data Ltd. Defence Systems Daily, and DSD, are the trademarks of Defence Data Ltd. By using this Web Site, you agree to all of the Conditions of Use.