Australian support for Ukraine – Senate Foreign Affairs, Defence and Trade References Committee

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Australian Industry Group Opening Statement:

Louise McGrath - Ai Group Head of Industry Development and Policy

The ongoing war in Ukraine serves as a stark reminder of the unpredictable global security landscape. As you consider Australia's support for Ukraine, we wanted to remind you that it's also time for Australia to reconsider how we view our defence industry - not just as a support for capability, but as a vital capability in its own right.

This shift in perspective is crucial for ensuring our national security and sovereignty in an increasingly uncertain world.

A robust defence industrial sector becomes increasingly critical in times of potential conflict, ensuring the swift mobilisation of resources and the smooth operation and support of defence capabilities. Countries like Germany, Sweden, Israel, France, and Canada have successfully managed their defence industrial bases as national assets during challenging times. Australia must follow suit, recognising our defence industry as a sovereign capability and integrating it into our national industrial framework.

Australia's defence industry also plays a crucial role in building robust and resilient supply chains for all AUKUS partners, showcasing the strength of the trilateral partnership. This local industry is pivotal for the ADF's preparedness and mobilisation, reducing reliance on foreign suppliers and ensuring a more timely and reliable supply chain.

At Ai Group, we are committed to working with the Government to enhance our defence industrial base, believing that investing in it enhances our national security and contributes to regional stability. Our report, Rethinking the Future of Australian Defence Industry Policy, published last December with the support of the Defence Strategic Policy Grants Program, proposed five policy recommendations in relation to Australian defence industry policy, reflecting a world where Australia needs to be prepared for major conflict in our region:

1) Australian defence industry should be considered a capability in its own right: a capability that supports the ADF force-in-being, but whose strategic value lies in situations where that force is fully committed, needs to be expanded, and rapidly constituted. What the international case studies in this Report show is that such change is possible, and that countries can build defence industrial bases that reflect their strategic needs. Of particular importance is the role of industry in expanding and reconstituting forces during a protracted conflict. The conflict in Ukraine has demonstrated that the domestic defence industry base will need the capability and capacity to address non-traditional military options, and to quickly produce critical components and technologies. This requires recognition of industry as a national capability in its own right, required for the nation to be able to meet the demands of a major conflict.

2) Defence industry should be embedded within and managed as part of Australia's national industry structure and policy. International experience shows that defence industries are competitive, flexible and scalable when they are embedded in their countries' areas of industrial strength. This is important particularly because the ability to surge defence industry production during conflict has historically rested on the ability to repurpose civil facilities and workforce. In that context, Defence industry support should be integrated with, and not simply alongside, support offered to its civilian counterparts.

3) Defence industries should be strategically prioritised, then supported to achieve scale and surge capacities. Increased capacity would alleviate current pressures on supply chains, helping to meet Australia's needs and relieve pressures on allies. This is particularly important because adaption, improvisation and battle-damage repair in wartime will have to rest on locally available industry.

4) Government should utilise the full range of formal and informal policy levers to grow and shape defence industry. Government is not just a contractual partner, but can also be a legislator, regulator, provider of direct and indirect support, landlord and part or full owner. If industry is to become a national capability, it is important that government makes intentional and appropriate use of the full range of tools. In addition, changes will be required in culture, processes and information flow between Government and industry.

5) Government should establish an industry capability manager to define the capability and capacity that government needs to develop to meet the preparedness required. Throughout the case studies examined in the Report, overall industry policy objectives are reflected in the internal organisation of how Defence interacts with industry. The industry capability would have a range of important roles, including understanding the capability and capacity of the Australian industrial base, including the capacity to surge in the event of conflict.

In conclusion, a defence industry that prepares the country for the challenges of conflict will be a significant national undertaking. The country case studies we examined demonstrate that doing so is possible even during the most challenging strategic circumstances.

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