When the government announced that it would spend $400 billion over the next twenty years on defence materiel and that it would, in opposition to its supposed commitment to free trade, adopt a protectionist requirement for local content, foreign defence manufacturers flocked like bees to a honey pot.
- Lockheed Martin opened a new R&D centre in Melbourne in August 2016.
- Rheinmetall Defence Australia signed a Global Supply Chain Agreement (GSCA) with the government in October 2016. There have also been extensions of existing agreements recently with Lockheed Martin, Thales and Raytheon.
- US technology accelerator fund Techstars opened an office in Adelaide in January 2017.
- Boeing Australia opened a new office in the Adelaide CBD in April 2017, and Northrop Grumman announced that it would invest $50 million in the establishment of an Electronic Sustainment Centre of Excellence at Badgerys Creek in May 2017.
- DCNS, Austal and Lürssen have established or expanded their Australian offices in Adelaide, and Huntington Ingalls Industries has also established an Australian subsidiary.
Local defence industry is dominated by a handful of local subsidiaries of foreign-owned companies – Lockheed Martin, Raytheon and Boeing (US), BAE (UK), EADS (Europe), Thales and DCNS (France), Broadspectrum (Spain), SAAB (Sweden) being some of the largest. Only one of the firms—the government-owned ASC Pty Ltd—is Australian owned and controlled.
When the government says we need a domestic arms industry to boost our national security, they seem to ignore this vulnerability as pointed out by ASPI.
Because foreign-owned Australian primes account for very small proportions of parent company revenue, they’re unlikely to command priority if a commercial or strategic conflict of interest arises. For example, if a foreign parent must choose between supplying Australia or its home country with munitions in a crisis, there’s no question about what would happen.
It’s all about the jobs and growth, they cry.
Well not really.
Defence industry accounts for 0.24% of jobs in Australia, and 2.9% of jobs in the manufacturing sector. In terms of annual revenue, defence industry accounts for 0.22% of Australian industry and 1.7% of the manufacturing sector. It represents only a trifling fraction of the overall Australian economy.
Remembering that ASPI is the institution funded by government (and increasingly the defence industry) to give policy advice, their latest report was rather sceptical about Malcolm and Christopher’s big announcement.
“according to the government’s own figures, there’s only around 25,000 people employed in the sector, representing 0.25% of the ten-million strong Australian workforce. Even the $90 billion naval construction program is promised to deliver only 5,800 jobs—a drop in the ocean. Given the government’s emphasis on the jobs and growth impact of defence production, you’d think that the government’s decisions on defence acquisitions were being informed by rigorous economic analysis. Yet…the best that the Defence and minister’s staff could come up with were misleading figures taken out of context from the national accounts. It must be asked; is the economic analysis underpinning the looming wave of ‘nation building’ defence mega-projects any better?
…even if 10,000 jobs are eventually created because of the Government’s preference to build major defence platforms in-country—which is more jobs than Defence has announced during 2016-17—that will still only amount to less than 0.1% (or one-thousandth) of the Australian workforce.
But that’s the political economy of naval shipbuilding in a nutshell: investment decisions are driven by a small number of vested interests who gain a lot, and costs are spread across millions of taxpayers who each pay a little.”
Net defence funding, excluding capital and materiel acquisitions, housing and superannuation costs, is over $95 million per day and is slated for substantial increase.
Add in a warchest of $400 billion to spend on things that go bang, and a government-protected defence industry, and it’s no wonder the sharks are circling.