CEDA State of the Nation 2017

CEDA STATE OF THE NATION 2017

CANBERRA, 1 JUNE 2017

It’s a pleasure to have the opportunity to address CEDA’s thirty-eighth State of the Nation conference.

I’d like to take this opportunity to acknowledge all the work you do to promote policy debate across the country.

Today I want to outline the Australian Government’s defence industry policy agenda.

I want to talk to you about how we’re ensuring our high-performing defence companies can compete in the global marketplace; how we’re setting up the defence sector for success.

And I want to talk to you about our work on developing an export strategy for the defence industry and its importance for successful companies in the sector.

I scarcely need to tell you Australia faces the most volatile strategic environment we have seen for decades.

We are reminded of the fact in the media every day.

The constant provocations on the Korean Peninsula remind us we face continued threats to both the security of our region and a rules-based global order.

Indeed, while Australians in the past have thought that we were far removed from strife, we need to consider the sobering fact that we sit in the heavily militarised Indo-Pacific region – a region which we share with seven of the world’s 10 largest standing militaries and five of the world’s declared nuclear nations.

And we also need to remember that our nation’s economic prosperity fundamentally relies on free and uninterrupted passage over the oceans through strategic sea-lanes.

The government tackled these and other challenges in last year’s Defence White Paper.

We put defence at the centre of our national policy agenda because the threats we face are real – and growing.

This is why we are devoting at least $200 billion to growing our defence capability over the next decade.

Our prosperity depends on the security of our nation.

The two are inextricably entwined.

We need to meet the current and future challenges to Australia’s national security – and we need our defence industry to do its part.

We need a stronger defence capability – and a world-leading defence industry that can guarantee our ability to shape the strategic environment in a way that will protect the interests of the nation.

And more than ever, we need a defence industry that is able to develop and sustain the cutting edge technology the Australian Defence Force will rely on to protect Australia’s strategic interests.

The Government is determined to give Australia a potent, capable and agile future fighting force.

But a strong and capable defence industry that can support it, is just as important.

We need an effective and efficient sovereign defence industry, one that can deliver and sustain the capabilities our defence force needs now and into the future.

We need an adaptive defence industry, one that is ahead of the curve today and able to meet the challenges and capability requirements of tomorrow.

And we need a defence industry that can operate and respond inside a fast technology development curve – a curve within which today’s strength provides no guarantee of future success.

To bring this industry about, to maximise its potential, the government is harnessing all our national resources, ensuring the sector, Department of Defence and the state and territory governments are all pulling in the same direction, creating the trust and shared commitment that will let innovation flourish.

The Government has set out the key principles for how Australian industry can engage with defence in our Defence Industry Policy Statement.

Two of these are particularly relevant here today.

First, we are striving to increase our industry’s competitiveness and maximising opportunities for local involvement in defence capability programs.

As part of our major acquisitions program, we are emphasising the transfer of technology and industrial capability to Australia, growing the Australian defence industry to meet our sovereign capability needs.

We are doing this to guarantee a stronger, more resilient and capable sovereign industry, one better able to deliver solutions tailored to specifically Australian requirements – including the sovereign sustainment of our capabilities.

Second, we are changing our defence culture, ensuring that Defence explicitly acknowledges industry as a fundamental input to capability and recognises the enormous contribution the sector makes to our national security.

We are aiming for a clearer long-term engagement with industry, aligning our strategic planning over the entire capability life cycle.

The Government’s continuous naval shipbuilding program is a prime example of this approach.

The Turnbull Government has committed to a regeneration of Australia’s naval capabilities and to using Australian workers, in Australian shipyards, and Australian naval shipbuilding industry.

The Government’s Naval Shipbuilding Plan provides the strategic direction for this momentous national endeavour.

It outlines the Government’s vision for a successful Australia-wide naval shipbuilding enterprise that will end the boom-bust cycle afflicting the Australian naval shipbuilding industry and workforce to date, providing certainty to Australian businesses and Australian naval shipbuilding workers.

The Government is investing over $89 billion in new naval ships and submarines, around $1.3 billion in modern shipyard infrastructure and more than $25 million in workforce growth and skilling initiatives to enable the delivery of these platforms.

Modernisation of our naval forces is a complex, generations-long national endeavour that will ensure Australia’s naval capabilities meet future strategic challenges, creating economic growth by maximising Australian industry participation, and securing Australian jobs that will endure for decades to come.

The success of this naval shipbuilding enterprise is founded in four key areas:

• modern infrastructure
• workforce growth and capacity
• a sustainable and cost-competitive Australian industrial base; and
• a national approach to delivering the Naval Shipbuilding Plan.

The simultaneous construction of new submarines, major surface combatants and minor naval vessels has not been attempted in this country before. It will see the Australian Navy undergo its most significant period of regeneration since the Second World War.

This is an ambitious agenda, and it is a national agenda that should not be understated.

The Government’s unprecedented continuous naval shipbuilding commitment will be the largest national enterprise this nation has undertaken and will see Australia procure 54 naval surface ships and submarines over coming decades.

Defence is not only recognising the capability requirement, but supporting the ongoing industrial base upon which the capability depends.

At the same time, it’s important to acknowledge that our defence industry is already achieving considerable success overseas, boosting its resilience, productivity and capability.

This isn’t just significant for the sector.

It’s good for the economy as a whole.

I cannot say this often enough: the high priority we are giving to defence is not just designed to maintain our capability edge, although that is our highest priority.

It is absolutely central to the Turnbull government’s broader economic plan.

We are determined to use the defence dollar to drive a high technology, advanced manufacturing future.

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

This is where the jobs of the future will be created, along with the broader growth we need to ensure Australia maintains its position as an advanced economy among the top ranks of nations in the twenty first century – an advanced economy that is able to provide for the defence of our national interests and enable us to play our part maintaining international security.

Our defence exports promote innovation, skills, technology development and jobs.

Talented Australian companies have been capitalising on Australia’s valued strategic relationships, entering global supply chains at exceptional levels.

Australia’s involvement in cooperative programs such as the development of the F‑35 Joint Strike Fighter has opened up global markets and regional sustainment opportunities.

Already, over 50 Australians companies are directly sharing in more than $800 million worth of production contracts.

In my home state of South Australia Levett Engineering has machined components which form part of the airframe for the global F-35 fleet, so far delivering contracts worth over $20 million.

I’ve learnt from my trips overseas – in Washington not long ago - of the regard in which our industry is held.

Our recent inclusion, along with the UK and Canada, as part of the US National Technology and Industrial Base shows this.

Our allies and our partners have taken notice of our cutting-edge technologies.

And so, as a result, our companies are meeting great success exporting into the global market.

The Nulka anti-ship missile decoy, developed by Australia’s Defence Science and Technology Group and the US Navy, is another excellent example of Australian technology that has won worldwide acclaim.

The Nulka system has become one of our most successful defence exports.

It provides protection to more than 150 ships in the United States, Canadian and Royal Australian Navies.

It has generated investment of around one billion dollars.

And it has proved its worth in combat.

Just last October Nulka was successfully deployed by USS Mason to defeat an attack by Houthi rebels off the coast of Yemen.

And in another illustration of our capacities, shipbuilder Austal has two significant contracts with the US Navy.

The first is for 11 Littoral Combat Ships, worth approximately four billion US dollars.

Already two of these vessels have been delivered and the remainder of the project is running on schedule.

The second, worth two billion US, is for 11 Expeditionary Fast Transport Vessels.

Australian industries are already exporting world-leading capabilities – and want to do more.

That’s why we as a government are doing everything we can to support the sector.

We know we need to ensure our defence industries achieve global success by helping them remain competitive and ahead of technological developments.

Australia is already home to some of the world’s most innovative defence enterprises, but we need to create an environment which incubates and nurtures new ideas and game changing technologies.

Our key defence innovation and research and development programs, the Defence Innovation Hub and the Next Generation Technologies Fund, will help our businesses develop new capabilities so that the ADF and our allies can maintain their capability edge – and Australian businesses can grow.

For defence research and development will not only spur greater innovation, but also drive broader economic activity, bringing growth to local businesses and jobs to communities across the nation.

We can also boost our defence sector by creating a domestic environment of healthy competition while maximising industry involvement in our major projects.

As you may be aware, unlike many other programs, Australia does not have an offset program that imposes special local obligations on overseas companies we purchase defence materiel from, nor do we mandate percentages of Australian industry involvement in our capability programs.

It’s our belief that these are protectionist measures which, as protectionist measures always do, bring only illusionary gains.

They hinder our goal of growing a globally competitive and active defence sector.

What we do have, however, is the Australian Capability program.

This requires tenderers for major defence capability projects to actively find ways for Australian industry to be involved.

We are continuing to strengthen this program substantially, as it will only drive the competitive reform of the Australian defence sector.

We will expect more of our international partners, not only to maximise the involvement of Australian industry but to also actively seek innovation and export opportunities.

And we can ensure the global success of our defence companies by helping them find the right opportunities and encouraging them to compete.

We need to equip our small and medium enterprises with the tools required to understand the opportunities and risks present in the global market and what their obligations under our export controls regime are.

Austrade and the Centre for Defence Industry Capability already do important work in these two fields, but there is more we can contribute.

Our industrial base is a fundamental input to the ADF’s fighting capability, yet demand from the Department of Defence and defence forces alone will not be enough to sustain the sector here in Australia.

Having a defence industry with stronger export performance helps sustain critical industrial capabilities here in Australia.

And it leads to not only a more sustainable and cost effective contribution to ADF capacities but a more sustainable and cost effective contribution to our allies too.

In these times of uncertainty, governments around the world are lifting their defence spending and upgrading their capabilities.

Australian industry is well placed to access global opportunities and support the capabilities of our friends and allies.

We are determined to make the most of our advantages.

In February I announced that the Government was developing a Defence Export Strategy for release later in the year.

Work is well underway and proceeding apace.

Our current focus is to develop a strong knowledge base of Australian industry’s export capability, consulting widely with companies, peak bodies and the state and territory governments.

The final Export Strategy will provide a comprehensive plan to grow our defence industry exports to support the world-class industrial capability we need for the future.

It will position defence exports within the broader defence, foreign and trade policy framework and recognise Australia’s strong export controls regime.

It will set short, medium and long-term objectives for defence export outcomes based on identified market opportunities.

And it will set down a roadmap for growing our defence industry exports over the next decade.

For Australia’s defence industry, staying competitive in times of change is both an economic need and a national security necessity.

A more globally competitive Australian defence industry will ensure our serving men and women have the best capability.

It will also allow us to be a better international partner in maintaining peace and security, to make a stronger contribution to the capabilities of our friends and allies.

A more globally competitive Australian defence industry will also be a catalyst for broader innovation and growth across the nation.

This Government recognises that building this new export capacity within our defence industry to meet our strategic and capability goals will also be a driver of employment and prosperity around Australia.

I cannot say it often enough.

The Turnbull Government views the sector not just as a fundamental contributor to our military capability and national security but a crucial element in the future of our advanced manufacturing and high-tech industries; a guarantor of national prosperity – the first time any Australian government and the Department of Defence has considered industry this way.

And what I am passionate about doing is letting Australians outside the defence community understand the impact of a high quality, high technology advanced manufacturing domestic defence industry and what that can mean for jobs.

We are investing at least $200 billion in defence capability through the Integrated Investment Program across the decade to 2026-27.

There is more than enough in our defence spending plans for the entire nation to benefit.

They rank among the biggest defence industry proposals in the world.

The Government’s commitments will create local jobs and opportunities across Australia.

The national, systematic approach the Turnbull Government is taking to deliver our defence program will realise significant flow-on benefits for industry across Australia with job creation along the length of the supply chain.

It’s why I talk about “our great national endeavour”.

So many sectors are involved.

Everyone can play a part.

And everyone will benefit.

We hear all too little of our achievements in the field, but Australia already leads the world in development of technologies such as hypersonics and quantum computing.

Imagine applying this type of knowledge to an export-orientated defence sector; its practical application filtering through to the broader economy, to a new knowledge based manufacturing sector.

You are imagining an Australia transformed.

That, ladies and gentlemen, is the destination we are striving for - and that we will reach.

Thank you.