Coalition’s $3.8bn bid to drive defence exports

The Australian, January 29, 2018

Malcolm Turnbull will unveil a global defence strategy aimed at catapulting Australia into the ranks of the world’s top 10 arms exporters, announcing a $3.8 billion fund to back the plan amid a growing military build-up in the Asia-Pacific region.

The Prime Minister will today announce loans will be made available to defence companies to create jobs, maintain a highly skilled defence industry workforce and help drive Australia above its position as the 20th largest defence exporter.

In the past year, Australia has increased its partnerships with Asian democracies, led by Japan and India, to manage the rise of China and maintain maritime and trade routes. Closer diplomatic ties have been enhanced by increasing defence interoperability, involving joint exercises and the exchange of military equipment.

Last year, Defence Industry Minister Christopher Pyne said increased defence exports would help Australia meet its strategic goals and build “greater inter­operability with our allies and strategic partners”.

Standing next to Japanese Prime Minister Shinzo Abe, who is pushing to increase the role of his country’s military, Mr Turnbull earlier this month said Japan would buy four more Australian Bushmaster troop-carrier trucks.

In a sign of the changing geopolitical landscape, Deputy Prime Minister Barnaby Joyce yesterday supported comments made by US Defence Secretary Jim Mattis that China and Russia posed a greater threat to the US than Islamic terrorism.

“They have extensively grown their military capacity and we have to be aware of that,” Mr Joyce told Sky News. His comments came after Defence Minister Marise Payne backed the new US defence strategy in The Weekend Australian.

The Coalition is boosting military spending to 2 per cent of GDP and the defence export strategy will add another strategic economic path for Australian ­defence contractors.

China, which the US views as a strategic competitor, is the ­region’s biggest military spender with spending estimated at $US215bn, according to the Stockholm International Peace Research Institute.

With the government pledging to build the bulk of its new sub­marines, future frigates and offshore patrol vessels at home, the build-up of a skilled workforce is viewed by senior officials as critical. A ­future defence export ­industry would keep that workforce employed between these massive projects.

The defence export strategy announced today — first recommended in 2015 following a parliamentary review — aims to set Australia up as the 10th largest arms exporter within a decade.

The $3.8bn fund will be set up within EFIC (Australia’s export credit agency), which will facilitate finance to Australian companies to help underpin the sales of their equipment overseas when they cannot get finance elsewhere. The loans will be written on the National Interest ­Account, which allows EFIC to make loans that are too risky for its accounts. The commonwealth has to reimburse EFIC for any losses.

“It will provide confidence to our defence industry to identify and pursue new export opportunities, knowing that when a deal stacks up and export finance is needed, it’ll be there,” Trade Minister Steve Ciobo said.

Mr Turnbull said $20m would be allocated from the existing defence budget to implement the defence export strategy, which includes $4.1m in grants to small and medium businesses. He said the strategy was about creating jobs and building capability.

“It will give Australian defence companies the support they need to grow, invest and deliver defence capability,” Mr Turnbull said.

The government will set up an Australian defence export office — in addition to the Australian Military Sales Office and Defence Export Controls Office — to work with Defence and trade agency Austrade to create a central point to implement the strategy.

The government will appoint a new Australian Defence Export Advocate to co-ordinate the effort.

The director of the Australian Strategic Policy Institute’s defence and strategy program, Andrew Davies, said the move was “a positive development”.

“There are some world-class products being produced in Australia and we can probably increase our defence exports through better marketing and a more polished approach to selling,” he said. “Australian defence-sector firms have often found themselves lacking the sort of support that companies in other countries get from their governments. You only need to look at the ‘Team UK’ ­approach being used to try to sell us British frigates for an example.”

But Mr Davies said the strategy would not lead to any huge expansion of the export industry. “That said, we currently have about half of 1 per cent of the world market, and the big players dominate to an extraordinary degree. The top 10 countries take 90 per cent of the market share,” he said.

“Dislodging any of those will be hard work. So while there are gains to be had, I don’t think we are going to see huge expansions.”

The strategy identifies the US, Britain, Canada and New Zealand as Australia’s highest priority markets for defence exports.