The Defence Department is spending an extra $270 billion – Australian businesses could participate

Defence industry is a globally lucrative and important industry, and it’s expanding in Australia. Former Prime Minister Scott Morrison committed an extra $270 billion to the Defence budget in the decade 2020-30, and the Albanese Government will raise Defence spending as a proportion of GDP, from its current 2%, to 3% per annum. Defence industry grew by 12.4% from 2023-24 and more growth is expected as the government makes greater financial allocations into the sector.

Increased defence spending sounds like more plant and equipment being made. However, manufacturing doesn’t always flourish under defence budgets. The Australian Bureau of Statistics calculates that of the $11.8 billion in Defence Industry’s gross value-added to the economy in 2023-24, 45% of it was attributed to professional, scientific and technical services, while manufacturing was the second-largest defence industry sector, capturing 16% of the value. The third largest was construction with 13.2% of GVA.

Of the 5,539 Australian businesses contributing to defence industry in 2023-24, only 904 of them were in manufacturing. Yet it’s worth acknowledging that employees in defence-related industry increased by 9.1% (5,800) from 2023 to 2024 at a time when total employment grew by 2.5%.

The Defence Prime

Small and medium sized businesses have a mixed record in Australian defence spending, ranking high in total proportion – around 80% of all defence industry businesses by some accounts – but relatively low in value. Given the nature of defence acquisitions, there are good reasons for the massive defence ‘Primes’ to deliver equipment to the ADF off the shelf, or to act as lead contractor on an acquisition project. Even when Australian manufacturers are included in a Defence acquisition project, it’s unlikely they account for a large slice of the project value because they are subordinated to the company that has the supply chains and delivery capability: the defence Prime.

There are other issues in Defence Industry which have hindered local manufacturing. For instance, in the larger acquisition projects – ships and submarines, for instance – Australia’s reluctance to commit to continuous build programs means domestic SMEs with specific skills and deliverables cannot build and sustain their industrial capacity; instead, they must bid for tenders on an ad hoc basis and concentrate on making themselves a good fit for the Prime’s supply chain. This means there is work for Australian businesses, but it may not encourage an Australian SME to invest in plant, technology and people.

Optimism

And yet, I can see reasons for optimism. For a start, the defence budgets are growing, which grows the entire pie. That’s good for Australian industry.

Secondly, SMEs can make themselves crucial to Australia’s defence industry by offering innovation, agility and supply chain resilience in the defence purchases that can realistically be made in Australia. Maybe Australia doesn’t start off building F-35 stealth fighters or Tomahawk missile systems. But we can make many of the components and supplies that either go into the projects, or are used to sustain and maintain them. In Harrison Manufacturing Company’s case, we make the greases and lubricants that keep military fleets operational.

Third is the services side of defence – as mentioned above, services comprise 45% of defence industry in Australia. Given the way that Australia’s manufacturing sector has contracted over the past 40 years, and yet also matured into advanced manufacturing, we have a sovereign design and engineering capability and also good levels of high-skill technicians. The defence contracts on offer include all the specialist maintenance and sustainment tasks for warships, submarines, planes, drones and land vehicles such as tanks and armoured people carriers. A lot of these sustainment contracts require the Australian company to have a rating and qualification in the specific equipment they are servicing (eg. Lockheed Martin, Dassault, Boeing, Raytheon etc.) however Australian companies are doing this work and there are many opportunities for local manufacturers to not only supply Defence, but to supply the services businesses that have won the Defence contracts.

The final reason for optimism in Australia’s defence industry lies in the regional economic growth that the opportunities bring. Most of our large military bases are in regional Australia and the scope for employment and training is obvious when the manufacturing and services contracts are won by Australian businesses. 

I believe that a rising Defence budget means an expanding defence industry, and aside from the immediate economic benefits of growing that industry, it also gives us a prosperous, sovereign and secure Australia. Perhaps some of these concepts were seen as a little old fashioned for a while, but during the COVID lockdowns we saw that a prosperous, sovereign and secure Australia are features of our national life that are worth investing in.