International work is often awarded on the basis of frontier advancements in technology. ASPI notes the future of defence is, in part, motivated by taking humans out of the “warspace” and it will enabled by the “fourth industrial revolution”, namely digital technology.
ASPI says the key elements of this include autonomous systems, artificial intelligence, more accessible space resources and 3D printing. This means contracts are difficult to win from anywhere other than the technology frontier.
Export Finance Australia is a Government organisation helping Australian companies take advantage of export opportunities by providing loans, guarantees, bonds and/or insurance. While there are examples of defence suppliers that have been able to access the assistance, the “Australian benefit” requirement has proven too high a hurdle for some.
At the moment, the defence industry is exporting around $A1.5–2.5 billion a year, with the annual figure lumpy. Most of the industry is not exporting. Those companies that do have limited markets. Of exports, 90 per cent are to the US, Indonesia and Oman, according to Tian.
Many of the Australian defence industry primes engaged in exporting, produce under licence to international parent companies. It follows that Australian companies are small players in international military trade. Globally, in 2008–18, Australia was the fourth largest arms importer but the 20th largest arms exporter.
As noted by Tian, that means the primes “generate limited technological or skills spill-overs that help the development of a domestic arms industry”.
Even with these challenges, the Update suggests there are plentifully opportunities worth investigating within the defence industry.
Cherelle Murphy is Senior Economist and Bansi Madhavani is Economist at ANZ