Governments must be more strategic with the $27 billion on offer to defence businesses in Australia, including opening up its new industry accelerator, according to a new report that says an an influx of private capital will also be needed.
The report by the United States Studies Centre published Friday urges government to use co-investment and better contracting to create a new “defence-finance-tech ecosystem” that leverages everyone from foreign defence primes to Australian dual use startups and researchers, with venture capitalists and super funds backing the companies.
In practice this would start with defence’s new Advanced Strategic Capabilities Accelerator (ASCA), broadening its outreach and taking advice on tech from a new AUKUS Pillar II “trusted network”, with the nation’s chief scientist also handed “full visibility” and input into defence innovation reform.
The Treasurer’s investor roundtable would also be consulted on national defence priorities, and the Department of Defence would take advice from an advisory board representing private capital.
With the private dollars flowing, the government would also move to a “matchmaker” role between investors and startups and, according to the report, still use direct and limited tenders for trusted suppliers and defence primes when “speed to capability is required”.
Long term changes would include procurement reforms and a culture change within Defence to accept more risk through ministerial-level political support and a new APS reward structure.
Authors of the USSC report say the radical shake up is needed if Australia is to meet the ambitions set out in the Defence Strategic Review, that include faster and riskier acquisition of cutting edge technologies.
ASCA has been billed as the missing link between local companies and Australian Defence Forces, but still sits within Defence and under the leadership the Defence Science and Technology Group, despite the review recommending it be moved outside the portfolio.
In control of $3.4 billion over the next decade, ASCA will look to accelerate technology acquisition timelines in Defence while improving links with industry under a mission-orientated approach to innovation.
The USSC report said more private capital should be integrated into Australia’s new approach to defence innovation.
VC backing for dual-use technology companies and start-ups with products and services at mid- to late-stage development should be an early focal point. This would start with government mapping local companies to create a resource for itself, the industry and private investors.
A second stage would see institutional investors like super funds being encouraged to back longer term defence infrastructure and with governments working with banks to improve contracting for a more sustainable defence industry.
Dr John Kunkel, a senior advisor at the research centre and report author said the new whole-of-Australia approach to defence comes as the investment landscape is changing.
“Russia’s invasion of Ukraine has jolted the assumptions of ESG investing in the northern hemisphere. That needs to echo in Australia if we are to rise to the challenge laid out in the Defence Strategic Review,” he said.
Dr Kunkel was the chief of staff to former Prime Minister Scott Morrison, who launched the AUKUS partnership on submarines and advanced technologies in 2021. He co-authored the USSC report with the centre’s director, economic security, and former Defence official Hayley Channer.
“To achieve speed to capability, government will need to work more closely with the private sector, which means accepting higher levels and different types of risk,” Ms Channer said.
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