The fight to define ‘sovereign capability’ heats up

Sandy Plunkett

What’s in a name, or a term like ‘sovereign capability’? Unless you’ve been living under a rock, you’ll recognise it as the term of the moment.

It’s seen and heard everywhere since Australia and the world was hit with the triple whammy of a Covid pandemic, massively accelerated technological change, and the return of great power competition and geopolitical fracture not experienced since the Second World War.

Ministers in diverse portfolios pepper their speeches and media appearances with the term. It is also the subject of dozens of reports and submissions from company leaders in diverse and increasingly connected industries spanning defence, energy, information technology, space, health, education and research, trade, food security, supply chain and logistics.

It always arrives with a cadre of other words like self-sufficiency; independence; resilience; national autonomy and agency, and industrial policy.

Yet in Australia, there is no unifying or shared definition of what sovereign capability is and is not.

“That’s the first problem we have to solve before having a chance to work through the much thornier complexities of how it’s assessed, measured and developed. And that fact seems to be lost in government considerations of its re-industrialisation ambitions,” says Martin Hamilton-Smith, Director of the Australian Sovereign Capability Alliance.

The alliance advocates and publishes research for building strategic, industrial, scientific and economic sovereign capability. Mr Hamilton-Smith is a former independent South Australian minister. Before entering politics, he spent 24 years serving in the Special Air Service (SAS).

He says the pandemic supply-chain shocks, the Ukraine- Russian war, the Hamas-Israel conflict have jolted all governments into a new reality of insecurity across key areas of the global economy; energy (clean or otherwise); AI, cybersecurity; data storage; manufacturing; satellite and geospatial technologies; critical minerals and the list goes on and on.

“We are the lowest of the OECD countries in terms of manufacturing output; we can’t defend ourselves from hostile powers in our sphere of influence; and we don’t have agency over our intellectual property, our cybersecurity or where our strategic data is stored and by whom,” he adds.

In and outside of defence, there is general agreement that sovereign capability means the country must be able to make enough of its own things and develop enough home-grown skills to survive unexpected external shocks – like a pandemic, a natural disaster, or a war.

But exactly what and how much is hotly contested, not least by foreign multinational corporations (MNCs) operating in Australia and a Defence department that has long reflexed to buying off-the-shelf from the global giants rather than cultivating home-grown innovation and scale.

The leaders of the predominately American foreign-owned giants – and those who are well-funded by them – prefer we use the term domestic capability. It sounds interchangeable with the sovereign kind, but it doesn’t mean the same thing at all.

Proponents of domestic capability – in Defence and in the broader digital information, data storage and cyber security arenas – say too-much-too-fast of a focus on sovereign capability in this decade of increased threat and vulnerabilities will lead Australia down a dangerously insecure path.

It is much safer and wiser, they argue, to deepen the ties between the country’s indigenous companies and government agencies and the multinational giants that have provided the bulk of technological and defence capability for decades.

“We don’t think multinationals are bad or evil,” says Simon Bush, chief executive officer at the Australian Information Industry Association (AIIA).  “They are critical enablers of sovereign capability, and we cannot have 21st century security and prosperity – digital or otherwise – without them.”

The AIIA, which represents both MNCs and small and medium enterprises (SMEs) operating in the digital industries, cautions that building “domestic” capabilities should not be allowed to become a default protectionist device.

In its paper, Domestic Capability: Framework Policy, the AIIA says:

“The integration of these international capabilities with indigenous industries and skills to ensure domestic resilience must be the objective.”

Fair enough. But surely, we don’t have to leap to ‘bad or evil’ descriptors to have a sensible rethink about the proportional contribution between foreign-owned power players, and indigenous companies to secure our defences, our soft and hard security infrastructure and boost economic growth.

But judging by the relative weak showing by the local information technology companies who were encouraged to weigh-in on government procurement policy, the AIIA’s MNCs are under zero threat.

In December, Independent senator David Pocock, initiated a Senate Finance and Public Administration References Committee inquiry into developing sovereign tech capability in this country. Two weeks ago he made an appeal to the local throng to have their say by making a submission to the committee.

There seems more hunger and ambition for building sovereign capability in the defence industry and dual-use technology sector.

“It’s about growth and hedging risk,” says Adam Gilmour, co-founder with his brother James of Australia’s only home-grown and venture-backed rocket launch company, the Queensland-based Gilmour Space Technologies. The company just closed a $55 million Series D round at a valuation of $605 million and is about to launch the first test flight of its Eris rocket.

Australia’s risk aversion and abundance of natural resources have resulted in decades of neglect of its industrial diversity, complexity and output, leaving us far more vulnerable than other similar sized countries.

Mr Gilmour adds: “Countries with comparable or even smaller populations and economies than Australia (Israel, Sweden, Norway, Turkey) have built highly capable defence and industrial capacity when faced with strategic threats and uncertainty.

“So, while Australia will always need to go to the US market and others for equipment and technological scale, weaning ourselves off just-in-time supply chains set-up by MNCs is essential for all critical commodities, whether civilian or military. We do have the capability and are hungry to execute. If the Government sets the conditions, we’ll deliver.”

In his widely-read 80th birthday interviews, former Prime Minister, Paul Keating had some choice words to say about our capability gaps  and the country’s multi-decade over-reliance on foreign power.

Australia is “too timid”, he said, and to “come of age” the nation must have a new and altogether different idea of itself.

“We’ve always been timid, you know …we’re always trying to handhold a strategic guarantor when we could do these things ourselves. There’s not enough confidence in who we are and what we’ve achieved, kind of everywhere.

“There is no premium on self-capacity, self-assurance or belief in our ability to divine our own way forward,” he added.

Mr Keating has a lot of foreign policy establishment critics on this topic. And the Productivity Commission, which provides economic advice to Treasury, has long stuck to its belief that it is not “feasible” for Australia to develop expertise for the “extraordinary complexity of much defence equipment, systems and software.”

With friends like that, who needs foreign enemies?

But despite such under-ambition coming from establishment power in Australia and elsewhere, there appears a sea-change developing – one that backs Australian ingenuity and industrial scalability with an energy, a sophistication and pragmatism not seen in 60 years in this country.

Leading the charge are people like Mr Hamilton-Smith and Mr Gilmour and other members and signatories to advocate associations like the Australian Sovereign Capability Alliance, the Sovereign Australian Prime Alliance (SAPA); Australian Industry Defence Network (AIDN); and the Advanced Manufacturing Growth Centre (AMGC).

They are none too timid. What unites them is not just the external threat conditions, but the opportunity to accelerate Australia’s home-grown 21st century industrial capability through the AUKUS-led defence industry review.

So, what do they want; and how and when do they want it?

First, all agree with Mr Hamilton-Smith that the federal government must clarify its definition of Sovereign Capability.

“Right now, the definition is anything anyone wants it to be. And that’s not useful for anyone.” says Adam Gilmour.

Gilmour Space Technologies is part of SAPA, along with global shipbuilder, Austal, Macquarie Technology Group, and NIOA, Australia’s largest global munitions company.

The four successful companies – Australian Prime contractors all – joined with the AIDN in December to publish the comprehensive report Developing Australia’s Defence Industrial Base.

The report details eight recommendations to set a path to building genuine sovereign defence capability.

It recommends the Department of Defence declare its intent to establish defence industry primes, and to revise the Commonwealth Procurement Rules to recognise economic security and industrial sovereignty as value for money.

“Given the risks of dependency on single sources of supply, a lesson from recent crises is that Australia needs multiple approaches to reduce supply-chain risks in defence and other parts of our economy. Defence industry policy done well can help here,” says the SAPA report.

“This is industrial sovereignty: Australian companies with their headquarters and operations here will make Australia their ultimate priority in times of crisis.”

SAPA and the AIDN also want a Cabinet-level Defence Industry Steering Council to drive a co-ordinated whole of government approach to defence industry development, reporting directly to the Defence minister.

It must be drawn from leaders of companies with their headquarters in Australia and operations here and be a combination of large, medium and small Australian firms.

“Too much defence industry policy has been made in Australia for defence industry and not with defence industry,” says the report.

SAPA also wants the establishment of a new $1 billion budget line to fund sovereign capabilities and services from medium and small Australian companies for defence and defence industry purposes.

“The box-ticking industry consultation exercises based on large-scale briefing sessions are slow and ineffective. The need is for sustained senior-level dialogue and government should make it clear that it wants to receive creative, unvarnished advice from a broad sweep of participants that see industry as being a fundamental and vital input to defence capability.”

Do you know more? Contact James Riley via Email.

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