After decades of gradual decline, Australia’s manufacturing capability is no longer mission-fit to meet national security needs. Any whole-of-nation effort to arrest this trend needs to start by making the industrial operating environment more conducive to manufacturing.
The sector needs both knowledge-based capital, for innovation, and financial capital. Given the scale of investment required, the government must cooperate with the private sector and incentivise the sector’s independent efforts.
A recent report I wrote for the United States Study Centre discusses how the Australian government can better engage with the manufacturing sector and align the private capital needed to finance its revival.
It first recommends commissioning an independent federal review with a focus on the manufacturing priorities of defence and national security initiatives. The report also recommends establishing an ‘Uplift Project Office’. Such an office, inside government, would coordinate engagement between departments and the investment community.
Successive Australian government strategic documents, including the 2023 Defence Strategic Review and 2024 National Defence Strategy, have underscored the national security importance of expanded advanced capabilities. Such capabilities include hypersonic weapons, artificial intelligence, quantum technologies, autonomous systems, critical minerals extraction and processing, and related value-adding activities.
To establish a sustainable sovereign capability in these fields, or, at the very least, greater supply chain security, Australia needs to revive its domestic manufacturing base. This is a challenging prospect. Over the past two decades, when measured by exports by sector, Australian manufacturing has declined by more than 50 percent, while reliance on resource income has doubled. Manufacturing now accounts for just over 5 percent of Australia’s economic output.
The proposed manufacturing review would map the Australian stakeholder landscape and inform a whole-of-government approach to engaging the private sector to arrest the decline of Australian manufacturing. Among its priorities would be preparing the manufacturing sector to sustain any new investments.
Successful conduct and implementation of such a review would depend on effective communication between government and industry. This is where the proposed Uplift Project Office would add value.
The government would benefit from greater emphasis on private sector engagement to mobilise capital for national security objectives. The proposed office would ensure that engagement extends beyond prime manufacturers and major superannuation funds to include small and medium enterprises and dual-use start-ups, which often drive progress in advanced capability areas.
The office should also coordinate separate efforts such as AUKUS and the National Reconstruction Fund Corporation (NRFC).
The proposed office should work with the investment industry and manufacturing sector to co-develop a standard investment proposal process and identify contracting mechanisms for government projects to upskill responsible agencies in their ability to engage with sources of private capital. Collaborative and consultative engagement would optimise decision-making by better equipping officials to work with investors and industry.
The office should sit under the defence minister to ensure that national security priorities are embedded in its bottom-up activities and are aligned with top-down efforts under the 2024 Integrated Investment Program and NRFC. Ideally, the office would also be guided by an advisory council of stakeholders from Australia’s AUKUS partners to maximise its effect on Australia’s defence innovation priorities.
The office should also support the private sector in investing across different portfolios. It should work with existing government-adjacent investment vehicles, such as the Future Fund investment process and assist in developing plans to mitigate talent pipeline and skilled workforce challenges.
As the geopolitical landscape continues to shift, Australia must be able to self-sustain and contribute advanced capabilities. Industrial capability is a precondition of this. The government, together with industry partners, needs to back domestic innovators and create the conditions for participation in the development, production and global economic success of indigenous capabilities.
The revival of Australian manufacturing is a long-term project that the federal government needs to embed into its policy and practices for the betterment of Australia’s national security. The federal government needs to fine tune engagement with the private sector to ensure that necessary stakeholders can act in a concerted and coordinated manner.
