29 May 2015
South Australia’s defence manufacturing industry, and the debate surrounding the State’s level of involvement in the nation’s Future Submarines program, is the focus of BankSA’s latest economic bulletin, Trends.
Released today, and compiled in conjunction with Deloitte Access Economics, Trends steps beyond the current debate and speculation about the future of South Australia’s defence manufacturing sector, and considers a range of possible outcomes and their impact on the State’s economy.
Significantly, Trends states that despite expected job losses and little momentum before the early 2020s, South Australia is well placed to benefit from the construction of Australia’s next submarine fleet, even if they are sourced overseas.
“It is likely that two-thirds of all the costs associated with outfitting and maintaining the submarines must ultimately occur in Australia, with a substantial share of that right here in this State,” says the report.
“There is also the potential for roles for this State in the delivery of the Future Frigates program, offshore patrol vessels and Pacific patrol boats, as well as in the likes of Australia’s next generation of armoured fighting vehicles.”
However, Trends also indicates that the so called naval shipbuilding ‘Valley of Death’, if a worst-case scenario eventuates where every direct job is lost, would mean losses of the order of 2,000 to 2,500 people.
We’ve already seen job losses in South Australia’s defence manufacturing sector as a result of work on the Air Warfare Destroyer program having reached its peak and now begin to wind down. And, as the report states, there are more to come.
“Yet amid the heated debate, it is easy to forget the complexity of defence spending and its role in the South Australian economy,” says Trends.
“Decisions around the Future Submarines and Future Frigates programs are important for the State, and the ‘Valley of Death’ will present a significant challenge to the local shipbuilding industry, but that isn’t cause for despair.”
Even if the big decisions don’t go the way of the State’s shipbuilders, those decisions are not nearly as clear-cut as the current debate would have us believe.
“South Australia could still benefit from opportunities in both the build phase and later sustainment activities even if a foreign submarine is selected as the basis for Australia’s new submarines,” says the report.
“Besides, the industry in this State is about more than submarines, with major new contracts in a range of areas offering further opportunities for the sector.”
That says, the ‘worst case scenario’, where every single defence shipbuilding job in this State is lost, would be a big blow, but it’s also unlikely.
BankSA Chief Executive Nick Reade said amidst the debate surrounding looming decisions in defence spending and their effect on the State’s defence industry, it was timely for BankSA to take a step back and provide South Australians with some clarity around these issues.
“As South Australia’s bank, we have a vested interest in all key sectors of the State’s economy, as well as the opportunities, threats and economic measures that underpin them, he said.
“Building submarines in Adelaide would be a great outcome for South Australia’s defence industry, yet it’s pleasing to note that our economic analysis has revealed that so too would building the submarines in Japan or Germany, if South Australia secures the outfitting and maintenance activities.”
Mr Reade said South Australia has a strong set of competitive advantages in defence manufacturing and is globally competitive in many related fields. However, the local sector will be forced to adapt in the face of new developments and challenges.
“Therefore, and as our Trends report concludes, South Australians have every reason to be alert, but not alarmed.”
Copies of BankSA’s Trends economic bulletin are available upon request.