Defence Industry SeminarDefence
Convention Centre, Palmerston North
Thank you Kevin, and Ladies and Gentlemen. I am delighted to be with you tonight. As I look at the schedule of speakers, and the diversity of the delegates, it is very clear that the New Zealand defence industry sector is vibrant, and is being taken seriously by both suppliers and customers.
I would like to congratulate the New Zealand Defence Technologies Joint Action Group, along with the Manawatu Defence Cluster and the individual sponsors, for the commitment they have made to this seminar. As we all know, nothing happens without vision, energy and initiative.
And this defence industry grouping is important, because it epitomises so many features of our defence and industrial landscape. They are the positive outcomes of the shared needs and shared dreams of business, and of the governments of both Australia and New Zealand.
It is in this sector we see, perhaps as well if not better than any other, the synergy and benefits of the Closer Economic Relations agreement between these two countries, and the economies of scale this gives our defence industry suppliers.
And needless to say, no single project better proves that than the Anzac frigate contract. But more of that later.
We are here in the heart of the Manawatu Defence Cluster, so it is in my other role as Minister for Enterprise and Commerce, and the leader of the Government's new Enterprise and Innovation Team, that I would like to canvass for a moment, some aspects of this task, and relate that to your own role here.
Our overall objective as Government is to create the opportunities for New Zealanders to achieve higher standards of living for themselves and their families.
We are currently listening and working with industry to help us focus on policies which will get us real progress. We want to build on what New Zealand does best. And ensure that our industries are more competitive, more innovative, better marketers, smarter and more energetic than our competitors.
I must stress we are not talking about picking winners nor subsidising losers-but about fostering those sectors that are already winners.
That includes creating a climate that is far more conducive to investment; exploring how we can fast track the growth projects of success cluster industries.
The Shorter Oxford Dictionary has a number of definitions of "Cluster" but the one I like in relation to industry is: Quotes " A group of stars or galaxies forming a relatively close association." close quotes. The Manawatu Defence Cluster gives practical meaning to that definition as does the Defence Technologies JAG itself.
Those New Zealanders amongst us tonight will perhaps recall the concept of clusters they are interconnected firms, suppliers, related industries and specialised institutions in particular fields in particular locations that were introduced to us in 1991 by Professor Michael Porter, of the Harvard Business School, under what is known here as the Porter Project.
The Government is currently looking at that original study and the developments that have flowed from it, to stimulate debate about further building our international competitiveness, and next week Professor Porter will be in this country to assist with that review.
While Professor Porter is a world authority on competitive strategy and international competitiveness, his theories are not being seen as the only answer to all economic and business problems.
Indeed a key part of this contest of ideas includes input from industry and business groups, about the potential they see for their sector, and how best the Government can help them realise that potential.
New Zealand has a number of successful business sectors, starting with the Dairy and Meat, and later horticulture industries, which initially prospered under the natural advantages of this land, but later introduced intensive technology and marketing to give them an international edge in these highly competitive, and often protected markets.
In the telecommunications industry the only advantage we had was the head start given to our industry by deregulating earlier than other countries around the world. As a result a customer service and billing system developed by Telecom and IBM in the early 90s, is now the system of choice throughout the USA, Europe and Asia.
Other companies such as Tait Electronics, MAS Technology and Deltec also took the lead and have become major technology exporters.
The New Zealand wine industry has also blossomed this decade, with exports of almost $100m in the most recent recorded year, and the tourism sector continues to build on its myriad attractions and value added initiatives.
However the galaxy of stars has really been in the defence technologies cluster, which includes most of you here tonight. I salute you for your achievements with $95.6m of defence-related products exported in the March 1998 year, and $86.8m of that coming directly from companies in the JAG. Government has responded to acknowledge this performance with the recent establishment of Defence Industry Quality Awards. This year we recognised Safe Air, Mace Engineering and A & G Price of Thames with the inaugural awards, and we look forward to these continuing in future years.
The value of the defence industry of course is not simply in the exports that it generates. Rather it is in the commitment to excellence companies are forced to demonstrate, simply to be a viable part of that sector. It is a fact that no single issue did more to project our manufacturers into world-standard performance, than the wish to participate in the tendering process for Anzac ship work.
And it is also a fact that those companies that could cut the mustard on the Anzac work are now able to compete on the world market for other defence-related projects. Let me give you just one example.
A & G Price have subsequently won a $6m order to supply advanced steel castings and armoured plate for a military vehicle project in SE Asia. Despite the need to undertake considerable development work to improve casting technology and product quality, the company met the specifications and is now doing further development on new items for the same client, for a potential contract of similar value.
This skills and technology derived from this process can be immediately applied to the company's non-defence work. Many of the companies working on the Anzac ship project report similar gains.
As you will have had clearly demonstrated at this seminar, as New Zealand's defence industry increases its capacity, so does the potential for benefits to New Zealand Defence.
New Zealand industry already provides much of the design, software and components for this new equipment, and is giving us the ability to maintain it through all of its operational life. Up to 60% of the cost of military equipment is in through-life support, and local industry is developing the skills to keep much more of that spending at home.
The most obvious examples of through-life support are the involvement of Babcock New Zealand at the Devonport Dockyard, Serco Group at Trentham, and Safe Air at the Number 1 Repair Depot at Woodbourne.
As New Zealand's defence industry develops so does the development of intellectual property, with long term benefits to the whole economy.
This can be seen in its clearest form with Project Kestrel, under which the RNZAF's 32 year-old P-3 Orions are being fitted with new wings and tailplanes the first project of its type in the world involving P-3s.
The Ministry of Defence and Lockheed Martin of the United States have negotiated a deal which establishes joint ownership of the intellectual property developed from the project. That agreement provides for the Government to receive royalties for all P-3 Orions that are upgraded as a result of the design and engineering know-how achieved through Project Kestrel.
The Ministry and Lockheed will now be marketing that expertise to the defence forces of the world among them the United States Navy which has a fleet of about 250 Orions.
The development of the intellectual property, both by the services and private industry, has my full support. It adds to a further positive return on defence spending.
As you have learned during the conference, 36 local organisations in and around Palmerston North have formed the Manawatu Defence Cluster, the first regional grouping of this type. Perhaps one of its most important achievements to date is to secure this conference for their district, and I congratulate them on that.
The focus of the group, which has now been operating for a year, is the possibility of work from the three main Defence bases in the area, -- Linton, Waiouru and Ohakea. The group aims to learn more about their
clients' operations and what their needs are. This initiative has the potential to improve the local support available to both Army and Air Force operations, and is to be commended.
As I said earlier, we will know much more in the next week or so of how the earlier Porter concept of clusters has performed, but like you, I hold out high hopes for your local organisation building a produ ctive and profitable win/win relationship with the local defence forces.
I would like now to briefly give some perspective to the international environment in which we are all planning and operating.
We are living in a world moving faster than ever before, driven by a paradigm shift in technological innovation that is wreaking far greater change to economic and political systems around the world than the Industrial Revolution ever did.
In such a volatile environment, economic instability is historically the breeding ground for political and military instability. Such challenges to intra- and inter-national stability can arise suddenly, with very little warning. More than a year after the beginning of the economic difficulties in the region, it is clear that the worst is not over.
Asia's contagion has now been joined by Russia and Latin America, and that is having a palpable effect on confidence in the US and European markets. While economic conditions in Asia and elsewhere remain as they are, the inevitable social, political and security effects are starting to show.
Countries that had treated spectacular economic growth rates and rapidly rising standards of living as the norm, are now confronting large scale unemployment and sharply lower rates of economic growth.
Their Governments will need to work hard to maintain social cohesion in the face of economic recession, and with that avoid painful civil unrest.
This economic downturn has, so far, not significantly affected the security environment. Nevertheless, there is the potential for domestic instability to undermine the security and stability the Asian region has become accustomed to.
It is important that we give due weight to the economic circumstances of the region and the world, because running a successful economic and financial system in a globalised world economy is the primary key to obtaining peace and security.
Without successful economic and financial policies we are unlikely to achieve peace and security in the region. However, peace and security will not be achieved and maintained by economic policy alone.
Strong defence capability, a network of open and friendly defence relationships, and continuous confidence building between defence forces of the region are all vital components too.
There is a planning and preparation paradox in today's economic and geopolitical climate. Prudent defence planning and preparation, as well as the networking amongst defence forces, contribute greatly to peace and security in our region.
It enables us to carry out our economic activities as a nation, certain in the knowledge that we are playing a part in the mosaic of other activities which help establish a peaceful environment within which we can trade.
There is nothing surprising about this, but like not having an insurance policy against fire for your home, it is too late to get one once your house is on fire.
Our Asian neighbours have recently cut their defence budgets after a 10 year period when defence spending rose in Singapore by 100%, Thailand by 80%, Indonesia 50%, Malaysia 125%, South Korea 60% Japan 25% and so on.
Against these rises, New Zealand defence spending fell by 9.5% in real terms over the last 10 years. By anyone's definition this has given us a "Peace Dividend" from the end of the Cold War.
Incidentally, the Defence cuts compare with a rise of 36.8% in Education spending, 17.8% up in Social Welfare, and Health up by 14.6%.
But as a result we have not even maintained the core capability of New Zealand's defence equipment so there is now a major backlog to overcome. The 1997 Defence White Paper the product of an exhaustive review by Government sets out a future path of investment for the NZ Defence Forces.
The next five years has to be a time for rebuilding our capabilities, during the emerging uncertainty in the Asia Pacific region. We must be able to make a meaningful contribution to the security of our Asia Pacific "backyard," and to peacekeeping initiatives with the United Nations.
As an island nation that moves 99.5% of its volume of exports by sea, we particularly need ships that can foot it, as friends or if need be with adversaries, with the best of other navies in the region.
The White Paper tells us the minimum capable naval force for a blue water Navy for New Zealand is three modern frigates down one from our traditional four frigate Navy.
You will be aware that a proposal for a third Anzac ship has been received and a decision on whether to proceed is expected before the end of this year.
I want to make it abundantly clear that should the Government proceed, and no decision has been taken as yet, it will be funding the frigate from funds already allocated in the Defence Assessment. No funds will be diverted from schools, or hospitals, or the superannuation needs of New Zealanders.
The White Paper identifies a range of other priorities for new and updated equipment to redress the operational shortfall of the New Zealand Defence Forces.
upgrading the Army's combat capability by replacing the 30 year old APC's and 28 year old fire support vehicles
Replacing our 30 year old battlefield radios
Rewinging the 32 year old Orions
Updating the Orion's Avionics systems last done in 1981
Buying a fifth Kaman Super SeaSprite helicopter
Updating our 28 year-old fleet of 19 Skyhawk aircraft
Extending the life of the 13 Iroquios helicopters so that they will not need replacing till 2015
As we all know one of the arguments against defence is its cost, and in the self- focused debate the question is often raised, what's in it for me. But like many aspects of Government expenditure if we focus just on cost we
will never do anything. How do you measure the personal benefit of defence spending?
We can certainly do so in terms of improving the efficiency and safety of those committed individuals who choose to serve the Crown in potentially dangerous circumstances.
We can also demonstrate the value to Maori, since the Defence Forces are the largest single employer of Maori, and as such perhaps the leading tertiary educator of Maori, as well as the leading technology trainer in the country.
We can highlight the jobs that flowed from the Anzac ship project, with 11 million manhours of work, $800m of exports and the driver to world class manufacturing performance.
We can also demonstrate the value of defence spending in terms of international relationships. We cannot retain a credible voice in international organisations like the UN if we expect our neighbours to pick up our defence responsibilities.
And although it is difficult to see, there is a strong link between our commitment to our willingness to contribute to peace and security through a credible Defence Force, and opening export markets.
In a sense our Defence Force defines us as a nation. It has a tangible and important role in any nation state, especially when we wish and need to play an active role in world affairs.
Along with law and order (safety for people at home) defence (security of people in the world) is one of the core, if not sacred duties of any Government to its people.
We propose to uphold that core duty to New Zealanders by supporting our defence forces and equipping them properly within the budgeted funds, and we trust that you as defence industry suppliers, will help us contribute to a strong, growing and peaceful region.