NEW ZEALAND DEFENCE INDUSTRY FORUM 2010Defence
This year's Defence Industry Forum comes on the eve of the White Paper, which we will be releasing in three weeks' time.
Of course, the detail will be held back for formal release. However, I can give you the background and context that lies behind it.
I will also set out where I think our defence industry sits in our overall defence policy scheme.
New Zealand has not undertaken a fundamental review of defence policy for over a decade. The last White Paper, in 1997, was seen as something of a once over lightly document which did not fully examine the strategic environment that existed, and the capabilities that New Zealand needed in that environment.
The Select Committee inquiry Defence Beyond 2000 was a far deeper analysis of the relationship between policy and capability. Although undertaken largely by myself and Hon Derek Quigley, the findings of that inquiry underpinned the approach taken by the then Labour-led Government.
However, the first decade of the 21st century saw major changes in our strategic environment. Terrorism became a significant new factor as terrorist attacks moved from being a reflection of internal struggles within nations, to become a major global weapon wielded by "non-state" actors.
The last decade also saw a massive surge in economic growth among many nations, particularly in Asia. With this growth came an increasing desire by a number of nations to play a more prominent role in global forums and issues. Countries continually reappraised their relationships to respond to new circumstances.
Finally, the last couple of years witnessed the largest global financial crisis since the Great Depression of the 1930s. For New Zealand, and many other Western nations, the run of financial surpluses came to a sudden end. Public accounts have gone sharply into deficit, and private sector activity has shrunk.
The result of this sharp fiscal implosion has been to bring home to many just how much the economic weight had shifted from Europe and America to the emerging powerhouses of China, Asia and South America.
The result of all these factors is that most countries are redefining their defence policies, driven by the need to both decide what role they want to play in today's world, and how much money they can spend.
In countries like the UK, the US and across Europe, this has been a sobering experience. They cannot afford the scale of effort they have mounted over the last 10 years. They have to make very tough choices.
All the indications are that today the UK will be making some difficult choices in defence. However, it is worth noting the state of their Government accounts. Their deficit is 11% of GDP compared to 4% in New Zealand. But our 4% has to be reversed. We do not intend to get into the British situation.
At the same time that some countries are reducing expenditure, many of the fast-growing nations are rapidly increasing their spending on defence. This is particularly the case in the Asia-Pacific region.
Smaller nations, like New Zealand, have to take these geo-political trends into account. We may not be a major factor in the overall security situation in Asia-Pacific. But how we react is watched carefully by our neighbours and friends.
More than ever, countries are working together because they cannot afford to go it alone. As we have seen in Afghanistan, and in many other deployments, what counts is not only "how much", but "how good". Our contributions in support of other countries are highly valued because they are high-quality.
All of this has gone into the development of the White Paper. New Zealand is an outward-looking nation. Our economy depends on trade and travel. Global problems are in part our problems. New Zealanders expect us to play our part as good global citizens.
This has implications for our defence forces. The high tempo of deployments that has become the feature of the last decade is expected to continue. They may not take the same form, or be in the same places, as in the past but our basic expectation is that New Zealand soldiers, sailors and airmen and women will be active through the Pacific and further afield as a matter of routine.
When you think about it, this is no surprise. New Zealand's geography means that defending our nation will usually begin far from home. New Zealand fought in a lot of wars in the 20th century. None of them were in New Zealand. Today's security threats such as non-state terrorism, piracy, people-trafficking and resource-grabbing will be best countered far from our own shores.
In an ideal world, we would define the capabilities we need, and then provide the funding to pay for them. Unfortunately, we do not live in an ideal world. Defence has to compete for its share of government resources alongside all the other priorities, from hospitals to housing.
In addition, we have had to reverse the trend of the previous Government, which spent more and more for less and less effect. The public accounts are still finely balanced. We are determined to reduce the proportion of GDP that government consumes. We will not saddle future generations with unpaid and unmanageable debts.
At the same time, we have put huge pressure on all government agencies to make the money they have go further. This is paying off. Although we are still borrowing heavily to balance the books, the rate of borrowing is reducing.
This approach has had big implications for Defence. As you know, we commissioned Dr Roderick Deane to undertake a Value for Money study to determine whether we could use the current defence budget more effectively.
The choice of Dr Deane was a deliberate one. He has quite a reputation as being a tough interrogator of public and corporate spending. We figured that he would bring the same hard-nosed approach to Defence.
He did just that. We will be releasing his report soon after the White Paper itself. He made a large number of suggestions. Most of them we will adopt. Overall, he confirmed two things that we already knew.
The first was that the NZDF are very efficient and effective as a military force. They are very professional and capable.
The second was that they were far better at doing military tasks than they were at managing the back end business of Defence. This is no reflection on NZDF personnel. They are primarily trained as military professionals. They are hampered in doing essentially commercial type tasks by the need to primarily focus on their military disciplines, and by the posting cycle which makes it hard for them to build an extensive depth of knowledge outside those core military disciplines.
Given that our primary purpose for the NZDF is that they excel at their core military functions, it makes good sense to ensure that the resources are concentrated at that end. Currently, the front end of the NZDF consumes about 45% of the money. The middle and back take about 55%.
We want to reverse these numbers. We want to put the funding we have into the parts that matter most. Value for Money is not about saving money, or cutting funding. It is about reprioritising spending so that we can maintain and grow our capabilities. There is no point, for example, in getting hugely capable helicopters if we cannot afford to fly them.
The NZDF have embraced this concept. In fact, they have already been going down this road. The Defence Transformation Project has already led to tens of millions of dollars worth of savings in areas like training and logistics. There is more to come.
The White Paper will set out our expectations around how we can improve capabilities through reprioritisation of resources. This will include innovative ways of involving industry in infrastructure, capability and the provision of "middle" and "back" services.
This is good news for the Defence Industry Association. We are not going to confuse the words "cheap" and "value for money"'. We believe that New Zealand industry has a lot of expertise and capacity to help us deliver defence more efficiently and more effectively.
In the competitive tendering environment there are often bids that at first glance seem to cost less. But first impressions can be deceiving.
We know that there is no point saving a bit of money in one part of government if the result is a greater cost in other areas through lost jobs and reduced opportunities across New Zealand.
We want to retain and build niche capabilities and relationships that can be very effective at providing us with products, support and services that are tailored for our specific needs in a short timeframe.
As you know, we recently acted to ensure that upgrade work on the C-130 Hercules would be undertaken here in New Zealand. This is an example of how we are both keeping local jobs and expertise alive, but also allowing for the possibility of further work coming to New Zealand.
There are hundreds of Hercules in the world that are getting on in years. The upgrade that we are doing is by far the most comprehensive ever undertaken on this aircraft type. It would be nice to leverage this expertise and help other countries keep their workhorses fully functional for the future.
You should not take this to mean that we will be relaxing our tough demands for sharp pricing and good service. But we will be looking at the bigger picture.
I can forecast that there will be big opportunities as we look to refresh defence infrastructure. For too long we have been in a downward spiral of trying to maintain buildings and facilities that are old and no longer fit for purpose. We will be looking for more innovative solutions that will reduce both our capital and operating costs.
We are also very mindful of the synergies between defence use and greater economic opportunities. The fact that a product or service is being used by the NZDF can be the key to unlocking wider interest and sales. Where there is an effective New Zealand defence product, we want to give it the best support possible on global markets.
An example of this is the trial programme that the RNZAF is about to undertake with Pacific Aerospace's PAC 750XSTOL aircraft. This trial will establish what roles the aircraft could perform. The RAAF are observing the trials, and will hopefully be inspired by the versatility and value of the aircraft. It deserves a bigger market and we want to help it find that market.
One big change that is occurring through the White Paper process is a fundamental look at how we undertake major defence acquisitions. It is fair to say that over the last 10 years we have had a number of issues with the complexity and timely completion of projects.
There has also been too little attention paid to life-cycle costs and ongoing operating realities.
These problems are not confined to New Zealand. There have been some very difficult and expensive procurements undertaken in Australia and other countries, leading to programmes being abandoned with nothing to show for the money spent.
This will change. There will be a far more strategic approach to prioritising future capability acquisitions. There will also be far more attention paid to how through-life support will be managed.
The result will be more opportunities for long-term business here in New Zealand. As you all know, the greater costs in sophisticated platforms are not in the purchasing, but in the ongoing maintenance.
In the near term, there are a number of priorities. I have already mentioned revamping and reshaping our infrastructure. There will also be a big job in getting unified and efficient IT systems through Defence.
In equipment, we have near-term requirements in air training, a "second tier" maritime patrol/transport aircraft capability, the self-defence upgrade for the two frigates, Army mobility, command, control and communications capabilities and a replacement for HMNZS Endeavour.
Decisions around these issues will be made in the next couple of years. I am mindful that whilst the Review has been under way, we have not made any major procurement decisions. This has allowed us to concentrate and getting past procurements sorted out and on track. But it does not reduce the importance of ensuring that we have a practical and sustainable ongoing procurement plan.
For too many years in the past, there has been a "boom/bust" approach to procurement. This will not help us in ensuring that future Governments are well-placed to make decisions around the three biggest capabilities when they come up for replacement - air transport, air surveillance and naval combat vessels.
What future Governments decide will be up to them. What the White Paper will achieve is a planning environment where these decisions have been forecast, and a robust fiscal track to undertake them.
In conclusion, this White Paper has been a long and complex task.
We are nearly there. The result will be a robust and relevant policy that provides a realistic pathway for how Defence will develop, based on the realities of our national and international environment.
The next task will be to implement the White Paper. I am confident that there will be many opportunities across a whole range of requirements for New Zealand companies.
We will be looking to you to partner with the NZDF and provide a defence capability for New Zealand that is efficient, professional and a standout in providing the best "bang for buck" that we can get.