Sovereignty is the topic du jour in defence circles. The Defence Industry Policy Statement ^[1] (DIPS) 2016 has replaced the concept of Priority Industry Capabilities (PICs) with Sovereign Industry Capabilities (SICs) and the Department of Defence (DoD) is moving towards the enunciation of a SIC Assessment Framework (SICAF). The rationale for SICs is stated as:

‘There are some capabilities that are so important to Australian Defence missions that they must be developed or supported by Australian industry because overseas sources do not provide the required security or assurances we need. As such, it is critical that the industry base associated with these capabilities is maintained and supported by Defence as sovereign industrial capabilities’.

It’s expected that the SICAF will be announced towards the middle of this year, and it will guide the identification and ongoing management of the SICs.  The CEO of BAE Systems Australia, Glynn Phillips, has recently argued ^[2] that determining the best methods of investment in sovereign capabilities, and developing them in Australia, is vital and that the ‘rewards for getting it right are beyond measure’.

In the Australian defence environment we have a constrained budget. We can’t do or have everything and we need to prioritise. This means that sovereignty needs to mean more than just ‘doing stuff’ in Australia. Sovereignty, in an industrial sense, needs to be more than just an industry support program. The ability of the defence industry to contribute to economic activity is an important but separate argument—an industrial argument rather than a defence one. As I have written previously ^[3] investment in defence industrial capability needs to be focussed on those areas that have most application to the mitigation of strategic risk—which is what the DIPS 2016 SIC definition is fundamentally about. Andrew Davies has also alluded to this in his post about the industry cart and the strategic horse ^[4].

A number of issues are immediately obvious with respect to the development of the SICAF.  First is the lack of a definition of exactly what constitutes defence industry—a lack made all the more pertinent in Australia as the majority of defence-related industrial activity is undertaken by companies where the ownership and control resides offshore. I am not arguing here that this is inherently a bad thing (it is the reality), but we need to recognise this reality and what it really means for sovereignty. The UK defence industrial policy ^[5] embraces onshore/offshore ownership issues in their definition of the defence industry as ‘where the technology is created, where the skills and intellectual property reside, where the jobs are created and sustained, and where the investment is made’. This seems to be a good place to start. The development of a policy around sovereign industry capabilities without such a definition seems pointless.

The second issue is the ongoing consideration of what are sovereign capabilities. Given the speed of change in both technology and the strategic environment, we need to revisit sovereign capabilities at intervals of no more than 2-3 years. The third issue concerns the monitoring and management of SICs. If sovereign industry is to have any impact we need to amend acquisition and investment decision trains to favour SICs as a matter of course, and if necessary to direct capability decisions to specific SIC companies should the health of the sector indicate that this is required. This point is also a key consideration for Industry as a Fundamental Input to Capability ^[6] (FIC).

The final issue affects those companies whose activities fall within a defined sovereign capability. Having determined that certain capabilities are more vital to the management of strategic risk than others, we need to have a plan to retain those capabilities and to protect our sovereignty. In this regard we need to develop mechanisms to ensure that the intellectual property associated with SICs remains in Australia. We cannot just let companies with sovereign capabilities to be acquired from offshore.  Part of the framework for the treatment of sovereign industry capabilities needs to include the development of a register for SIC companies, and something like the QANTAS Sale Act ^[7] to ensure that a majority shareholding of companies on this register remains in Australia.