From audit to action: a blueprint for restoring Australia's sovereign industry capability

In March this year, as conflict closed the Strait of Hormuz, Australia discovered it was holding roughly 30 days of diesel. The fighting was on the other side of the world, yet it was enough to bring the country within weeks of running short of the fuel that moves its food, its freight and its Defence Force.

Over the past year I have set out, piece by piece, what I believe Australia should do about vulnerabilities like this: in Defence Connect and ASPI’s The Strategist, on Defence Connect’s Contested Ground podcast, in a submission to the Parliamentary Joint Committee on Defence and, most recently, in a briefing to RUSI NSW members at the ANZAC Memorial. This post brings that work together in one place. The full presentation is available here: https://youtu.be/cjesSOhQZas

The proposition is simple. Most of Australia’s supply chains are fine. The deadly few are not. And at present no one in government is responsible for finding them all, measuring how long we could last without them and fixing them before the next test.

Assembly is not sovereignty

Defence’s Guided Weapons and Explosive Ordnance enterprise began producing GMLRS missiles at Port Wakefield last December and test-fired the first in April. That is exactly the right direction. But two gaps remain.

First, much of what goes inside those missiles, including propulsion, energetics and electronics, is still imported. If the critical inputs still have to arrive from overseas, our sovereignty comes with a shipping schedule.

Second, GWEO covers munitions, inside Defence. The fuel, water treatment chemicals, medicines and fertiliser that sustain both the force and the nation sit outside its remit, and nobody is doing the equivalent work for them. The 2026 National Defence Strategy widened the idea of National Defence to include economic security and civil preparedness, yet Australia has no whole-of-nation assessment of its industrial resilience, no published mobilisation plan and no National Security Strategy since 2013.

What an audit would actually measure

The 2021 Productivity Commission examined 5,950 imported product categories and found 292 were vulnerable to concentrated global supply, 130 of them used by essential industries. Vulnerable is not the same as critical, and the Commission’s list included festive decorations and swimwear. The task is to find the narrow set of products that are both.

For every critical product, a national audit would measure four numbers: stock on hand, daily consumption, domestic production capacity and the lead time to find another supplier. With those four numbers, time to failure becomes a calculation rather than a guess. Today we rely on indicative estimates: water treatment chemicals within 4-6 weeks of a major regional disruption, pharmaceuticals within 6-8 weeks and precision munitions within the first week of a high-intensity conflict, based on CSIS wargaming in which the United States exhausted its long-range anti-ship missiles in less than a week. We should not have to estimate how long the nation’s drinking water can be kept safe. That figure should be known.

Who should lead it

Reviews in Australia are too often tabled, welcomed and shelved. The governance of this audit is what would set it apart, which is why I have been specific with the Parliamentary committee about how it should be led.

The audit should be run by an independent steering committee, constituted as a sub-committee of National Cabinet, because the states own or regulate much of the infrastructure and hold much of the data the audit needs. Its membership should combine industrial, scientific, logistics and military expertise:

• an independent chair: a captain of industry with substantial advanced manufacturing experience, able to command the confidence of both industry and government

• a senior executive from a major defence manufacturer with a large Australian industrial footprint

• a senior scientist from Defence science and technology or the CSIRO, to test the technical feasibility of proposed responses

• a senior executive from a major national logistics organisation, to analyse import dependencies and chokepoints

• a senior career military logistician, to bring wartime preparedness judgement

• the Chief of the Defence Force or a nominated senior representative, so findings are tested against operational requirements

It should run as a formal inquiry, open to submissions from industry, unions, peak bodies, defence primes, critical infrastructure operators and the states, with analytical support from Defence, Home Affairs, Treasury, Industry, DFAT and the CSIRO. It should build on the work of the Office of Supply Chain Resilience and the Productivity Commission rather than start from scratch. And it should report within a short, fixed timeframe, publishing its findings and protecting only what is genuinely sensitive.

Most importantly, its terms of reference should require it to test the cost, feasibility and sequencing of the measures below, so that it returns a costed, staged plan that government, industry and the states can begin implementing on the day it reports.

Why the market will not fix this on its own

An importer of water treatment chemicals chooses the cheapest reliable supplier and holds as little stock as it can. The cost of a shortage falls on the public, on hospitals and on the Defence Force, and never appears in the import price. Resilience is systematically under-priced, so it is under-supplied. There is a coordination failure too: an investor in a domestic chemical plant needs guaranteed customers, while the customers will not sign long-term contracts for a plant that does not yet exist. Government is often the only party that can break that deadlock.

This is hardly a radical argument. Adam Smith himself defended England’s Navigation Acts on the grounds that “defence, however, is of much more importance than opulence”. Treasury’s 2024 National Interest Framework acknowledges that private firms “fail to appropriately price in the required level of economic resilience and security in critical sectors and supply chains”. And Lipsey and Lancaster’s theory of the second best tells us that where distortions such as foreign subsidies and state coercion cannot be removed, pursuing market purity at home can leave us worse off.

That case has limits, and the audit is what enforces them. Every major funding decision should face one test: does it reduce a vulnerability the audit has found to be critical? If it does, prioritise it. If it does not, it should compete on ordinary commercial terms.

Five levers, used systematically

Government already holds the tools. What is missing is a shared evidence base and a single plan to direct them.

• Co-investment: a Sovereign Industry Fund sharing risk with private capital in pharmaceutical precursors, water treatment chemicals, fuel, munitions, critical minerals processing and dual-use manufacturing.

• Tax incentives: accelerated depreciation, investment allowances and R&D credits, tied to capability outcomes and tested against transparent cost-benefit criteria.

• Strategic Sovereign Industry Zones: described below.

• Long-term procurement: as a procurement professional, I would single this one out. A multi-year contract gives a manufacturer the certainty to build capacity it would otherwise never build, and lowers unit costs as volumes grow.

• Skills: TAFE and university pipelines for the engineers, technicians and logisticians that mobilisation requires, starting before the first plant opens.

Regulation deserves a mention as well. Many barriers to domestic production are approval timeframes and planning delays designed for a world in which supply was assumed. Streamlining approvals for projects of national significance, while keeping environmental and safety standards, is often the cheapest intervention available.

Strategic Sovereign Industry Zones

The zones are where those levers meet the ground: regional centres with ports, rail, energy and an existing industrial base, such as Newcastle, Townsville, Whyalla, Geelong, Gladstone, Rockingham and Launceston. Each would offer the same package: enabling infrastructure, tax holidays and accelerated depreciation, greenfield workplace arrangements, fast-tracked approvals and training partnerships with TAFE and universities.

The dividend goes beyond security. Zones mean skilled jobs, revitalised regional cities and supplier networks growing around anchor investments, and they give Australians something they can see being built. One caution: zones only work if they are chosen on strategic merit. If site selection becomes a matter of electoral convenience, the program will lose credibility with industry and the public very quickly. The list above is indicative; the audit, working with the states, should decide.

A permanent home: a Department of Sovereign Industry

Good policy in Australia routinely fails for one reason: audits produce reports, governments change and priorities shift. Our partners have solved this with permanent institutions. The United States has the Defense Production Act and an Office of Industrial Base Policy. The United Kingdom has a Critical Imports and Supply Chains Strategy backed by a Critical Imports Council. Korea has run its Defense Acquisition Program Administration since 2006.

Australia’s Office of Supply Chain Resilience does valuable work, but it is small, sits within a single portfolio and has neither the mandate nor the funding of those institutions. A dedicated Department of Sovereign Industry would own a ten-year Action Plan, coordinate across defence, health, energy, agriculture and critical infrastructure, run the Fund and the Zones, maintain a national risk register and report publicly on progress. Defence would keep what only Defence can do: capability requirements and operations. Above all, the department would give the work continuity, with someone accountable for it after the ministers who launched it have moved on.

Korea shows what that continuity can build. After the Korean War it was among the poorest countries in the world; through decades of consistent, state-guided strategy it built globally competitive shipbuilding, electronics and defence industries. Today Hanwha’s plant in Geelong is delivering Australian-built AS9 Huntsman howitzers. We are already benefiting from another nation’s industrial strategy. The question is why we have not adopted one of our own.

The economic case

In 2024 Bloomberg Economics estimated that a war over Taiwan would cut world GDP by about ten per cent, roughly US$10 trillion, and that even a blockade would cut world output by about five per cent in its first year. For an export-dependent economy like ours, the damage would run to hundreds of billions of dollars.

Against that, early action returns avoided loss, lower unit costs over time, private investment in the regions and a security dividend: an Australia that is harder to coerce, and therefore easier to defend. The investment should be staged over the ten-year plan, with every commitment tested against transparent cost-benefit criteria. The audit would also save money in its own right. Today, decisions on stockpiles, industry support and reserves are made one sector at a time, often in the middle of a crisis. A single evidence base would direct scarce funds to the vulnerabilities that matter most.

Stockpiles matter, and I support them. But they buy time; they do not buy capacity. A chemical plant takes years to commission and a process engineer the best part of a decade to train. The foundations of resilience must be laid before a disruption arrives.

Resilience, not division

Australia’s multicultural society, including its large and longstanding Chinese-Australian community, is a strategic asset. The concerns that drive this work relate to the actions of state actors and have nothing to do with any community within Australia. That distinction must be maintained in everything said about the audit. Handled transparently, the audit can do something more: give Australians a shared stake in their own preparedness.

The first step

Each step in this blueprint depends on the one before it: the audit, then the ten-year Action Plan, then the levers, the zones and a permanent home. Without the audit, the plan is guesswork. The audit is achievable within a single parliamentary term, and it should stand or fall on the evidence under any government.

Resilience cannot be assumed. It must be measured, mapped and built.

This post draws on my articles “A national audit for a stronger Australia” (Defence Connect, June 2026) and “First find Australia’s economic vulnerabilities, then vigorously fix them” (The Strategist, ASPI, July 2026), my submission to the Parliamentary Joint Committee on Defence inquiry into national civil preparedness and resilience (September 2026) and my briefing to RUSI NSW (29 September 2026). Watch the full RUSI NSW presentation, including its list of sources: https://youtu.be/cjesSOhQZas