BMI View: We expect Australia ' s defence budget to continue increasing in absolute terms in the next five years. This will be driven by Australia ' s defence policy focused on becoming a key player in regional and international security, which will require an upgrading of both its navy and air force capacities. The government is looking to take advantage of the globalisation of the defence market to continue importing defence materiel whilst, simultaneously, facilitating Australian defence SMEs ' access to the market. This will open up development opportunities for both international and national companies operating in the defence sector.
In its 2009 Defence White Paper, Australia spelled out its Force 2030 strategic defence objective. It aims to redefine the role of the Australian Defence Force (ADF) to one that is not limited to defending the country from potential regional and international threats, but instead also focuses on building Australia's reputation as a key player in regional and international security. This will therefore involve a significant upgrading of the Royal Australian Air Force (RAAF) and the Royal Australian Navy (RAN). The latter, in particular, will be crucial as Australia's current fleet of diesel and electric-powered submarines is reaching the end of its life cycle and needs to be replaced. These objectives were restated in the 2013 Defence White Paper and Australia's defence spending forecasts continue to point to the importance of such defence strategy.
In this context, Australia will be seeking to take advantage of the globalisation of the defence market on two fronts. Firstly, it will seek to promote the expansion of the Australian defence market through the establishment of more support mechanisms for SMEs operating in the sector. This will be done, primarily, through the implementation of the Australian Industry Capability (AIC) programme, which requires bids for defence projects at or above the USD20m threshold value to provide an AIC plan demonstrating how they will maximise opportunities for Australian companies' participation in the project. BAE Australia's bid for Australia's patrol boat replacement programme is an example of the application of such requirement. Since Australia does not have a strong manufacturing defence sector, but does boast a wide range of SMEs that have a important function in the production of small parts for bigger projects and the maintenance of defence capabilities, the aim of the AIC is to provide support for the development and strengthening of this sector in the defence market.
Working together with the defence industry, the Australian government will also be implementing new policies seeking to facilitate SMEs' bidding for big defence projects. The second policy objective that will enable Australia to take full advantage of the globalisation of the defence market will be to ensure that the procedures in place for the import and export of defence capability are as simple and efficient as possible. In BMI 's view this will not only facilitate Australian SMEs' entry into the international defence market, but will also ensure that international companies can easily export their defence products to Australia.
Key BMI Forecasts:
We forecast Australia's defence spending to reach USD24.6bn by 2015, which would signify a 0.2% year-on-year (y-o-y) increase.
We forecast Australia's defence spending to remain stable at a 1.7% share of the country's GDP in the next five years.
Australia will maintain, in 2015, a defence trade balance that shows higher levels of imports compared to exports: while export levels will continue to fluctuate in the next five years, import levels will continue to rise.