A new report from the United States Studies Centre (USSC) at the University of Sydney shares findings from extensive interviews and roundtables with leaders in defence innovation, tech companies and private sector finance in Australia and the United States.

In UPSCALE: Using Private Sector Capital for the Alliance, authors USSC Director of Economic Security Hayley Channer and Senior Economic Adviser Dr John Kunkel addressed one of the greatest challenges to the future of Australia’s security – leveraging private sector investment to drive Australian defence capability and innovation.

A complex issue in the Australian investment landscape, Channer noted, "Two things will have the greatest impact on injecting private money into defence's priorities: better contracts and co-investment".

To help leverage the pool of government funding already available, the report created a map of funding opportunities for defence small to medium enterprises (SMEs) in Australia, totalling nearly A$27 billion across state and federal government.

The report also recommends the Australian Government begin a detailed discussion with the investment community on the opportunities and limits around private sector investment in national security. Kunkel commented, “Russia's invasion of Ukraine has jolted the assumptions of ESG investing in the northern hemisphere. That needs to echo in Australia if we are to rise to the challenge laid out in the Defence Strategic Review.”

Substantive change will require ongoing effort and commitment, but the UPSCALE initiative showed that both government and corporate stakeholders are willing to come together to look at solutions.

"To achieve speed to capability, government will need to work more closely with the private sector, which means accepting higher levels and different types of risk,” Channer concluded.

Key findings

Short and medium term:

  • Defence should accelerate outreach to a wide group of private sector actors on the Advanced Strategic Capabilities Accelerator (ASCA) and AUKUS Pillar II advanced capabilities priorities and establish an AUKUS Pillar II “trusted network” to advise ASCA on relevant technology issues.
  • The Treasurer’s Investor Roundtable should be convened to deepen collaboration between government and the investment community on Australia’s national defence priorities.
  • An independent Private Capital Advisory Board should be established to provide high-level guidance to the Department of Defence on capital sources, financing instruments and talent.
  • The Australian Government should create a stronger demand signal to business by developing a clear investment pipeline for core Defence functions and enabling industries and offering co-investment.
  • To support strategic defence investment, government should play a matchmaker function to connect start-ups and SMEs with private investors where the path to procurement is clear.

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