Tag Archive for: North of 26° south

Interstate linkages just as important to the NT as Asian connections

The Northern Territory government often compares the proximity of Darwin to Asian and Australian cities. To be sure, Asia is very close to Darwin, with Dili just one hour’s flying time away.

An often-used government map makes the point that within six hours north of Darwin live 485 million people but there are only 25 million Australians to the south. Chief ministers have repeatedly declared that the territory was as much part of Asia as of Australia, while trade delegations travel more often to Asia than elsewhere in Australia. The implication is clear: Asia is really important to the NT; the rest of Australia less so.

While this thesis may be true in terms of geography and demographics, connectivity between northern Australia and Asia is a long way from reaching maturity. Economically, commercially and financially, the territory more closely interacts with the rest of Australia than it does with Asia. Therefore, its linkages interstate remain more important than the high potential economic linkages with Asia and beyond.

Of course, from national security and defence standpoints, the territory has keen interests to its north. The defence presence is also a key contributor to the economy. Even then, defence planning and resourcing are functions largely conducted interstate: ‘operate from the north and sustain from the south’ is an unofficial mantra among some in Defence.

Despite the NT government arguably overstating of the importance of Asia relative to the rest of Australia, Asia is a vital and growing market and source of investment. The Japanese-operated INPEX Ichthys LNG project is the biggest single investment in NT history. The bulk of its minerals and energy exports are to Asia and these are likely to grow.

Part of the reason for under-recognising the importance of interstate markets and inward investment has been a lack of data, unlike detailed overseas trade data, which is collected by the Australian Bureau of Statistics. Data collection on interstate relationships has improved in recent years, however, and it is revealing.

NT government logistics data published in 2020 shows that outbound shipments though the Port of Darwin (mostly exports) totalled 1.4 million tonnes. In comparison, interstate outbound freight by road and rail totalled a remarkable 1.2 million tonnes. Imports via the port totalled 691,000 tonnes, while 1.8 million tonnes of inbound freight arrived from interstate.

The revived concept of land-bridging container traffic via the port being pursued by rail company Aurizon would change the relative volumes but would also reinforce the territory’s interstate and overseas trade connections.

In agriculture, the bulk of production is sent interstate rather than exported. In the five years to 2022, live cattle exports totalled 1.2 million head, while 2.1 million cattle were sent interstate.

Almost all NT fruit, seafood and tropical plant production, with a value of more than $500 million in 2021, goes to interstate markets rather than international markets, although some premium primary products from the territory are exported from interstate ports.

The fact that interstate outbound freight generates 46% of total outbound freight is testament to the value of NT exports to interstate markets relative to overseas exports.

Interstate travellers dominate the visitor industry. In 2019 they made up 85% of visitors from outside the territory, while those from overseas were a still handy 15%.

Interstate migration is also critical. The territory has the highest rate of turnover of residents in the nation, with the majority arriving from and leaving for other Australian jurisdictions. In the five years to the end of March 2023, 84,000 people arrived from interstate and 94,000 departed, a turnover equivalent to 71% of the NT’s total population.

The NT’s residential housing stock is valued by the ABS at $23 billion (chain volume measures), making dwellings one of the largest private asset classes. Almost all are financed by banks headquartered interstate.

Small enterprises (which the ABS regards as those with under 20 employees) make up 96% of NT businesses by number and their finance also comes from Australian banks.

The territory is more dependent on Commonwealth funding than any other jurisdiction, with grants from the Australian government plus GST transfers from other states totalling 70% of revenues. Taxes, royalties and other income from within the territory generate only 30%.

While several of the largest NT resources projects are operated by companies based overseas, the bulk of current exploration projects are Australian-owned, with most of these companies based interstate. Of the 71 minerals companies with active exploration projects, 63 are headquartered interstate, six overseas and two in Darwin.

The territory is highly dependent on long, thin supply chains from and to other jurisdictions. When transport infrastructure is disrupted by natural events or accidents, they have often occurred interstate.

Asian markets offer considerable promise for the territory, and for Australia at large, but Australia’s linkages with the region are underdeveloped. In 2021–22, Australia’s trade with New Zealand was higher than with Indonesia, Vietnam, Malaysia, Thailand and Hong Kong. Darwin cannot expect to unilaterally mature these relationships.

These indicators point to a need to reinforce the territory’s interstate engagement in addition to its Asian relations. Asia might be a large part of the NT’s long-term economic future, but right now the rest of Australia remains more economically, financially and socially relevant.

The NT government has for years focused on influencing Canberra. It has a engaged a defence and national security advocate and runs the annual ‘Facing North’ event at Parliament House in Canberra. The Beetaloo sub-basin has high potential as a contributor to both gas exports and national energy security and its development has won support from the Australian government. The government uses national interest justifications to promote priority infrastructure investments into and within the territory.

Asia is a vital market for the NT’s minerals, energy and agricultural products and for exports from the rest of northern Australia. Reaching the north’s economic potential and its role in national security also require attention to domestic trade and logistics linkages. In addition to the NT’s international business strategy, therefore, a broad-based year-round interstate engagement strategy will help to sustain the economy, underpin the next wave of economic development, improve resilience and reinforce national security.

The territory needs to both understand and explain better its interstate linkages and use them as a basis for advocacy and promotion. It should broaden its engagement with other jurisdictions to sustain and build interstate markets; justify interstate transport infrastructure investments; tell the territory story to Australian investors, decision-makers, potential residents and visitors; help territory householders and businesses get finance from Australian financial institutions; and build business and government engagement with northern Australia.

Starships from the north

On 17 November, SpaceX made a second attempt to launch its fully reusable launch vehicle, Starship Superheavy, from the company’s Boca Chica launch site in Texas. The first launch (video here, with launch at 44:48), on 21 April, got off the pad, but a number of engines on the Superheavy first stage failed and the Starship failed to separate from the booster. This meant that the ‘stack’—the combination of the first stage and the spacecraft—had to be destroyed in a launch abort as the rocket tumbled out of control. The launch pad was severely damaged.

The second launch was much more successful, achieving ‘hot staging’ and separation of the main booster. The flight was terminated after the signal to the upper stage was lost. Several more tests will be required before Starship is declared ready for commercial business.

At that point, it will transform how humans access space, potentially dropping the cost dramatically. The key is Starship’s full reusability. The Superheavy first stage will return to a soft landing at the launch site and the Starship upper stage will ultimately do the same. In fully reusable mode, Starship can deploy up to 150 tons of payload—up to 100 crew and cargo—into low-earth orbit (LEO). Once in orbit, it can be refueled, and then deliver that payload to the moon, to Mars and beyond. In an expendable configuration, it can deliver 250 tons to LEO. A lunar lander variant of Starship will take US astronauts down to the lunar surface for NASA’s Artemis III mission scheduled for 2025.

The key advantage of Starship’s full reusability is low launch costs. A report on NASA’s fully expendable Space Launch System, which is designed to support Project Artemis, found that it will launch at best once a year, at a cost of US$2.5 billion per launch over the first 10 launches. In comparison, the fully reusable SpaceX Starship will likely be initially comparable to the cost of SpaceX Falcon at US$67 million, but with a higher launch tempo costs will fall further. The company’s owner, Elon Musk, has an ultimate goal of US$1 million per launch and multiple launches per week.

Dramatically lower launch costs, combined with much greater payload, will open up new opportunities to use space. With 150 tons to orbit, at US$1 million per launch, it becomes conceivable to think about building large structures in earth, or lunar, orbit, whether that’s a space station to support space manufacturing or  large fully reusable spacecraft to support missions across the inner solar system. Indeed, Starship itself could do a ‘Mars direct’ profile mission, taking astronauts directly to the red planet.

It is the commercial possibilities for large-scale space utilization, space manufacturing and space resource exploitation that are the most interesting opportunities. High payload and low cost to orbit, on an almost daily basis, is a totally transformative.

There’s a potential Australian dimension to this future, which is now open to consideration, if policy leaders are prepared to think boldly about this nation’s future in space. The technology safeguards agreement on space launches and returns, which was signed last month at the summit in Washington between US President Joe Biden and Australian Prime Minister Anthony Albanese, will allow US companies to carry out space launch activities in Australia. This agreement will increase the opportunities for US space companies to fully exploit the benefits of Australia’s geography.

As I noted in my recent ASPI report, Australia’s north and space, the launch sites at Nhulunbuy in the Northern Territory and Bowen in Queensland, and the proposed launch site at Weipa in northern Queensland, are well placed to take advantage of the earth’s rotational energy to achieve orbit at a lower cost. In addition, the southern launch sites at Whaler’s Way in South Australia, and another proposed for Albany in Western Australia, are ideal for launching payloads into polar and sun-synchronous orbits, given the southern orientation and proximity to open ocean.

The potential therefore needs to be considered that the US–Australia agreement on launches and returns could open up the possibility of exploiting the SpaceX Starship’s capabilities, including its proposed point-to-point capacity for rapid ‘rocket logistics’, including for defence and national security missions.

The scenario would look something like this. In 2030, a Starship launches at Boca Chica in Texas and flies into LEO, where it delivers up to 150 tons of payload to orbit. It then manoeuvres in orbit to dock with a commercial space platform, run as part of NASA’s Commercial LEO Destinations program. There it picks up personnel and cargo, offloads additional cargo and crew, and then undocks and aligns for re-entry into the earth’s atmosphere. Instead of returning to Boca Chica, the Starship returns to an Australian launch site—perhaps Nhulunbuy or Whaler’s Way—where it offloads personnel and cargo. It is refuelled and restacked with another superheavy first stage that has returned from an earlier mission, and when ready, launches into orbit from that Australian launch site. Once its tasks are complete, it re-enters and returns to Boca Chica.

Such a scenario would have seemed fanciful some years ago, but the technologies inherent in Starship, together with the signing of the US–Australia agreement, make this vision of routine launches from Australia and returns from space to Australia possible in coming decades.

To make this glimpse into the future a reality, the Australia government must now put substance behind the agreement and actually support the establishment of sovereign space launch centres in Australia. The launch sites under development must be swiftly approved, and funded, with the aim of growing them into a substantial national capability that can support not only US launch activities, but sovereign launch capabilities by leading Australian launch providers, such as Gilmour Space Technologies.

The agreement must light a fire to drive government support for sovereign space launch, which will then form the core activity of a national space sector. The development of a national space strategy, building on the previous government’s proposed national space plan, needs to proceed with sovereign launch sites and launch vehicles at the centre of national space activity. Simply put, the agreement must force the government to support space nationally.

There can be no backtracking to the passive dependency of the past. The future beckons us to recognise that fortune favours the bold and move forward.

Next steps for Australia’s northern defence bases

A significant focus in the 2023 defence strategic review was the north of Australia. While it had the expected references to northern Australia’s military and geographical advantages, more importantly, the review highlighted that a lot of work is needed to ensure that defence bases in northern Australia are appropriately prepared for their role in defending Australia. This theme was again a focal point at the 2023 AUSMIN consultations, and it was a key driver for the Australian Army’s decision to move 1,000 soldiers further into Australia’s north.

The 2023 review stressed the need to upgrade Australia’s bare bases (Scherger, Curtin and Learmonth), and responsibility for the project was later assigned to the chief of air force. Other bases, including those at Cocos, Darwin, Tindal and Townsville, have been earmarked for improvements and upgrades to fuel capacity and infrastructure, security and defensive capabilities, communications links, storage, facilities, aprons and runways. Much of this work can be linked to the requirements of new programs and technologies and the increased operational demands associated with Australia’s evolving strategic environment. How those projects are being funded and managed is yet to be disclosed.

New Australian aircraft programs, including the F-35 Lightning II, P-8 Poseidon, MQ-4C Triton and Peregrine, are all expected to be operated, and perhaps based, in the north. Mature programs, such as the C-17 Globemaster, F/A-18 Super Hornets, KC-30, C-130J Hercules, C-27J Spartan and E-7 Wedgetail, have operated in the region for years.

And it won’t just be Australian capabilities operating in the north on a more regular basis. US Navy and US Air Force programs are also in the mix, including P-8 anti-submarine and naval patrol aircraft and more frequent rotations of B-52 and B-1B bombers.

The rotating US patrol aircraft and long-range strike capability in northern Australia provides alternatives to both Guam- and Okinawa-based US capabilities. Their presence provides considerable response and force projection to the north of Australia.

Now that all these announcements are in the public record, the focus must shift to planning what it will take to be ready and in what time frame. The requirements are likely changing regularly, especially with the US seeking further access to northern bases.

The Australian and US defence organisations have already programmed nearly $4 billion of investment in upgrades to airbases in northern Australian that are already well progressed, particularly at Tindal. Expanding the scope of works to include upgrades to the bare bases makes real the planning, funding and execution challenges. US defence development projects in Australia, like the strategic fuel-storage facility being developed by Crowley in Darwin, are notable for the speed of delivery. Our ally will likely expect the same for the bare base build-outs.

A key question for the project teams across the capabilities is how to merge the plans for the individual bases across the matrix of programs, platforms and missions. Consideration will need to be given to the genuine challenges of setting up and sustaining operational capabilities at the bare base sites, given their distance from each other and from the country’s population and distribution centres.

Planning must also account for the pipeline of significant mining, energy and critical minerals projects already in operation or in the planning phase across the north. These projects, while helpful in creating instant infrastructure where they need to operate in remote sites, are also famous for monopolising the thin local construction markets and resources during their initial phases. Given the small scale of those industry sectors in the north across Queensland, Western Australia and the Northern Territory, Defence may need to get in line to secure the construction and development resources needed to upgrade those remote locations as well as Darwin and Tindal or be prepared to pay a premium to execute these projects as a priority. Investors in those resource and energy projects won’t simply step aside and let Defence go first. A phased approach to determine what can be done in two-year time tranches will allow it to lock in hotly contested resources.

Unlike Tindal, the bare bases are not close to population centres like the town of Katherine. Most have little or no infrastructure to support building efforts. This challenge may force the US and Australian defence organisations to adopt the resources sector model, creating remote camps that aren’t reliant on any civil infrastructure. Australia has significant expertise to assist with setting up these kinds of projects.

However it gets done, Australia and the US have a big job ahead of them that will require careful planning and the efforts of industry and state and territory governments.

To build its future, northern Australia needs clarity from Defence

Since the 2023 defence strategic review, discussion of northern Australia and its maritime and air approaches has reached its highest tempo since the 1940s. The declassified version of the review released in April mentioned northern Australia and its approaches more than 30 times. While the joint statement from the 2023 Australia–United States Ministerial Consultations (AUSMIN)  mentions the north just once, it was more specific, naming Royal Australian Air Force Bases Tindal, Scherger and Curtin.

For those living in northern Australia, this recognition of the importance of their region is promising. However, many need more clarity about if, when and how the government will deliver on its announcements. More than a few remain jaded by similar statements from the past, like those made in the 2012 Australian Defence Force posture review and the 2013 defence white paper, that Defence didn’t implement.

The DSR made it clear that the ADF must have the capacity to ‘deter through denial any adversary’s attempt to project power against Australia through our northern approaches’ and, more specifically, that the army ‘must be optimised for littoral operations in our northern land and maritime spaces and provide a long-range strike capability’, while the air force ‘must provide the air support for joint operations in our north by conducting surveillance, air defence, strike and air transport’.

The government has acknowledged that immediate actions are needed to reprioritise Defence’s capability, including ‘improving the ADF’s ability to operate from Australia’s northern bases’, as future operational success depends on their use as a platform for logistics support, denial and deterrence. The extensive work required to get these facilities fit for purpose includes hardening; growing dispersal, runway and apron capacity for aircraft; fuel storage and supply; guided weapons and explosive ordnance storage; greater connectivity for essential mission planning activities; accommodation and life support; and security. The government has agreed that comprehensive upgrades on these bases must commence immediately.

July’s AUSMIN meetings affirmed the two nations’ intention to continue progressing upgrades at key Australian bases in the north, including at Darwin and Tindal, supported by site surveys to scope new, additional upgrades for RAAF Bases Scherger and Curtin.

Project management for works this extensive and geographically dispersed would be no easy feat anywhere in Australia, and it’s even more difficult in northern Australia. Close industry engagement, built on trust, is needed to ensure better outcomes in this challenging environment.

Defence regularly meets with private-sector and public-sector representatives across the north on estate issues, but extensive lists of requirements and variable timelines are daunting for stakeholders, especially when they are short on detail. There needs to be more clarity on what the DSR and other reviews and force posture initiatives mean for businesses and communities.

The government must make defence infrastructure decisions in the context of the commercial and economic environment. For example, in many parts of northern Australia, the construction industry is already heavily committed until 2027. To enhance bases and their supporting infrastructure, Defence will need to carefully signal its intent and provide guidelines to the industry so that it can grow its capacity accordingly.

Networked bases don’t stand alone. They require connective tissue like transport and digital infrastructure, and we should have learned from Ukraine that whole-of-society resilience and preparedness are crucial to forming this. Building social and economic infrastructure and strengthening preparedness in northern Australia are team sports that require cooperation across the private and public sectors, and communication has been too mixed.

The 2023 AUSMIN statement reaffirmed a commitment to a combined logistics, sustainment and maintenance enterprise (CoLSME), and following Exercise Talisman Sabre 2023, Australia and the US announced their intent to conduct a proof-of-principle prepositioning of US Army materiel in Bandiana, Victoria. The movement of these stores via road train is expected to cost around US$4 million.

Bandiana is a long way from northern Australia. Unintentionally, the decision conveys a lack of commitment to northern Australia, despite the region anticipating the longer-term establishment of a new logistics support area in Queensland designed to enhance interoperability and crisis responsiveness. While CoLSME activity in north Queensland will support the US Army and operations in the Pacific, northern Australia is large and more will need to be done in Darwin and Tindall. The Bandiana and north Queensland choices send mixed messages—especially to Northern Territory communities and industry—and raise questions over Defence’s commitment to Darwin and Tindall.

The government shouldn’t take the ADF’s or the US military’s social licence to operate in Australia’s north for granted. Trust is essential—there are already perceived gaps between stated and actual Defence activity in northern Australia, and even though for years Defence has advised NT officials that army helicopters will remain based in Darwin , they appear set to be relocated to Townsville. At last month’s Developing Northern Australia Conference, Jonathon Pavetto of AEC Group estimated that personnel presence in northern Australia had declined by 3% over the previous year.

Neither Australia’s nor the US’s defence organisation can be everywhere in northern Australia, and they can’t be expected to hold sole responsibility for building national preparedness. However, both must engage with those who live and work in the region with greater clarity if they hope to achieve their goals.

How one decision became thousands of new jobs for northern Australians

Spoiler alert: This article references successful procurement changes and positively recognises the work of Australia’s defence ministers.

It’s easy to criticise defence procurement initiatives, and the ministers who oversee them. From the Whitlam government’s frigate program to the Howard government’s Super Seasprites and Taipan helicopters, to the more recent French submarine debacle, Australia’s procurement history—especially its misadventures—illustrates how complex funding defence can be and that the risk of a bungling is always lurking.

This is why there’s little wonder that it’s so desperately hard to find bouquets for procurements. When there are successes, we fail to recognise them, let alone celebrate them. That’s partly because it can be hard to find data supporting a procurement’s claim to success.

But one place where there is such data is in local industry participation in Northern Territory defence infrastructure programs.

Since 2017, local industry participation in these programs has increased significantly. As the Defence Department continues to upgrade bases, expand facilities and build new ones, businesses in the NT have been reaping the rewards of good defence procurement policy.

That year, in Darwin, Defence Minister Marise Payne announced that the government would support a series of pilot initiatives to encourage bidders to involve local industry in their infrastructure projects. International engineering and construction company Laing O’Rourke became the first successful bidder under this pilot. The company used ‘works packages’ in its project, which grouped related tasks within a larger project into packages for subcontracting. Basically, these appear to be smaller projects, but are actually sub-projects that support the overall project overseen by the managing contractor.

Laing Rourke’s success ensured that the idea took hold across the NT. Soon after, two other companies, Lendlease and Sitzler, followed suit. This came alongside industry advocacy led by peak body Master Builders NT, which believed that the local construction industry could meet the needs of Defence. At the time, not everyone accepted that claim.

However, two significant independent econometric studies tied directly to the 2015 and 2016 defence white papers crunched the numbers on what was actually possible. They showed that the construction sector could handle it and reassured those involved. This changed the narrative, but it was only possible thanks to a partnership between NT industry, the US Force Posture Initiative Office and Defence’s Capital Facilities and Infrastructure branch in Canberra.

This approach—of examining local industry capability and capacity and aligning it with procurement tweaks where possible—also enjoyed bipartisan support. Deputy Prime Minister and Defence Minister Richard Marles also strongly supported the changes as the shadow minister for defence.

We know it worked because all three managing contractors chose to run their early-phase procurement work through the NT’s open Industry Capability Network (ICN) platform, providing local industry with many lower-tier subcontracting opportunities, and tracking their involvement.

Six years, 200-plus work packages and more than $1 billion later, the confirmed award data logged on the ICN shows the soaring trajectory of local participation in defence infrastructure, from 30% before the pilot initiatives to just under 70% today, and rising.

That success has translated into measurable achievements. That leap of 40 percentage points is approximately 2,500 direct additional jobs and many more in local subcontracting and supply chains. Someone would always have done that work—but under this system the local benefit is much more substantial. Defence’s pilot programs helped develop a scalable industry base in northern Australia.

The approach has stabilised the workforce, strengthened supply chains, earned Defence a more robust social licence, created opportunities for apprentices and trainees, and ultimately grown Australia’s north.

This is an outstanding outcome for all stakeholders, and it came from a relatively simple procurement policy change, backed by some ministerial ambition.

Those involved in this success story all point to one key element that made a huge difference—collective commitment. Political bipartisanship, partnership between defence officials and industry, and preparedness to invest in research all allowed quality decisions to be made.

Despite the missteps, the journey of defence infrastructure in the north proves that there are indeed gems in the complex world of Australian defence procurement.

Influencing the Indo-Pacific through northern Australia’s communities

For many observers, Australia’s diplomatic approach in the Indo-Pacific could be characterised as erratic, inconsistent and paternalistic. We run hot and cold. No matter where we are in this cycle, we focus on measuring funding allocated as a performance indicator. This needs to change. We must become singularly focused on delivering outcomes.

Our engagement has also often been driven by Australian needs, rather than the needs of the other nations in the region.

The Australian federal government has acknowledged that our region is encountering ‘encroachments on the ability of countries to make their own decisions.’ Its reinvigorated focus on—and material investment in—the region is welcome. However, our foreign policy still emphasises ‘influence’ instead of impact. This overlooks the reality that impact drives influence. To confuse matters, we often assess the influence of other states in the region negatively, despite seeing our own influence efforts positively.

Often forgotten in these discussions is that everything we did or didn’t think, and everything we did or didn’t do, got us here. Australia contributed to our circumstances, intentionally or not. Our policy must acknowledge this, in a way that shows the region we have learned from the past.

Equally important is the need to appreciate that smaller nations in the region must navigate international relations differently to larger powers. For them, this is more than a ‘hedging’ strategy—it’s a cultural commitment to friendliness with everyone. But in doing so, smaller nations must consider the unintended consequences of well-intentioned initiatives. For example, programs that aim to economically empower women can also expose women and families to domestic conflict and even violence.

So, when Australia seeks to be the region’s ‘partner of choice’, it clashes with a reality that small nations live with every day. They don’t have the luxury of taking a side. And Australia’s failure to understand this reinforces perceptions of it as a paternalistic partner.

Prosperous, socially cohesive communities with fit-for-purpose infrastructure are the foundation of security. Better outcomes for our neighbours through collaborative initiatives with local communities, particularly in northern Australia, must be our focus.

Radical change is needed. The approaches and thinking that got us here, if we continue to apply them, will keep us here.

This means funding for impact, not influence, and ensuring that everything we pursue has mutual benefits. A shift from transactional thinking to outcomes-based thinking is required.

The relationships and initiatives between local governments in northern Australia and Indo-Pacific communities and nations are a place to start.

These community-to-community approaches are sometimes called ‘sub-national’ engagements, but this label undersells their significance. Vibrant people-to-people connections, often in diaspora communities, have driven many local programs which jointly benefit northern Australia and the Indo-Pacific.

An example is the Northern Territory Cattle Association Indonesia Australia Pastoral Program. It’s a partner arrangement between the Northern Territory Cattlemen’s Association, the Indonesian Society for Animal Science and associated Indonesian universities. The program is funded by the Indonesia Australia Partnership on Food Security in the Red Meat and Cattle Sector, a group comprised of government officials from Indonesia and Australia, members of the business community, and other stakeholders in the red meat and cattle sector. It provides participants with intensive pastoral industry training, including in animal welfare and handling, including through work placements at cattle stations across northern Australia.

The Northern Territory government and Gadjah Mada University also run an initiative that brings Indonesian biosecurity students to Australia develop their understanding of biosecurity from an Australian perspective.

North Queensland is likewise well-positioned as a gateway to the Indo-Pacific. The Cairns Regional Council has entered an agreement with Tradelinked Cairns Incorporated ‘to develop markets, provide educational opportunities, and enhance mining engagement in the region.’ The agreement is consistent with the goal of state and federal governments to strengthen diplomatic and trade relationships, and follows the federal government’s announcement of $5.5 million to support a National Rugby League team in Papua New Guinea.

These programs and others tangibly benefit northern Australia and the region. Their impact is often orders of magnitude greater than investment in them.

There’s no doubt that community-to-community engagement in the Indo-Pacific needs to be informed by foreign policy objectives. However, that requires active and ongoing conversation within Australia about those objectives, and foreign policy officers must shift from acting like they have a single voice to enabling many voices. This would allow community-to-community engagement to earn the credit it deserves as a subject of foreign policy effort.

If we increase emphasis on mutual impact, achieved through collaborative local initiatives with partner nations, we’ll influence our region all while helping Indo-Pacific communities, including our own, grow.

The 2023 Darwin Dialogue: developing Australia’s critical minerals and rare earths

Rare-earth elements (REEs) and critical minerals are the world’s building blocks for emerging and future technologies and are essential to manufacturing, clean energy production, semiconductor production, and the defence and aerospace industries. Their supply and value chains are small relative to those of major commodities such as iron ore and coal, are highly concentrated around China, are easily distorted, and are vulnerable to price fluctuations.

Chinese-owned companies have dominated the world’s supply of REEs and many critical minerals for decades. The rise of President Xi Jinping has blurred the lines between private sector and government, giving Beijing control of those markets. Beijing has already used its near-monopolistic global supply-chain control for REEs to strategic advantage against the US and Japan. In response, both countries have independently enacted policies to develop alternative supplies of critical minerals and rare earths, with limited success.

To address these issues, ASPI, with support from the Northern Territory Government, hosted the inaugural Darwin Dialogue, a multi-day track 1.5 initiative. It involved 55 leaders and key players from Australia, Japan and the US, with senior representatives from the Netherlands and India attending as observers. The discussion focused on critical-minerals production and supply-chain security which brought non-government and government organisations together to build a shared understanding of the challenge of the REE and critical-minerals industry. Today, ASPI releases ‘Developing Australia’s Critical Mineral’s: Implementing the outcomes from the 2023 dialogue.’ The report makes 24 recommendations for government and the private sector to support the development of viable, competitive alternative markets that offer products through supply chains secure from domestic policy disruptions and economic coercion.

There’s growing recognition in the US and like-minded countries (including Australia, South Korea, Japan and India) that additional REE and critical-mineral supply chains must be developed without dependency on China.

Beijing has realised that controlling the global market is a valuable economic lever and it’s used its dominant market position coercively. That adds a political risk compounding the issue of overreliance on a single market. Chinese companies routinely adjust their domestic production quotas and subsidise REE prices to strategically flood the market to drive out competitors and deter new market entrants.

But new supply chains won’t just happen.

The global supply is also inadequate, as demand for these resources is expected to grow rapidly in coming decades. Significant increases in global mining and refining capacity will be needed to meet that demand. The Organisation for Economic Co-operation and Development (OECD) estimates that 50 new lithium mines, 60 new nickel mines and 17 new cobalt mines will be required. Diversifying and expanding supply is a strategic, economic and environmental necessity, and Australia’s mineral reserves make it essential to the expansion of global supply.

Solutions will need to be driven by governments rather than left to market forces, and that will require significant resource contributions.

Australia’s Department of Industry, Science, and Resources (DISR) released a critical minerals strategy in 2015 and established the Critical Minerals Facilitation Office. In June 2023, the Albanese government released its Critical Minerals Strategy 2023–2030 setting out its vision to grow the sector in Australia. These are steps in the right direction but need to be followed by close collaboration with the Department of Foreign Affairs and Trade and with Austrade to tap into their wealth of knowledge on promoting trade opportunities and act as facilitators. Their ability to connect buyers with sellers will be vital.

Recent tensions in the Australia–China relationship have made diversifying REE and critical-minerals production even more pressing. China produces 90% of the world’s REEs, so concerned countries can’t shift its sector dominance overnight. That dominance underscores the urgent need for Australia and its partners to mitigate overreliance risks.

The Darwin Dialogue brought together diverse stakeholders from across countries, sectors and businesses. Such a diverse range of participants meant an equally diverse range of perspectives and this report is an analysis of those perspectives, not a consensus. Some pervasive themes emerged. The key ones are that REEs and critical minerals are essential to the economic, national and commercial security of all involved. The second is that the current global market presents supply-chain vulnerabilities that market forces alone can’t fix.

The authors, drawing on the perspectives of Darwin Dialogue participants, argue that Australian governments and their international partners must take more decisive action in the face of the increasing supply-chain risk. In doing so, the Australian Government should continue approaching the challenge of REEs and critical minerals with a clear understanding that it can’t do everything. Instead, it should be concerned with what’s most important to national security and resilience.

Australia, like-minded governments and the private sector must collaborate to ensure competitive, secure, resilient REE and critical-minerals supply and value chains. But this is a complicated problem, requiring a nuanced and collaborative policy approach.

Government will need to adjust its approach to resolve these issues. For decades, successive Australian governments placed great confidence in economic liberalism: personal liberty, private property and limited government interference. Neoliberalism has been particularly influential, eliminating price controls, deregulating capital markets, lowering trade barriers and reducing, especially through privatisation, state influence in the economy. Three decades of economic prosperity have led to an almost religious belief in the ability of globalisation and market forces to solve economic problems. In this environment, business models have deliberately focused on offshoring, the centralisation of production, and just-in-time supply.

But the market can’t resolve the REE and critical minerals supply chain vulnerabilities alone, especially as the market incentives that offshoring presents have resulted in the concentration of supply in China and developing nations. Those decisions have created economic and supply-chain vulnerabilities, accentuated by the global Covid-19 pandemic, a return of war to Europe and great-power competition.

It’s neither advisable nor desirable to abandon globalisation or the associated commercial practices that have contributed to market concentration. Success isn’t about economic nationalism or protectionism but ensuring that nations have a choice of suppliers that increases resilience. Policymakers must now identify what premium governments will pay for market-level risk mitigation, and for what goods.

Realising northern Australia’s defence innovation potential

In July, I had the pleasure of visiting Darwin to speak at the 2023 Developing Northern Australia Conference. This was my first visit to Australia, and seeing Darwin firsthand reinforced for me the important role Australia’s north plays as a forward operating base for the Australian Defence Force, as well as the US, Japan and its other allies and partners.

My visit coincided with the largest ever Exercise Talisman Sabre and the eve of the 33rd Australia–United States Ministerial Consultations, known as AUSMIN. Unfortunately, Talisman Sabre was marred by a tragic training accident in which four ADF members died, reminding us of the sacrifices our service personnel make to ensure a safe and stable regional order.

AUSMIN once again affirmed the importance of northern Australia to the US. During the meeting, both nations acknowledged the significance of key Royal Australian Air Force bases in the north, such as Darwin and Tindal, and announced their intention to continue progress on upgrades. In addition, site surveys were planned to scope out further upgrades at Scherger and Curtin, underscoring the commitment to bolstering defence capabilities in the region.

This infrastructure is also to help support the US Enhanced Air Cooperation initiative, which is becoming more operational in focus. A crucial element of the initiative was the announcement to rotate US Navy maritime patrol and reconnaissance aircraft in Australia. This strategic move aims to enhance regional maritime domain awareness and promote stability in the Indo-Pacific by monitoring and protect Australia’s northern maritime approaches. Both Australia and the US expressed ambition in inviting like-minded partners to participate in this initiative in the future, further strengthening cooperation in the region.

There were several other significant defence-related announcements at AUSMIN. These included a declaration of intent for a regular rotation of US Army watercraft in Australia, prepositioning of US Army stores and materiel in the north, and a commitment to establishing a logistics support area in Queensland.

In addition to these brick-and-mortar measures, there were several references to the need to maximise the strategic and technological advantage of the alliance by strengthening the two partners’ advanced capabilities and defence industrial bases.

Collaboration on critical technologies and innovation was another major focus at AUSMIN. Both nations affirmed their commitment to exploring opportunities for regional development and production.

The headline announcement was to deepen cooperation on Australia’s guided weapons and explosive ordnance enterprise and build the alliance’s industrial power.

Coincidentally, this was the general theme of my presentation to the conference—the need to accelerate the building of the industrial base, initially between the US and Australia, but eventually with other partners like Japan, the UK, NATO, South Korea and India.

Aside from its immediate economic benefit, this would strengthen supply-chain resilience in the Indo-Pacific, an especially important goal as the region faces heightened geopolitical tension. It would be much easier and cheaper for US forces operating to Australia’s north to have access to northern Australia for supplies, equipment, repairs and technology support than to rely on longer—and potentially contested—supply-chain routes from Japan, Guam, Hawaii or the continental US.

This is why the US Department of Defense and other key government agencies have been collaborating to develop an ‘allied nations defence industrial base accelerator’ platform, or DIBX, for some time. The initiative has been led by various not-for-profit organisations composed of former senior government, industry and civil-society members from countries including the US, Japan, the UK, Australia and India. Importantly, it will be a rigorously vetted program to ensure supply-chain security and sovereignty.

The DIBX is supported by US government funding with the mandate to engage allied nations with a shared strategic interest in promoting a free and open Indo-Pacific. Many of the areas of focus under the DIBX align with AUKUS Pillar 2. For example, it focuses on supporting testing and evaluation programs that include hypersonic and long-range strike capabilities, artificial intelligence, quantum computing, and other critical and emerging technologies—all of which will be exercised, tested, evaluated and could be built and maintained in Australia’s north.

On top of its strategic worth, hosting the DIBX in the north would provide valuable benefits for local governments, industries, universities and communities. A vehicle that can quickly and agilely deliver emerging technology to the warfighter while also contributing to local jobs and economic growth is surely one worth pursuing.

Australia needs to talk about truly national preparedness

Australians live in complex and uncertain times. This strategic situation demands that governments leverage whole-of-nation capability, engage the wider community about national preparedness, and speak with, not at, stakeholders.

Communities in Australia and its region face a range of concurrent, consecutive and cascading economic and environmental challenges. The cost of living is rising and housing has become unaffordable for many. The looming El-Niño could trigger a fire season as severe as the Black Summer bushfires of 2019–20, which affected 60% of Australians. All of this comes before we consider Australia’s precarious relationships in the increasingly contested Indo-Pacific region.

In simple terms, preparedness is about having measures in place today that ensure Australia’s economy, society and communities are sustainable and resilient despite the complex multi-hazard environment we face. Underlying the need to be prepared is the willingness to make hard choices about investment.

Preparedness is not about prediction. Leaders shouldn’t get caught up in trying to define what precisely we need to prepare for and when. Instead, they need to be ready for compounding national disruptions of any kind, at any time. Given the interconnectedness of our modern world, integrating broad economic, social and environmental preparedness will be better for resilience than mapping out overly detailed contingencies.

At the heart of this is the need to adopt a more holistic view of preparedness and to challenge our assumptions—including the assumption that a lower level of economic and social amenity than urban Australia is ‘business as usual’ for regional and rural Australia.

Being prepared requires us to ensure that our supply chains are robust, and dependent on others only by explicit choice. It’s about ensuring that local infrastructure is fit for today’s purpose and designed for an uncertain future. A just-in-time approach to supply chains, infrastructure development and water has failed us. We need to integrate our food systems, road and sea transport, and trade to ensure they support future economic, social and environmental outcomes. Communities will need to be made more resilient and sustainable, along with being prepared for emergencies.

Governments are wrong if they assume that Australians, particularly in regional and remote areas, are not engaging in expansive conversations about preparedness. Understanding the threats we face isn’t confined to those with high-level security clearances. Consideration of the nation’s challenges shouldn’t start with highly classified conversations that, if we’re lucky, are translated into unclassified summaries. Otherwise, conversations between governments and the community will become filled with platitudes and generalisations. It’s time to start an unclassified, accessible discussion with a wider audience. Such an approach has a better chance of capturing imaginations and, in turn, meeting the nation’s needs.

Civil society, the private sector and academia also have a significant contribution to make. The Productivity Commission notes that ‘government intervention may crowd out private investment in risk management—the net benefit of any intervention should outweigh the costs’. When creative thinking is needed, leaders must involve the whole nation in solving the problem.

A national conversation on preparedness would allow communities to coalesce around a strategic challenge. It would build cohesion rather than polarise and divide. It would build trust and confidence in the nation’s resilience.

Covid-19 showed us that there are many voices with divergent views, and that many in our community don’t accept being told what to do by governments. Public trust in government, especially bureaucrats, remains low. We can’t assume that when the time comes, the nation at all levels in all regions will suddenly spring into action. Many already take on a disproportionate load. In the years prior to 2022, recovery funding was provided for 65 disasters in 332 unique local government areas that impacted 61% of Australians. While communities may continue to be willing, they have little left to give.

Of course, we can’t anticipate or prepare for every eventuality; after all, there isn’t just one crisis to prepare for. However, by fully engaging the nation about national preparedness, leaders can help strengthen communities.

The absence of that national conversation will result in Australians continuing to be unprepared and surprised or, at worst, paralysed and divided. Australia can’t afford the devastating impact that would have on communities, businesses and families, especially when the most vulnerable are disproportionately impacted when things go wrong.

Battery manufacturing a bad bet for Australia, says Productivity Commission

Great opportunities await the Australian critical minerals industry, according to the Productivity Commission, but it says they are unlikely to include manufacture of end products such as batteries.

The commission’s critique of the emerging industry policy in Australia comes as global technology giants such as Tesla are underwriting Australian critical minerals projects with guaranteed sales.

The commission’s annual review of industry and trade assistance says Australia stands to be a huge beneficiary of the incentives under the US Inflation Reduction Act for sourcing critical minerals either domestically or from free-trade partners.

‘This is apparent in the case of the tax credits for EV purchases by US consumers, where eligibility for the maximum $7,500 tax credit is contingent on at least 40% of the critical minerals used in the EV battery being sourced from the United States, or from US FTA partners like Australia,’ the commission says.

‘These gains would be compounded by United States Congressional approval of designating Australia as a “domestic source” under the US Defence Production Act, thereby providing preferential access for Australia to the US market.’

The US subsidies helped to promote more than US$200 billion in manufacturing projects in the clean-technology and semiconductor sectors last year, double the level of 2021 and 20 times the level of 2019. A study by the Financial Times shows there were four projects worth at least $1 billion each in those sectors in 2019, but 31 that size in August 2022.

According to the Productivity Commission, economic theory says the enlargement of manufacturing in the US and European Union will draw resources away from their services sectors, opening opportunities for Australian exporters of resources and services. Australian manufactured exports will fall, but the commission dismisses that as an issue, saying: ‘[T]he fact that manufactured goods constitute less than 7% of Australian exports by type limits this potential effect.’

The commission contends that downstream value-adding in Australia will be limited to basic processing of raw materials, with little prospect of establishing significant industries in end products such as batteries:

The presence of critical minerals mining in Australia suggests that there might be a cost advantage for processing in Australia, because (for many of these minerals) large volumes of earth need to be processed to generate small quantities of processed minerals. However, to the extent that these critical minerals are low-volume once processed and refined, and thereby low-cost to transport, a domestic processing capacity is unlikely to create an appreciable cost advantage for a domestic battery industry. That is, the comparative advantage in resource extraction presented by Australia’s resource endowments is more suggestive of a comparative advantage in the processing of low concentration minerals than in final battery production …

[T]he Inflation Reduction Act incentives make it much more likely that a battery industry will rapidly develop and grow in the US, possibly with clustering effects. Such a development would reduce the likelihood that Australia develops an economically efficient battery industry and raises the likelihood that its resources earn better returns in other industries (such as services). And if the Australian Government were to support such an industry, the cost of that support may outweigh the benefits for GDP and economic growth. It may also entrench an inefficient industry that relies on lobbying for more support to sustain itself over time, rather than on relying on its inherent economic advantages.

The Productivity Commission’s scepticism is at odds with the government’s aspirations to capitalise on Australia’s strengths in mining to move downstream through processing to the manufacture of batteries and electric vehicles.

‘[L]everaging our competitive advantages, the critical minerals we mine and refine here, can help us move up the value chain and into downstream processing, helping to create new opportunities and high-paying jobs across Australia, including in our regions,’ Resources Minister Madeleine King said when launching the consultation that led to the formulation of the government’s critical minerals strategy.

The skyrocketing demand for critical minerals will propel the industry’s rapid growth. The International Energy Agency’s new report on critical minerals shows that, over the past five years, the global market for critical minerals, including copper, nickel, lithium, cobalt, graphite and rare-earth elements, doubled, reaching US$320 billion. Demand for lithium tripled, while cobalt sales jumped by 80% and nickel 30%.

The IEA highlights the steps that major consumers are taking to secure their supplies. Seven of the top 10 electric-vehicle manufacturers have signed long-term offtake agreements for lithium and/or nickel projects and many are taking direct equity stakes. Battery makers are pursuing similar strategies, with six of the top seven committing to offtake agreements or equity investments.

For years, the large majority of Australia’s critical minerals prospects have been starved of development funds because they couldn’t secure offtake agreements. That’s now turning around.

Tesla has a major contract with Australia’s Liontown Resources to secure lithium concentrate starting at 100,000 tonnes in 2024 and rising to 150,000 tonnes thereafter. BMW has a deal with the US-based Livent to source lithium in Australia. The South Korean battery maker SK On has invested in Australia’s Lake Resources with rights to up to 230,000 tonnes for 10 years.

Chinese firms are doing the same. A major shareholder in CATL—the world’s biggest battery maker—has made a US$3.7 billion investment in a minority stake in CMOC, the second largest cobalt producer in the Democratic Republic of the Congo. CATL is also leading a consortium to invest more than US$1 billion in developing lithium reserves in Bolivia.