14th New Zealand Defence Industry Association Forum Wellington
Tuesday 15 November 2011
Speech by John McKinnon, Secretary of Defence
New Zealand's Defence Linkages with Asia and what they mean for Defence Industry
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Thank you Mike for your introduction.
I acknowledge the Minister of Defence, Dr Wayne Mapp; the Chief of Defence Force, Lieutenant General Rhys Jones; my Ministry and NZDF colleagues, business friends old and new; ladies and gentlemen.
It is always a privilege and an honour to be invited to address this Forum. This year, following on from the presentations by the Minister and CDF, I wish to turn our attention to developments of interest to Defence in the wider Asia-Pacific region.
Two weeks ago the Minister, the Chief of Defence Force and I were all in Singapore and Malaysia marking the fortieth anniversary of the Five Power Defence Arrangements (FPDA). These defence arrangements, linking Malaysia and Singapore with three other Commonwealth countries - ourselves, Australia and the United Kingdom - have their roots much more than 40 years ago, but they have survived up until today, not out of sentiment or tradition, but because of their contemporary relevance to all the parties.
The Economist pondered this conundrum in a recent column under the heading ‘Echoes of Dreamland', and reached the conclusion that the arrangements serve the interest of all the parties, albeit those interests may differ. While representing just one of the parties, I would say that the Economist's assessment was broadly accurate. For New Zealand, the FPDA is important in the fabric of our relations with two of our most important partners in Southeast Asia - Malaysia and Singapore. It is also important as one means whereby we express our stake in the security and stability of Asia.
That security and stability is not to be taken for granted yet we are in a very different world from 1971, when the FPDA came into effect. Many of the veterans attending the Royal New Zealand Returned and Services' Association conference which is taking place nearby will have been in service in East and Southeast Asia - Korea, Malaysia and Viet Nam based in Singapore. With the significant exception of Timor-Leste, that is not the experience of those who have served in operations since the end of the Cold War. In contrast, they have found themselves in Africa, the Middle East, the Balkans, the South Pacific and of course Afghanistan - almost everywhere except East and Southeast Asia. There is a reason for this. This is by and large a world of strong rather than weak states, a world in which states are investing heavily in their national enterprise, including defence and security, but also education, science and technology and other sinews of national power. It is also a very different world from Europe, where leaving aside current pressures, the focus in the last 50 years has been on building European institutions as the alternative to the fratricidal conflicts of the first 50 years of the 20th century. Asia and the Asia-Pacific region are building such institutions but they sit alongside and do not yet substitute for national responsibility for defence and security.
These realities can be seen through many lenses. This morning I wish to focus on what is happening through trends in defence expenditure in the Asia-Pacific, and what that might mean for the medium term. So be prepared for some statistics. (In the main, these statistics are taken from SIPRI).
- World military expenditure is estimated to have been $1630 billion in 2010, an increase of 1.3% in real terms, the slowest annual rate of increase since the post 9/11 surge.
- Take out the United States, and there is barely any change in expenditure levels between 2009 and 2010, a consequence it would naturally be thought of the global financial crisis.
- But this aggregate masks considerable regional variation:
- Rapid increases in South America [5.8%] and Africa [5.2%].
- Modest increases in the Middle East [2.5%] and Asia/Oceania [1.4%].
- A fall in Europe [-2.5%].
- Asia's defence expenditure of about US$360 billion accounted for about 25% of the world total. This has been increasing steadily since the mid-1980s, when Asia's share of global military expenditure was about 11%.
If we zero in on Asia there are some further interesting details.
- Strong economic growth over the last decade has supported growth in defence spending, enabling military modernisation and acquisition programmes amongst most countries in Asia.
- This trend was interrupted by the global financial crisis (GFC), with growth constrained [1.4% against an annual average of 5.1% in the previous decade] and some procurement plans delayed.
- Despite this, in 2009 defence spending in Asia exceeded defence spending in Europe for the first time. Given the divergent paths I have just mentioned, and despite the impact of the GFC, this gap is likely to continue to grow. For most Asian countries, as I observed, the national enterprise is work in progress. As wealth increases it is natural that Asian governments will modernise their respective militaries.
- Three of the top ten spenders on defence in 2010 were in Asia - China (2nd), Japan (6th) and India (9th).
- North Asia (China, Japan, Korea) accounts for the bulk of defence expenditure and acquisitions in Asia, with in that subgroup China having the largest budget followed by Japan and the Republic of Korea.
Alongside these changes are changes in the nature of the global defence industry, which have been broadly characterised as follows.
- Structural: defence industry has become increasingly concentrated, nationally as well as internationally. The share of the top five companies in total military sales increased from 22% in 1990 to 43% in 2005.
- Technological: civil technology has become increasingly important for weapon systems, with the result that IT and electronics companies loom larger in the defence sector, and with increased numbers of ‘civil' companies in the supply chains of main contractors.
- Composition: the privatisation and outsourcing of defence services and support is drawing new kinds of suppliers into military contracting, through provision of services in support roles such as logistics, training, maintenance repairs and overhaul, IT services and facilities management.
These changes are being felt globally, regionally and within New Zealand. In particular the combination of these trends with those relating to Asia mean that defence companies whose principal markets used to be Europe and North America are concentrating more heavily on Asia as a key market for growth and investment. As the Minister of Trade recently observed, New Zealand is as well placed to contribute to global supply chains as any other developed country of our size. And indeed the emergence of global supply chains as a major mode of international trade helps counter what might otherwise be seen as the disadvantages of the New Zealand economy. To reinforce the point just made by CDF in his presentation, we may not competitively manufacture whole goods, but we can and do competitively manufacture parts of the global supply chain for products as diverse as aircraft and computers.
Even leaving aside North Asia, significant capital acquisition projects are occurring in many regional armed forces - Singapore, Thailand, Malaysia and Viet Nam. In some cases these programmes are introducing advanced platforms into the region, rather than a like-for-like replacement of obsolescent hardware. And while we are accustomed to think of New Zealand as at the lower end of defence spending, some regional countries with much larger populations have defence expenditure profiles much more comparable to ours than might be imagined, at least when calculated in US dollars.
You will have noted the announcement in Honolulu at the weekend of the next steps in negotiating a Trans-Pacific Partnership (TPP) to advance economic integration in the Asia-Pacific region. We are firmly of the view that such developments not only benefit New Zealand but can make a significant contribution to stability in the region overall. In this respect the TPP agenda sits alongside our Free Trade Agreement (FTA) with China and the Australia/New Zealand FTA with ASEAN.
With the advantages that accrue to us in this way, and those which flow to our economy from continued growth in the region, comes a corresponding responsibility for New Zealand to be engaged in the security of the region. Last year's Defence White Paper set this out: because we benefit from peace and prosperity in our region, we must contribute to that peace and prosperity. We cannot and do not have relationships in which the traffic only goes one way.
I began by recalling the significance of the FPDA. As the White Paper set out, alongside the FPDA we have other active defence and security relationships throughout Asia. We have exchanges and dialogues with Japan, China, the Republic of Korea and most of the other countries of ASEAN. We undertake exercises with most of those defence forces, have mutual assistance programmes with some, and representatives of nearly all at our Command and Staff College. Some of these activities overlap with those we conduct with Australia and now with the United States.
And then there are the multilateral structures - APEC which has just met in Honolulu, the East Asia Summit (EAS), to convene in Bali this coming weekend, the ASEAN Regional Forum (ARF), and the ASEAN Defence Ministers Meeting (ADMM) Plus which first convened in Hanoi just a year ago but which is already bearing fruit: next week in Wellington we are co-chairing with the Philippines a legal seminar on Peacekeeping Operations.
Opportunities for New Zealand firms and businesses in the defence sector in the Asia-Pacific region are of course neither prescribed nor limited by these arrangements and relationships. But what they tell us is that the Asian world at our doorstep is growing, is open to us and is increasingly the focus of defence multinationals. There are opportunities for companies in this room to leverage off our increasing integration into the region and participation in regional defence activities. These opportunities are in areas as diverse as pilot training, consultancies, security system maintenance, and GPS systems.
In conclusion may I take this opportunity to acknowledge the contribution of the outgoing Minister of Defence, Dr Wayne Mapp. In his three years in the role, he has brought energy and enthusiasm to the Defence portfolio. We have all benefitted from that. On behalf of my colleagues I wish him and Denese well in their new life after politics.
