The 2024 Defence Strategic Review (DSR) articulated how Australia is facing its most precarious geo-strategic environment since World War II, describing these as "the most challenging circumstances in our region for decades".

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It cast Australian industry as a sovereign capability in its own right - one which must be mobilised as a pillar of national defence, not a support function. It described Australia's defence industry as "a distinct asset during a period where the risk of major conflict is rising"..

Two years on, the question is no longer whether sovereign capability matters, but whether Australia can rely on foreign supply chains in crisis or conflict.

As Defence prepares to hand down an updated National Defence Strategy, Integrated Investment Plan (IIP), and Defence Industry Development Strategy (DIDS), its authors must consider three questions:

Has the geo-strategic circumstance changed, for better or worse, since 2024?

What government policy, public expectation, and industrial capability changed since 2024?

What progress has the Department of Defence achieved towards delivering "the sovereign industrial base that will meet our national security requirements?

The answer to question one is easy. Strategic competition is accelerating, supply chains are being weaponised and access to defence capability is increasingly shaped by national priorities rather than alliance goodwill.

Partnerships and old alliances are being tested equally as major world powers use economic coercion and supply chain dependence to achieve their aims.

Speaking in Munich on February 14, EU President Ursula von der Leyen said: "Europe must become more independent ... in every dimension that affects our security and prosperity. Defence and energy. Economy and trade. Raw materials and digital tech."

The Canadian government is adopting a similar approach, launching its Build at Home strategy aimed at awarding 70 per cent of Defence contracts to Canadian firms to reduce reliance on foreign suppliers.

This brings us to the second question. Leaders of Canada and the EU have made it clear. National resilience and sovereign capability are now government policy and their publics are expecting government to enact policies that grow the local industries that support national security and defence.

READ: Defence companies may soon be able to access up to $1b in funding

Australia has its own versions of these policies. The Buy Australian Plan (BAP), Future Made in Australia Plan (FMIA), and National Reconstruction Fund (NRFC) each have interests in uplifting national security and defence. However, policy ambition is yet to translate into determination by Defence to use its $66 billion annual procurement budget to achieve these interests.

The DIDS 2024 notes: "Only in limited circumstances is Australian ownership critical to sovereignty." This position is outdated and in contrast to the industry policies of our allies and other comparable nations.

Defence capabilities are now being prioritised for domestic needs by supplier nations, while allies are urged to develop their own capacity to service their defence needs. The circumstances where Australian ownership is critical to sovereignty are growing not shrinking.

"Built in Australia" no longer guarantees future capability. Our civilian side of government, led by the Department of Finance under Minister Katy Gallagher, recognised this challenge when it pushed through reforms to Commonwealth Procurement Rules in 2025, including a new definition of an Australian business for procurement purposes.

Procurement officials must now define an Australian company as a business that "has 50 per cent or more Australian ownership, or is principally traded on an Australian equities market; and is an Australian resident for tax purposes; and is a business that has its principal place of business in Australia".

This reform is important if government wants to use its procurement to uplift Australian industries critical to achieving objectives like economic growth, energy transition, defence and national security - objectives the BAP, FMIA, and NRFC are designed to deliver.

Which brings us to the third question: what progress has Defence made in delivering sovereign capability through the DIDS since 2024?

There have been some green shoots including the awarding of the Strategic Shipbuilding Agreement to ASX-listed and majority Australian-owned shipbuilder Austal. But isolated examples won't deliver the systemic resilience our circumstances require.

Defence must explicitly name sectors and/or capabilities where Australian ownership and control are critical. Those sectors will demonstrate specific criteria: criticality to defence posture; latent capability at scale; and broader economic benefits to the nation.

Guided weapons, space technology, cyber security, defence services including healthcare, and systems integration capability meet these criteria. Similarly, the "consumables of war" - fuel, munitions, food, et al - all of which must be assured during times of crisis.

Research by DeltaPearl Partners, supported by the Sovereign Australia Prime Alliance, has found a modest budget neutral shift of only 10 per cent spending by Defence from foreign companies to majority Australian-owned companies would generate up to $2.3 billion annually in net GDP benefit and create up to 12,474 jobs.

Simply put, spending that strengthens genuinely sovereign defence capability also strengthens national economic growth.

This won't undercut the important role of foreign suppliers in meeting Defence materiel requirements. The imperative for the DIDS 2026 and the IIP must be to identify sectors where a shift towards Australian-owned capability delivers clear strategic national resilience and economic benefits.

Doing so will align Australia with our partners and allies who now expect partner nations to contribute resilient sovereign capability of their own and end their dependence on foreign capability.

Australian industry will watch with interest Canberra's recently announced plan to set up an Advanced Capital Investment Fund to back "local companies" developing dual-use technologies aligned with AUKUS Pillar II.

They will be asking: what are "local companies" to Defence? Will this initiative align with sovereign industrial capabilities previously identified in the DIDS? Will it recognise national resilience is the new reality which we, and other countries, must adapt where we can?

Jamie Morse is spokesperson for Sovereign Australia Prime Alliance and head of industry and policy at Macquarie Technology Group.

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