New Zealand Launches Defence Industry Strategy with Tech Fund and 2% GDP Target

New Zealand has unveiled a comprehensive Defence Industry Strategy aimed at revitalizing its domestic defence sector and aligning it with emerging regional security challenges. The strategy includes a commitment to increase defence spending to 2% of GDP over the next decade and the creation of a dedicated technology innovation fund. It marks a significant policy shift for Wellington as it seeks to deepen integration with AUKUS partners and enhance its military-industrial base.

Strategic Context: From Minimalist Posture to Regional Engagement

Historically characterized by modest defence budgets and limited industrial ambitions, New Zealand is pivoting toward greater strategic engagement in the Indo-Pacific. The 2023 Defence Policy Review (DPR) identified intensifying geopolitical competition—particularly China’s assertiveness in the South Pacific—as a key driver for change. This culminated in the July 2023 “Defence Policy and Strategy Statement,” which laid the groundwork for capability modernization across maritime surveillance, cyber resilience, C4ISR systems, and logistics readiness.

The newly released Defence Industry Strategy, published in October 2025 by Minister of Defence Judith Collins and Minister for Defence Industry Andrew Bayly, builds on this foundation. It emphasizes sovereign capability development in areas such as secure communications infrastructure, maintenance repair overhaul (MRO) capacity for naval platforms, advanced training systems using simulation technologies, and integration into allied supply chains.

Key Pillars of the New Defence Industry Strategy

The strategy outlines five primary objectives:

• Establishing a National Defence Technology Innovation Fund: Modeled loosely on Australia’s Next Generation Technologies Fund (NGTF), this initiative will support R&D in priority areas such as cyber defense tools, autonomous systems (UAVs/UGVs), AI-enabled ISR platforms, quantum-resistant communications protocols, and resilient satellite-based navigation solutions.
• Doubling Annual Capital Investment: The government aims to increase capital expenditure from NZD $1.7 billion (FY24/25) toward NZD $3–4 billion annually by FY2030/31.
• Sovereign Sustainment Capabilities: Focus on expanding local MRO capacity for Royal New Zealand Navy (RNZN) vessels—including Anzac-class frigates—and Royal New Zealand Air Force (RNZAF) assets like the P-8A Poseidon fleet.
• AUKUS Pillar II Alignment: Although not an AUKUS member state per se due to its nuclear-free stance under the NZ Nuclear Free Zone Act of 1987, New Zealand seeks closer cooperation under Pillar II initiatives involving AI-enabled decision support tools and cyber threat sharing frameworks.
• Workforce Development & Industrial Base Expansion: Investment in STEM education pipelines aligned with defence needs; incentives for SMEs in dual-use technologies; export facilitation mechanisms targeting Five Eyes markets.

Aiming for NATO Benchmark: The Path Toward 2% GDP Spending

The strategy reiterates an aspirational target of reaching defence spending equivalent to 2% of national GDP within ten years—a significant increase from current levels hovering around ~1.5%. While still below NATO’s benchmark standard (which New Zealand is not formally bound by), this represents one of the most ambitious fiscal commitments Wellington has made since World War II.

This funding uplift is expected to support multi-domain modernization programs already underway or planned:

• P-8A Maritime Patrol Aircraft: Four units acquired from Boeing under FMS terms are now operational; sustainment contracts will be localized where feasible.
• C-130J Super Hercules Fleet Replacement: Five aircraft ordered via FMS from Lockheed Martin; deliveries expected between late-2024 through mid-2026.
• Cyber Resilience Projects: Joint initiatives with Australia’s ASD targeting critical infrastructure protection against state-backed actors.

The increased budget will also enable participation in multinational exercises like RIMPAC and Talisman Sabre at greater scale while improving deployability across maritime zones such as the Solomon Islands or Papua New Guinea—areas increasingly contested by Chinese influence campaigns.

A Technological Leap Through Innovation Funding

The proposed National Defence Technology Innovation Fund is arguably the most transformative element of the strategy. Expected to launch formally by mid-2026 with initial seed funding of NZD $150 million over three years, it will operate under an independent board comprising representatives from academia (e.g., University of Auckland), industry leaders (e.g., Rocket Lab), MoD officials, and allied observers from Australia or Canada.

The fund’s priority research areas include:

• C4ISR Enhancements: Low-latency data fusion architectures; tactical edge computing nodes; SATCOM redundancy layers using LEO constellations;
• Drones & Robotics: Maritime UxV swarms for EEZ patrols; land-based UGVs optimized for disaster response dual-use roles;
• Spectrum Warfare Tools: GNSS spoofing detection modules; passive RF triangulation sensors integrated into border surveillance;

This initiative mirrors similar efforts seen across Five Eyes partners—such as DARPA’s OFFSET program or Canada’s IDEaS challenge—but tailored toward small-nation scalability with regional relevance. It also complements private-sector momentum led by firms like Dawn Aerospace or XERRA Space who have signaled interest in dual-use applications aligned with MoD priorities.

Challenges Ahead: Workforce Gaps and Procurement Bureaucracy

The success of this strategy hinges on overcoming several structural limitations that have historically hampered New Zealand’s defence sector participation. Chief among them are workforce shortages—particularly engineers trained in aerospace systems integration—and slow procurement cycles that deter SME involvement due to high bid compliance costs relative to contract size.

The Ministry has pledged reforms including streamlined acquisition processes modeled on Australia’s “Smart Buyer” framework; digital tendering portals; pre-approved vendor lists for rapid prototyping trials; and co-funding schemes where government matches private R&D investment up to NZD $1 million per project phase.

A new Centre for Strategic Industrial Capability is also being established within MBIE (Ministry of Business Innovation & Employment) to coordinate cross-agency alignment between MoD requirements forecasting and economic development planning—a first-of-its-kind initiative aimed at institutionalizing long-term capability stewardship beyond election cycles.

An Eye Toward Regional Partnerships Beyond AUKUS

While much attention focuses on AUKUS alignment—especially Pillar II—the strategy also emphasizes broader Indo-Pacific engagement including enhanced cooperation with Japan’s Acquisition Technology & Logistics Agency (ATLA), Singapore’s DSTA agency on smart logistics platforms, and South Korea’s ADD on counter-UAS technologies adapted for island terrain environments common across Oceania.

This multilateral approach reflects both geopolitical pragmatism—given sensitivities around nuclear propulsion—and operational necessity given shared challenges such as maritime domain awareness gaps across vast EEZs vulnerable to IUU fishing fleets or grey-zone incursions by PRC-aligned entities masquerading as commercial operators.

Conclusion: From Aspirational Blueprint to Execution Challenge

The unveiling of New Zealand’s new Defence Industry Strategy signals a decisive shift away from decades-long minimalism toward proactive capability building grounded in technology innovation and regional interoperability. However, translating these ambitions into tangible outcomes will require sustained political commitment across successive governments—especially given long lead times associated with major platform acquisitions or industrial base expansion projects.

If implemented effectively—with adequate funding continuity—the combination of sovereign sustainment goals, tech innovation incentives, workforce development programs, and allied alignment could position New Zealand not only as a more capable military actor but also as a credible contributor within Indo-Pacific security architectures increasingly defined by technological edge rather than mass alone.