When thinking about national security, think about local businesses

The next national security crisis may expose a vulnerability that rarely appears in Australia’s strategic assessments: the disappearance of the local businesses that keep communities functioning.

A defence facility may survive a cyclone, but what happens when the businesses that maintain its equipment, transport its supplies and support its workforce cannot reopen? A regional town may retain its roads, electricity and telecommunications, yet struggle to recover because employers have closed, skilled workers have departed and essential services are no longer viable. Infrastructure can be rebuilt. Restoring the local economic capacity it depends on is often much harder.

This exposes a weakness in how Australia approaches national resilience. Governments invest heavily in protecting critical infrastructure and preparing for disasters but pay less attention to whether the surrounding economies can withstand prolonged disruption.

In northern Australia, where relatively small communities support defence operations, resource industries and important supply chains, the consequences of disruption extend beyond local economic hardship. A community that cannot sustain its businesses and workforce can become a vulnerability in Australia’s national security.

Ukraine provides an extreme example. Russia’s invasion has destroyed premises, displaced workers and constrained finance. Supporting small and medium businesses has become part of maintaining the country’s economy during the war. A World Bank-supported Ukrainian program has assisted around 21,000 small and medium businesses, helping to create or preserve more than 50,000 jobs and generate US$318 million (A$457 million) in exports.

The importance of economic capacity extends beyond conflict. Covid-19 exposed it globally through disrupted supply chains, labour shortages and restrictions on movement. In Australia, floods, cyclones and bushfires show how losing local businesses and services can weaken communities long after an emergency.

Research commissioned by insurance company QBE and conducted by Oxford Economics Australia examined seven Australian bushfires, floods and cyclones between 2018 and 2023. Two years after severe weather, affected communities had nearly 10 percent fewer small businesses than they otherwise would have. Two to three years after disruption, the decline in small business numbers in regional communities was more than double that of capital cities.

Northern Australia is central to defence posture, critical minerals, energy, food production and Indo-Pacific engagement. Investments in ports, roads, telecommunications, energy and defence facilities depend on the economic capacity of surrounding communities.

A strategically important asset can sit in a region whose surrounding economy cannot sustain it through disruption. If local suppliers disappear or essential skills must come from elsewhere, the vulnerability extends beyond businesses.

The government already recognises the importance of disaster preparedness and recovery. Australia has established funding arrangements, mitigation programs and business assistance. The proposed national Disaster Recovery Funding Framework seeks more consistent arrangements and faster support.

But disaster exposure and recovery capacity differ between states and territories, and even more sharply between regions within them. Insurance costs, supply chain dependencies and access to essential services vary considerably. National funding arrangements must account for those differences to deliver equitable support.

The proposed framework included a shift to an equal federal–state funding split. All 77 Queensland councils opposed the change, concerned about transferring greater costs onto a state repeatedly exposed to disasters. Following sustained opposition, the federal government announced on 9 October that it would retain current cost-sharing arrangements, contributing up to 75 percent when eligibility criteria are met.

This is welcome, but broader reforms remain under development. Retaining the funding share doesn’t settle what will qualify for assistance or how rebuilding will strengthen resilience.

Betterment is particularly important. It means rebuilding damaged infrastructure to withstand future disasters more effectively. Improving a bridge, road or drainage system can reduce repeated losses and help businesses and essential services keep operating. The same principle should inform how homes and business premises are rebuilt.

The Local Government Association of Queensland assessed the original proposal against 13 years of historical betterment funding. It reported that the proposed criteria would have allowed just 23 past projects worth A$3 million, excluding more than A$1 billion in betterment investment.

Current arrangements remain in place for the upcoming severe weather season. The federal government should work with states and territories, drawing on council experience, to settle future eligibility rules, approval processes and funding mechanisms – including for betterment – before the revised framework takes effect. These mechanisms must be established before disasters strike so negotiations over available support don’t delay reconstruction.

The urgency is real. The Bureau of Meteorology warns that a warming climate increases the likelihood of heatwaves, weather that heightens bushfire risk, heavy rainfall and flooding.

Recovery also depends on businesses able to carry it out. Builders, electricians, transport operators and suppliers may themselves be affected by disasters. Affordable insurance, business continuity planning and timely assistance help preserve their livelihoods and the capacity communities need to rebuild.

Local businesses and governments need a meaningful role in identifying essential capabilities and directing resilience investment. Stronger rebuilding may cost more upfront, but leaving vulnerabilities unaddressed exposes communities to repeated loss and disruption, with far greater costs over time.

Australia’s national security ambitions depend on communities that can function under pressure. National investment must strengthen their economic capacity alongside the infrastructure and industries that they sustain.