SA companies' opportunity in a manufacturing revival
Australians are beginning to see how good they are -- and can be -- at reviving a manufacturing sector becoming more important to the nation’s future than perhaps at any time in their lives.
This country has a renowned history of innovative manufacturing that the newly established $15b National Reconstruction Fund (NRF) can help revive -- if it’s not misused (but more on that later).
Many SA companies are of course aware of immediate golden manufacturing opportunities in defence industries, and two of the most recent to seize the day are high-tech welder-TIG and 3-D metal printing company AML3D.
They’ve in effect established a template for Adelaide companies aspiring to progress from local activity relative to the landmark AUKUS agreement, to putting boots on the ground in the US.
AML3D’s breakthrough came with a US Department of Defence contract six months ago for supplying the company’s highly specialised Arcemy printing system to the US Navy for use in nuclear submarine construction.
A second contract was signed last month, and interim chief executive Sean Ebert says that in the light of the Biden Administration’s stated aim to transform America’s manufacturing base through innovation, AML3D plans to establish itself permanently in America.
Mr Ebert says herein lies opportunity for many Australian companies willing and able – especially with government assistance – to upgrade as advanced manufacturers.
The National Reconstruction Fund
This $15b NRF is fundamental to PM Anthony Albanese’s election promise as a “first step” in reversing the nation’s manufacturing decline and “reviving our ability to make world-class products”.
The fund is expected to operate commercially to deliver returns on investments in high-tech manufacturing in priority areas associated with clean energy, medical science, transport, valued-added manufacturing in agriculture, forestry, fisheries, mining, military equipment, and in “enabling capabilities” (explained later).
It’s also expected to function similarly to the Clean Energy Finance Corporation which in the past decade has provided more than $10b in loans to low-emission energy projects.
But already voices of cynics and critics are becoming strident.
Employer organisations and unions are in favour of the NRF, but “The Economist” warns that based on past performances of such funds, it fears resources could be misallocated to give unfair advantage to certain businesses.
Economists are worried that misuse of the NRF will slow investment in areas of national importance, and that in trying to “pick winners” the government will be investing in losers.
Macks Advisory notes Federal Opposition frontbencher Paul Fletcher’s concern the fund will finance projects “that would not get private sector finance – but which for political reasons the government wants to fund”.
Calming critics and cynics
The fund’s integrity would of course be improved by PM Albanese’s promised transparency, that could be achieved largely by way of public announcements of reasons behind investment decisions.
We can’t see why this shouldn’t be done. The Reserve Bank of Australia (RBA) issues media statements about decisions it has made and why it has made them. Similarly, the NRF can establish credibility and public trust by being open about decision-making
Its board must also state investment priorities precisely, yet remain flexible, ensuring projects than span multiple sectors of the economy don’t bog down or fall between cracks in administration.
Innovative ideas of recognisable potential won’t necessarily fit into a single category. For example: synthetic biology technology can be used in manufacturing and recycling. It can’t justifiably be prioritised for application and development in any one sector.
Furthermore, it’s not enough for the NRF to support individual projects. And this is where the fund’s support of “enabling facilities” referred to above becomes critical.
The path to revival and change
A roundup of opinion from Macks Advisory sources indicates changing the trajectory of manufacturing in Australia requires a supportive ecosystem aligning things like funding and policy priorities in education and training, with research being done in universities, with immigration settings, and natural advantages.
University of Sydney lecturer Jarryd Daymond is among informed authorities who claim NRF projects won’t succeed without skilled workers, strong research backing, and easy access to suppliers and customers.
He cites Australia’s renewable sector as an example of a supportive environment that can lead to success.
Australia has abundant sunlight and wind, a growing number of skilled workers in the renewable energy field, top research institutions, a knowledgeable investor base (thanks, Mr Daymond says, to the Clean Energy Finance Corporation and a population more inclined than ever to care about production of eco-friendly energy).
By setting clearly defined initiatives, encouraging innovation, and making transparent decisions, the NRF can ensure it effectively urges the nation’s manufacturers along a path towards revival and change.
The vital productivity factor
In last month’s newsletter we pointed out that Australia’s productivity growth in the SME sector (in output per hours worked) was the slowest in 60 years and below the national average long-term growth of other developed countries.
In his recent valedictory testament to parliament, outgoing governor of the reserve Bank of Australia, Dr Philip Lowe, said productivity “is the nation’s No. 1 medium-term issue and that if there isn’t a pickup in growth, high inflation is likely to persist”.
Which is why we add this postscript: in whatever way administrators of the NRF chose to operate it, the people at Macks Advisory -- no doubt along with millions of other Australians – expect the fund’s money will be allocated where it can clearly be seen there are workers ready and able to add to national productivity growth.
