It’s vital that Australia does better with manufacturing
Our nation’s future as a manufacturer that matches the best, is a long way from that. Havard’s Economic Complexity Index ranks Australia 93rd in the world. Furthermore, the most recent edition of the long-running ACCI-Westpac Survey of Industrial Trends reveals weak new orders and pessimism for the future of manufacturing in Australia that is at its lowest since 2008-9.
SA companies are joining others nationwide opting to manufacture in America.
High costs, especially for energy, are a major reason for this. We’re aware of companies that were about to manufacture on home turf, choosing instead to accept US incentives to manufacture there. (For example, Tennessee’s sweeteners include 10-year electricity subsidies under which Australian companies willing to manufacture there, will pay 85% less than they pay for power in Victoria.)
Nonetheless, to the following catalogue of our country’s manufacturing woes, Macks Advisory suggests there can be positive responses -- although axiomatically they can only be effective when our country is run by governments that recognise the importance of diversifying manufacturing to elevate the economy by creation and capture of value.
The alternative is continuance of a one-dimension economy disproportionately dependant on export of resources, an economy committed to slow growth that will indefinitely rank us among the lesser half of global economies.
Meanwhile look what’s happening
Xtek, maker of the complex XTclave that creates very strong, lightweight, often complex shapes out of fibres and resins for use in satellites, has just closed its Adelaide factory and ceded this capability to Americans.
Amaero International, conceived at Monash University, subsequently listed on the ASX as a manufacturer of state-of-the-art military equipment, shut down production in Adelaide and Melbourne about two months ago and likewise moved it to the US.
And we’re informed of four other defence industry firms about to follow suit – although we’re not permitted at this stage to name them.
Then there’s Tritium, a world leader in fast EV chargers, that recently announced closure of its Brisbane factory and a move to the US – a decision strongly influenced by American government support programs.
But it’s not only Australian companies working on complex technologies that are being crippled by high costs and lack of local support.
The Boral Group’s CEO and managing director Vik Bansal says he has no other commercially viable alternative but to instruct the cement giant’s 5,500 employees periodically to down tools when electricity prices get too high. He says in these circumstances it’s better for the company’s finances to have employees standing idle waiting for power costs to decrease, than producing cement.
“It’s now so tough to manufacture steel and concrete profitably in Australia that we’re asking ourselves what hope we have of being able to build all the offshore wind arms, all the pumped hydro facilities and everything else a policy of net zero emissions demands – quite apart from building immediately needed plain old roads and bridges.”
What must be understood
Australia’s manufacturing capability won’t improve until governments and investors understand that there’s more to it than production.
- Successful manufacture of high-value, high-margin, and complex products depends substantially on investment in pre-production design and R&D.
- Opportunities to make intermediate things integral to the manufacture of major products (for example an airliner) account for 75% of global trade.
- While Australia might not have the capability to build from start to finish anything so comprehensively complex as large passenger aircraft, there are nonetheless hundreds of niche opportunities for manufacturing things essential for manufacturing them. For instance, machine tool company ANCA, familiar to many Australians, makes tools that make machines that make planes, phones and other exacting, highly complex products in global demand.
ANCA has been meeting international demand for its products for almost half a century, and there’s no doubt many other Australian companies could be operating at this level.
But what must be comprehensively understood is how and why Australia’s future as a supplier of complex products to the world’s markets is hanging in the balance.
Some apparent good signs
A few days ago, an Industry Growth Program offering grants of between $50,000 and $5m to SMEs and start-ups for commercialisation of projects, began accepting applications.
In an 18 August newsletter article headed “SA companies’ opportunity in a manufacturing survival” Macks Advisory pointed out why the nation’s $15b National Reconstruction Fund (NRF) is fundamental to PM Anthony Albanese’s election promise, as a “first step”, to reverse the nation’s manufacturing decline by “reviving our ability to make world-class products”.
Although in reality the NRF is a bank without a policy mandate, it nevertheless can play a role addressing weak local investor appreciation of what manufacturing can and should be contributing to the Australian economy. But it’s this lack of a policy that heightens our fear of the fund’s misuse, expressed in the article referred to above.
Meanwhile, manufacturing accounts for less than 10% of the Australian economy and continues to fall as a share of Gross Domestic Product (GDP). In the past 20 years, employment in manufacturing has slipped from 14.2% of the workforce to just 8.2% – almost halved – a collapse most concentrated in Victoria and SA.
Avoiding “the valley of death”
Clearly more assistance is needed to help viable manufacturing companies through the so-called “valley of death”, and clearly, affordable energy in Australia would go a long way towards providing this while also arresting the migration of increasing numbers of Australian manufacturers to the US.
Then there’s knowledge generation, important for effectiveness of public and private research. However, this together with Internet Protocol (IP) -- a set of rules governing the format of data sent over the internet or other networks – takes years to development before it can become a force in the marketplace.
In a recent speech made during a visit to the Hunter Valley in NSW, Anthony Albanese said: “There is nothing more important we can do that’s more important than making more things here, and this will determine whether Australia moves forward or whether we stand still while the world moves past us”.
Significant parts of the world have already moved past us. So, the question we’re asking our readers (to whom we offer best wishes for a happy Christmas and prosperous New Year) is whether they’re willing to do whatever they can to win support for Australia’s efforts to at least catch up with complex manufacturing achieved in other countries.