Manufacturers and suppliers can look forward to promising futures
Owners and operators struggling to keep businesses alive in challenging economic circumstances, may envy increasing government bailouts and subsidies that enable survival for others. But if you’re a manufacturer or a manufacturer’s supplier in an industry that can contribute to Australia’s economic independence, there’s increasing likelihood of you benefitting from some form of government help.
Donald Trump is pushing America back towards isolationism with policies that are encouraging other countries, including Australia, to secure independence by increasing complexity of their economies.
According to Harvard University’s index of economic complexity, Australia now has one of the world’s least complex economies ranking 105th out of 145 nations.
Less than a decade ago we ranked an unimpressive 93, but now we’ve dropped below Botswana, although still managing to stay ahead of The Ivory Coast.
However, it seems Australian governments have at last awoken to the fact the nation to a considerable extent depends on substantial manufacturing for economic strength.
Where we’ve gone wrong
Because of natural advantages as a world food supplier and an abundant source of natural resources that other countries can use as raw materials for manufacturing, Australia since the 1970s, has been a fine example for free market theorists and proponents of globalisation.
But it’s lack of diversity in exports that has largely discouraged Australia from developing a complex, independent economy, resulting in manufacturing accounting for just 5.1% of GDP, the lowest level of manufacturing in all 37 nations of the OEDC.
We are very much out of step with the current global move towards self-sufficiency rather than specialisation, a move towards protectionism and withdrawal triggered by America’s abandonment of openness and cooperation.
Accordingly, there has been increasing government support for Australian industries – at Whyalla, Port Pirie and possibly at Mt Isa. There was a time when governments were untroubled to see private sector industries fail, but that’s changed.
Manifestations of change
Earlier this year the SA Government, weary of prevarication by Sanjeev Gupta’s GFG Alliance in paying creditors, forced his Whyalla Steelworks into administration, where the Federal Government has come up with $2.4b to keep the plant operating.
As this article is being written Macks Advisory understands Mr Gupta is trying to regain control of the steel works, probably believing its future will be favourable in an economic climate where governments are working towards a self-sufficient economy.
Concurrently two state governments and the Federal Government have made a $135m “transitory support” payment to upgrade and maintain Nyrstar’s ailing smelters at Port Pirie and Hobart. It’s expected this will keep the company’s metals manufacturing business viable. And shipbuilder Austal has joined forces with a Federal Government offshoot to become the nation’s preferred strategic naval shipbuilder.
The none-too-easy task
We wonder how many of our newsletter readers’ voices are among others asking, “what right have governments to bail out failing businesses with taxpayers’ money?” A reasonable answer would appear to be, “every right” -- if the expenditure is not merely a bail out but is demonstrably a co-investment in processing technologies that will help create an independent economy for Australia in a world with an increasingly unfavourable view of global free marketing.
Australia produces 50% of the world’s lithium, exports 90% of production to China, retaining only 0.53% of its value here. We have antimony that sells for between $30,000 and $40,000 a tonne and rare earths like geranium (a key component in the manufacture of touch screens).
It would seem dereliction of duty by Australian governments not to ensure sovereign capability in the mining and processing of metals like these, not to enable their domestic use while also retaining their competitiveness wherever a free market might be operating.
We’ re not suggesting reversing the loss of manufacturing capability will be easy, but restoration has become an economic imperative.
Look how a policy of huge subsidies for heavy industry has resulted in China’s capture of raw materials processing, so that it has become the price setter for almost every commodity except iron ore.
How we lost the plot
Remember when Ford and General Motors had it all their own way here when a 45% tariff on imported cars meant few Australians could afford one? Then you’ll probably recall that by 2005 the tariff was down to 10%, then halved five years later, and that in the wake of the global financial crisis and the great Australian mining boom, our dollar was worth US$1.10 giving us unrivalled buying power.
Imported cars flooded the domestic market where manufacturing by Ford, GM, Toyota and Mitsubishi was no longer viable. By 2017 some 400,000 Australians had lost their jobs.
This demise of car making triggered further losses of industrial designers, toolmakers, specialist engineering and electronics industries, together with a range of other manufacturing skills necessary for the support of a broad industrial base.
It’s been a disaster, worsened by soaring energy prices as gas exports created domestic shortages that have sent many energy-intensive industries into fatal decline.
The seeds of rejuvenation
A poll of more than 25,000 people conducted in conjunction with the current Back Australia campaign, reveals 57% of them believe Australian-made products generally are better than imported ones.
Surely this must spur optimism among companies like Walkinshaw Automotive, which has developed hotted-up versions of HiLuxes, Rangers, the VW Amarok, Mitsubishi Triton and Isuzu D-Max that are sold through official dealer networks. Walkinshaw has also become responsible for re-engineering US cars such as the RAM 1500, Chevrolet Silverado, Toyota Sundra and GMC Yukon.
In converting these vehicles from left to right hand drive it has created what is now Australia’s largest automotive manufacturing operation.
Recently the business built a 100,000-square metre plant in South Dandenong, Melbourne where 1,500 people will work on eight production lines to produce 12,000 cars a year. Nearby, Premcar has progressed from hot-rodding Ford Falcons to building tougher and more capable Warrior versions of Nissan’s Navara and Patrol that have already attracted more than 15,000 buyers.
It seems not only governments, but some perceptive Australians are beginning to see value in working to restore our country’s manufacturing capability – and not a moment too soon.
