Pandemic reveals Australia vulnerable from narrow, fragile manufacturing base

by | Jun 4, 2020 | Business

As the Government lavishes stimulus on home renovators, the pandemic has revealed Australia’s economy to be fragile, with an export profile more akin to a developing nation, and a huge trade deficit in high-end manufactures. “We have to start making things again,” writes Peter Roberts of our narrow manufacturing base. 

When the states and federal government woke up to the seriousness of the Covid-19 pandemic, they looked around for local manufacturers who could make the personal protective equipment, hospital ventilators and myriad essentials, right down to hospital mattresses, that a nation needs to survive in time of crisis.

What they found was shocking. One manufacturer of face masks, Med-Con, equipped with a single, ageing machine capable of making three million surgical masks a year when the immediate need was for 150 million.

A single manufacturer of hospital ventilators crucial to surviving a lung disease like Covid-19, ResMed, but which made only the simpler, non-invasive type. We simply did not make the complex ventilators needed for the most serious cases.

And the list goes on, illustrating the long atrophy of Australia’s manufacturing sector that is required to create the most complex products of advanced societies to the most insignificant.

Australia has only a single maker at scale of the silicon chips that are ubiquitous in everything from toasters and medical devices to space rockets — Silana Semiconductor.

At the other end, there is just one manufacturer, Fallshaw, of the simple castors that every hospital bed relies on for mobility, and just one maker of the beds themselves,Stryker.

Australia’s economy narrowly based

Our economy has been revealed as fragile to external shock, narrowly based and, crucially, lacking in the deep manufacturing capabilities and capacity enjoyed by other similarly advanced nations, be they Germany, Israel, Singapore or Taiwan.

Instead, Australia is left with the export profile of a developing nation, an industrial complexity similar to Senegal and Uganda, and an annual balance-of-trade deficit of $188 billion in elaborately transformed manufactures.

Our appetite for imported cars, iPhones, medical equipment and even simple wheels has to be paid for somehow, putting intolerable strain on other sectors to perform.

At the same time, our economy is becoming less innovative, with the research and development (R&D) intensity of the economy falling from above 2% of GDP only eight years ago to 1.79% today.

Spending on R&D in deep decline

Most worryingly, business expenditure on R&D (BERD), which creates future wealth, is also falling, down a massive 10% in the latest year alone — from 1% of GDP to 0.9%.

It is for these reasons that the manufacturing industry itself has mobilised and developed a plan to reignite Australia’s languishing manufacturing sector.

Launched this week and to be delivered to the National Covid-19 Coordination Commission manufacturing taskforce, the The New Deal Plan for Manufacturing was crowd sourced during April and May from Australia’s manufacturing communities, academics and industry experts. This crowd sourcing for industry policy was a first.

It calls on a major commitment from the federal and state governments to lift Australia’s capacity to again be self-sufficient in a range of industrial areas by:

  • establishing a National Industrial Strategy Commission;
  • identifying critical sovereign manufacturing capabilities across the economy;
  • creating a whole-of-industry workforce development plan;
  • revamping government procurement policies that recognise value for money for the economy over the life of the product, as opposed to the initial upfront cost; and
  • accelerating depreciation allowances to help manufacturers re-equip.

Research and development of the plan was initiated by the Australian Manufacturing Forum Linkedin Group, the largest manufacturer group on social media, and @AuManufacturing news.

The more than 50 substantial submissions received from readers and Forum members were distilled into the plan, which argues the economy can recover if Australia acts now; the core of a strong local manufacturing industry still exists.

Biotech, steelmaker are the future

Companies such as CSL, the world’s No. 2 biotechnology company, Austal, the world’s No. 1 in aluminium-hulled ships, and steelmaker BlueScope Steel, a global leader in steel coating and painting technology, represent the blueprint for growth.

In the technology sector, sleep apnea company ResMed and hearing implant maker Cochlear dominate their global niches, while tna Solutions is a global success story in the manufacture of food machinery.

But to make more of the enormous potential of Australian manufacturing, our policy settings need a complete reset.

We can no longer rely on our natural comparative advantaged in raw materials for prosperity, or even for survival. We must build national competitive advantages.

And that means we have to learn to make things again.

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ABOUT THE AUTHOR

Peter Roberts

Peter Roberts

Peter Roberts is a manufacturing and media networking specialist. He was a senior columnist, writer, editor and editorial manager, founded a start-up online procurement service and served on the board of Australia’s premier private-sector funder of research into innovation and competitiveness.

6 Comments

  1. Avatar

    I enjoyed your article and have seen the same argument and similar statistics. How do we make local manufacturing viable if procurement is based on price and we can’t manufacture it cheaply enough. We can’t use tariffs or regulation can we? We can’t have our cake and eat it as well with foreign trade.

    • Avatar

      There is no future for Australia in manufacturing cheaply. We should be looking at quality and with prices to match. It works in Germany and South Korea and Japan. High tech manufacturing, some of which we already do – look at the two companies mentioned in the article. We don’t want to be in a race to the bottom.

  2. Avatar

    I have an intimate experience with this issue as I worked in manufacturing from the late nineties till 2012. The company that I worked for opened a factory in China to produce the exact same parts that were being made in the Australian factory and with the exact same machines as the company had relocated initially 1/3 of the machinery to the Chinese factory. In essence, the only difference was in the labour force. We knew that the cost of one Chinese worker was roughly 10 percent of an Australian worker. The expectation for an Australian worker was to operate 2 machines by himself whilst the Chinese equivalent had three workers per machine. In other words 1 Australian worker, worked equivalent to 6 Chinese workers but still costed 10 times as much as 1 Chinese worker. The biggest question Australians need to ask themselves about their nation’s manufacturing capabilities is what has changed about that wage gap and would we even want to try and compete with China by for example halving the nation’s wages. It really seems impossible.

    • Avatar

      No, we don’t want to compete with China in a race to the bottom. We need to be like the countries mentioned in the article. We need to make higher end products with top value. Look at Germany with Miele, BMW, Mercedes-Benz, and the list goes on. They don’t make cheap tat, they make quality products. We could and should do the same.

  3. Avatar

    Several related issues include culture, ideology, automation and services, all are interrelated. We had imported from and/or adopted low end manufacturing from the UK and US without question but of late issues round trade with China have increased demands for less dependence. Further, we also import US economic libertarianism which often helps US industry and not so much our own while demanding (low skilled) manufacturing or production line jobs which are declining due to automation, along with working age populations and wages stagnating in real terms.

    If we look at best practice whether BMW or a CSL/Cochlear, services are central in marketing, research and skilled employees in automated workplaces, including global supply chains and a long term outlook on investment; Cochlear does all in multiple locations not just Australia.

    Our demand for low cost short term preference for houses and holes or growing a digging stuff out of the ground needs to change.

  4. Avatar

    Our manufacturing only survived behind a “tariff barrier” we had essential industries that were protected for national security reasons. All gone in the name of globalisation and we have produced a society without a work ethic plus we are a collection of self interested tribes no sense of national identity.

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