Australian manufacturing is not coming back

Via the ABC:

The widespread shutdown of global supply chains caused by COVID-19 has been good news for Adelaide metal printing company AML3D.

“We’ve seen quite a reasonable increase, probably two-fold from what we would normally get,” founder and managing director Andy Sales said.

His company makes metal parts, such as propellers and compressors for ships and the automotive industry, at its factory in Adelaide and exports them around the world.

The parts are created using a new layering technology, developed by Mr Sales, that combines traditional welding techniques with digital drawing, a robot and 3D printing to create metal objects out of titanium, aluminium, nickel and steel.

“Parts and components normally produced in northern Italy and other parts of Europe at the casting shops and forging shops, with the recent unfortunate COVID-19 environment shutting down a lot of this industry, some of these customers in Australia are looking for local solutions,” said Mr Sales.

There is growing interest from the oil and gas sector for his locally made products, as Mr Sales also eyes off orders as part of the Royal Australian Navy’s fleet expansion.

“Our technology offers the possibility of reduced lead times and reduced manufacturing times and the process we’ve got actually offers enhanced strength, which is more beneficial than the traditional casting and forging techniques,” Mr Sales said.

Australia’s share of manufacturing

AML3D’s growth is the kind of resurgence economists and those in the sector want to see more of to pull manufacturing out of its decline.

In the late 1980s manufacturing was the biggest employer in Australia, with 16.5 per cent of the workforce.

Now less than 1 million people work in the sector, accounting for 6.4 per cent of jobs.

Manufacturing’s contribution to GDP peaked in the late 1950s and into the 60s when it was just shy of 30 per cent. Now it has shrunk to about 5.5 per cent.

New analysis shared with The Business by The Australia Institute’s Centre for Future Work reveals Australia does not fare well against its OECD counterparts.

“Most other industrial countries have manufacturing sectors that are successful and large enough to, in aggregate, meet their own domestic needs for manufactured products,” report author and director of the centre Jim Stanford explained.

“In Australia’s case, however, we’re using more manufactured goods all the time but we’re producing a smaller and smaller share of those.”

Dr Stanford has ranked OECD countries based on their manufacturing self-sufficiency — the amount of goods they manufacture versus the amount of manufactured goods they use.

Australia is last, producing about two thirds as much manufactured output as it consumes.

Most other OECD countries produce, on aggregate, more manufactured goods than they consume.

“Australia has one of the most underdeveloped manufacturing sectors of any industrial country in the world,” Dr Stanford told The Business.

“I think there is a mistaken assumption that if you’re a rich, high-wage, industrial country you just can’t do manufacturing. After all, it’s much cheaper to do things in China or Thailand or some other low-wage country.

“We found that traditional assumption is absolutely false.”

Job maker

Dr Stanford estimates that increasing Australia’s manufacturing self-sufficiency to 100 per cent could add another $180 billion a year in new manufacturing output, boost GDP by $50 billion a year and add more than 650,000 direct and indirect jobs.

“I think it’s a pragmatic and ambitious goal to try and rebuild manufacturing in Australia back to a level that’s comparable to our own need for manufacture,” Dr Stanford said.

The impact the COVID-19 pandemic has had on businesses and workers across the nation is well documented.

The latest official unemployment rate rose to 7.4 per cent for June, but Treasurer Josh Frydenberg conceded this week the real unemployment rate was probably about 11.4 per cent.

Advocates for manufacturing say the sector could again be a major employer if it is encouraged to grow.

Most of the 926,000 workers in the sector are employed by small to medium enterprises (SME) with fewer than 20 employees.

“We’ve gone from being a very significant employer to less than a million people now,” said Vonda Fenwick, the chief executive of the South East Melbourne Manufacturers Alliance (SEMMA).

Her group is one of many calling on the Government to incentivise more manufacturing in Australia.

SEMMA is calling on all tiers of government to buy more locally made goods.

“It simply makes sense for us to be really sticking to those policies, making sure that we’re buying locally, making sure that we are mandating local content requirements to ensure that we’re providing work for manufacturing.”

Local supply chains

After the roofs of the Australian National University and the National Library of Australia were damaged by January’s Canberra hailstorm, they were covered in an Australian invention made in Sydney.

Stormseal is a polyethylene film that is laid on storm-damaged roofs. Heat is applied to it and it shrink wraps onto the roof.

The company’s managing director Matthew Lennox makes the product on food-grade manufacturing facilities in Sydney and most capital cities in Australia.

He also has plants making his product in France and the US.

“We call it a storm-ready response product, so what that means is that when a big storm hits we actually have the ability to make it on demand, which allows us to not to have to hold stock or have expenditure when we don’t need it,” he said.

Mr Lennox has been approached to produce the film in Asia where it would be cheaper, but he said making it close to his customers meant he could deliver the film more quickly and support the local economy.

“It’s good in respect to keeping jobs here in Australia for the reason of the manufacturing side of things,” he said.

“But it’s not just the manufacturing, it’s the supply chain that has benefits too, so our polymer, our fire retardancy, our UV inhibitors that go into the film, that all has a flow-on benefit.

“Outside of that, we’ve got several consultants that we use for marketing and sales and communications that are all Australian based too.”

About 30,000 square metres of his product remains on the roofs of national buildings in Canberra.

More than minerals

Australia’s extensive mineral resources — including iron ore, bauxite and nickel — plus other primary products, such as agriculture, account for about three quarters of our goods exports.

The wealth created by exporting raw mineral and resources products was almost $290 billion last year.

A graph showing the distribution of Australian merchandise trade for imports and exports.
Last year almost 75 per cent of Australia’s exports were primary products (minerals, LNG and farm products) worth almost $290 billion.(ABC News)

However, Dr Stanford said Australia was selling itself short by exporting minerals such as lithium, a mineral we are the largest producer of in the world, in its raw form.

“Once again we’re limiting our horizons to just digging it out of the ground and then sending it to other countries, to then manufacture it into these value-added products that we then import back from them,” he said.

“Lithium is worth about $US750 ($1,046) a tonne in its raw form but, if we actually manufacture it into batteries, that same amount of lithium would be worth about $US150,000.

Dr Stanford said there were also strategic benefits to increasing manufacturing.

“About two thirds of all world trade consists of manufactured products, so if you don’t have a strong domestic manufacturing base you’re shutting yourself out of most world commerce,” he said.

How stupid were we to let manufacturing independence fall so low?

Yet it is not coming back on current policies. Our bubble managers have no idea how to bring it back. It will entail:

  • major tax incentives that we will not do thanks to the power of miners;
  • major energy reform that we will not do thanks to the power of big oil;
  • major property tax reform to lower the currency that we will not do thanks to the power of banks and property;
  • major productivity reform that we won’t do because it hurts;
  • major monetary policy reform that we won’t do because the RBA and APRA only want to protect their bubble.

It also takes balls and all industry policy like this, at Bloomie:

Japan’s government will start subsidizing some companies to invest in factories in Japan and South-East Asia as part of efforts to reduce reliance on manufacturing in China.

Fifty-seven companies including privately-held facemask-maker Iris Ohyama Inc. or Sharp Corp. will receive a total of 57.4 billion yen ($536 million) in subsidies from the government to invest in production in Japan, the Ministry of Economy, Trade and Industry said Friday. Another 30 firms will receive money for investments in Vietnam, Myanmar, Thailand and other Southeast Asian nations, according to a separate announcement, which didn’t provide details on the amount of money.

While the METI statement doesn’t explicitly state the money is to move production out of China, Prime Minister Shinzo Abe said in March that Japan needed to bring production back home or diversify output to Asean nations and elsewhere to cut reliance on any one country such as China.

Eventually, manufacturing will come rushing back when we panic and pay it to but that will probably only happen with the next major war.

Go Straya.

David Llewellyn-Smith
Latest posts by David Llewellyn-Smith (see all)

Comments

  1. Eventually, manufacturing will come rushing back when we panic and pay it to but that will probably only happen with the next major war.

    you are right
    nothing but a major global war will do that

    this crisis is just old fashioned wealth transfer from ordinary people to the rich, after is world is only going to look worse in every aspect of live

    • Display NameMEMBER

      About the same time we will realize that putting a “strategic” oil reserve in the US might not be a great idea.

      Well done Angus.

      • Yeah, have we started building our own strategic oil reserve tank farms?
        Of the sort you see near petrochemical refineries, with the concreting to contain leaks and blast zone protection to keep housing away.
        The US stuff was short term capacity for oil we bought cheap, but we have to bring it home.
        I suspect COVID has people distracted a bit.

    • PaperRooDogMEMBER

      I doubt it even requires a major war just some hot friction in the SCS, goodbye to most of our imports & exports.

  2. Covid19MEMBER

    I did 4th year at uni in Keatings recession.
    Lived whole working life in the property bubble.
    Never bought, but saved nearly the whole time, hand making thousands of electronic control boxes.
    Can buy a house or factory outright now.
    Periodically, some idiot would say there’s no money in manufacturing.
    Only if you make “me too” stuff inefficiently.
    I’ll wait for share prices to halve, PMs to double, and quadruple my money before buying a factory shed at half price and employing anyone.

      • Covid19MEMBER

        Don’t care, i look 20+yrs younger from no stress and no grey hair.
        Don’t even need to work anymore, tho i do it for the interesting stuff.

        • Jevons ghostMEMBER

          Well done covid19! There are a few others here whom I gather have adopted an analogous approach to yours in order to maintain their self respect.

        • darklydrawlMEMBER

          Punctuation: Noun (/pʌŋ(k)tʃʊˈeɪʃ(ə)n/) – the marks, such as full stop, comma, and brackets, used in writing to separate sentences and their elements and to clarify meaning.

    • I ran away from home during Keatings recession, got a job as a roofer, then went to the mines.
      Could barely find a place to rent during the WA property boom, let alone buy.
      Watched the best parts of Perth get bought by the Chinese. Kept saving.
      Eventually left Australia, travelled for a few years. Met the Mrs, had a kid, bought a house in Hobart.
      Now working in manufacturing (paper) I think it only has a few years left in it.
      Watching as the Chinese buy the best parts of Hobart.
      I will prioritise Mandarin lessons over swimming for my son.
      Australia has been sold.

  3. We still manufacture a medical device in Aus, but we’ll outsource it the first chance we get.

    • Jevons ghostMEMBER

      Mesoblast is on the cusp of greatness right now, and there is a significant number of anonymous Aussie biotechs with good works in the pipeline. Innovative stuff that we are really good at.

      • We have a long history of being really good at innovation and really crap at commercialisation, so we get a pittance instead of profits. This was well known in the mid 1980s but even now we only have some isolated cases so far where we have got something decent. Specifically CSIRO re wifi, and that took years of legal action, and CSL have been kicking goals globally for 25 years. Can’t think of anything else big in science and manufacturing that we have done right. I hope this is about to change.

        • Given that Aussie VC firms want to capture everything home-grown, I think that this will remain the case for a while to come.

  4. Manufacturing gets support from the ABC until some hack there says “but what about the emissions” and then they go hard on these dirty polluters! The two examples given, one by-product of the petroleum/gas industry, the second, lithium battery manufacture, highly emissions intensive (and unfortunately in some countries lithium extraction is far from environmentally friendly).

    Truth is some manufacturing, especially niche product, has remained viable, much else not, lost to global competitiveness. Perhaps the better question is how does Australia become globally competitive in areas other than mining and agriculture.

    • Covid19MEMBER

      And renewables apart from hydro are garbage for energy intensive stuff like refining aluminium.

      • Indeed. Australia is not on a path to major manufacuring resurrection. Opposite as the carbon neutral zero emissions no fossil fuel advocates (eg the ABC et al) seize opportunity from future generations. They are content to see Australia a work-from-home service oriented collective. They are happy to import manufactures from offshore comforted by the knowledge the emissions were not ours. Pure.

      • Just store and dispatch the renewable energy.

        Further, as I understand it, the renewable output curve is a lot flatter than a lot of naysayers believe…

    • Melbourne baristas make the world’s best soy chai lattes, surely that count for something?!

  5. some manufacturing needs to be declared as critical to national security and protected by subsidies. That will allow for development of long term manufacturing and know how that will attract other manufacturers.

    • Jumping jack flash

      Yes, this.
      It will naturally occur though.
      It was an ideology born only due to a sustained period of good times.
      It simply doesnt work in bad times

  6. Trump is our best bet to accelerate the return to self sufficiency. If re-elected we will get closer to something hot with China, with China slowing imports of our primary product to hurt us, and / or US demanding we limit supply to their ‘war’ effort.
    Things are developing nicely. My bet is he pushes harder towards the election.
    Nothing changes without a punch in face. We are owed it.

  7. call me ArtieMEMBER

    Hi Peachy. Check this out, if you are interested
    https://www.sealite.com/

    I know this business, used to do work for them. Still owned by a father/son pair. Both honest operators. They invested what they had (not a huge amount) about 20 years ago and have grown it from a shed-industry to it’s current state by sheer competence in their field and damned hard work

    They are now principal partners in a new AUD $540 million industrial development on the Mornington Peninsula. Yep, tin shed to half a billion in 20 years. By manufacturing. It can be done by good operators. As far as I am aware, they have had next to zero government support, a few awards is about it

  8. We are competing against countries that understand MMT and use their central bank to assist the manufacturers.

    Aussies just moan about the necessary borrowings to fund it and how ‘unsustainable’ the expenditure is.

    Even the so called woke Aussies don’t get it.

    Why weren’t our essential services being paid Jobkeeper on top of their wages, btw? (And no skin in the answer.)

    Hint, we can’t afford nice things

  9. Arthur Schopenhauer

    Anyone paying attention knows the next major war has already started. It doesn’t look like a 20th century War. Could someone tell Canberra?

  10. Jumping jack flash

    Give it time. This is only the early days, theyre still trying to repair the status quo.

    There’s another 30 years of debt deflation to go, at least. Plenty of time.

    Who knows, maybe at some point in that long journey to normality some government may realise that to earn real money for their people instead of pretending the debt was real, they need to skillfully transform raw materials into useful items and sell them to the world for profit.

  11. Ulrike Meinhof

    Aussies only like he idea of manufacturing, trouble is they don’t actually like making things, nor do they respect those that do like to make things. Aussie disrespect takes many forms but you don’t need to understand this because the shop shelves are still full (well mostly). Come see me when the shelves are mostly empty but when you come don’t come with words and empty promises just come with money (and plenty of it) and resources and plenty of them , and houses… yeah come to think of it, us lowly makers of stuff wouldn’t mind living on the right side of town.
    So spare me the pitiful pleading because when you’re desperate (and you will be desperate) I intend to remind you of the empty words that you gave me with which to feed my family. I intend to to show you exactly the same respect you showed me when you evicted my family so that you could sell my shelter.