I was recently invited to talk about the current state of manufacturing in Australia by CEDA, as part of their focus on advanced technologies and the future of work. I am so glad they remembered to include our manufacturing sector, because it will always play a pivotal role in our economy and especially in our future technologies.
You can see my presentation slides here.
Manufacturing’s share of output in the Australian economy has more than halved since the 1980s, from around 13% in 1980 to less than 6% in 2016. This sounds like a dramatic shrinkage, but it is too simplistic and somewhat misleading. In the 1980s and 1990s, manufacturing did indeed shrink, but since 2000 the story has become more interesting.
From 2000 to 2008, manufacturing output grew by about 12%. Then the global financial crisis hit, followed by the commodities investment boom and a very high Australian dollar. So all of the gain to 2008 was lost in the subsequent years.
By 2016, manufacturing output was about the same level as it had been in 2000. In the meantime, however, GDP grew by around 60%, so manufacturing’s failure to grow meant that its share of the total continued to decline. A similar trend can be seen in profits and investment over the same period. Manufacturing employment, meanwhile, has declined by more than its output. Employment has fallen by 18% (200,000 fewer jobs) since that recent peak in 2008.
So what does manufacturing look like today?
About a quarter of our output is from the food and beverages sectors. Machinery and equipment remains big, despite the progressive loss of automotive assembly that sits within this sector. Other important growth pockets that produce ‘consumable’ products include pharmaceuticals, toiletries, healthcare, cosmetics and groceries.
The second area of stability and growth is building materials, furniture and household furnishings (excluding electrical appliances, which are now mostly imported). ‘Advanced’ manufacturing, which includes advanced products, services, production processes and technologies, sits across all product categories and accounts for around a quarter of current manufacturing businesses.
All manufacturing exporters and import-competing producers are benefiting from the lower dollar in 2016, although it does mean that imported inputs are more expensive. Those making building-related products are benefiting from the resurgence in residential building activity on the east coast.
Significant challenges are both global and local. Australia ranks 21st as a globally competitive manufacturing nation. The global leaders share attributes such as skills and talent, innovation, access to good infrastructure and a supportive regulatory environment, but they do not necessarily have a low cost base. They also share a complex and highly integrated global supply chain network.
Like the global manufacturing leaders, Australia cannot look to low costs as a source of competitive advantage. Instead, we need to strengthen our links into global supply chains and build upon our existing ‘high-value’ attributes in order to compete.
Are you an Australian manufacturer? Where does your experience sit within this big picture? And how do you see the future of your industry unfolding? Please share your comments below to start a conversation.