28 June 2020

We need manufacturing but the conditions must be right

As featured in The Australian 28th June 2020

Manufacturing has re-entered our national debate in a big way, bringing a wave of interest in what we make in Australia, what we should make and how we can grow and strengthen our manufacturing capabilities.

That’s a good thing.

One of the economic lessons from COVID-19 is surely that those manufacturers who still call Australia home have been remarkably resilient.

They have operated continuously, despite disruptions. They have adapted quickly to changing health and safety systems and pivoted into areas of need. They have maintained supply of everyday essentials and they have kept people in well-paid, stable jobs.

Why would Australia not want to retain and grow capabilities like that?

Australia is already home to many outstanding manufacturers, made match-fit by the challenges of competing in a high-cost, small-scale, very open economy. International competitors are almost always larger, and often more protected, than even our largest manufacturing companies.

That tough home ground makes many Australian manufacturers among the world’s best at what they do. We have world-leading manufacturing capabilities clustered around food, agriculture, housing construction, health, mineral resources and energy-intensive industries.

We are right, however, to worry about the overall decline in manufacturing. These capabilities, once lost, are difficult to rebuild, and a backdrop of disrupted global supply chains, simmering trade tensions and weak demand in several key sectors that underpin manufacturing won’t make rebuilding any easier.

If Australia is to grow manufacturing as it recovers from COVID-19, we must have an investment climate that encourages manufacturers to spend and grow here, and which attracts others from home and abroad to join them.

First, our fundamental business conditions must be globally competitive. Is Australia a safe and reliable place to invest? Are our tax rates, investment incentives and regulatory costs competitive? Can we build plants on time and on budget? Can we move products efficiently by road, rail and sea? Do our workplace laws enable and drive productivity?

We don’t need to be the best on every metric. But to be “on the map” for world-scale manufacturing investment we need to be broadly competitive across the board. Second, we must get energy costs down. This isn’t at odds with transitioning, inevitably and rightly, to a lower emissions economy. But that transition needs to be carefully managed and realistically timed.

Energy underpins and enables manufacturing: as a feedstock, a source of processing heat and a source of power. Without globally competitive energy costs, Australia simply won’t attract world-scale manufacturing.

Manufacturers need to pay a fair price for energy. That’s not in question. But energy prices in Australia are not fair.

It’s not manufacturers saying that. It’s the ACCC, through successive reports which have made it clear that Australians pay too much for energy, especially gas.

Those reports have provided governments with the necessary rationale to intervene, and they should.

Third, we must encourage R&D and innovation in the real world, and link our incentives to domestic

Investment in R&D drives manufacturing competitiveness. In Australia, technology-enabled manufacturing can help us overcome hurdles of scale, provide safer, better paid and more rewarding jobs and make products of the same consistency, quality and customisation as manufacturers operating in
larger markets.

There will be renewed debate about innovation and R&D incentives in the months ahead. Whatever mix of tax and direct incentives we adopt, they must be globally competitive and they must improve productivity and drive production in the real world.

Fourth, we must accept that the world doesn’t always play by the rules and it’s OK to protect our interests, even as we pursue free and fair trade.

The anti-dumping system is not tariff protection. It does not prevent competitively priced imports being sold in Australia. It is an impartial, rigorous and evidence-based way of preventing injury from imported goods that have been subsidised or sold at artificially low prices. All WTO members have a right to an anti-dumping system, and Australia is not out of step with other advanced economies by carefully imposing dumping duties that are modest by comparison to most of the world.

These are long held and broadly accepted fair trade principles. We cannot abandon them at a time when global supply chains are disrupted and the risk of goods being dumped is high.

Growing Australian manufacturing should be a national priority as we recover from COVID-19. Doing so will boost our resilience against future shocks, create long-term, well-paid jobs and increase the complexity and competitiveness of the economy.

We don’t need to resort to protectionism to do this, but we do need to ensure Australia is a competitive place to do business, lower energy costs, embrace technology and prevent unfair trade.

Ben Eade is the chief executive of Manufacturing Australia.