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Is the Australian Manufacturing Industry dying?

You have to ask the question after the Australian manufacturing industry posted its tenth consecutive poor month in December.

The Australian Industry Groups index showed a December reading of 44.3, unchanged from the previous November reading. Unfortunately that’s well below the neutral point of 50 that splits growth and decline.

More so, all eight industry sub-sectors were below 50, indicating broad issues for the sector. This is even more concerning when the new orders index recorded an unhealthy 45.7, suggesting more rough times ahead.

So why give a dam?

Australian manufacturing employs almost 1,000,000 people and is a vital link in the national innovation structure. Industrial innovation cannot exist without a strong manufacturing base.

Many Australian ‘high-tech’ and service industries rely on the Australian manufacturing industry for income. Then there are the taxes and the economic stimulation of a healthy manufacturing sector.

Regrettably around 100,000 manufacturing jobs have been lost since the global financial crisis, even with the healthy growth of Australia’s minerals and energy sectors over the same period.

With around 71% of all manufacturing employment located in Australia’s non-resource rich states, it creates a two-speed (possibly three-speed) economy and a major concern for several Australian states.

In the past, Government owned utilities and businesses were diligent in employing, training and developing trades, technical and professional staff. But budgetary pressures and privatisation has seen much of this pushed to the manufacturing sector. If we do not support the Australian manufacturing sector then we will potentially lose the ability to service our own markets.

Then there is the threat to Australias’ mining sector by several emerging mineral exporting countries. Countries that were once seen as high risks are now surging ahead with development – uranium in Kazakhstan; coal in Mongolia and Mozambique; and copper in Chile and Peru for example.

We all like the Aussie lifestyle and there are things of value in our society that must be protected for the future. With potential new competition in the mining sector and a diminishing manufacturing industry the Australian way of life could well be under threat.

So where to?

The question of whether manufacturing has a future in Australia has been hotly debated for some time with varying views. Its importance is also frequently questioned.

Professor Roy Green has stated, “Australian manufacturing is important because of the strong connection between manufacturing and developing a knowledge-based economy.”

If Professor Green is correct and I think he is, then we must try to protect Australias manufacturers – not just provide band aids to some sectors.

Can Australian manufacturing compete? Is Oz Manufacturing on a level playing field?

Yes and No are my short answers. Yes we can compete and no we are not on equal terms and there are many instances that support that view.

Whilst labour is a low cost input in many developing countries, it is usually only 20% to 30% of the total manufacturing cost – significant but only one of several drivers.

Agreed, a high Australian dollar is not friendly to the manufacturing sector. But more damaging is the higher cost to business due to the impacts of the carbon tax, particularly todays cost of energy.  A huge burden for Australian manufacturing not shared by its competition.

I acknowledge that there are many excellent off-shore companies supplying products to Australia. But it’s not always the case. Some are just not at the same standard.

One has to ask are the imported products produced with the same quality management systems and standards of their Australian equivalent? Are the management systems meeting the same occupational health and safety requirements? What about environmental expectations? Is the company socially responsible? Do these imports stimulate the Australian economy; provide positive impacts on employment, taxes or industry development?

If ‘yes’ then there is no argument – Australian manufacturing has to compete or die.

But if the answer is no then we are not on a level playing field. Rightfully Australian manufacturing places great emphasis on safety, employee welfare, environmental protection, quality management and social responsibility. A great thing! But we need to acknowledge that these are major inputs to the manufacturing cost and should not be used as an excuse to label Australian manufacturing uncompetitive.

Australians, particularly Governments, should be morally responsible enough to not purchase from regions or companies who do not meet the same standards of manufacture and social responsibility. We cannot demand from Australian manufacturers what we are prepared to turn a blind eye to from its competition.

The federal government needs to make a clear statement of support for Australian manufacturing and recognise its importance to Australia’s economic future and respond to the current challenges facing many manufacturing firms in this two-speed economy.

Time is running out.

New Leaders in China

November 2012

A new generation of leaders will take over in China and they may have more freedom to take bold economic action.

The handover of power in China, which began at the meeting of the 18th National Party Congress in Beijing on 8 November, is Chinas’ most critical event of the decade and will last for seven days

In stark contrast to the USA presidential election with all its glitz and glamour and media coverage, China will this week anoint its new leader Xi Jinping behind the doors of the monumental Great Hall of the People.

The two could not be more different, but both have equal importance to the global economy.

In China, as well as formally confirming Mr Xi as successor to Hu Jintao, the purpose of the congress is to affect a well-organised transfer of government to a new generation of leaders. At the same time it will endeavour to ensure 1.3 billion Chinese that the party is strong, progressive and well placed for the future.

Xi Jinping, the 59-year-old Vice-President, has been announced as the next leader of the Communist Party and therefore automatically becomes President of China from next March. He currently serves as the top-ranked member of the Central Secretariat of the Communist Party of China, the country’s Vice President, Vice-Chairman of the Central Military Commission, President of the Central Party School and the 6th ranked member of the CPC Politburo Standing Committee, China’s de facto top power organ.

Economist will be relieved that at least on the political front the world’s two largest economies have gained some certainty with the election on Barrack Obama and Xi Jinping.

Mr Xi seems to be sitting pretty. Growth in China has slowed, but to a rate that remains the envy of the world, while Chinese industry continues to spread around the world. Obama will have to resolve the government’s budget deficit, bring down unemployment and refresh American attractiveness.

Whilst we try to digest the results of the US elections, it might seem obstinate to be thinking about the regime change in China, but the truth is that what is happening in China will almost certainly have more impact on life in Australia than the US elections.

Australian Mining – Is it Boom, Bust or Steady as she goes?

Sept. 2012

Recent weeks have seen growing debate around the Chinese economy and its effect on the Australian mining industry.

On the back of speculation about an imminent economic blowout in the world’s second-largest economy – China;  plummeting Australian mining profits and resource projects shelved – the tongues started wagging ”the boom is over” and the road ahead is a rocky one (no pun intended).

China set a 7.5 % target for economic growth in 2012, but some analysts’ fear that could be missed as a global slowdown drags down activity.

Indicators such as the manufacturing Purchasing Managers’ Index and electricity consumption, suggest that China’s economy is suffering a downturn due to reduced export and domestic demand. This has the pessimists claiming the country cannot meet its annual economic growth forecast and this in turn will trigger lower demand for Australian resources and drive lower prices and produce an end to the mining boom.

All makes good sense I hear you say????

Well just last month  Reuters reported  – “China is on track to meet this year’s target for economic growth and if needed the government could utilize a 100 billion yuan fiscal stability fund to boost growth, Premier Wen Jiabao said on Tuesday.”

And according to IMF forecasts – global GDP growth rates are increasing year-on-year and the economy in 2013 will be in a slow but potentially in a stable recovery mode.

Other reports indicate that there will be greater than $150 billion of capital spending by Australian companies within this fiscal year. Still significant spending one would suggest. The Treasury Secretary, last week stated that indicators suggest the mining sector’s expansion has much further to go and could remain near record high levels until the middle of the decade.

Indeed, China’s economy is going through a tough time now following an average of almost two-digit annual growth over the past three decades, with its economic rise slowing for nine consecutive quarters after its GDP growth spiked to 11.9 % in the first quarter of 2010.

But is China’s economy really sliding into a hard-landing as some forecast?

China’s slowdown is due to falling demand from Europe and the United States, as well as the global economic downturn in general. But there is also structural change as the Chinese government has tightened regulation in the property sector and initiated other means to rebalance its economy.

The Chinese government has plenty of fire power and we cannot forget that they are aiming to increase domestic retail sales by 15 % annually to reach 32 trillion yuan by 2015.