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.