The COVID-19 pandemic reveals Australia’s vulnerability: a narrow, fragile manufacturing base akin to a developing nation
When the states and federal government woke up to the seriousness of the COVID-19 pandemic, they looked around for local manufacturers who could make the personal protective equipment, hospital ventilators and myriad essentials, right down to hospital mattresses, that a nation needs to survive in time of crisis.
What they found was shocking. One manufacturer of face masks, Med-Con, equipped with a single, ageing machine capable of making three million surgical masks a year when the immediate need was for 150 million.
A single manufacturer of hospital ventilators crucial to surviving a lung disease like COVID-19, ResMed, but which made only the simpler, non-invasive type. We simply did not make the complex ventilators needed for the most serious cases.
And the list goes on, illustrating the long atrophy of Australia’s manufacturing sector that is required to create the most complex products of advanced societies to the most insignificant.
Australia has only a single maker at scale of the silicon chips that are ubiquitous in everything from toasters and medical devices to space rockets — Silana Semiconductor.
Australia’s economy narrowly based
Our economy has been revealed as fragile to external shock, narrowly based and, crucially, lacking in the deep manufacturing capabilities and capacity enjoyed by other similarly advanced nations, be they Germany, Israel, Singapore or Taiwan.
Instead, Australia is left with the export profile of a developing nation, an industrial complexity similar to Senegal and Uganda, and an annual balance-of-trade deficit of $188 billion in elaborately transformed manufactures.
Our appetite for imported cars, iPhones, medical equipment and even simple wheels has to be paid for somehow, putting intolerable strain on other sectors to perform.
At the same time, our economy is becoming less innovative, with the research and development (R&D) intensity of the economy falling from above 2% of GDP only eight years ago to 1.79% today.
Spending on R&D in deep decline
Most worryingly, business expenditure on R&D (BERD), which creates future wealth, is also falling, down a massive 10% in the latest year alone — from 1% of GDP to 0.9%.
It is for these reasons that the manufacturing industry itself has mobilised and developed a plan to reignite Australia’s languishing manufacturing sector.
Launched this week and to be delivered to the National COVID-19 Coordination Commission manufacturing taskforce, the The New Deal Plan for Manufacturing was crowd sourced during April and May from Australia’s manufacturing communities, academics and industry experts. This crowd sourcing for industry policy was a first.
It calls on a major commitment from the federal and state governments to lift Australia’s capacity to again be self-sufficient in a range of industrial areas by:
- establishing a National Industrial Strategy Commission;
- identifying critical sovereign manufacturing capabilities across the economy;
- creating a whole-of-industry workforce development plan;
- revamping government procurement policies that recognise value for money for the economy over the life of the product, as opposed to the initial upfront cost; and
- accelerating depreciation allowances to help manufacturers re-equip.
The more than 50 substantial submissions received from readers and Forum members were distilled into the plan, which argues the economy can recover if Australia acts now; the core of a strong local manufacturing industry still exists.
Biotech and steelmaker are the future
Companies such as CSL, the world’s No. 2 biotechnology company, Austal, the world’s No. 1 in aluminium-hulled ships, and steelmaker BlueScope Steel, a global leader in steel coating and painting technology, represent the blueprint for growth.
In the technology sector, sleep apnea company ResMed and hearing implant maker Cochlear dominate their global niches, while tna Solutions is a global success story in the manufacture of food machinery.
But to make more of the enormous potential of Australian manufacturing, our policy settings need a complete reset.
We can no longer rely on our natural comparative advantaged in raw materials for prosperity, or even for survival. We must build national competitive advantages. And that means we have to learn to make things again.