Pandemic prompts domestic focus on manufacturing

Like many developed countries, Australia doesn’t make as much as it used to. When the nation was on the rise as an up-and-coming industrial power, domestic manufacturing was a way of life, topping out around 30% of GDP in the 1960s. Since then, the per centage has gradually declined to about 6%. Just since 2008, Australia has lost more than 200,000 manufacturing jobs. Most of those have headed overseas, where labour has been a lot cheaper. Just like in 2008, when Australia fared much better than a lot of other places during the Global Financial Crisis, the COVID-19 pandemic hasn’t been as destructive as in other countries. Even though it’s an island nation, no nation can truly be an island in this era of globalisation, and what happens elsewhere is still felt. With the pandemic hitting China—where many products sold in Australia are made—first, companies are finding that cheaper is not better when there are so many gaps in the supply chain. It could prove a turning point in bringing manufacturing back to Australia.

Come Together

This sort of change doesn’t happen overnight, of course. Those jobs didn’t all go overseas at once, but little by little. But events as sweeping as a pandemic have a way of shaking things up and serving as a reset button. The first step was addressing an immediate need: medical equipment. Grey Innovation spearheaded a consortium of 30 Australian companies with the goal of making 2,000 ventilators to solidify the national stockpile during the current pandemic and for future emergencies. The ventilators are set to be delivered by the end of July—doubling Australia’s supply—after the consortium struck a $31.3 million deal with industry minister Karen Andrews in early April.

“This deal demonstrates the power of bringing Aussie manufacturers and clinicians together and is also a reflection of the highly advanced manufacturing capability that exists in our country,” Andrews said. “Companies which are normally in competition are working together for the greater good.”

Andrews also said the country was set to produce more than 200 million protective masks over a period of six to nine months, an enormous increase of the 7 million masks that are Australia’s average annual output.

“Hopefully, out of this exercise there’s going to be some very good dialogue and action—I hope—around the role of manufacturing in this country,” Grey Innovation executive chair Jefferson Harcourt told SBS News. “As we’re saying, let’s make Australia make again.”

Comparative Advantages

As Australia planned for lockdowns and the needed economic recovery to follow, Prime Minister Scott Morrison tapped former Fortescue Metals Group chief executive Nev Power to lead the National COVID-19 Coordination Commission. The commission is tasked with minimising the damage to businesses and their employees and facilitating a swift recovery.

“We have an opportunity that we can take out of this crisis to change that and put in new investment, new technologies, take advantage of our low dollar at the moment to restart a lot of manufacturing,” Power told Perth 6PR Radio.

Power noted that cheap labour in Asia has been a primary cause of offshoring but said a strong domestic market and lower energy costs can offset that. It’s not realistic to think that all of a sudden Australia can overtake China’s production in every industry. But it can start by focussing on areas of advantage. For instance, Australia is by far the world’s largest producer of lithium, a key ingredient in the manufacture of batteries, and last year opened a $135 million lithium research centre. Rather than sending lithium overseas then buying the subsequent batteries, Australia can invest more in manufacturing them domestically with a tighter supply chain. That battery production, in turn, can help lower energy costs by ramping up storage of renewables.

“I hope that the COVID-19 crisis sees the government and other companies across the board reassess their supply chains and look locally to fill, if not all, at least some of their orders,” Almec chief executive Lil Taylor told the ABC. “It will help protect the manufacturing industry so that it is there when they need it most.”

Bringing Jobs Home

Another focus is defence. The $90 billion shipbuilding program in Adelaide continues apace, and government representatives have been meeting with industry leaders weekly to discuss cashflow and supply chains. Australia is capable of making many of the parts suppliers currently source from overseas, University of South Australia defence director Matt Opie told the The Lead SA.

“Historically Asia has won out on price but given the current situation, utilising a guaranteed supply from Australian providers should be given a higher priority over lower cost,” he said. The Hunter Class frigate program is adding hundreds of job directly and thousands more indirectly nationwide at defence primes and small component manufacturers.

Whilst looking inward and reassessing domestic manufacturing is an important conversation to have, it’s also good to look at the rest of the world and realise how much better Australia has fared during the pandemic.

“It’s fair to say in Australia that we haven’t been hit as hard so when we’re having conversations about supply chains and project milestones, they’re having conversations about loss of life and that puts it in perspective,” Opie said.