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A revival of local manufacturing, focusing on key sectors with advantage, offers a huge opportunity, says report.
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‘Made in Australia’ the route to growth: CreditorWatch
04 August 2022
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10 minute read
Local manufacturing can be a growth engine of the economy according to CreditorWatch, which said global turmoil means domestic demand is growing for made in Australia.
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It said three sectors – clean energy, food and medical – stood out due to a clear need for domestic capacity or a natural competitive advantage and the government’s recently announced Modern Manufacturing Strategy “provides a strong baseline to make this a reality”.
CreditorWatch made the assessment in a report, “How the manufacturing industry can strengthen the Australian economy”, which assessed the current state of play and outlook for Australia’s manufacturing industry.
CreditorWatch chief executive Patrick Coghlan said Australia had undergone similar upheavals to other economies during the pandemic, with the Ukraine conflict and local floods just exacerbating the situation.
“The result of all these events has been extremely disruptive to the economy, with lockdowns, breakages in supply chains, a lack of labour, dramatic shifts in consumer demand, rising energy costs and rising inflation all making conditions very complicated for businesses to operate in,” he said.
“However, with disruption comes opportunity and one of the clear opportunities this presents is for Australia to manufacture products locally where demand is current and only set to rise.”
Demand for local products was set to rise and CreditorWatch data pointed to manufacturing as one of the sectors with a consistently low probability of default.
The report said while the cost-benefit calculation favoured offshore manufacturing for some products, there were others where it made sense to build local capacity.
Figures from the ABS cited in the report showed the share of GDP generated by manufacturing has been cut in half over the past 30 years, to just 6 per cent. It has been overtaken by today’s biggest contributors, led by mining and healthcare.
However the report focused on three sectors ripe with opportunity, with clean energy heading the list.
CreditorWatch chief economist Anneke Thompson said there a need for “serious upscaling of clean energy creation”.
“By necessity, this must be done onshore and will require a large amount of manufacturing know-how and capacity,” she said.
Food manufacturing was another sector with potential, with a recent report by the Food and Agribusiness Growth Centre predicting the industry could triple in value by the end of the decade.
“Food manufacturing is a hedge against future global economic downturns,” Ms Thompson said. “If bought onshore, this has the potential to grow the industry’s value-added capacity from its current $61 billion to over $200 billion by 2030. This would equate to the creation of an additional 300,000 jobs.”
Mr Coghlan said the pharmaceutical and medical manufacturing was another area in which Australia could build on key competitive advantages from its existing medical R&D.
“These final products will not only be in demand locally, but globally, and require a level of complex manufacturing that is not necessarily cost competitive in more low-cost countries,” he said.
The report said the pandemic had brought to sudden attention Australia’s lack of production capacity in pharmaceuticals and medical equipment, with successfully developed products frequently manufactured offshore.
The three areas identified by CreditorWatch are among the six nominated by the Modern Manufacturing Strategy, which also named resources technology and critical minerals processing, defence, and space as other leading candidates for an initial $1.3 billion in funding support.
CreditorWatch said as manufacturing was a low-risk industry dominated by larger operators, the sector was less exposed to fluctuations in consumer sentiment.
However, it said both state and federal governments would need to invest heavily in training to address the labour shortage if manufacturing capacity were to increase.
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