The State of Australia’s Manufacturing Industry Now and Beyond the Resources Boom

ATSE’s submission is focused on the following two terms of reference for the inquiry; namely:

• the state of the country’s manufacturing sector…, and,
• policies for realising these opportunities

ATSE wishes to emphasise the need to gain competitive advantage for the manufacturing industry through innovation, particularly through research, quality and design, and the need to ensure our skills base is world class. Australia cannot compete in mass manufacturing but there are niches we can fill if we innovate. Accordingly, ATSE considers that there needs to be:

• a comprehensive suite of results-orientated incentives provided for the manufacturing industry to be actively engaged in the innovation process;
• strong investment in R&D capability in science, engineering and technology, in publicly funded research institutions (PFRIs);
• strong links forged between PFRIs and businesses involved in the manufacturing industry;
• support the development of ‘outreach’ programs, based on the establishment of ‘Innovation Clusters”, and
• significantly increased numbers of science, engineering and technology graduates to support enhanced innovation in the manufacturing industry.

Whilst all OECD countries have experienced a reduction in manufacturing as a proportion of GDP over the last few decades, evidence indicates that Australia’s manufacturing sector has contracted faster than other OECD economies. Based on the Australian Bureau of Statistics (ABS) analysis of manufacturing data for 2003-04, it has been noted1 that over the past 25 years, manufacturing has had by far the slowest growth than any other sector of the economy (45% between 1980 and 2005). Official ABS data shows that in 2004/05 manufacturing experienced what appears to be a healthy 6% jump in nominal sales. However, after taking into account price movements, the ABS notes that the sector experienced an overall 0.4% decline in sales volumes, the worst outcome in 14 years.²

It is well-recognised that Australian investment in R&D, one key generator of knowledge, is approximately half that of the OECD average, and that this is largely accounted for by a relatively low business investment in R&D. In addition, the structure of Australian manufacturing is dominated by low R&D intensive food and metals industries, and this consequently impacts on our national level of R&D and innovation. ³

Yet, data suggests that industries experiencing the fastest growing areas of world trade and carrying the greatest productivity and employment benefits are concentrated in the high technology, innovative and knowledge intensive sectors. Further, it is noted that in the case of those organisations that are actively involved in innovation, there is a greater level of engagement with publicly funded research institutions (PFRIs).

Two broad determinants of national investment in R&D have been established: intrinsic factors which address the propensity to invest, and structural factors, which reflect the above argument that different industry sectors have different levels of R&D investment required to remain competitive. The ICT and pharmaceutical sectors are the highest investors in R&D (typically 10% of turnover) and they barely exist in Australia.

ATSE considers the evidence is clear on both counts in Australia. Intrinsically determined investment in R&D is progressively falling further behind that of OECD nations, and significantly behind, in absolute terms, that of emerging economies such as China and India.