Manufacturing for a sustainable future

Ukraine manufacturing

The war in Ukraine has changed the world. Over the course of the last month, the world has returned to a pre-1989 Cold War state – with the added threat of nuclear and chemical weapons. 

How has this happened? Well, during the intervening 30-odd years since the end of the Cold War, many of the democratic nations of the world have settled into complacency on several fronts. This has invited the autocratic global states to try their luck—the war in Ukraine is just one result. 

The sanctions placed on Russia by Western nations will have an enormous impact on their economy. Australia and the United States have prohibited the import of oil, refined petroleum products, natural gas, coal and other energy products from Russia. The United States, United Kingdom and European Union have introduced unprecedented financial penalties on Russia. Exporting goods to Russia – including cars, clothing, chemicals and art – has been banned. Russian imports are attracting taxes of 35 per cent, and the assets of Russia’s central bank have been frozen. Rightly so.

The impact of these measures is already being felt. The cost of basic products has skyrocketed, job losses are looming, and hundreds of international companies are pulling out of Russia. Even McDonald’s has closed their 800 restaurants in Russia.

Imagine if Australia was on the receiving end of such draconian sanctions. 

It is not such a far-fetched proposition. China has already placed sanctions on Australian barley, wine, beef, seafood, cotton and coal. 

China is our largest trading partner by far. According to figures from DFAT, China holds a 35.3 per cent share of Australia’s export market, accounting for $167.6 billion annually. Coming in second – by a long way – is Japan, with just 11.8 per cent of Australia’s export market. Given the huge proportion of Australia’s export market the country holds, imagine if China imposed harsher economic sanctions.

Imagine if China decided not to accept our iron ore, or coal, or natural gas. Imagine if China refused to supply Australia with electronic chips and electrical equipment, machinery, furniture and textiles. Australia would be as vulnerable – possibly even more vulnerable –than Russia. This vulnerability stems from the demise of Australia’s manufacturing industry.  

The demise of Australian manufacturing

During World War I, the Australian Government quickly realised that our economy was too reliant on imports; it was near impossible to source many products in wartime. As a result, Australia started to manufacture a range of products on-shore during the war, from aspirin right through to chlorine. Our steel industry also experienced enormous growth. BHP opened a new steelworks in Newcastle in 1915, which generated huge profits due to the unprecedented demand for steel to build ships, ammunition and artillery. Australia quickly matured from a rural economy into a substantial manufacturing power.

The 1920s marked the beginning of the car manufacturing boom in Australia. By 1929, 440,000 people were employed in manufacturing, approximately 18 per cent of the total population.

When World War II hit in 1939, Australian manufacturing was poised to play an even greater role than it had during World War I. With imports scarce, local demand was high. And, Australia also became an important supplier of manufactured goods to the United Kingdom and the United States. Australian manufacturing remained strong in the years immediately after World War II. Throughout the 1950s and 1960s, Australian manufacturing was responsible for approximately 28 per cent of the GDP, and 28 per cent of all employment.

Fast forward to today and, while manufacturing remains a vital part of the Australian economy, it is responsible for just 5 per cent of the GDP, and only 5.4 per cent of total employment.  

Australia’s governments must come to realise that, without a strong local manufacturing industry, our economy is weakened substantially. Without sovereign manufacturing capability, Australia is vulnerable to coercion from more powerful economic states. In times of turmoil, we cannot presume to rely on the generosity of our allies. After all, our allies will be focused on supplying their own citizens, industries and defence forces. We need only look to the recent global supply chain issues caused by the COVID-19 pandemic for confirmation of this fact.

The solution

Australia must build its self-reliance. Instead of mining our natural resources and shipping them offshore, we need to be manufacturing value-added products here at home. In 2018, Australia surpassed Chile to become the largest producer of lithium by metric tonnes. And yet, Australia does not manufacture batteries. Instead, we ship most of our lithium to China as spodumene, where it is manufactured into batteries that Australian then imports back. We need to be manufacturing our own batteries locally. We need to encourage electronics companies to set up shop in Australia so we can manufacture circuit boards and electronics chips locally.

Similarly, Australia has one of the world’s largest supplies of iron ore. Again, we dig it up and ship it overseas, adding absolutely no value. Australia needs to be investing in the capacity and capability of its local steel industry. Australia is home to some of the world’s leading steel manufacturers, including BlueScope, InfraBuild and Bisalloy. Why not invest in their local operations to bolster our sovereign capability? 

This is particularly important given that China announced in December 2021 that it is set to boost domestic iron ore production by 30 per cent, significantly ramp up investments in overseas mines and strengthen scrap steel recycling under a plan designed to break their dependency on Australia’s most valuable commodity export.

A skills-led recovery

This manufacturing reinvigoration will rely on a skills-led recovery. And yet, Australia’s largest, oldest and most essential vocational education provider, TAFE, has had courses and budgets slashed over the last 10 years. According to the Australian Education Union, since coming to power, the Federal Coalition has cut $3 billion from vocational education funding, and overseen a 24.5 per cent decline in TAFE enrolments. These cuts to TAFE funding have had a severe impact on course and campus closures, attraction and retention of teaching staff and workload. 

The result? TAFE graduates who are under-skilled, and an Australian industry that is faced with a severe skills shortage.

The federal government has also failed to implement the recommendations outlined in the Joyce Report, handed to them three years ago. Of the 71 recommendations, just one has been implemented.

Weld Australia is calling on the federal government to implement the ‘Early Actions’ recommendations of the Joyce Report without further delay. These include disbanding the existing infrastructure for developing training packages and qualifications and replace it with industry led Skills Organisations; strengthening quality assurance by introducing independent student assessment to international standards; introducing vocational pathways in schools as part of the STEM program; and establishing a National Skills Commission to generate skills demand forecasts and realistic pricing models.

With proper funding and a systematic overhaul as recommended in the Joyce Report, there is a brighter future for TAFE and skills development to help foster the reinvigoration of the manufacturing industry. We just need the Federal Government to make it happen.

A commitment from government

We have massive gaps in our industrial capacity and the Australian governments is not showing any signs of filling them. We need to manufacture our own batteries, electronics, plastics and composites. We need robust, cutting-edge aerospace, fabrication, and steelmaking industries. We need to add value to our natural resources. 

There is a strategic imperative on the Australian government to realise that the world changed when Russia invaded Ukraine. As a result, Australia must reinvigorate its manufacturing industry. We cannot rely on our allies and trading partners to fill the gaps in our industrial capabilities. We must have a robust manufacturing industry to ensure a sustainable future.

Australian manufacturing needs strong leadership, the support of all levels of government, and investment in technology, education, and resources. It needs a commitment from government to foster the ingenuity of our inventors and engineers, as well as our manufacturers. Only then can Australian manufacturing return to its former prosperity and make a vital contribution to Australia’s economy, workforce, and future.

For more information on Weld Australia, click here.