Industry down but never out

Body blows expected, but Australia's manufacturing industry still has a strong future.

PACIFIC Brands’ decision to close the majority of its Australian manufacturing activities with the loss of about 1,850 jobs has made some commentators question the viability of Australia’s manufacturing industry.

While the company’s announcement, and others that have followed, have certainly dealt a big blow to the industry, it is not a knock-out blow by any means.

Australia’s manufacturing industry has worked extremely hard over the past three decades to restructure itself for a more competitive future on the global market. As long as the industry continues to reinvent itself during these difficult economic times, it will secure a sustainable future.

At the same time, Pacific Brands’ decision does send a signal to both the industry itself and Government about the current vulnerability of the sector. The human cost of the closure in itself is worrying, given that it is occurring in the context of rising unemployment.

Australia lost around 40,000 jobs in manufacturing in the six months to December 2008 and Ai Group’s Performance of Manufacturing Index (Australian PMI) showed in March that companies are looking quite actively to cut their costs through reduced employment.

The sector is certainly facing further pressure on employment going forward and while companies will be reluctant to cut jobs and will look at every other option before they do so, the outlook remains weak.

Manufacturing is the biggest employer of full-time labour in Australia by a country mile. It accounts for about half of Australia’s research and development and around a quarter of our exports.

As such, more will need to be done in the months ahead to give support to the manufacturing sector.

Manufacturing’s future lies in being very innovative and being engaged on a global basis. The sector needs highly skilled labour. Australia needs a very high knowledge-intensive industry, connected to its core advantages in mining and engineering.

The Federal Government can provide support for the industry in all of these areas. Ai Group is seeking measures aimed at encouraging innovation, fostering skills, and boosting research and development in the upcoming May Federal Budget.

But there are very real practical steps the Government can also take now, such as providing more guarantees to the banks in order to promote lending to small business.

At the moment, banks are rationing credit, but that’s not helping the situation because business needs money to invest in growth. The Government urgently needs to look at the steps it can take to help reverse this situation.

We are experiencing tough times and indications are that the situation may worsen before it improves. The manufacturing industry needs to prepare itself for a fair few body blows in the months ahead.

But it’s important to remain focussed on the future – and manufacturing does have a future. We have a chance for Government and industry to work together during this downturn to ensure manufacturing is in the best possible position to capitalise on the opportunities that will arise when the economy begins to accelerate once again.

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