A collective sigh of relief was heard across Adelaide after the Federal and State Governments announced they had struck a deal with General Motors Holden (GMH) to secure the Elizabeth operations until 2022. This gives us precious time to develop and implement a strategy to boost the resilience of trade exposed manufacturing in Australia.
Most commentators are pessimistic about the future of the automotive sector and rightly so. The industry faces enormous international competitive pressures, principally because of the high Australian dollar but also because of the rise of low wage manufacturing in China and India. BIS Shrapnel Chief Economist Frank Gelber thinks that the $A would have to go down below 80 US cents to make many of our manufactured goods competitive in global markets. Not much chance of that over the medium term!
Nothing short of a radical overhaul of the manufacturing industry will do the job. The good news is that despite losing market share to cheap imported cars, GMH still enjoys a high level of brand loyalty in Australia. There is solid demand for its product in Australia, making it possible to sustain low export volumes without falling over. Maintaining solid domestic demand is a key to its survival over the next five years.
As a result of the new deal, GMH has agreed to examine how its Australian component suppliers can link to its global GM supply chain, providing parts for its operations in other countries. This is very welcome but a high exchange rate will continue to make this a difficult prospect for most.
The manufacturing industry faces many challenges and some diabolical problems in the years ahead.= Thinker in Residence Professor Goran Roos offers no panacea but he does offer us some intelligent solutions. He just released an awaited 200-page report, Manufacturing into the Future. It is an impressive piece of work, a foundation for informing policy and action for years to come.
We need to be reminded that manufacturing matters. Roos does this brilliantly. He makes the crucial point that those regions, which have a higher share of manufacturing generally experience higher rates of GDP growth. He warns us of the dangers of writing off manufacturing in the face of global competition and to be aware that mining investment booms don't deliver pots of gold at the end of every community's rainbow.
Manufacturing is central to a robust and productive economy and prosperous society he argues. The bottom line is clear. He argues that every dollar of manufacturing turnover generates a further two dollars of economic activity elsewhere in the economy.
"Depending on the structure of the economy, a job in manufacturing generates between two and five jobs in the rest of the economy," Roos explains.
It is not just the quantum of jobs that the sector generates but the wide range and quality of jobs that makes the manufacturing sector such a valuable employer. The sector "enables a high level of employment for all types of skills, either directly or indirectly," Roos argues. He estimates that if you were to shift investment from manufacturing into mining you would end up with 4.5 million unemployed in Australia. This is sobering stuff.
Over-dependence on mining worries Roos. He sees the opportunities that can flow from new mining development for the manufacturing and services sectors but laments the impact an unchecked mining investment boom has on the value of our currency and the cost of doing business in manufacturing. In a relatively small state like South Australia, a large project like the expansion of Olympic Dam can starve other sectors of specialist engineering and construction skills, driving up the cost of these skills and delaying non-mining public infrastructure works. The upside of the mining investment boom is that it will be an important new source of demand for locally produced goods and services, so long as we identify them early enough and gear up adequately to supply them. There will be plenty of competition from overseas and other states.
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