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Niche manufacturing should lead Australian post-crisis agenda

Niche manufacturing should lead Australian post-crisis

Australia should focus on building a niche manufacturing capacity in the post COVID-19 era, a new report by KPMG published today finds. But while Australia examines options for economic innovation post-crisis, it is essential that we also retain our global links.

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The report argues that crippled global supply chains and a lower Australian dollar combine to provide an incentive and opportunity for an Australian manufacturing industry to re-emerge. But the paper says that this would not be a reversion to a past economy and would not be protectionist – rather, it would have a focus on manufacturing efficient, high-tech goods that Australia needs to be self-sufficient, such as essential personal protective medical goods and medical technologies.

Those sectors are consistent with the six industry growth centres already identified by Federal Government policy – where Australia is felt to have an advantage or a deep strategic need (defence and cyber). These are: manufacturing; cyber security; food and agribusiness; medical technologies and pharmaceuticals; mining equipment; technology and services (METS); and oil, gas and energy resources.

The report argues strongly for continued strong links with Asian economies which is where Australia currently largely imports from, and which are now heavily impacted by COVID-19

Merriden Varrall, KPMG Australia Head of Geopolitics & Tax, and report author, said: “The post COVID-19 recovery, while it will be difficult, provides opportunities to develop new technologies that can generate new businesses, industries, jobs, and sustainable, low-carbon growth. For example, Australia’s comparative advantage in renewable energies provide an opportunity for the country to build in that sector. Recent KPMG research has shown that the circular economy could bring significant benefits and savings to this country. We need to look to emerge from the crisis with a new direction as the economy cannot go back to business as usual.”

The report observes that Australia’s supply chains are being most affected by the ban on international travel, as over 80 percent of Australian airfreight is carried in the cargo holds of passenger aircraft. This means there is a tremendous impact on the ability of our air freight industry to keep up with the deliveries that rely on those passenger flights. This is impacting the delivery of electrical and mechanical equipment, urgent repair components, and essential inputs into global supply chains.

The paper argues that there is broad consensus on the need for Australia to reorient its manufacturing capabilities such that they can quickly pivot to produce essential goods and plug intermediate input holes that emerge under more strained international supply chains. The importance of sovereign capability in essential areas has been acknowledged by Federal Government.

An exemplar country that we can look to in this space, says the report, is Switzerland, which is the third largest exporter of medical supplies and equipment to the world, according to the WTO. A key reason for this success has been Swiss MedTech – an initiative that aims to improve competitiveness and promote the export of medical technology to key world markets. It does through promotional efforts, training and development and supports for innovative domestic companies

Merriden Varrall said: “Sovereign capability in key areas is important but this must not mean turning to protectionism. We must never forget that free trade has boosted global income exponentially over many decades and continuing to provide development support to our regional neighbours is essential. Australia must remain committed to global trade.

“Certainly, we are facing our own profound economic difficulties, but supporting our neighbours is not only the right thing to do, it also makes sense for our own interests. Australia’s economic as well as social wellbeing is critically intertwined with the wellbeing of the Asia/Pacific region. While we should focus on the six industry growth centres identified by government, other imported supplies (like steel, clothing & textile, consumer electronics) are expected to, and should, remain globally sourced given international advantage.”

The report argues that investing in infrastructure is another important part of a new economic vision for Australia. Given the shift to more flexible working arrangements and the intensified need for high-tech solutions, high speed internet is a key area for investment. Ensuring our schools, hospitals, and transport are more agile and responsive to sudden changes are also important areas for investment. There is also potential for investing in more ‘on-shoring’ of services such as call centres, which could provide new kinds of employment opportunities for Australian workers.

Merriden Varrall said: “A post COVID-19 economy will require investing in a range of education and training capabilities in order to ensure our workforce can meet the demands of a different kind of global trade network. Reforms to the education sector are being made to ensure that graduate capabilities are aligned with both changes to domestic industry as well as shifts in Australia’s international focus. This is one key example of how we must come out of this crisis with a different mindset and vision that we entered it.”

For further information

Ian Welch
KPMG Communications
0400 818 891
iwelch@kpmg.com.au

 

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