The future of Australia’s manufacturing sector looks very positive, although there are a few challenges we need to confront in the coming years.
One of the biggest hinges on an element of uncertainty anchored by how seriously the global pandemic disrupted global supply chains. For local manufacturers, this disruption meant they had trouble sourcing some of the component parts needed in their production processes.
This coupled with continuing uncertainty around energy policy and the extent and randomness of ongoing lockdowns has made for a challenging environment when it comes to making investment decisions around expansion or equipment procurement.
Another significant challenge is Australia’s continuing skills shortage.
Both federal and state governments are focused on a solution which, in the short-term, will need to see borders open as vaccination programs roll out globally so we can bring in the talent we need. Longer term we will need to ensure our training and our educational resources are focused in the right areas so we can support the expansion of our manufacturing capability into high-end, high-skilled industries.
Addressing these uncertainties are just some of the challenges the nation faces as we emerge into a post-Covid world.
Yet despite these, there is plenty of optimism in the manufacturing sector.
The federal government has identified numerous industries as areas of priority as part of its $1.5 billion Modern Manufacturing Strategy, including those where we have a natural advantage such as agriculture, energy and resources, as well as other sectors ranging from medical products to defence and space.
At Westpac, we’re particularly excited by the government’s focus on defence and the expansion of Australia’s defence capability, and its commitment to sourcing a high percentage of project content locally across all defence procurement.
For example, the Australia’s Future Submarine Programme is scheduled to operate for many decades. With a local content requirement of circa 60 per cent, the opportunities for local manufacturers are enormous, not just for existing defence industry manufacturers.
There's a whole host of suppliers needed to assist with the construction of the 12 Attack Class submarines, but also to service and maintain them over their 30 to 40-year lifecycle.
Beyond naval procurement, consider what the other defence branches are doing and you can begin to appreciate the opportunity there is to create a whole national security ecosystem. And again, the lifetime of these projects stretches well beyond the production phase, as they all require servicing and upgrades over multiple decades.
Beyond defence, an area where we have a natural advantage is in the food and beverage sector.
Over the past year, people have realised how critical health and wellbeing is to our economic prosperity such that they need to have quality, integrity and certainty around product supply.
In the food and beverage sector, this immediately plays to our strengths considering the governance, regulation and processes that underpin our manufacturing in Australia. We are renowned for manufacturing and growing agricultural products of the highest standard and reliability.
Product quality combined with our proximity to Asia presents long-term opportunity.
Another exciting opportunity for Australian manufacturers lies in the energy sector, because we’re blessed with the natural attributes required to thrive in the renewable energy space which is growing exponentially as the world transitions away from fossil fuels.
This also plays into the broader thematic of Environmental, Social and Governance (ESG) investing where customers and investors globally want to know goods have been manufactured in the right way with the right principles behind them. It’s something Australia does particularly well and it is an exciting area for local manufacturers to focus on.
As for how Westpac is supporting the revitalisation of Australian manufacturing, our focus is on providing credit, financial markets, trade and transactional banking offerings. In particular, we believe that the defence sector funding need will primarily be in the SME space due to the local content requirements.
Our balance sheet is in a very strong position, meaning we have an enormous funding capability and we have refocused our efforts around the Australian and New Zealand economy.
While there have been some worrying moments in the last year, the way forward for local manufacturers is exciting.
With a large number of incentives being provided to encourage investment and with historically low interest rates, Australia’s manufacturers have a bright future with a strong growth outlook.
This article first appeared in the Australian Financial Review.