The producers: Building Australia’s manufacturing capability

Having suffered a long decline, the Australian manufacturing sector has a spring in its step following a renewed focus on the industry post-pandemic. Attempts to revive Australia’s manufacturing capability were a centrepiece of the federal budget in May, which received a mixed reaction.

by | 6 Jun, 2024

An industrial welding gun fuses a steel frame as sparks fly

In a speech at the Queensland Media Club, the Federal Government branded its Future Made in Australia strategy as “a fundamental shift in the way nations are structuring their economies … a change every bit as significant as the industrial revolution or the information revolution, and more rapid and wide-ranging than both”.

That strategy, now budgeted to the tune of $22.7 billion, is a blueprint for the support and encouragement of local manufacturing, emerging technology and energy transition.

“Something very strange is happening,” says Dr Jeffrey Wilson, Ai Group’s Director of Research and Economics. “This year is shaping up to be the most manufacturing-centric budget in decades, if not generations.”

During the 2023 calendar year, according to the AI Group, Australian manufacturing saw its real output growth – and gross operating profits – up 2.8%.

The manufacturing industry added $30.8 billion to the Australian economy in 2023, with output higher than any point in the last ten years.

What’s the problem in manufacturing?

At the same time, manufacturing employment growth fell by 1.5%, with job vacancies at record highs, increasing job turnover and as a result, pushing wage growth to a 16-year high. Manufacturing as a share of GDP has dropped from 6.8% to 5% over the last decade.

And, while the gender pay gap in the sector has fallen from 16.8% to 11.2%, the gender composition of the workforce has remained stagnant. In the decade leading up to 2023, the percentage of females in manufacturing rose from 26.4% to 28.9%, with one in three females working part-time.

Like mining, construction and engineering, manufacturing suffers from perception issues and cultural challenges in attracting women to the sector, despite the fact that it now boasts a lower gender pay gap than other male-dominated industries.

Manufacturing by the numbers – 2023

  • Manufacturing GDP – $30,781 million
  • Employees in Australia – 933,500
  • Employing businesses – 49,058
  • Profits – $11,531 million
  • Revenue – $7,633 million
  • Export earnings – $10,497 million

SOURCE: Manufacturing in Australia: Performance Benchmark Report 2024

Budget 2024: Future Made in Australia

Future Made in Australia funding includes:

  • $54.7 million over two years to administer the Future Made in Australia agenda
  • $523.2 million over seven years for a new Battery Breakthrough Initiative
  • $18.1 million over six years for the new Green Metals Foundational Initiatives
  • $1.7 billion over 10 years targeting clean energy technology such as renewable hydrogen, green metals, low carbon liquid fuels and batteries
  • $479.9 million over nine years for manufacturing nuclear medicines
  • $835.6 million over 10 years to promote solar manufacturing capabilities and improve supply chain resilience

The focus on the industry will help the sector accelerate growth following the lull from the COVID lockdowns.

“Like most physical industries, manufacturing output fell markedly in 2020 as lockdowns forced factory closures,” the Manufacturing in Australia: Performance Benchmark Report 2024 says.

“But the industry roared back to life in 2021 and 2022, as local manufacturers ramped up to meet gaps created during the global supply chain crisis.”

Manufacturing success is about more than COVID

However, Australian manufacturing is in better shape than before the pandemic, particularly in sectors such as food and beverage, and machinery and equipment.

“The Australian manufacturing industry that emerged from the pandemic is quite different – and higher up the value chain – than the one we went in with,” the report says.

“This post-pandemic move up the value chain is also reflected in improved financial performance from Australian manufacturers. In 2023, the average estimated operating margin for Australian manufacturing was 11.3%. This marks a dramatic improvement from a decade ago, when manufacturer margins were a paltry 7.8%.”

Better operating margins combined with the fact that Australian manufacturers are performing well in a higher inflation environment has boosted investment outside budget spending.

Manufacturing businesses dedicated $15 billion to capital expenditure in 2023 alone, second only to mining’s $51 billion. All of this investment though, can’t help to fill the 23,000 positions that were vacant in the final quarter of 2023.

Productivity is lower without people

According to the Australian Bureau of Statistics, 19% of manufacturing businesses in February 2024 reported vacancies. One in five manufacturers, the Ai Group says, report job vacancies as having an operational impact.

Attracting talent into the manufacturing sector is likely the greatest challenge in the future as countries across the globe invest in manufacturing capability and economic sovereignty. The United States has implemented the Inflation Reduction Act and CHIPS Act, the European Union introduced its European Economic Security Strategy and Japan has the Economic Security Promotion Act. Australia is now playing catch up.

Share This