Trends Manufacturing South Australia's future - Advanced technology underpins the state's industrial prospects - BankSA
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Trends November 2017
A bulletin of
economic developments
in South Australia
Manufacturing South Australia’s future
Advanced technology underpins the state’s industrial prospects
banksa.com.au
TRENDS NOVEMBER 2017
Chief Executive’s
Foreword
Optimistic
future for
manufacturing
Welcome to the latest edition of BankSA’s economic
bulletin, Trends, compiled in conjunction with Deloitte
Access Economics.
In this edition, we examine South Australia’s
manufacturing industry, including the challenges the
sector has experienced in recent years, but also why
there is cause for optimism for the future.
Manufacturing has long played a major financial crisis hit, while the industry’s manufacturing and construction sectors
role in the South Australian economy, but output has also fallen by a proportionate account for only 15% of the nation’s
its contribution has declined in recent amount over the same period. economy, they actually consume 27% of
years due largely to the rise in low-cost Australia’s total energy production.
The globalisation of manufacturing has
manufacturing capabilities globally,
led businesses to increasingly seek out Despite all the doom and gloom though
particularly in Asia.
the lowest cost sources of supply, which about South Australia’s manufacturing
This edition of Trends outlines recent has been to the detriment of developed industry, there is cause for optimism.
developments in manufacturing in South economies worldwide – including South
It is worth noting that manufacturing still
Australia, including the major challenges Australia – who simply cannot compete with
comprises a significant share of economic
the industry has faced, but also the regions like Asia on wage and production
activity and accounts for approximately
opportunities on offer now and into the costs.
one in 11 jobs in the state. Indeed, around
future as we transition from traditional to
Making matters worse, the dramatic 70,000 South Australians are still employed
advanced manufacturing.
rise in energy costs in recent years has in the sector today.
Last month's closure of Holden’s Elizabeth inflicted even more pain on the state’s
Specifically, food and beverage product
plant in Adelaide’s north signalled the manufacturers and further deteriorated
manufacturing remains a shining light,
official end of car making in South Australia their competitiveness against their overseas
with the sub-sector accounting for one
and again put the spotlight on the plight of counterparts.
in three manufacturing jobs in the state.
the state’s manufacturing industry.
Manufacturers are particularly vulnerable Importantly, this sub-sector enjoys relative
It’s certainly been a tough decade for the to increased energy prices because they protection from globalisation (and the
sector, with around 20,000 manufacturing generally use substantially more energy associated squeeze on production costs)
jobs lost in South Australia since the global than other industries. In fact, while the due to the premium quality and popularity
2
CHIEF EXECUTIVE’S FOREWORD
20,000
of South Australian produce nationally and electric cars, solar panels and custom-built
throughout Asia. furniture.
And promisingly, there’s potentially an even Furthermore, 87% of South Australian
brighter future ahead for local food and business owners want to produce
beverage manufacturers, who are likely to graduates and workers skilled in advanced The number of
benefit from the increasingly affluent Asian manufacturing to help develop a new manufacturing jobs
market, as well as via improved trade access homegrown industry, while using old car that have been shed
thanks to the China-Australia Free Trade manufacturing sites (such as Holden’s in South Australia
Agreement, which is already boosting our former Elizabeth plant) as modern
since the global
export levels. For example, following the manufacturing hubs is overwhelmingly
agreement coming into effect in late 2015, supported by consumers (85%) and
financial crisis.
wine exports to China spiked by more than businesses (88%).
50%.
1in 3
As noted in this Trends report, the precise
Defence manufacturing is also a strong definition for advanced manufacturing
performer and is set to continue as a good varies, but it is generally accepted as a sub-
news story in South Australia over the set of manufacturing industries in which
next decade, with the $35 billion Future research and development is a significant
Frigates Program and the $50 billion Future proportion of revenues. With that being
Submarines Program to generate thousands the case, and with developed economies
of new jobs and help entrench the state as a set to continue to struggle with wage cost The current number
defence powerhouse. competitiveness at a global level, ideas
of food and beverage
(rather than cost) appear likely to become
Already, South Australia contains a
an increasingly key component in the product manufacturing
quarter of the nation’s specialist defence
competitiveness stakes, which could favour jobs in South Australia
businesses, and is the beneficiary of 32%
of the country’s defence spend, so its
South Australia. as a share of total
contribution to the state economy cannot To that end, our state is already progressing manufacturing jobs in
be questioned. as an innovation hub, including Technology the state.
Park Adelaide which comprises more than
In addition, South Australia’s established
85 co-located bioscience and technology
technical skills base that we have developed
100+
companies, while we are rapidly earning an
over many years through our automotive
impressive reputation in advanced medical
and defence sectors holds the state in good
manufacturing through the South Australian
stead. Critically, it provides a solid platform
Health and Medical Research Institute and
for new and existing manufacturers to grow
the new Royal Adelaide Hospital.
and invest in their businesses – and in South
Australia – and ultimately capitalise on Crucially, South Australia has already made
the transition from traditional to advanced strides in promoting the state’s advanced The current number
manufacturing. manufacturing credentials, and with
of South Australian
advanced manufacturing identified as one
Importantly, there is a groundswell in this
of the state’s ‘Seven Strategic Priorities’ to
businesses
state to make South Australia a centre for
help grow our economy in the future. specialising
advanced manufacturing, both to enhance
in advanced
existing manufacturing industries and to So while we may not be able to compete
create new ones. with Asia on wage costs for manufacturing,
manufacturing,
we can compete on ideas and innovation. medical devices and
In fact, a recent BankSA survey found that
And given our strong skills base and cost- pharmaceuticals.
pursuing new advanced manufacturing
competitiveness relative to other states
industries was the highest ranked
in Australia, South Australia is well placed
preference among South Australian
to seize on growth opportunities in the
consumers (81%) to modernise the state’s
advanced manufacturing sector – we just
economy, rating ahead of premium food,
need to be prepared to rise to the challenge.
software development and renewable
energy industries amongst others.
More specifically, 77% of consumers agree
with developing an advanced manufacturing
bio-medical industry for the production
of pharmaceuticals and other medical
products, as well as building high quality,
Nick Reade
low cost whole products such as driverless
Chief Executive, BankSA
3
TRENDS NOVEMBER 2017
Manufacturing
South Australia’s
future
“No pain, no gain.” - Jane Fonda
“Those who look only to the past … are certain to miss the future.”
- John. F. Kennedy
“Here comes the sun.” - The Beatles
The sands have been shifting for the South farmers on the back foot amid that strength in Yet although the costs to manufacturing have
Australian economy. credit and currency costs. been high, some of the drivers of job losses
in the sector are less damaging today than
The first decade of the 2000s was marked by And the pain continues. The headline grabber
they were for a long time. Today’s Australian
a China boom which pushed up interest and is that Holden stopped making cars here
economy has a different complexion: these
exchange rates in Australia. last month. That closure means a direct
days interest rates are at record lows, while
loss of around 1,600 jobs, with further job
As a state vulnerable to a period of high the Australian dollar now sits closer to its long
losses likely in car parts manufacturing and
currency and credit costs, South Australia run average.
elsewhere.
was done no favours by that boom. It left us
That combination is helping the broader South
on the wrong side of Australia’s ‘two speed That risks the unemployment rate rising here
Australian economy, where unemployment
economy’, placing our manufacturers and our in the near term.
4
MANUFACTURING SOUTH AUSTRALIA’S FUTURE
now sits below 6% for the first time in several CHART 1
SOUTH AUSTRALIA AS A SHARE OF AUSTRALIA’S ECONOMY AND POPULATION
years.
While the legacy of the elevated currency is 9%
still being felt in manufacturing (Holden being
a prime example), and while high energy costs
are a particular problem for some in the sector, 8%
the current levels of these key economic
drivers have helped to get some of South
7%
Australia’s manufacturers back in the game.
Combined with increasing liveability for
young professionals (given that Sydney and 6%
Melbourne house prices have gone haywire Economy Population
in recent years), and a strong manufacturing 5%
legacy (including the strength of the local skill
base), there are reasons for optimism in South
Australia’s manufacturing industry – and for
our economy more widely.
Source: Australian Bureau of Statistics, 2016-17 as estimated by Deloitte Access Economics.
Most notably, the drivers of sectoral success
are evolving. As manufacturing becomes manufacturing is unlikely to drive much shrinking share of Australia’s economy and
increasingly capital and IP-heavy, Australia growth in the state (due to the structural population (as seen in Chart 1).
will benefit from that. That’s important decline of the sector), it can provide a
because while we cannot compete with Asia And absent an accelerator to jump firmly
meaningful level of diversification in our
on wage costs, we can compete on ideas. into the ranks of the resource states, South
economy and support South Australia’s
So there are future growth opportunities in Australia found itself stuck in the slow lane
transition to an increasingly prosperous state
advanced manufacturing and high quality, of a two-speed economy during Australia’s
economy.
niche offerings. mining boom years. Our state’s economy was
With appropriate agility, that means: saddled with higher interest rates and a higher
Our state is also a defence manufacturing exchange rate, but without the matching
powerhouse. Short-to-medium term prospects • South Australia can continue to punch above
money spinners in place that warranted these
will be boosted by the $35 billion Future its weight in manufacturing, even though car
settings (at the national level).
Frigates Program and by the $50 billion Future making in the state has now ceased; and
Submarines Program. Some of the spending That combination led to weaker population
• As has been true for a long time, there
on those projects will add to local jobs, and economic growth than seen more broadly
will be plenty of opportunities outside of
beginning in the early 2020s. in Australia, a trend which has been persistent
manufacturing.
since the onset of the global financial crisis in
Yet there are also vulnerabilities. With car The pressure on South Australia’s economy 2008, as shown in Chart 2.
manufacturing now a fond memory, South – and its manufacturers
Australia will have an increased dependence That long period of strength in exchange
Let’s get the bad news out of the way upfront.
on defence-related manufacturing, and hence and interest rates increased the pressure on
on the Federal funding required to support Recent years have seen some major the state’s manufacturers, who were already
such jobs. That says we will have eggs in challenges for South Australia’s economy. under pressure from the rise in low-cost
fewer baskets than before, which could result For example, it was a blow when BHP Billiton manufacturing capability in Asia. That led
in increased volatility in the performance of decided that it wouldn’t be expanding its to a range of casualties, the most headline-
South Australian manufacturing down the Olympic Dam mine in the near future. hugging of which was the announcement that
road. Holden would no longer continue to make
That $20-$30 billion hole in what would
cars at its Elizabeth plant.
So despite the rise of new opportunities, it otherwise have been the outlook for the
won’t all be smooth sailing for manufacturing state’s construction sector sent a shudder That decision was announced a long time
in South Australia. The structural decline of through South Australia. Many observers ago, but the Elizabeth plant finally closed
manufacturing around the world is coinciding had hoped that the expansion of Olympic on October 20, 2017, with almost 1,600
with the current energy price squeeze in Dam would set the state on the road towards workers in production, engineering and
Australia. becoming a resource powerhouse, selling into support roles lost. And nor is that closure
the rapid growth in emerging Asia, thereby the end of the story, given that a range of
Yet, as we’ll explore in this report, while turning around what has long been our parts manufacturers – including some in this
5
TRENDS NOVEMBER 2017
state – sold their products to Holden (or to CHART 2
SOUTH AUSTRALIAN AND AUSTRALIAN ANNUAL ECONOMIC GROWTH
Toyota, whose own car making operations in
Victoria closed down at much the same time
% South Australian GSP growth Australian GDP growth
as Holden’s did here). 6
Not every closure proves permanent. For
example, Whyalla’s Arrium Steelworks 5
entered voluntary administration in 2016, but
has subsequently been rescued by Liberty 4
House Group, which has committed more than
$1 billion to revitalising the works. 3
Yet that says more about the ups and downs of 2
the global iron ore price than it does about the
broader story of prospects for manufacturing
1
enterprises once they’ve closed down. Sadly,
for the bulk of such closures, the jobs are gone
0
and they’re not coming back. 2001-02 2004-05 2007-08 2010-11 2013-14 2016-17
That’s part of the reason why South Australia
Source: Australian Bureau of Statistics.
has been shrinking as a share of the national
economy and of its population over time. CHART 3
Chart 3 shows the close correlation between SOUTH AUSTRALIAN MANUFACTURING IMPORTANCE
manufacturing as a share of the South
Australian economy and South Australia as a South Australian share of national economy
share of the national economy. 7.0% 12%
Manufacturing share of South Australian output
These two have moved together. As South 6.8% 11%
Australia’s manufacturing base has eroded,
6.6% 10%
so has our relative importance within the
national economy. This indicates the key role 6.4% 9%
of manufacturing inside the South Australian
6.2% 8%
economy, and the way in which its presence
has also supported a range of other industries 6.0% 7%
(such as service industries) in the economy.
5.8% 6%
Chart 3 is worth a close look. The correlation
it shows implies that losses in manufacturing
have a disproportionate impact on South
Australia’s economy – although manufacturing
accounted for between 7% and 11% Source: Australian Bureau of Statistics, 2016-17 as estimated by Deloitte Access Economics.
of the state’s economy over the period
examined here, each percentage point loss in such as tourism, farming, manufacturing and the gap between the state’s unemployment
manufacturing was correlated with a matching international education. rate and that nationally has eased a little of
loss of 20% of a percentage point as a share late.
In turn, that combination has helped support
of the national economy.
growth and to see our unemployment rate Recent trends in manufacturing in South
Yet it hasn’t been all bad move lower across a time in which fears about Australia
Against those challenges, there have also our economy have been heightened. Yet most of that good news hasn’t been
been positives for the South Australian showing up in manufacturing – it has been
In fact, and as Chart 4 shows, the
economy. showing up elsewhere within the state’s
unemployment rate is now below 6% for
economy. Both manufacturing output and jobs
In particular, record low interest rates have the first time since 2013 and well below the
have continued to disappear. Around 20,000
helped to stimulate interest rate sensitive intervening high of over 8%. With optimism
manufacturing jobs have been shed in South
industries such as housing and retail. And around the global economy improving, the
Australia since the global financial crisis (with
a more accommodative exchange rate has outlook for the South Australian economy is
roughly 70,000 jobs in the industry remaining
helped exchange rate sensitive industries brightening as well, with Chart 5 showing that
6
MANUFACTURING SOUTH AUSTRALIA’S FUTURE
currently), with the sector’s output falling by a CHART 4
SOUTH AUSTRALIA’S UNEMPLOYMENT RATE
proportionate amount over the same period.
And those data points are yet to reflect the
8.5
latest round of trials and tribulations now that
Holden’s car making operations have closed. 8.0
7.5
However, and despite the well-documented
struggles of manufacturing in the South 7.0
Australian economy, this sector still comprises 6.5
a significant share of economic activity. Chart
6.0
6 shows the share of jobs and of output
accounted for by manufacturing in the South 5.5
Australian economy. 5.0
Despite all the years of doom and gloom, 4.5
manufacturing still accounts for around one
4.0
in 11 jobs here. Furthermore, with a more 2001 2003 2005 2007 2009 2011 2013 2015 2017
supportive currency in recent years, the pace
of the drop-off in manufacturing intensity Source: Australian Bureau of Statistics, Deloitte Access Economics.
in the economy’s job base has slowed
CHART 5
significantly. SOUTH AUSTRALIA’S UNEMPLOYMENT RATE LESS THE NATIONAL RATE (SMOOTHED SERIES)
2.0
“Despite all the years 1.5
South Australian unemployment higher than Australia
of doom and gloom, 1.0
manufacturing still
accounts for around 0.5
one in 11 jobs here. 0.0
Furthermore, with -0.5
South Australian unemployment lower than Australia
a more supportive -1.0
currency in recent
years, the pace Source: Australian Bureau of Statistics, Deloitte Access Economics.
of the drop-off in CHART 6
SOUTH AUSTRALIAN MANUFACTURING; SHARE OF STATE ECONOMY AND JOBS
manufacturing
intensity in the 15%
Economy share Employment share
14%
economy’s job base has 13%
slowed significantly.” 12%
11%
10%
Chart 7 makes explicit the importance of the 9%
exchange rate for the state’s manufacturers. 8%
As the Australian dollar rose (making imported 7%
manufactured goods cheaper and our exports 6%
less competitive), manufacturing jobs fell 5%
from around one in eight of all jobs in South
Australia at the start of the mining boom, to
around one in 11 today.
Source: Australian Bureau of Statistics, 2016-17 as estimated by Deloitte Access Economics.
7
TRENDS NOVEMBER 2017
However, as the Australian dollar has fallen CHART 7
SOUTH AUSTRALIAN MANUFACTURING EMPLOYMENT AND THE AUSTRALIAN DOLLAR
from its 2012 peaks, the drop in the job share
has eased back somewhat, as manufacturers
have benefitted from a currency tailwind Manufacturing jobs out of total in South Australia $A/$US
12 1.2
against the ongoing structural challenges.
11
That said, those ongoing challenges explain
1.0
why the jobs ratio simply held steady, rather 10
than improved, despite what has been a pretty 9
0.8
large fall in the currency in recent years. 8
And nor is the long since flagged closure at 7 0.6
Holden the only devilry of the moment. Power 6
prices are problematic in South Australia, 0.4
5
and they’re particularly problematic for 4
0.2
manufacturers. 3
Manufacturing jobs Exchange rate
Energy sapping 2 0.0
A sharp rise in energy prices in recent years 2001-02 2004-05 2007-08 2010-11 2013-14 2016-17
has exacerbated the structural challenges
faced by manufacturers. Australia is amid Source: Australian Bureau of Statistics.
an energy price crisis; reflecting a myriad of
CHART 8
factors such as LNG export contracts, changes AVERAGE RESIDENTIAL ELECTRICITY PRICES (CENTS PER KILOWATT HOURS)
in energy policies and strategies, and bans
on onshore gas production in some state and Retail electricity price (cents/kWh)
territory jurisdictions. 50
Manufacturers as a whole are hit particularly NSW SA QLD VIC
45
hard by rising energy costs because they WA ACT NT TAS
tend to be more intensive users of energy 40
than other industries. The Department of
Industry estimated that, as at 2012-13, the 35
manufacturing and construction sectors
accounted for 15% of Australia’s economy 30
and 27% of total final energy consumption;
indicating an energy intensity of almost 25
double the national average.
20
Indeed, South Australia was predicted to Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17
overtake Denmark as having the world’s
most expensive electricity after major energy Source: Bruce Mountain, CME Australia.
retailers increased their prices in mid-2017,
and some estimates (see Chart 8) suggest that “We’ve got this enormous headwind in announced measures of its own.
since that happened, the typical household in front of us with energy costs. Nearly every Composition of manufacturing in South
South Australia is paying more than the typical company that reported in the past earnings Australia
household in any other OECD country. season had a figure in the millions (for rising Holden manufacturing may no longer be a
To delve into the intricacies of energy policy energy costs). Brickworks has a $20 million hallmark of the state. But exactly how big is
is beyond the scope of this report, but it is adjustment to make. We’re so uncompetitive – or was – car making as a share of the wider
apparent that high energy costs are worsening in our labour rates and now we’ve got higher manufacturing sector?
our competitiveness compared to overseas energy costs that hurt manufacturers.”
Detailed job data can yield insight into the
manufacturers. In the worst case scenario, this If there’s any good news on this front, it’s composition of manufacturing activity in the
could manifest itself in a further contraction that the issue has become sufficiently dire South Australian economy. Chart 9 shows the
in output and in jobs as firms exit the industry. that it is achieving real attention. The Federal shares of manufacturing employment in South
Brickworks’ Chairman Robert Millner summed Government has announced a $2 billion Australia accruing to the relevant parts of the
up the competitive pressures: extension to the Snowy Hydro scheme, sector.
while the South Australian Government has
8
MANUFACTURING SOUTH AUSTRALIA’S FUTURE
In terms of notable trends: CHART 9
SOUTH AUSTRALIAN MANUFACTURING SECTOR; EMPLOYMENT SHARES BY SUB-INDUSTRY
• Food and beverage product manufacturing 100%
100%
has been increasing as a share of total jobs; 90%
90%
100%
from around one in five manufacturing 80%
80%
90%
sector workers back in 2001-02 to around 70% 80%
70%
one in three in 2016-17. Due to the quality 60% 70%
60%
and proximity of our farm produce (such 50% 60%
50%
as grapes for wine production), this part of 40%
40%
50%
the wider manufacturing sector is relatively 40%
30%
30%
more shielded from offshoring forces. 30%
20%
20%
20%
• Transport, equipment and machinery 10%
10%
10%
product manufacturing, which includes car 0%
0%
0%
making, has been falling as a share of total
jobs; from around one in three workers in
2001-02 to around one in four in 2016-17.
Primary
Primary
metal
metal
Primary andand
metalfabricated
andfabricated
metal
fabricatedmetal
product
metal product
product Non-metallic
Non-metallic
Non-metallic mineral
mineral
mineral product
product
product
• Petroleum, coal, chemical, polymer product Petroleum,
Petroleum,
coal,
coal,
Petroleum, chemical,
chemical,
coal, polymer
polymer
chemical, andand
polymer rubber
and rubber
product
rubber product
product Printing
Printing
Printing(including
(including
(including thethe
the reproduction
reproduction
reproduction ofof recorded
of recorded
recorded media)
media)
media)
manufacturing has seen its share of jobs Wood Wood
Wood
pulp, pulp,
pulp,
paper paper
paper andconverted
andand converted
converted paper
paper
paper product
product
product Textile,
Textile, leather,
Textile,
leather, clothing,
leather,
clothing, footwear,
clothing,
footwear,furniture
footwear, and
furniture
furnitureother
andand
other
other
Food, Food,
Food, beverage
beverage
beverage
andandandtobacco
tobacco
tobacco product
product
product Transport
Transport equipment,
Transport
equipment, machinery
equipment,
machinery and
andequipment
machinery and
equipment
equipment
contract significantly, from over 8% in
2001-02 to around 3% in 2016-17. This
Source: Australian Bureau of Statistics.
likely reflects the end to oil refinery activity
in Australia and Asia’s continued rise in
capability in this space. store. Employment in transport, equipment the time of the 2011 Census) was 3,119,
and machinery product manufacturing can with parts making accounting for a further
So car making (or more broadly, employment be expected to continue to fall away with 3,401 people. This ratio of roughly one to
in transport, equipment and machinery Holden’s recent closure. one indicates that job losses in car parts
product manufacturing) has itself been a manufacturing, depending on how reliant this
shrinking share of manufacturing, whereas Indeed, the recent closure of car
industry is on local car manufacturing, may be
other parts of the sector, such as food and manufacturing will hurt car parts
significant as well.
beverages, have done rather better. manufacturing as well. In a past Trends article,
we noted that direct employment in the car On the other hand, food and beverage
Looking ahead, there’s more of the same in manufacturing sector in South Australia (at manufacturing employment has been
9
MANUFACTURING SOUTH AUSTRALIA’S FUTURE
manufacturers to grow and invest. That’s a CHART 10
SOUTH AUSTRALIAN DEFENCE INDUSTRY
reminder that the manufacturing industry is
the beneficiary of a strong accumulation in
human capital. Defence manufacturing has 35%
been the historical counterpart to automotive
30%
manufacturing in South Australia.
Given this, South Australia is well placed to 25%
receive further manufacturing investment.
In addition, the industry is poised to 20%
receive ongoing opportunities in defence
15%
manufacturing in coming years, thanks to the
Federal Government, while there are also
10%
great opportunities in advanced (or hi-tech)
manufacturing in coming years. 5%
0%
“South Australia is National economy Defence businesses Defence spend
well placed to receive Source: Australian Bureau of Statistics, InvestSA.
further manufacturing up (with North Korea at the forefront at the announcing the successful designer for the
investment. In moment, though the South China Sea has also Future Frigates in 2018. Three designers (BAE
addition, the industry been a source of concern) Federal defence
spending as a share of total spending is, if
Systems, Fincantieri and Navantia) have been
working with Defence since 2015 to refine
is poised to receive anything, likely to increase further – and their designs. The three shortlisted designers
thereby provide more opportunities to the must demonstrate and develop an Australian
ongoing opportunities manufacturing sector in this state. supply chain to support Australia’s future
in defence Partly in response to the recent challenges
shipbuilding industry.
manufacturing that South Australia has faced, the Federal
Government announced the $50 billion
So defence manufacturing looks set to be
a good news story in South Australia going
in coming years, Future Submarines Program involving the forward. However, in contrast to the likes of
thanks to the Federal construction of 12 new submarines in
Adelaide, securing thousands of jobs. French
car making, it is far more volatile; depending
on project-by-project outcomes. As a result,
Government, while shipbuilder Naval Group (formerly DCNS) the reliance on Federal Budget spending may
has been chosen for the project over rival give defence manufacturing in South Australia
there are also great bids from Japan and Germany. The project is a more variable complexion.
opportunities in expected to result in an estimated 2,800 jobs
To provide a reliable base of manufacturing
being created, with 1,700 of them at the ASC
advanced (or hi-tech) plant at Osborne where the submarines will
activity, it makes it even more important
that South Australia continues to diversify
manufacturing in be constructed. These jobs will include naval
architects, marine engineers, electricians and
into other classes of manufacturing, such as
coming years.” painters. A further 600 jobs are expected to
advanced manufacturing.
be created offsite, including mechanical and Advanced manufacturing
electrical engineers, along with 500 in combat Although definitions for it vary, advanced (or
Defence manufacturing remains a star for
system integration. hi-tech) manufacturing is generally accepted
this state
as a sub-set of manufacturing industries
According to InvestSA, our state contains 25% Defence manufacturing in Adelaide will also
in which research and development is a
of Australia’s specialist defence businesses benefit from the $35 billion Future Frigates
significant proportion of revenues.
and is the beneficiary of 32% of the nation’s Program. That program is currently the largest
defence spend. That makes South Australia shipbuilding program of its kind in the world, Industries which fit this criteria internationally
a defence powerhouse relative to the size of according to Minister for Defence Industry, are pharmaceuticals, aircraft manufacturing,
our economy, as shown in Chart 10. And with Christopher Pyne. Construction is on track to professional and scientific equipment
geopolitical tensions in the region heating begin in 2020, with the Federal Government manufacturing (including medical
11TRENDS NOVEMBER 2017
technologies), and computer and electronic precinct, with a strong focus on defence happening outside of manufacturing has been
manufacturing. electronics, systems development and good.
integration.
In a global market, commercial success for For manufacturing itself, yes, there’s been
Australian manufacturing companies relies on In addition, South Australia already has a a number of challenges and a continued
being the world’s best; otherwise customers notable presence in terms of advanced decline in manufacturing output and jobs. An
will simply move to better offerings. In medical manufacturing. This form of elevated Australian dollar put pressure on an
high technology fields, unique offerings, manufacturing encompasses several areas industry already in structural decline across all
whether due to patents or otherwise, such as medical devices, pharmaceuticals advanced economies. That double-whammy
provide businesses with economic moats. and medical life science products. The new has seen a range of high-profile casualties,
This can be contrasted with the production Royal Adelaide Hospital development, in with Holden’s recent closure being the last
of a basic good, such as a t-shirt, which can conjunction with the South Australian Health reminder of that.
be manufactured at a fraction of the cost in and Medical Research Institute (SAHMRI)
Even now, as macro-economic settings have
Asia. So the field of advanced manufacturing facilities, forms the backbone of one of the
become more favourable (with a lower
provides a more level playing field for higher largest health and biomedical precincts in the
exchange rate and low interest rates), the
cost, developed economies to play on. southern hemisphere.
state’s manufacturers are battling an energy
In effect, ideas rather than cost become the With over 100 businesses in advanced price headache.
crucial component of competitiveness. manufacturing, medical devices and
Yet there’s still room for genuine optimism
pharmaceuticals, South Australian technology
South Australia has a significant presence here. In terms of food manufacturing, we’re
companies export a range of high value
in terms of advanced manufacturing: it is benefitting from reduced trade barriers and
products. South Australia has a proud history
one of the South Australian Government’s an increasingly affluent Asian consumer. And
in this field, having developed the burner
‘Seven Strategic Priorities’. The $200 million South Australia has a great skills base and is
systems used in the Olympic torches, and the
Future Jobs Fund announced in the 2017- cost-competitive relative to other locations
leading micro pipettes for IVF used by fertility
18 State Budget also contains a strong in Australia. Our state is Australia’s defence
clinics worldwide.
focus on manufacturing, whether advanced manufacturing hub, and short term prospects
manufacturing or other forms. With a strong skills base and a competitive will be boosted by the $50 billion Submarines
cost profile within Australia, South Australia Program and the $35 billion Future Frigates
The key sectors listed are:
is uniquely placed to take advantage of the Program.
1. Shipbuilding and defence; future growth opportunities in advanced
Then there are emerging opportunities in
manufacturing. Attracting the best and
2. Renewable energy and mining; manufacturing where advanced economies
brightest to come up with innovative
can participate. Hi-tech, advanced
3. Tourism, food and wine; manufacturing solutions will be key.
manufacturing will be increasingly IP
4. Health and biomedical research; and And as we remarked in the introduction, and capital intensive. That will erode the
Adelaide may find it easier to retain or attract longstanding ‘labour arbitrage’ of low-wage
5. IT and advanced manufacturing.
budding professionals given that housing manufacturing hubs overseas (particularly in
There is obvious potential here too. Adelaide affordability has deteriorated significantly in Asia), where manufacturing essentially relies
is already a bright spot for innovation, with Sydney and Melbourne in recent years. on doing things cheaper, rather than better.
Technology Park Adelaide comprising over
Final words That opens the door for manufacturing in
85 co-located bioscience and technology
At the outset, it is worth noting South South Australia, however we’ve still got to rise
companies, including global players such as
Australia has more strings to its bow than to the challenge to step through it.
Optus, BAE Systems and Saab Technologies.
just manufacturing. And the news on what’s
The park is the state’s high-end technology
12SA TRENDS
!"#$%&'& Source: ABS Cat. No. 9314.0
NEW MOTOR VEHICLE REGISTRATIONS - Trend
7000 105000
South Australia Australia
6500 97500
6000 90000
5500 82500
5000 75000
4500 67500
4000 60000
STATISTICAL SECTIONTrends November 2017 BankSA believes that the material within is correct and NOT TO BE PHOTOCOPIED. not misleading, but gives no warranty in relation thereto and disclaims liability for all claims against BankSA, its Published by BankSA, 97 King William Street Adelaide employees, agents or any other person, which may arise 5000. Copyright reserved. from any person acting on the within material. BSA07870 (11/17.) Not to be reproduced in any form without the written permission of BankSA – A Division of Westpac Banking Corporation ABN 33 007 457 141 AFSL and Australian credit licence 233714. PRINT POST APPROVED 565001/00271 banksa.com.au
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