Credit reporting agency CreditorWatch points to the manufacturing industry as one of the sectors with a consistently low probability of default, making now a favorable time for Australia to take advantage of the growing need for domestic manufacturing capacity.
In light of the ongoing economic turmoil, CreditorWatch has discovered that developing the potential to produce items domestically is one of Australia’s most promising options. The demand for local products is expected to skyrocket in the near future.
The recent announcement by the Australian Government of its modern manufacturing strategy provides a solid foundation for this to happen. While there are many points where the cost-benefit analysis indicates that offshore production makes sense, there are also others, particularly in growing markets such as clean energy and food sustainability, where building local capacity makes sense.
The white paper ‘How manufacturing can strengthen the Australian economy’ explores clean energy, food production and pharmaceutical and medical production as clear emerging areas where this opportunity exists.
“One of the clear opportunities for the Australian manufacturing industry is to develop the capacity to produce products locally where demand is current and will only grow,” the report said.
“While there are many products where the cost-benefit calculation means that offshore production makes sense, there are other products, particularly in emerging areas such as clean energy and food sustainability, where it makes sense to develop local capacity.”
The report adds that the manufacturing sector is less vulnerable to a major drop in trade due to the ongoing decline in consumer mood, as it is a low-risk sector dominated by larger operators, meaning that the demand for goods and services fluctuates much less.
Modern production strategy
The Modern Manufacturing Strategy is a cross-government initiative designed to help Australian manufacturing scale and become more competitive and resilient, creating jobs for current and future generations.
The strategy is the Australian Government’s action plan to boost manufacturing for positive economic outcomes and job creation. The Strategy is designed for and by the industry. Government and industry are working together to drive radical change that will result in strong, resilient, thriving and globally competitive manufacturing companies.
The goal for the next two years is to develop a business environment that supports manufacturing jobs and encourages new investment. Within the next five years, promote a more industry-oriented science and technology system that increases productivity, scale and competitiveness and secures productive and competitive enterprises with strong sectoral growth within the next ten years. Another major project is the $1.3 billion Modern Manufacturing Initiative, which will help manufacturing companies change, grow, commercialize their innovations and integrate into regional and global value chains.
Australia will be assisted by the $107.2 million Supply Chain Resilience Initiative to address identified supply chain deficiencies. In addition, in round two, the Manufacturing Modernization Fund allocated $52.8 million to act quickly to boost business investment in shovel-ready projects.
More about the initiative here.
Patrick Coghlan, CEO of CreditorWatch, said: “The Australian economy, like most economies around the world, has undergone upheaval at every stage of the COVID-19 pandemic. The war in Ukraine and local floods have only exacerbated this unrest.
All of these events have massively disrupted the economy, with lockdowns, supply chain ruptures, labor shortages, dramatic shifts in consumer demand, rising energy costs and rising inflation making conditions very complicated for businesses to operate in.
“However, with disruption comes opportunities, and one of the clear opportunities this presents is for Australia to source products locally where demand is current and will only grow.”
According to Anneke Thomson, CreditorWatch’s chief economist, the recent turbulence in domestic energy markets as Australia struggled with an abnormally cold start to winter shows the need for a significant increase in renewable energy generation. This has to be done on land, which requires a significant amount of production knowledge and capacity.
Likewise, food production is a hedge against future global economic downturns. If bought onshore, it has the potential to grow the industry’s value-added value from the current $61 billion to more than $200 billion by 2030. This would add up to an additional 300,000 jobs.”
Link to the white paper: ‘How the manufacturing industry can strengthen the Australian economy’
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