Building Australia’s manufacturing future

Ahead of next week’s Federal Budget the Prime Minister has announced the Federal Government’s modern manufacturing policy.

The package allocates grant funding related to priority sectors including resources technology and critical minerals processing, food and beverage, medical products, recycling and clean energy, defence and space.

David Knowles, Partner at Pitcher Partners’ Melbourne firm, said there is an urgent need for economic stimulus to kick start the economy and noted modern manufacturing is critical to the success of Australia’s economic future and self-reliance.

“Today’s announcement is highly targeted and provides an opportunity for the sectors identified as priorities to flourish. However, the feature pillar of today’s announcement is tied up in the $1.3 billion planned Modern Manufacturing Initiative, which will likely mean that the broader manufacturing industry will not see support from the Government until mid to late 2021,” Mr Knowles said.

“Somewhat lost in the Government’s discourse and policymaking are Australia’s middle-market businesses who, despite not getting the spotlight, produce just under 25% of Australia’s revenue ($625b) and contribute one-fifth of the country’s net tax take. The middle market has a growth mindset and can quickly adapt to change and capitalise on new opportunities and if well supported will be the fastest path to sustained employment growth. This cohort will, however, find it challenging to wait for this plan to be laid out when they want to start sculpting their future today.

“We encourage a greater commitment from the Government to the commercialisation and efficiencies of production beyond a handful of niche areas,” Mr Knowles said.

Currently, the Manufacturing Modernisation Fund is slated to contribute $52.8 million to improving production and efficiencies. However, this fund is focused on the Government’s six identified development industries and are only for companies willing and capable of investing $3 for every dollar contributed by the Government. With grants starting at $100,000, this means businesses will need to invest at least $300,000 to secure any of this funding.

The maximum grant amount is $1 million, which arguably, with $52.8 million of funding set aside, indicates industry uptake is expected to be minimal, and accessed by larger corporations with the ability to meet the 3:1 funding arrangement.

As a result of the COVID-19 pandemic with periods of prolonged standing down of staff, greater restraint on production at normal capacities and reduced consumer sentiment, the middle market has needed to maintain its capital reserves and use this money only for essential spending. Capital investment hasn’t been a suitable focus for Australia’s privately-owned and family businesses, which employ the lion’s share of employees in Australia, and it likely won’t be until the business and policy environment is conducive to recovery and growth.

The capital required to invest in industry-building initiatives, particularly those that modernise manufacturing, is significant, and while some middle-market businesses may have the capital available, Australia’s business and policy environment as it stands, does little to encourage these companies to invest.

Mr Knowles said Pitcher Partners would like to see the Government also look at upstream manufacturing supply to its identified industries and support their modernisation.

“Whilst this policy does not seek to compete globally on just being a cheaper producer, and the Prime Minister noted today that Australia isn’t at a competitive advantage in this area, surely there is value in producing high-quality products with greater profit margin because upstream manufacturing supply is more efficient and effective?” Mr Knowles said.

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