The swift onset of the coronavirus pandemic badly exposed supply chain gaps in Australia for critical health sector products and materials, putting a new urgency on issues of sovereign capability, Industry Minister Karen Andrews has told the National Press Club.
Lauding the response of the Australian manufacturing sector in quickly turning around the short supplies of personal protective equipment (PPE) and hospital ventilators, Mrs Andrews said a coordinated approach to government procurement is potentially an important lever to ensure local capability was supported.
But while the COVID-19 crisis had brought sovereign capability issues to the forefront and exposed gaps in manufacturing, she said “complete self sufficiency should not be our goal.”
There are many things that Australia won’t and should not be making, and that the nation must identify areas of potential supply chain fragility that should be addressed. But otherwise government would continue to target support at key sectors of comparative advantage.
“It is clear we can’t just rely on foreign supply chains for the essential items we need in a crisis,” Mrs Andrews said.
“We can’t supply all our wants locally, but we have to be able to supply, or at least pivot our production processes to produce the goods we need,” she said. “And we have to compete on value, not on cost.”
Key sectors of comparative advantage could include mining and agriculture technologies, critical minerals processing, and food and beverage manufacturing, she said.
Areas of national priority might include pharmaceuticals and MedTech, defence, energy technology, the emerging space industry and waste and recycling.
A key focus would be on the continued development of an advanced manufacturing capability as an enabler for all of these sectors, Minister Andrews said.
It has been an incredible couple of months for the Industry Minister, and for the re-energised manufacturing sector, as attention has poured into the coordination of state and federal government efforts to plug supply chain gaps.
The energy in the manufacturing sector is derived from the successful collaboration of government’s and businesses to respond to specific PPE shortages. Mrs Andrews pointed to the Victorian manufacturer Med-Con.
In February, Med-Con was the only manufacturer of face masks in the country and had a normal annual production of two million masks. Now, by the end of this year they will have produced 59 million masks. They will have gone from 14 to 98 staff.
And they won’t be the only company producing masks. And the beginning of the crisis, Mrs Andrews said she had been advised Australia would be unable to make more than 37 million surgical masks a year.
“We’re now expecting to produce more than 200 million this year,” she said.
The manufacturing sector could benefit from a better alignment of the nation’s science and research efforts with industry outcomes, but investments in R&D had to be targeted and effective.
The Australian government spends about $9.6 billion on research and development across institutional research like universities and the CSIRO, and the R&D tax incentive. But Mrs Andrews said better alignment “does not necessarily mean throwing more money at R&D.”
“For the manufacturing sector, there’s also the significant contribution of non-R&D Innovation, which rarely gets the attention it deserves,” she said.
“So many businesses are innovating every single day. They’re coming up with new ways of doing things, improving practices, adopting new technologies, inventing new devices. This doesn’t fall under the R&D banner, but it’s very much an economic driver.”
There is increasing discussion in government about support mechanisms for these non-R&D activities.
While manufacturing in Australia was in existential crisis in the public psyche, there was enough good news to hold on. Our ability to export our manufactured product is critical, and there are green shoots.
“Our manufacturing exports were worth close to $55 billion in 2019, which is up over 9 per cent on 2018,” Mrs Andrews said.
“In the first three months of this year we exported over $13 billion worth of manufactured goods, up 5 per cent on the same period in 2019.”
Procurement could be a key lever in building manufacturing capability, she said, acknowledging the importance of both the national cabinet and the council of industry ministers in taking a coordinated approach.
Mrs Andrews noted “that what we achieved with ventilator production and many other areas of PPE was done mainly through procurement contracts.”
“I would encourage the states and territories to work together to look at their own procurement,” she told the press club.
“We would obviously, as the Federal Government, be happy to play a part in the coordination through hosting more conferences, more roundtables, to share ideas and bring things together.
“Nothing is locked in at this point in time, but it has been raised as an option, and it is being explored by a couple of states and territories.”