The NRF: An industry champion or a rent seeker’s delight?

Sandy Plunkett

The appointment of former Macquarie Bank executive Ivan Power as chief executive of the National Reconstruction Fund (NRF) was a low-key affair.

Relative to the months-long anticipation of who would get to lead what the Minister for Industry and Science Ed Husic has described as the biggest peacetime investment in Australian manufacturing capability, it was almost subdued.

No press conference. No big media profile pieces. Just a quiet, restrained print interview. And yet Power’s appointment is the milestone that signals the $15 billion government-backed fund is now finally open for business.

Power officially starts the job in mid-February, and the next several months will be about building out the organisation with key executive appointments and operational processes to help sift through and evaluate the reported 160 proposals already sitting in the NRF in-tray, with many more to come.

He says he hopes to announce the first investments by the end of this year.

Power, a long time Macquarie Bank veteran whose credentials and experience read like he has something for everyone –  financiers and investors, government-industry relations, startups, even voluntary community-service – gave little away in his first interview.

He signalled that under his leadership the NRF will not shy away from taking the investment risk that the boldness of the NRF vision deserves. But it will be prudent risk, given the responsibility that comes when spending taxpayer money to execute that bold vision.

Sounds perfect.

Power also made it clear that he will drive NRF’s co-investment with superannuation funds, venture capital firms and other private sector investors and institutions – both domestic and foreign – to unlock at least $30 billion in additional private sector money.

Industry and Science minister Husic says a detailed co-investment plan is imminent.

Rightly so.

And we can also sense that Power has a proclivity for public relations-speak when he highlighted one of his tasks is to spread the word in Australia and globally about the country’s “world class industrial capability” despite its high-cost reputation.

Higher costs weren’t an industrial-scale deal-breaker for places like Germany and Switzerland he argued, so it didn’t need to be for Australia either.

Ouch. That one grated.

Some perceived it as a kind of “hostage video” statement required by Power’s federal government employer. Others, that Power is prone to a bit of fantasy-fuelled cheerleading to rally a nation beset by economic insecurity in a world of too-much-too-fast technological change and geopolitical fracture.

Either way, the comment came across as rather shallow and infantilising to clear-eyed participants across the domestic tech and manufacturing sectors, as though we can’t handle the truth.

Haven’t we been told repeatedly by the Labor government – ever since the idea of the NRF was first mentioned in the 2022 federal election campaign – that a key reason for the NRF coming into being is to reverse decades of Australia’s deindustrialisation and productivity decline?

Still, there is no one that doesn’t want the NRF to be successful in its mission. But what mission is it pursuing really? And how will it be executed?

The NRF has had many descriptors during its 20-month incubation period.

When the fund’s independent board was announced last August, chair Martijn Wilder said it was Australia’s response to the Biden Administration’s US$1.2 trillion Inflation Reduction Act and the first salvo in a much-needed Marshall Plan for the decarbonisation of industry.

Treasurer Jim Chalmers described it as “the core” of Australia’s reindustrialisation policy and economic growth strategy driven upon renewable energy technology, projects and implementation.

Some have cautioned the NRF is a financing vehicle and should not be mistaken for industry policy. And others have dubbed it Australia’s Green Bank, which is interesting given we have long had the Clean Energy Finance Corporation (CEFC), which is considered successful.

Power says the NRF will “help make Australia the “natural home for industry and innovation”, which is, well, nobly intended but hard to swallow considering where we sit on the key global innovation, economic complexity and productivity rankings.

Prime Minister Anthony Albanese was more plain speakin’ when he said of the NRF that “It’s about making more things here, it’s that simple.”

All this and more has been part of the advocacy around the NRF to date.

Now as the hard part of implementation officially gets underway, and before the first investments are revealed, it is worth taking stock of what we know and don’t know about the incubation, birth, and future life of the NRF.

Rhetoric aside, what we know is a short list as spelled out in the NRF Investment Mandate published in November.

The ten-year $15 billion fund will prioritise investments across seven national priority areas with the first $10 billion allocated to: renewables and low-emission technologies ($3 billion); medical manufacturing ($1.5 billion); value-adding in resources ($1 billion); critical technologies ($1 billion); advanced manufacturing ($1 billion); and the remainder spread across value-add in agriculture, forestry, fisheries and food and enabling technologies that cover a range of tech including AI, cyber, quantum computing and aerospace.

Investments will be made in the form of loans, guarantees and equity and the Government stake cannot be a controlling one in each investment. Success of the fund will be measured – in part – by earning a return of 2-3 per cent above the Bond rate, like the CEFC, on which the NRF is modelled.

Proposals must come from “Australian or Australian-based companies”, which means that domestic subsidiaries of foreign companies will be a big part of the mix expected to revitalise the country’s 21st century economy, higher value exports and economic complexity.

We also know that keen startups and early-stage tech companies initially excited by the scale of the government investment should temper themselves.

The NRF targets later stage and mature companies and projects in the industry lifecycle. The startup and medium-sized business cohort will be redirected to the $392 million Industry Growth Fund which is supposed to serve as a pathway to the NRF.

What we don’t know yet is the detail of the NRF’s strategic investment approach, its real market differentiation and how it will effectively collaborate and co-ordinate with a raft of other government (state and federal) entities. The NRF investment mandate lists them. It’s a lot of egos and agendas to satisfy or placate.

In a February 2023 submission to the NRF Taskforce, the Australian Industry Group (AIG), the peak national employer organisation representing more than 60,000 businesses across the traditional, innovative and emerging industry sectors, had some well-articulated cautions and recommendations.

It noted that while existing government-backed industry investment vehicles like the CEFC and Export Finance Australia (EFA) are specialist vehicles, (clean energy and trade finance respectively), the NRF has to operate across the seven different priority areas and therefore has to balance a more generalist investment approach to unlock industrial transformation at any scale.

But given obvious areas of overlap, clarification is needed for applicants to differentiate between the NRF and these other financing vehicles.

For instance, the AIG says, in critical minerals, the EFA might continue to focus on upstream projects like mining and processing, while the NRF supports downstream applications (product manufacture).

The AIG submission also recommended the NRF take an ecosystem building approach to industrial transformation and select projects that will offer positive spillovers both backwards and forwards along the value chain.

“Successful value-adding depends not on individual enterprises, but on the industrial ecosystems to which they belong.

“In knowledge-intensive industries, it is rare for a single enterprise to control all stages of production.

“Instead, enterprises reach the knowledge frontier by specialising in particular technologies and stages of production.

“It has long been recognised that Australia needs to build cohesive ecosystems, not simply competitive enterprises to succeed in industrial transformation.”

This kind of cohesive ecosystem oriented approach is supported by many participants in the broad-but-thin domestic tech and innovation sector who want to capture more of the highly valuable and supply-chain strategic “intermediate” goods market globally.

And last, but certainly not least, is whether the independent NRF Board has been properly constituted with the right mix and balance of expertise to effectively evaluate the best claims vs the best claimants.

The latter is always a challenge for governments delving into the ‘picking winners’ minefield in emerging technologies, markets and industries.

That is yet to be tested. But we can take comfort knowing that the NRF board rejected embattled Brisbane fast-charger company Tritium when it asked for a capital injection last September.

Tritium listed on the US Nasdaq in 2021 with a $2 billion valuation. Now it has closed its Australian operation and moved headquarters to the US.

Do you know more? Contact James Riley via Email.

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