The Good Oil by Rod Brown *
As we move to negotiate a free trade agreement with China, Australia’s imports from China are running at $17.9 billion (2004), vastly outweighing our exports to China ($11 billion). China is now our biggest source of imports, and the level has doubled in five years. Cheap clothing and footwear are still big items, but there are now very substantial imports of sophisticated products – computers, telecommunications equipment, office machinery, monitors and video projectors.
Heather Ridout, CEO of the Australian Industry Group (AiG), says that Chinese goods now challenge the Aussie product in terms of consumer acceptability. She observed that most consumers don’t care any more.
The economic rationalists argue that this is competitive advantage at work, and that Australian consumers and resource companies are the big winners. But the risk is that our agriculture and manufacturing base will cop a king hit.
There is talk in Canberra about our automotive components sector facing very serious job losses – in the tens of thousands in Melbourne and Adelaide when the FTA with China takes effect. Our whitegoods and machine tool industries are in the gun, and we haven’t had a recession for 12 years! And now we learn that a quarter of Sunraysia’s orange crop is being dumped because of lack of access to Asian markets.
Addressing waves of imports
The AiG has released a very good issues paper floating ideas about how to address the future of Australian manufacturing.
One model, let’s call it the ‘micro-reform’ model, suggests that we continue building our microeconomic foundations – incentives for innovation and export market development, reduction in regulatory burdens, promoting skills development, workplace reforms and environmental sustainability, building our transport infrastructure, further tax reform and so forth.
This is essentially the current Federal policy.
The second model is more specific to manufacturing, let’s call it the ‘strategic support’ model, involves an industry assistance package for manufacturers. It would support global best practice in Australian manufacturing, with incentives that facilitate process and productivity improvements, stimulate export growth and import replacement, accelerate the pace of innovation and new technology, lift the returns on skill development investments and improve efficiency in energy management.
I believe this second model is going to be required soon – please read on.
OECD says get the right people together
By coincidence, the OECD has weighed in with a key report, Micro-policies for Growth and Productivity, that identifies the policy priorities for western governments to achieve industrial growth.
It aligns with the AiG’s ‘micro-reform’ model. It emphasises skills, incentives for continuous training, tripartite agreements for enterprise training, fostering knowledge based management and entrepreneurship, access to venture capital, and the benefits of information and communications technology.
The OECD report also recommends the enhancement of public research, such as centres of excellence for research; the promotion of industry-science links, and the stimulation of competition among educational institutions; and the linking of higher education to the conduct of government-financed R&D.
Brendan Nelson will be itching to jump into these agendas! However, the most insightful recommendation is that governments should foster collaborative networks, and focus on getting the right people together.
The OECD’s ‘right people’ advice is absolutely spot on. Australia will not be price competitive with China, India or Taiwan in a whole new range of manufactured and processed goods.
Since we cannot beat them, we might as well join them by finding partners to push into new value adding areas.
Regional investment
The Standing Committee on Primary Industries and Regional Services (2000) concluded, “Without action to stop the reduction of services still occurring throughout many areas and a new focus for investment in regional Australia, we face the danger of Australia being divided into two nations”. This view was supported by the report of the Regional Business Development Analysis Panel (Keniry et al, 2003).
A key reason for the ‘two nation’ divide is capital market failure – the lack of available investment vehicles and instruments appropriate to the infrastructure needs of regional communities.
To explain, the public private partnership (PPP) approach may be okay for encouraging private investment in metropolitan infrastructure such as roads, bridges, tunnels, railway and airport terminals where the cost is $200 million or more. However, at the regional level, the capital required for a natural gas spur line, a bridge repair or a water treatment plant is commonly less than $20 million. These projects are too small to attract fund managers.
Moreover the big end of town says that the governance structures in many regional areas (Councils included) are not professional enough to generate proposals for serious consideration.
A consortium of companies has been formed to address these issues. It proposes to improve the quality of both infrastructure and business investment proposals, and to then bring them forward to identified investor groups.
In other words, it aims to get the right people together. Contact us for more information.
Snakes and ladders
The hottest topic in Canberra is Mark Latham’s venomous attack on his erstwhile Labor colleagues. Incredible.
Latham was always a big punt by the Labor powerbrokers. Egged on by the media and concerns about Crean’s ratings, they engineered the rise of Latham to sell ladders of opportunity to the electorate. Some ladder… Clearly Latham is suffering delusions, and his diaries confirm it.
This saga will not have much effect on the next election. But spare a thought for two very good politicians – Crean and McMullan – who were railroaded in the process.
* Rod Brown’s Canberra based consultancy group, Australian Project Developments Pty Ltd, specialises in industry/regional development and government liaison. For further information telephone (02) 6231 7261 or email apd@orac.net.au.
