Australia turns to idle factories to pull it out of slump

Coronavirus has helped drive it into deepest slump on record

In 2017, the last car Australia built rolled out of a General Motors’ plant in the city of Adelaide, ending seven decades of local automotive history and the belief that the country’s factories could ever compete globally.

Three years later, policymakers are once again looking to manufacturing to generate some growth as they scramble to drive the economy through the coronavirus and out of its deepest slump on record.

While Australians are unlikely to buy millions of locally made cars, refrigerators and toasters as they did in the 20th century, a government push that puts manufacturing at the centre of its longer-term recovery plan has strong industry support and has kindled ventures that would have seemed far-fetched half a year earlier.

Behind the pivot is a realisation that Australia has been too reliant on Asia for the supply of essential goods. A recent worsening in relations with China, Australia’s biggest trading partner, has only strengthened that view.

“If you look at it over time, we have been running down our manufacturing and we’re at this point of inflection — we’re saying maybe we shouldn’t be doing that,” said Drew Woodhouse, a Sydney-based consultant at Bain & Company who looks at supply chain issues.

For many, the coronavirus has shown that the benefits of globalisation, namely low tariffs and cheap labour, are limited when the world economy grinds to a halt.

That has prompted many in the industry to seriously consider bringing operations onshore, even if it means some costs go up.

What businesses say is needed longer-term are reforms that reduce energy costs, encourage innovation and cut red tape for investment.

Scarred by critical shortages during World War 2, Australia expanded its factory sector in following years, heavily protected by tariffs.

By the end of the century, however, production had largely drifted offshore as businesses and politicians embraced globalisation’s upsides.

In 2019, manufacturing accounted for just 5% of GDP, down from about 25% in 1960, while its share of the labour force has fallen to 7% from 17% in 1984.

While some economists see 15% to 20% of GDP as an ambitious target for manufacturing, the shift in thinking has galvanised some early movers.

H2X, a start-up formed in May, is looking to resurrect local automobile production by making hydrogen cars in Port Kembla, a smelting town about 100km south of Sydney.

The operation is looking to employ 100 people by the end of this year, which could ramp up to 5,000 by 2025.

Brendan Norman, the company’s CEO, said production could use 80% local content by 2024. That bet is based on a belief that Australia already has most of the skills and materials needed to make items such as supercapacitors and fuel cells, even if the manufacturing scale is not there yet.

Tony Shepherd, former chairperson of infrastructure firm Transfield Services, said Australia needed to use the crisis to better streamline investment policies across the multiple layers of government.

“We couldn’t even produce the basic medical supplies and we were worried about toilet paper,” he said, referring to the panic buying of toilet tissue earlier this year. “If that isn’t enough of a wake up call for politicians to get going, I don’t know what is.”