Research Paper no. 16 2008–09
Australian manufacturing—structural trends 2001–02
to 2006–07
Guy Woods
Statistics and Mapping Section
24 November 2008
Contents
Executive Summary
- Manufacturing is a key Australian industry equal to 10 per cent
of gross domestic product.
- Global and domestic economic trends are producing structural
change in the industry.
- There has been a shift away from manufacturing goods exposed to
international competition to manufacturers aligned with Australia s
commodities based industries.
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Glossary and abbreviations
Gross domestic product the total market value of goods
and services produced in Australia within a given period after
deducting the cost of goods and services used up in the process of
production but before deducting allowances for the consumption of
fixed capital. Thus gross domestic product, as here defined, is 'at
market prices'. It is equivalent to gross national expenditure plus
exports of goods and services less imports of goods and
services.
Gross operating profit selected items are excluded from
company profits before income tax to provide a measure of
underlying company profits. These items include interest income and
expenses; depreciation and amortisation; and selected items which
do not involve the production of goods and services such as net
foreign exchange gains/losses, gains/losses arising from the sale
of non-current assets and net unrealised gains/losses from the
revaluation of current or non-current assets.
Gross value added the value of output at basic prices
minus the value of intermediate consumption at purchasers' prices.
The term is used to describe gross product by industry and by
sector. Basic prices valuation of output removes the distortion
caused by variations in the incidence of commodity taxes and
subsidies across the output of individual industries.
Large business businesses employing 200 or more
persons.
Medium business businesses employing 20 to 199
persons.
mfg abbreviation for manufacturing
n.e.c not elsewhere classified.
Net terms takes into account gains and losses, e.g. in
the number of businesses, in a given period
Real growth growth measured in constant prices removing
the inflationary impact on prices so that analysis of trends can be
made on the basis of volumes produced.
Small business businesses employing fewer than 20
persons, including non-employing.
TCF textiles, clothing and footwear.
Introduction
Manufacturing is an important part of Australia s economy. In
2006 07 it accounted for 10 per cent of Australia s gross
domestic product (GDP) and employment and for about 25 per
cent of merchandise exports. However, forces at work in the
Australian economy combined with international developments and
increased globalisation are having a profound effect on the size
and structure of the industry.
In recent years, competition from cheap imports, a strong
dollar, the drought and rising costs for raw materials and labour
have created a very competitive business environment for many
Australian manufacturers. At the same time the mining boom and
infrastructure development have created opportunities for other
manufacturers.[1]
The result is an industry that is more aligned with Australia s
comparative advantage in resource based industries and less
focussed on the production of consumer goods such as clothing and
furniture.
Using data on output, employment, business numbers, expenditure
on research and development (R&D) and profits, this paper
analyses the structural changes that have occurred in the
Australian manufacturing industry during the period 2001 02 to 2006
07.
The Australian Bureau of Statistics (ABS) has developed a
classification for defining industries by the nature of the goods
and services produced; this is the Australian New Zealand Standard
Industry Classification (ANZSIC). For the purposes of this paper
the manufacturing industry is as defined by the 1993 edition of the
ANZSIC.[2]
Any reference to industry in this paper refers to the
manufacturing industry unless otherwise specified.
Average growth
In real terms, i.e. adjusted for inflation, manufacturing growth
has been erratic in recent years. The industry has fluctuated
between periods of above average growth and periods of contraction
(see Graph 1). At the same time, the wider economy, as measured by
GDP, has grown more consistently. As a result, the annual average
growth rate for manufacturing over the five years ending 2006 07
was just one per cent. This compares with 3.2 per cent for the
wider economy.
However, this aggregate level data presents a misleading
impression of the industry. When the data are examined at the state
level a much more varied picture emerges (see Graph 2).
Growth rates in the major manufacturing states of New South
Wales and Victoria have been very weak. Measured in real terms,
absolute levels of output declined in both of these states. In New
South Wales manufacturing industry gross value added (GVA) declined
by just under one per cent between 2001 02 and 2006 07; in
Victoria, it declined by just over three per cent.
This trend was completely the opposite in Queensland and Western
Australia. Queensland s annual average growth rate was 4.5 per
cent, increasing manufacturing GVA by nearly 25 per cent over the
five years. In Western Australia the annual average growth was just
over six per cent, increasing manufacturing GVA by 35 per cent.
Relative importance
The economic importance of manufacturing varies significantly
between the states (see Graph 3). Manufacturing is most important
in South Australia and Tasmania where it accounts for 13 per cent
of gross state product (GSP). During the five year period covered
by this paper the importance of manufacturing declined in nearly
every state and territory. The only two jurisdictions to go against
this trend were Tasmania and the Northern Territory.
As well as changes in the importance of manufacturing output
within states there has also been a shift in manufacturing output
between states (see Graph 4). New South Wales and Victoria account
for the lion s share of manufacturing output. However, between 2001
02 and 2006 07 there was a shift away from these states. At the
beginning of the period the two largest states accounted for 64 per
cent of total manufacturing output. By the end, their share had
fallen to 60 per cent. At the same time Queensland, Western
Australia and Tasmania all increased their share of the national
total. The biggest gain occurred in Queensland which increased its
share of manufacturing from 15 to 17 per cent.
Growth by industry sub-division
The ANZSIC divides the manufacturing industry into
sub-divisions, groups and classes based on the nature of the goods
produced. The sub-divisions for manufacturing are:
- Food, beverages and tobacco;
- Textile, clothing, footwear and leather work;
- Wood and paper products;
- Printing, publishing and recorded media;
- Petroleum, coal and chemical products;
- Non-metallic mineral products;
- Metal products;
- Machinery and equipment; and
- Other manufacturing.[3]
From 2001 02 to 2006 07 growth varied across these industry
sub-divisions. Some experienced high rates of growth and others
experienced a period of decline (see Graph 5).
- The Textiles, clothing, footwear and leather (TCF) sub-division
experienced a significant decline in output. Over the five years
TCF output declined by an annual average rate of nine per cent. As
a result, output in 2006 07 was 36 per cent lower than in 2001
02.
- The Wood and paper products; Petroleum, coal and chemical
products and the sub-division defined as Other manufacturing also
experienced declines; although not on the same scale as the TCF
industry.
- At the other end of the scale the Non-metallic mineral
products; Metal products and Machinery and equipment sub-divisions
experienced very strong growth rates.
- The Non-metallic minerals products sub-division grew at an
annual average rate of six per cent, increasing its output by 34
per cent.
- The Metal products sub-division grew at an annual average rate
of two per cent and increased its output by 10 per cent.
- The Machinery and equipment sub-division grew at an annual
average rate of three per cent and increased its output by 18 per
cent.
Relative importance of sub-divisions
The three biggest industry sub-divisions are; Food, beverages
and tobacco; Metal products; and Machinery and equipment. These
three sub-divisions account for nearly 60 per cent of manufacturing
output. The first two are heavily involved in processing Australia
s abundant agricultural and mineral resources. There are also a
large number of manufacturers in the Machinery and equipment
sub-division involved in the production of equipment for the
resources based sector of the economy. For instance, at the end of
2006 07, over a 1000, or five per cent, of businesses in this
sub-division were engaged in the manufacture of mining and
construction machinery.
The trend in recent years has been for the Non-metallic minerals
products, Metal products and Machinery and equipment industry
sub-divisions to increase their share of total manufacturing
output. At the other end of the spectrum the TCF sub-division lost
ground and is now the smallest of the manufacturing industry
sub-divisions (see Graph 6).
Aggregate growth
Manufacturing s share of employment has been declining for a
number of years. Annual average employment for manufacturing was 1
081 300 persons in 2001 02 which was equal to about 12 per cent of
total employment. In 2006 07 annual average employment in
manufacturing was 1 063 900 which was 10 per cent of total
employment. The lack of employment growth in manufacturing
contrasts with the wider economy. In the wider economy employment
grew at an average annual rate of 2.4 per cent over the same
period.
However, given that overall output in manufacturing increased
over the same period, the lack of growth in manufacturing
employment could be indicative of increased productivity in the
industry.
Industry sub-division
As with GVA there were significant differences between the
individual manufacturing industry sub-divisions. Some sub-divisions
recorded positive growth while others dramatically declined (see
Graph 7):
- The Food, beverages and tobacco and Metal products
sub-divisions both grew at an annual average rate of just over one
per cent in the five years to 2006 07.
- The Wood and paper products and the Printing, publishing and
recorded media sub-divisions recorded annual average growth rates
just under one per cent.
- The remaining industry sub-divisions recorded falls in
employment.
- Again the worst performing industry was the TCF sub-division.
Employment in the TCF sub-division fell at an annual average of 7.6
per cent in the five years to 2006 07. As a result, TCF employment
was 32 per cent less than it had been in 2001 02.
- The Other manufacturing sub-division also declined. Employment
in this industry fell by almost a quarter over the five years.
Contribution to state employment
At the state level manufacturing makes its most significant
contribution to total employment in Victoria and South Australia.
In Victoria it accounts for almost 13 per cent of total employment,
and 12.5 per cent in South Australia. It is least important in the
Australian Capital Territory and the Northern Territory where it
accounts for three and four per cent of total employment
respectively.
However, in the period 2001 02 to 2006 07 all states and
territories experienced a decline in manufacturing s contribution
to total employment. This decline was most notable in the industry
s most important states. For instance, in Victoria it fell by over
two percentage points from 15 to 13 per cent (see Graph 8).
Despite the decline in the relative importance of manufacturing,
the actual number of people employed in the industry did grow in
some states (see Graph 9).
In the period 2001 02 to 2006 07 employment in manufacturing
grew most strongly in Western Australia, where it grew at an annual
average rate of 2.4 per cent. Also, it grew at an annual average
rate of 1.3 per cent in Queensland and 0.6 per cent in
Tasmania.
All the other states and territories experienced a decline in
the total number of people employed in the industry. The most
notable decline occurred in the Northern Territory where it fell at
an annual average rate of 4.7 per cent.
These differing growth rates have resulted in a change to the
relative importance of the states. Victoria and New South are by
far the biggest states in terms of manufacturing employment. In
2006 07 they accounted for 61 per cent of employment in the
industry. However, this was down from 64 per cent in 2001 02.
Whilst New South Wales and Victoria declined in importance,
Queensland and Western Australia increased their share of
manufacturing employment. Queensland increased its share from 17 to
18 per cent and Western Australia from eight to nine per cent.
At the industry sub-division level there were also some major
differences in employment growth between the states and territories
in the five years to 2006 07.
New South Wales
- Employment declined in every industry sub-division.
- The decline in the TCF sub-division was particularly severe.
TCF employment fell by 37 per cent at an annual average rate of
nine per cent.
Victoria
- The Food, beverages and tobacco sub-division grew at an annual
average rate of three per cent, increasing employment by over three
thousand.
- The Wood and paper products and Printing, publishing and
recorded media sub-divisions both experienced an increase in
employment.
- Employment growth was slightly positive in the Machinery and
equipment sub-division.
- The rest of the sub-divisions experienced declining
employment.
- Again, the TCF industry was notable in the level of its
decline; employment fell by 31 per cent.
- Employment in Other manufacturing sub-division also declined
sharply, falling by 36 per cent.
Queensland
- Printing, publishing and recorded media was the fastest growing
sub-division with an annual average growth rate of eight per
cent.
- This was followed by the Metal products sub-division which grew
at an annual average rate of seven per cent.
- The Food, beverages and tobacco sub-division grew at an annual
average rate of two per cent.
- The remaining sub-divisions all experienced a decline in
employment.
- Employment in Petroleum, coal and chemical products fell by 21
per cent.
- Employment in the sub-division classified as Other
manufacturing fell by 32 per cent.
South Australia
- Employment grew by six per cent a year in the Wood and paper
products sub-division.
- Employment also grew by five per cent a year in the Metal
products sub-division
- The Food, beverages and tobacco sub-division experienced a
growth rate of three per cent a year.
- All the other sub-divisions experienced declines in
employment.
- Employment in the Non-metallic mineral products sub-division
fell by almost 30 per cent.
- The most notable decline occurred in the TCF sub-division,
where employment fell by almost 50 per cent.
Western Australia
- The Metal products sub-division grew at an annual average rate
of five per cent.
- Other sub-divisions experiencing growth were the Food beverages
and tobacco sub-division which grew at an annual average rate of
four per cent; the Printing publishing and recorded media, and
Machinery and equipment sub-divisions both grew at an annual
average rate of one per cent.
- Notable falls in employment occurred in the Wood and paper
products (down 39 per cent) and the TCF sub-divisions (down 38 per
cent).
Tasmania
- The Printing, publishing and recorded media sub-division grew
at an annual average rate of eighty per cent.
- The Food, beverage and tobacco and the Petroleum, coal and
chemical products sub-divisions both grew at an annual average rate
of one per cent.
- All other sub-divisions experienced declines in
employment.
- The biggest falls occurred in the TCF (down 15 per cent),
Non-metallic mineral products (down 15 per cent) and Other
manufacturing (down 13 per cent) sub-divisions.
Business numbers
Between 2002 03 and 2006 07 the total number of manufacturing
businesses declined by four per cent from 111 000 to 106
000.[4] This compares
with an increase in the total number of businesses, across all
industries, of eight per cent; equal to about 143 000 businesses.
The only other industry to experience a fall in the number of
businesses was the cultural and recreational industry, which
declined by two per cent or just over a thousand businesses.
Trends in business size[5]
Over the period covered by the data, the proportion of
non-employing businesses in manufacturing declined by ten
percentage points from 55 to 45 per cent. The proportion of small
employing businesses increased from 35 to 45 per cent. As a result
the overall size of the small business sector in manufacturing
remained about the same, but as the data shows there has been a
move away from non-employing businesses to employing businesses.
Over the same period the proportion of medium sized businesses
increased from eight to nine per cent. The proportion of large
business remained virtually the same (see graph 10).
Trends by industry sub-division
By industry sub-division the biggest fall in the number of
businesses occurred in the TCF sub-division, which declined by over
2000 businesses or 18 per cent. The Other manufacturing
sub-division also declined by over 2000 businesses, which was a 13
per cent fall.
The Metal products and Machinery and equipment sub-divisions
experienced slight rises in the number of businesses of about one
per cent each.
State trends
The number of manufacturing business increased in Queensland at
an annual average rate of 0.3 per cent. However, in every other
state and territory, the number of manufacturing businesses
declined. The biggest decline was in the Northern Territory which
lost almost a quarter of its manufacturing businesses at an annual
average rate of almost seven per cent. In the Australian Capital
Territory and New South Wales the number of manufacturing
businesses declined by about two per cent a year. The smallest
decline was in Western Australia where the number declined by about
0.3 per cent a year (see Graph 12).
New South Wales
- As noted, the number of businesses declined by almost two per
cent a year. Declines occurred in every sub-division.
- The biggest decline occurred in the TCF sub-division. It
experienced an annual average fall of nearly six per cent, losing
over 21 per cent of businesses in the period.
- The smallest decline occured in the Metal product sub-division.
This sub-division experienced an annual average decline of 0.6 per
cent, losing 2.5 per cent of businesses.
Victoria
- The number of businesses declined by almost six per cent at an
average annual rate of 1.5 per cent. Declines occurred in most
industry sub-divisions.
- The TCF sub-division lost almost a quarter of its businesses at
an annual average rate of just over six per cent.
- The Petroleum, coal and chemical products sub-division grew by
0.6 per cent at an annual average rate of 0.2 per cent.
- The Machinery and equipment sub-division also experienced some
modest growth at an annual average rate of 0.2 per cent.
Queensland
- The number of businesses increased by one per cent at an annual
average rate of 0.3 per cent.
- The number of businesses in the Metal products and Machinery
and equipment industry sub-divisions increased by over nine per
cent with an annual average growth rate of over two per cent.
- The sub-division classified as Other manufacturing lost over 11
per cent of its businesses declining on average by almost three per
cent a year.
- The number of businesses in the TCF and Food, beverages and
tobacco sub-divisions declined by almost seven per cent at an
annual average rate of nearly two per cent.
South Australia
- The number of businesses declined by almost four per cent and
at an annual average rate of one per cent.
- The number of businesses in the sub-division classified as
Other manufacturing declined by over 12 per cent at an annual
average rate of 3.2 per cent.
- The TCF sub-division lost 11 per cent of its businesses at an
annual average rate of almost three per cent.
- The Food, beverages and tobacco; Petroleum, coal and chemical
products and machinery and equipment sub-divisions all experienced
increases in the number of businesses.
- The fastest growing sub-division in the state was the Food,
beverages and tobacco sub-division, which grew by 8.5 per cent at
an annual average rate of 2.1 per cent.
Western Australia
- The number of businesses in the state declined by just over one
per cent at an average annual rate of 0.3 per cent.
- The sub-division classified as Other manufacturing lost almost
12 per cent of its businesses at an annual average rate of 3.1 per
cent.
- The TCF and Non-metallic minerals sub-divisions also
experienced falls in the number of businesses.
- The number of businesses grew in the remaining industry
sub-divisions.
- The fastest growing was the Petroleum, coal and chemical
products sub-division. It grew by almost 8 per cent at an annual
rate of almost two per cent.
Tasmania
- The number of businesses declined by almost five per cent, at
an annual average rate of just over one per cent.
- The TCF sub-division lost almost a quarter of its businesses at
an average annual rate of over six per cent
- The Printing, publishing and recorded media sub-division lost
over 12 per cent of its businesses and the number of Non-metallic
mineral products businesses fell by almost 15 per cent.
- However, the number of businesses in the Metal products and
Other manufacturing sub-divisions increased by two per cent and one
per cent, respectively.
By industry class
In addition to data at the sub-division level, data on the count
of Australian businesses are also available at the next level of
detail; that is, by industry class. At the industry class level a
more refined picture of trends within an industry can be observed.
In the case of manufacturing, the data can be used to ascertain
what sort of goods are produced by those manufacturers who are
prospering or struggling. From the data the following observations
can be made.
For the period 2002 03 to 2006 07, the industries that gained
the most businesses were:
- Fabricated metal products, Queensland, gained 258
businesses.
- Mining and construction machinery, Queensland, gained 144
businesses.
- Wine, South Australia, gained 126 businesses.
- Petroleum refining, Victoria, gained 111 businesses.
- Motor vehicle bodies, Queensland, gained 111 businesses.
- Industrial equipment, Queensland, gained 111 businesses.
- Fabricated metal products, Western Australia, gained 90
businesses.
- Wooden structural components, Victoria, gained 90
businesses.
- Petroleum refining, New South Wales, gained 81 businesses.
- Non-metallic mineral products, Queensland, gained 78
businesses.
At the other end of the scale, the industries suffering the
biggest losses were:
- Clothing manufacturing, n.e.c, Victoria, lost 444
businesses.
- Clothing manufacturing, n.e.c, New South Wales, lost 444
businesses.
- Wooden furniture and upholstered seat, New South Wales, lost
408 businesses.
- Manufacturing, n.e.c[6], New South Wales, lost 249 businesses.
- Women s and girls wear, New South Wales, lost 192
businesses.
- Manufacturing, n.e.c, Victoria, lost 183 businesses.
- Wooden furniture and upholstered seat, Victoria, lost 171
businesses.
- Furniture manufacturing, n.e.c, Queensland, lost 159
businesses.
- Furniture manufacturing, n.e.c, New South Wales, lost 147
businesses.
In 2005 06, manufacturers spent $3.9 billion on research and
experimental development (R&D). This was equal to nearly 40 per
cent of total R&D by businesses in Australia. As a proportion
of GVA manufacturing, R&D is twice as high as the national
average making it the most R&D intensive sector of the
economy.
As with the rest of the economy, R&D expenditure in
manufacturing went through a slump in the late 1990s, but in recent
years this trend has reversed. The latest data show that, in real
terms,[7]
manufacturing R&D grew at an annual average rate of seven per
cent in the period 2002 02 to 2005 06.
However, this was less than the 11 per cent for total business
expenditure on R&D.
As with other indicators the aggregate picture for R&D in
manufacturing conceals some notable differences between the various
industry sub-divisions. In the period 2002 02 to 2005 06, the
fastest growing sub-divisions for R&D were Printing, publishing
and recorded media with an annual average rate of 45 per cent;
Machinery and equipment at 22 per cent and Metal products at 20 per
cent.
In real terms company profits grew at an annual average rate of
4.4 per cent for the period 2001 02 to 2006 07; compared with 6.1
per cent for all industries.[8] Again there were significant differences between the
industry sub-divisions.
- Profits in the Metal products sub-division grew at an annual
average rate of almost 20 per cent. The Printing publishing and
recorded media; Petroleum, coal and chemical products; and the
Non-metallic mineral products sub-divisions all grew at an annual
average rate of about four per cent.
- In some industry sub-divisions profits contracted. The Food,
beverage and tobacco; TCF and the Machinery and equipment
sub-divisions saw profits fall by an average rate of about two per
cent a year. Profits in the Wood and paper products sub-division
fell by an annual average rate of six per cent.
Conclusion
The data presented in this paper reveal the changing nature,
size and location of the manufacturing industry. In aggregate, the
industry has not performed as well as the rest of the economy in
recent years. However, when the data are examined in more detail a
much more complex picture emerges. In the time period covered by
this research paper, some parts of the industry have grown at rates
well above the average for the rest of the economy and others have
declined.
Manufacturers closely linked to the mining industry have
experienced a period of strong growth. For instance, the Metal
products sub-division has experienced significant growth in output,
profits and expenditure on R&D in recent years.
At the same time, other manufacturers exposed to increased
competition from overseas producers have not fared so well. This
trend has particularly affected the TCF and Furniture
manufacturers, which have experienced significant declines.
There have also been geographic changes to the industry.
Historically, New South Wales and Victoria have been the base
states for manufacturing. However, in the last few years the
industry has experienced a period of decline in these two states
and their dominance has waned. At the same time, the industry has
grown in Queensland and Western Australia. This growth is probably,
in part, due to the general economic conditions in these states. It
is also likely to be closely linked to the commodities boom and
demand from the mining industry for manufacturers to process its
products and provide it with machinery and equipment.
On the whole, the data present a picture of a key industry
undergoing a period of structural change. Some parts of the
industry have declined in the face of increased international
competition and others have thrived on the back of the commodities
boom.
The unfolding financial crisis and subsequent credit crunch have
had a major impact on economic activity around the world. As 2008
draws to an end, the USA, Japan and most of the major European
economies are either in recession or are very close to it. In
China, growth has slowed from double digit figures to about eight
per cent and may slow further.
The economic slow down has had a major impact on commodity
prices which have fallen dramatically from the historic highs
reached at the beginning of the year. This has impacted on the
value of the Australian dollar which has fallen by over 30 per cent
against the US dollar in recent weeks.
Despite all this, the major international and national economic
policy institutions are predicting that, although economic growth
in Australia will slow, it should avoid a recession. This is
largely due to the continuing strength of the Chinese economy and
stimulatory policies adopted by the Australian Government and
Reserve Bank.
The impact of all this on Australia s manufacturers is probably
quite mixed. Falling interest rates should be beneficial. However,
the credit crunch is making it difficult for businesses to obtain
new credit. The falling dollar will improve the competitiveness of
export orientated manufacturers, although slowing demand in
overseas markets may counter this to some extent. The current slow
down in Germany, for instance, has been blamed on its reliance on
exports of manufactured goods. On the other side of the trade coin,
the falling dollar will make imported goods more expensive. This
will help to improve the competitiveness of Australian manufactures
in the domestic market. Again, though this is not entirely clear
cut. Many manufacturers rely on imported components; the falling
dollar will make these components more expensive which will raise
the cost of producing the finished goods.
In all likelihood, the economic slow down may hasten the trends
highlighted by this paper. The commodity boom of the last few years
may have ended for now, but demand for raw materials from a
modernising China should continue for many years to come. Also, the
Australian Government has said it will spend billions of dollars on
infrastructure projects. Those manufacturers that are aligned with
these two economic drivers will probably weather the economic slow
down relatively well. However, those manufacturers that were
struggling with competitive forces in the economy before the
financial crisis may not fare so well.
- Real growth by state and territory
- Share of output
- Real growth by industry sub-division
- Employment by industry sub-division and state
- ABS count of businesses by industry sub-division, state and
business size
- Expenditure on research and development
- Profits
Table 1.
Table 2.
Table 3.
Table 4.
Table 5.
Table 6
Table 7
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