The State of Manufacturing

Manufacturing industry in Australia continues to under-perform with the exception of metal products manufacturing (iron, steel, aluminium and fabricated metal products). The latest full-year national accounts released by the Australian Bureau of Statistics on 2 November 2007 show that manufacturing output was $101.3 billion in 2006–07, an increase of 2.2 per cent from the previous year. But overall, the rise in manufacturing output was below Gross Domestic Product (GDP) growth of 3.2 per cent for 2006–07.

Over the last two decades, manufacturing output as a proportion of GDP has fallen from 17.8 per cent in 1986–87 to 10.2 per cent in 2006–07. While this decline is due in part to price effects and structural change resulting from tariff cuts, manufacturing has continued to lose share to the growing services sector, particularly since 2000.

Employment in manufacturing as a proportion of the total labour market has declined in step with the relative decline in output. Manufacturing employed just over 1 million people in 2006–07 and, as a proportion of total employment, has fallen from 16.5 per cent in 1985–86 to 10 per cent in 2006–07.

As a general trend, manufacturing activity is becoming more science-based. New opportunities—especially in the biotechnology, pharmaceutical and medical equipment sectors and in areas based on new technologies in the renewable energy sector—have been emerging. To take advantage of these emerging areas, national policies to boost manufacturing need to build on Organisation of Economic Co-operation and Development findings that manufacturing competitiveness and long-term employment growth are driven by innovation and technological change. These policies include increasing investment in manufacturing research and development (R&D) and strengthening the vocational education and training system.  

In Australia, the Senate Foreign Affairs, Defence and Trade Committee—reflecting the new direction of manufacturing policy—has argued that manufacturing policy must be founded on innovation support and skills development:

… two key pillars of a national manufacturing policy must be to fund and coordinate research and development in value-added technologies, and to support skills development in technical education.

The committee recommended that the government follow through with recent initiatives to improve the manufacturing skills base and increase incentives for collaboration between manufacturing firms and private sector research centres.

Documentation
Department of Industry, Tourism and Resources, ‘Australian Manufacturing Sector Trends’, Background Paper, no. 2, Department of Industry, Tourism and Resources, Canberra, May 2007.