ACCI - Who Will Invest in Australian Manufacturing?

Who Will Invest in Australian Manufacturing?

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June 14, 2012

ADDRESS TO PLASTICS AND CHEMICALS INDUSTRY NATIONAL CONFERENCE

Peter Anderson, Chief Executive Australian Chamber of Commerce and Industry, Sydney 14th June 2012

I am very pleased to be here with friends and colleagues from PACIA, and I thank President Ross McCann and Chief Executive Marg Donnan for their invitation, and congratulate conference organisers on the event.

PACIA operate a fabulous secretariat and are shining lights in ACCI‟s industry association membership. In the last few months Marg and her team have not only contributed to ACCI‟s policy development and advocacy on critical issues like the carbon tax, the federal budget, the COAG process (including support for the COAG
Business Advisory Group) and skills development – but are also keenly involved in helping ACCI frame our own strategic plan for the remainder of this decade, so that we can continue to be the nation‟s largest and most representative peak business council. For this, I am very grateful.

When I say I am pleased to be here, I am not just referring to being amongst industry colleagues. I am actually pleased to be back in Australia, almost literally getting off a plane after three weeks overseas, meeting with business colleagues from around the globe and taking the temperature of economic and business conditions in Europe and Asia.

I am also pleased to actually be here because I experienced what an increasing number of overseas travellers now experience daily in the boulevards of Europe‟s big cities – brazen theft of one‟s property while walking a public street. As this is my first statement back on home shores, I would like to publicly acknowledge the good work of the Australian embassies overseas in helping Australians who need consular assistance.

In my instance, thanks to the efficiency of the Australian mission in Geneva, Switzerland I was issued an emergency passport within a matter of hours. The topic of this session, the productivity challenge for Australian manufacturing, is extremely relevant to the remarks I wish to make today about global conditions as I found them in Europe and Asia. The intersection between the focus of this conference and the just concluded Prime Minister‟s Economic Forum in Brisbane is also interesting. At this conference your Industry is pointing to (quote) "an industry under pressure".

Yet, understandably, the Prime Minister on Tuesday evening exhorted all of us in business to speak more boldly about Australia's positive economic growth.

At first blush these may seem inconsistent messages; but a little deeper examination discloses the central truth that reconciles the message – while Australia‟s economy is growing, our global competitiveness is slipping.

So, yes it is true that we must speak positively about our good fortune and the things we are doing well. But we must also speak openly about why we still see Australian manufacturing move to Asia, why some food manufacturers see New Zealand as a better destination for doing business, and why we struggle to secure overseas investment in Australian manufacturing on our shores.

The answer lies in understanding the competitiveness challenge – and a big part of that is productivity. Reserve Bank Governor Glenn Stevens, a man measured in his language, unambiguously told the Prime Minister‟s Forum that much yesterday. In my references to productivity I refer to it in the broad sense – not just the output from an employee, but all of the factors that impact efficiency and output – including business systems, skills for the job, regulation compliance and red tape.

When I spoke to your industry at last year's AGM, I referred to a letter I received from a frustrated small and medium business manufacturer in Queensland. He said, and I quote: "Small and medium sized businesses have been working to constantly reduce profit margins in their efforts to remain 'in the game', whilst 'on costs' have continually increased. Many manufacturers with established overseas markets left our shores and took their operations into other less hostile environs. Those that have stayed have been forced to fight what seems a losing battle with ever increasing compliance regulations and associated costs, ever rising operational costs with materials, power, fuels and labour and a diminishing market share due to 'the China Factor'.

My two weeks in Europe and one week in Asia (China) reinforce the force of this message.

In Europe, I spoke to more than fifty business leaders from around the globe as well as officials from the OECD headquarters in Paris and officials of the International Organisation of Employers and the International Labour Organisation in Geneva.

I also spoke to employer bodies from Asia and, with them, met with leaders of the trade union movement in Asia.

Whilst in China, I met with five categories of people:

Representatives of the Chinese government and its powerful Ministry of Commerce;
Representatives of Chinese business and trade organisations doing similar work to ACCI;
Ten Australian businesses doing business in China;
Australian and State government representatives in China; and
Chinese businessmen interested in investing in Australia.

The insights of these interactions were extraordinary.

In Europe, I was downcast. My sense is that Europe, apart from Germany, has slipped backwards. A year ago Europe generally understood the problem (sovereign debt caused by living beyond one‟s means) and the solution (lines of credit conditioned by spending discipline in the affected countries – known as austerity measures). What they were struggling with was finding the mechanism to deliver the solution given that governance arrangements as well as monetary and fiscal policy regulators in Europe are disconnected. In other words, a year ago Europe identified the problem and solution, but was having difficulty with implementation.

Today, Europe has taken a step back and is questioning whether the previously accepted wisdom (spending restraint) is the right solution. Many voices have now emerged arguing that austerity is wrong, and that the solution is to borrow more money, to spend more money and grow one's way out of the problem by stimulating growth. In other words, Europe is further away from implementation of a solution because it is more divided about the actual solution.

In Asia, the picture is different. There is entrepreneurship, there is more confidence.

Growth has slowed a little in China, and a bit more in India, but remains respectable.

Nor is Asia just China or India. Indonesia, on our doorstep, is impressively growing and industrialising. Thailand is a haven for manufacturing.

And the political changes in Myanmar are opening up that economy to opportunity. I was privileged to meet with the secretary of the Myanmar Chamber of Commerce, and also discuss Myanmar with their Ambassador in Geneva. I have involved myself in encouraging the International Labour Organisation and global trade union leadership to view progress on labour and human rights in the country as sufficient to lift or suspend economic sanctions, and am very pleased with the supportive tone by Foreign Minister Bob Carr when visiting Myanmar a fortnight ago.

Hopefully positive announcements can soon be made by the international community, especially as Anug San Suu Kyi is addressing the ILO in Geneva later today.

There are plenty of Australian companies in Asia, including China. The experience of these companies is more telling than anything I can say.

As one put it to me, there is a buck to be made here, but not a quick buck. Those that hang around for 5 to 10 years make some money, not those that fall off the edge after a couple of years.

In other words, the tried and true principles of careful planning, securing sufficient capital
for the long haul, developing business to business relationships and a realistic business model all apply.

I am pleased that the Australian Government encouraged a focus on Asia at this week's Prime Ministers Economic Forum, as well as through the Australia in the Asian Century Review by ex-Treasury boss Ken Henry.

A key lesson that should be echoed in this work is that neither Asia nor China is waiting for Australia to come to them, nor will they delay capital investment until we get our house in order. They are getting on with business. They are global in outlook and see horizons well beyond our shores. Africa, the Middle East, South America are all trading partners for Asian commerce and capital.

This means that Australia has to be competitive and productive to be in the game.

Trade with Asia has to be more than commodity prices for iron ore.

A challenge in dealing with Asia is one of scale. Do we have the capacity to supply the dimensions they require? Asian importers of wine didn't talk about requiring dozens of crates, they talked in shiploads. When I mentioned that some parts of regional Australia required new urban buildings I was told (quote) "We don't just build buildings, we build cities."

Perhaps the most profound message I picked up in Asia was a concern from the Asian end that Australia doesn‟t fully understand the mutuality involved in trade and commerce. That we want our cake and eat it. That we want Asian nations to give the green light to Australian companies to access their markets, to invest in their property and sell to their customers, but we turn a bit icy to Asian investment on our shores.

These are fair critiques and matters we need to deeply reflect on. Trade is a partnership. It would be a big mistake for our nation if we spurned legitimate and wealth creating Asian investment in Australia because of snobbish or neo-colonial attitudes about western investment being better than eastern investment. If we did that, in a generation‟s time our children will be given the task of rectifying the wrong of their parents‟ generation. Just think of past attitudes to Japanese investment, and see now how we would not have key elements of our CBD development, logistics infrastructure or tourism facilities if it had not been for some of these past investments.

Let's not fall in the same trap with China.

While I was away this issue received some publicity and public commentary back home. I congratulate Trade Minister Craig Emerson on his leadership on this issue and fully concur with views he has expressed over the past week about the importance of a mature and rational understanding of Asian investment in Australia, including his opinion piece in the Australian last Saturday 9th June. What he said is leadership, and we need more of that in our country.

Another example of this leadership is the Free Trade Agreement the Australian Government recently signed with Malaysia. Once implemented it will enable Australian companies to invest in Malaysia and retain majority ownership.

In a capital starved world, where neither our governments nor the Australian private sector alone has enough of the big dollars to build the big projects we need in our cities and regions, we need capital from Asia to build our industry and infrastructure and employ more people here in our country.

And this brings me to my final insight for today about the meetings I held in Asia.

In Shanghai, I met with the Director General of the Shanghai Municipal Government Financial Services Office, Dr Fang Xing-Hai. This is the authority which authorises Chinese investment above a certain amount in foreign countries like Australia.

Dr Fang told me as it is. He said, straight out, that regrettably Australia is not an attractive place for investment in manufacturing.

Let me repeat, one of the world's biggest investors from a trading city of world renown and from a nation that will soon be the number one economy in the world is telling us that Australia is not a place where overseas investors would want to invest capital in plant, equipment or employing people in our manufacturing industry – an industry that is still one tenth of our industrial base.

There was no clearer evidence of the point that Asia is not waiting for Australia than that message I heard sitting across that table last Friday afternoon.

"Why?" I asked. I was told equally politely, that our market was too small and our labour cost structure and our regulations were too high. He then made specific reference to our employment regulations, even to the point of asking about the capacity of employers in our country to take action against poor performing workers.

This hit me like a baseball bat. A Chinese official thousands of kilometers away, with authority to invest in Australia, raising some of the very regulations that we domestically are seeking to be changed.

Whether Dr Fang is right or wrong, we need to be aware that our labour market regulation does matter to oversee investors because they impact on business efficiency.

In short, his message was that our manufacturing industry is becoming less and less globally competitive, except in some niche areas.

I wanted to argue the point, but something inside told me he was probably right.

In thinking further about this sobering message, I realised it wasn't just Dr Fang of the Shanghai Municipal Government Financial Services Office who was telling me our manufacturing industry lacked competiveness. It was also my own members, starting with our small business manufacturer in Queensland, whose thoughts I mentioned earlier.

Hence, I ask in the provocative title of this address, 'Who Will Invest in Australian Manufacturing?'

It is not as if we have overseas investors or our own private companies falling over themselves to do so. Remember it is the Australian taxpayer that recently coin vested big dollars in the automotive industry.

My point is that given that we do not and should not compete with Asian countries on labour costs, and then we need to make every other post a winner if we want to keep producing goods and services and compete in international markets.

That is why acting unilaterally to remove one of our historical competitive advantages, low cost energy sourced from our abundant coal supplies, by placing a carbon tax on our economy is a mistake.

This echoed a similar message I received from the President of the International Organisation of Employers, a Malaysian businessman, who a few years ago invested in the hospitality industry in Sydney but then pulled out because of high costs, excessive regulations and a bad attitude amongst staff unwilling to reach the skills standards expected in the higher end of the Asian hospitality industry.

Ladies and gentlemen, whilst there is much more to share with you about the messages I received from Asia, this is more than enough to contemplate for today.

Without getting our domestic house in order to lift our productivity and competitiveness, we will not realise the full potential of Australians investing in Asia, or Asia investing in Australia.

This is a common task for both PACIA and ACCI, indeed for all of us and our Governments.

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