A message from Jens Goennemann

After a decisive election win, the runway for government, especially a returning one, is at its longest. Therefore, it is a good time to address one of Australia’s most persistent economic challenges, again: Our country’s shocking lack of industrial capability.

Equally persistent as this challenge itself, is the ignorance of acknowledging it, because it doesn’t appear urgent as long as the commodity dollars are freely flowing, and economic conditions seem to be somewhat ok.

The cold hard truth is that at some point in the future, customers will no longer want or need our coal and gas. It will be too late to start nurturing alternative opportunities for international trade – developing a capable and competitive manufacturing industry being my favoured option. So, what’s stopping us?

Governments naturally want gleaming programs with seemingly large cheque sizes that sound impactful, make headlines and impress voters. However, that alone will not turn the tide of falling complexity and capability, as only the big end of town can absorb such cheques.

Almost 90 per cent of Australian manufacturers employ less than 20 people with medium-sized companies noticeably absent. Big cheques for big companies only widen that gap. Australia’s unfortunate industry structure lacks a healthy middle and is the main reason for our lacking industrial capability. No capable industry means no Future made in Australia. Let’s remember that we start from the global rank number 102 for global complexity according to the respected folks at Harvard.

Considering our current situation, we have two options: Accept the status quo and live with the consequences or help the most capable amongst the small companies to grow and begin to populating the vast “missing middle”. A third option does exist in which opportunities from large companies trickle down to the middle, however, given Australia’s industry structure this wouldn’t work because there is currently not many, if any, mid-sized manufacturers to trickle to.

A recent pulse check across AMGC’s 4,400-strong network delivered a not so surprising and very consistent message: capable manufacturers are willing and able to match government co-investment for growth, but existing programs are not designed for them.

Funding levels are mismatched (the sweet spot appears to be around $250,000 thus well below the thresholds of some current initiatives), and support is often too generic to address the unique challenges smaller firms face – and too slow.

While we are still crunching the data and intend to release the full insights soon, three key insights have emerged:

• Tailored support matters – Current funding schemes, like the National Reconstruction Fund (NRF), are not structured for SMEs – co-investment is needed to unlock productivity and competitiveness at the grassroot level.
• Skills are make-or-break – Without a strong pipeline of skilled workers, manufacturers cannot sustain or scale.
• Niche, high-value and globally competitive products are the future – But delivering them requires access to capital other than betting the family home plus long-term policy commitment.

Growth in size (quantity) and industrial capability (quality) will only come from helping smaller manufacturers scale with right-sized funding tools, targeted skills initiatives, allowing for better collaboration with big industry and supply chains to solve customers’ problems. Two pulse check respondents put it plainly:

“There is too much government focus on big industry. The SME supply chain has been forgotten.”

“Most of this is funding consumed by big business who don’t need it. SME sector is where the growth and capability build out is needed.”

AMGC has witnessed this firsthand via our co-invested projects the impact of carefully selecting and supporting capable SMEs which have boosted productivity by over 80 per cent, while also creating jobs and new revenue streams. For such initiatives to create broad impact, they belong in the hand of industry experts who can act swiftly, decisively, and paired with a well-balanced risk appetite backed by experience.

Supporting manufacturing SMEs is a proven strategy to drive growth and create quality jobs. A “Future Made in Australia” requires bold scaling of our most promising manufacturing SMEs. There is no alternative – shiny or not.