A message from Jens Goennemann
As I write this from regional Queensland, diesel prices are eye-watering. The economic ripple effects resulting from the current Middle East conflict are immediate. Rural businesses are not only absorbing higher operating costs, but also the second-order impact of reduced travel.
Campgrounds sit empty. Bookings are cancelled. In town after town, the same story emerges: fuel prices are hitting regional economies disproportionately – there’s flashbacks of COVID says one operator.
Many of us carry a lasting reminder of the unexpected positive outcomes from COVID. Perhaps it’s an online certificate, the ability to bake genuinely good bread, or finally bench-pressing weights once dismissed as overly ambitious by sceptical family members.
At AMGC, we look back at COVID with a sense of accomplishment. During the pandemic, we coordinated a group of more than 30 local manufacturers, led by Grey Innovation, to deliver 1,700 invasive ventilators into the national stockpile. At a time of acute global shortage, this was achieved in record time and with full TGA approval.
A Notus ventilator still sits with us today as a tangible reminder of what domestic manufacturing capability means in a crisis and why it matters even more outside of one.
Our network of manufacturers across the nation moved to address acute shortages and plug supply chain gaps, some remain key suppliers into new industries as a result of their efforts to diversify and are more resilient as a consequence.
While most Australians came through the health and subsequent financial crisis relatively unscathed, one thing that appears to have survived like a nasty virus is complacency. Here we are again, just a few years on. Only weeks into the current disruption, the price and availability of petrochemical derivatives, including fuel, are already biting. It has hit every aspect of manufacturing, from the truck that delivers feedstock and staff getting to work, to the last mile delivery to a customer.
Australia is not the most expensive place to buy fuel, but we are among the fastest to feel price shocks. The reasons are structural: exposure to global input costs across freight, energy, plastics and chemicals, combined with supply chain fragility driven by our just-in-time model.
Put simply, Australia has traded resilience for efficiency. With low reserves and high import dependency, that trade-off works well. Until it doesn’t.
This is not an argument for “sovereign capability” as a substitute for competitiveness. But it is equally difficult to justify an energy vulnerability in a country as resource and fuel rich as Australia, particularly when high energy costs are already constraining otherwise highly capable manufacturers.
What should we take from this moment?
Some point to refinery closures as the core issue. Others argue the answer is to accelerate electrification and renewables. Both can be true.
This is not a critique of that transition. On the contrary, as noted in my previous newsletter, examples such as Fortescue’s pragmatic approach demonstrate its strategic merit. But we should acknowledge a practical reality: for large parts of Australia, particularly regional and remote areas, viable alternatives to liquid or gas fuels remain some way off.
Research from AMGC shows Australia’s manufacturing industry is highly volatile, rising more than 20 per cent in good times and falling 20 per cent below trend in downturns. To address this, the priority should be to scale our industry capability. Around 90 per cent of Australia’s manufacturers employ fewer than 20 people, highly capable, but subscale. We lack mid-sized firms better known as the “missing middle”.
Australia needs a competitive mid-size industrial base, the last two shocks have served as a blunt warning and we must act with urgency to avoid a third.
Part of that equation requires access to reliable, competitively priced energy. Such an industry can support, and indeed fund, the transition to new energy systems, provided those systems enhance, rather than erode, global competitiveness.
I have yet to see the reverse hold true.