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Now here’s a shock - manufacturing exporters do have a future

By Tim Harcourt - posted Monday, 4 December 2006

Do Australian manufacturers have a future?

Well if we bothered to ask the manufacturers themselves, we’d find that they think they do. According to the latest DHL Export Barometer, compiled by Austrade and DHL, around 70 per cent of manufacturing exporters anticipated that their orders will increase over the next 12 months. This compares favourably with 64 per cent of service exporters, 56 per cent of tourism exporters, 53 per cent of miners and 51 per cent of farmers.

Sure, its not all good news as there has been plenty of challenges out there for manufacturers with the high exchange rate, high oil prices, the rise of China and India and the everyday issues of market access, logistics and overall product trade promotion. However, it is reassuring that they still have confidence that things are going to get better.


In fact, the overall improvement in sentiment comes on the back of some recent data from the Department of Foreign Affairs and Trade (DFAT) which shows that Australia’s exports of manufactured products increased by 7 per cent to $29.7 billion in 2004-05, reversing a trend recorded since 1999-00, where exports averaged a 1 per cent decrease per annum.

So where is all the action in manufacturing occurring?

First, there are some technicalities to explain. In manufacturing, the statisticians tend to distinguish between Simply Transformed Manufactures (STMs) - things that we don’t do much to like unworked aluminium, paper and pig iron - and Elaborately Transformed Manufactures (ETMs) that require more sophisticated processes like car components and instruments.

STMs earnt us about $10.2 billion worth of exports in 2004-05, whilst ETMs earnt nearly double that at $19.5 billion. Both STMs and ETMs increased by 7 per cent in the last financial year.

The rise of ETM exports has been the big story of recent years. Particularly in what UBS Chief Economist Scott Haslem calls “cars, pills and wine”. The export of motor vehicles and medicines and pharmaceuticals has been important to Australia as has our wine industry.

In the case of medical technology and services, the stories of Cochlear (which manufactures hearing aid devices) and Resmed (sleep disorder equipment) are global flag ship success stories for Australian manufacturers.


But the cars, pills and wine story can also add precision instruments to the mix, with strong recent growth in that sector. In addition, as pointed out by Credit Suisse economist Barry Hughes, many high performing categories in manufacturing exports are in the residual “other” list (the miscellaneous or “flotsam and jetsam” category, as Hughes calls them). This occurs because many new industries are so new (and small) that the statisticians simply don’t have a category for them yet. And of course, many of these success stories take a while to get noticed publicly, and they typically fly under the radar screen media wise, while bad news stories like plant-closures and re-locations naturally get front-page treatment.

While the recent trend in manufacturing export sentiment has been positive what other factors have been at play to affect our perception of Australia’s manufacturing export future?

First, most focus has been on manufacturing imports not exports. But people forget that it’s a two-way street and we need both imports and exports to grow and prosper. In fact, many exporters in manufacturing are also importers because of the nature of intra-industry trade.

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Thanks are due to Hian Yap, Frank Bingham, Scott Haslem, Simon Kelly, Karla Davies, Mark Thirlwell and Barry Hughes for comments and assistance with this article.

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About the Author

Tim Harcourt is the JW Nevile Fellow in Economics at the UNSW Business School, Sydney, Australia. He is also the author-host of The Airport Economist.

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