Crisis a chance to revive industry, reform economy

Nev Power: ‘I do believe we can create a manufacturing industry which is a very significant portion of our GDP’. Picture: Colin Murty The Australian

Scott Morrison’s comments on Thursday to put business and not government at the centre of a recovery were seized upon by drier commentators as evidence of a government reformist agenda for business.

Yet is that correct? There are other voices well within hearing of the Prime Minister that have a very different interpretation. To them, this dreadful pandemic presents a once in a generation opportunity to recreate major manufacturing and make Australia great again. And that might need a little help.

As business battles the virus in the trenches, Nev Power and his government-appointed Corona Commission of business leaders and inner-circle bureaucrats are mulling what sort recovery the nation should choose.

What balance of industry reform and ongoing industry support will there be in a post-COVID era? How much free trade should be replaced by import substitution to secure our disrupted supply chains?

“As much as possible we would like business to do this,” Nev Power affirms. “We want to have a manufacturing sector that is commercially viable and globally competitive so that it does not need to be supported.

“In the early days at least, we will have a low dollar, we will have disrupted supply chains which create opportunities for local manufacturing, and we will have an ample supply of labour from people that have been displaced from industries that will take longer to start up.

“There is an opportunity to retrain people into those roles and for us to take advantage of that time, post the virus, when there is that demand for local manufacturing.

“If we can establish a strong investment base then I think we will be able to sustain it without government support, even if it does require a little bit of either regulatory reform, or looking at the approval processes, all of those things will be in the grab bag to say what do we need to restart that industry.”

Power is as careful with words as his deputy in the commission, former Telstra chair David Thodey. That is no surprise given how economic and political commentators are hawk-eyed on signals of any industry support. In France after all, Monsieur Macron has walked right back from his reformist agenda.

As chief executive of Fortescue Metals, Power achieved huge growth for the miner and that growth was utterly dependent on the free trade of iron ore, utterly dependent on China for export. In September he became deputy chair of Strike Energy, which has ambitions to become Western Australia’s next big gas producer. Now he is being asked by the PM to look at building manufacturing capacity and efficiency to address supply chain disruption.

The manufacturing story in Australia is largely history. It sits at under 6 per cent of GDP, compared to services at over 60 per cent. Laughable to some, a manufacturing renaissance born from opportunity in COVID 19 is exactly what Power hopes to see.

“Given we are coming off a low base, I do believe we can create a manufacturing industry which is a very significant portion of our GDP,” he says.

“That will mainly come from those very large manufacturing opportunities where currently we import fertiliser and petrochemicals and agrochemicals into Australia. We have a major market here which we can leverage off to put those in place here.

“In addition, we have abundant energy, particularly in the form of gas that we can deploy to make sure that we can manufacture all those large volume products ourselves.”

Heading the manufacturing task force is Andrew Liveris. The former global chair of Dow is one of the most outspoken critics of global free trade, particularly in the damage he sees that high energy prices have done to Australian manufacturers. Liveris wrote the book on this stuff almost a decade ago in the US, “Make it in America: the case for reinventing the economy”, and he later led Donald Trump’s American Manufacturing Council.

Over the years, whenever Liveris popped back to Australia, he and two others on the new taskforce, former Incitec Pivot CEO James Fazzino and Manufacturing Australia chief Ben Eades, have lobbied hard for lower gas prices and a domestic reservation in Australia.

Nev Power says low and sustainably low energy costs are critically important to large-scale manufacturers. But will this mean any price intervention by government?

“The key there is making sure that we have the supply to meet the demand so we’re looking now at ways of how we can identify what that demand could be and how do we meet that supply. We have vast quantities of energy and of all countries in the world we should be able to have sustainable low-cost, low-emission power.”

Power would not be drawn on the idea of a domestic gas reservation on the east coast to match his home state of WA, but there is no doubt that there is a vision forming for a much greater home sufficiency that connects gas to fertiliser and chemicals to Australian agriculture. “Those large energy intensive manufacturers, fertilisers and major petrochemicals, where we are very reliant on imports — with a good supply of energy that we have in Australia, we should be able to make those here.”

Power, as chair of Perth Airport, welcomes the domestic support package for the two airlines, but again he talks freight as much as people. “Very importantly we need to have air freight around Australia, particularly states like WA where road freight is not really an option for us.”

Former Toll chief Paul Little sits on Power’s commission and is looking closely at the opportunity to rebuild supply chains disrupted by the pandemic to be far more efficient and cost-effective.

Liveris has been pushing for reform in domestic shipping to help logistics, an area notorious for pushback from unions. “Everything is on the table,” insists Power.

Even the hurdle of high wages does not deter Power. “The key to restarting a manufacturing industry strongly in Australia is that we embrace hi-tech flexible manufacturing that is modern and attracts the sort of investment that we need that will create high-value industries and that create high-value jobs.”

The messaging on our largest trading partner is important. Risk in China’s relationship with both the US and Australia is tricky to gauge, witness last week’s explosive speculation around the source of the virus.

Power says Australia’s relationship with China will continue to be very strong at a trade level, but clearly the government wants more eggs in many baskets.

“There are other important trading relationships developing and diversification of our customer base is accruing all the time as other countries are developing. China has been the natural home for a lot of our resources and lot of our energy exports, and we are starting to see that growth more broadly spread across Asia.”

It is hard to tell how Australia will look by Christmas. Business and consumer confidence has crashed. Ten per cent unemployment lies ahead.

The commission’s work is on many fronts: helping to repurpose businesses to fight COVID 19 or simply to survive the crisis, shifting workforces between airlines and call centres or supermarket shelves, much of which might be temporary; but then helping to reshape businesses to be recovery ready. “By Christmas,” Power ventures, “we will have a lot of those businesses able to resume, and hopefully they will be even stronger than they were before.”