Manufacturers hope Future Made in Australia will level the playing field

They are among the nation’s leading manufacturers working in cutting-edge industries, and they have a simple message for Anthony Albanese: a future can be made here but your policy needs fine tuning.

Energy Renaissance chief executive Brian Craighead at his battery manufacturing plant at Tomago, north of Sydney. Picture: John Feder

They are among the nation’s leading manufacturers, working in ­cutting-edge industries crucial to Australia’s economic and geostrategic security, and they have a ­simple message for Anthony ­Albanese: a future can be made here but your policy needs fine tuning to make it work.

The Prime Minister reached for sporting analogies as he sought to enlighten and inspire manufacturing bosses about the Albanese government’s $23bn Future Made in Australia plan.

The grand aim of the package, which was tabled in parliament on Wednesday, is to bolster industries critical to our national security and our transition towards a carbon-neutral economy, while also securing an economic future.

It’s an attempt to steer our economy away from one that’s reliant on digging up things and shipping them out for others to make things. In simple terms, the Prime Minister was telling us, we need to make the jumpers rather than just loading ships with great bales of wool.

At its heart, it’s a bold quest to reshape our economy to make us less reliant on China. “If we don’t take this chance, we won’t get another,” Albanese said in a recent dressing-shed speech.

“Australia is in this race, no matter what … And we have to get cracking. We have unlimited potential, but we do not have unlimited time. If we don’t seize this moment, it will pass. If we don’t take this chance we won’t get another. If we don’t act to shape the future, the future will shape us.”

One of the Prime Minister’s key playmakers in this global ­contest is sitting right near the front, piloting his Tesla up the Pacific Highway to his state-of-the-art battery factory on the industrial outskirts of Newcastle at Tomago.

Brian Craighead is chief executive of Energy Renaissance. If ­Australia is to achieve a transformation of its energy systems – and free itself from almost total reliance on China for batteries – his business will be crucial to the ­nation’s future.

‘Australia has everything we need to make world-class batteries right here on our soil,’ Brian Craighead says. Picture: John Feder

He has ambitious plans to scale up his operation and to open five battery factories around the country, employing many hundreds of highly skilled workers. He’s a true believer in the Prime Minister’s ideals. He has run through brick walls to get his business where it is. If he had a tank, he’d leave nothing in it. He’s just the 110 per cent sort of guy the Prime Minister is after to lead a team out onto the paddock to take on the Americans and the Chinese. The problem is this pivotal player has some major misgivings with the coach’s tactics. He ­believes the rules are unfair. He reckons he’s being sent into the ring with one hand tied behind his back.

As the Prime Minister says, the stakes for Australia couldn’t be higher. The Covid shutdown of international trade emphasised how vulnerable Australia is, and how reliant on China it is. And, we’ve slipped a long, long way ­behind the leaders in this race.

Each year the Harvard Kennedy School ranks 133 countries with regards to their manufacturing capability in its Economic Complexity Index, a measure of a country’s ability to make complex things. In the past 10 years we’ve slid 12 positions and currently sit at 93rd, between Uganda and Pakistan. Since 1995, when we were running at 55th, we’ve been overtaken by 38 countries in the Atlas of Economic Complexity: Armenia, Mauritius, Panama, Laos, Cambodia, Morocco, Kenya, Chile, Albania, Moldova, Lebanon, Bulgaria, North Macedonia, Uganda … We’ve been industrially pantsed by the developing world.

“Australia is less complex than expected for its income level,” the Harvard study said. “As a result, its economy is projected to grow slowly. The Growth Lab’s 2031 Growth Projections foresee growth in Australia of 2 per cent annually over the coming decade, ranking it in the bottom half of countries globally.”

Australia has been relegated from the bright lights of the top leagues to park footy, and the predictions for our economic future are grim. So how do we change this? Craighead reckons we need to use all the mechanisms of the state to level the playing field for manufacturers, to get us back in the game.

“Australia has everything we need to make world-class batteries right here on our soil,” he says. “Yet, we find ourselves outsourcing this critical component of our future to other nations.”

Craighead says there are dozens of government-backed projects in the pipeline that will require a mammoth $30bn worth of batteries.

“The way things stand at the moment, all of that Australian money is going to end up in the pockets of Chinese companies, and a few US companies,” he says.

Craighead’s proposal is to aggregate the purchasing for all those projects into one entity, so that the government becomes the single buyer, making it a serious player in the market. It could then mandate that 50 per cent of those $30bn worth of batteries be Australian made. This, he says, would supercharge the industry without costing taxpayers.

He claims better quality and cheaper batteries can be made here. All the industry needs to massively scale up are guaranteed forward orders.

“It would be a big win for the country,” Craighead says.

It would, he believes, spark the manufacturing of battery cells in Australia – now almost exclusively made in China. It would jump-start the processing of vital minerals onshore, rather than shipping them raw to China by the tonne – and then buying them back, processed.

“That’s when you get 65,000 jobs and tens and tens of billions of dollars in GDP,” he says. “It’s a ­nation-building thing.”

It is exactly the sort of thing the US, Germany, Japan, Canada and South Korea are doing now to give their manufacturers a rails run against the behemoth of China and its state-sponsored industries.

And how has this idea gone down in the nation’s capital?

“I’ve spoken to politicians in Canberra and they’re all on board with the idea,” Craighead says. “But we need more than just agreement; we need action. It’s time for Australia to stop being afraid of big, bold moves.

“We have to think in terms of scale, have a coherent strategy, and a vision that extends beyond the next election cycle.

“Australia has the potential to turn its comparative advantages into competitive advantages. We need to take calculated risks and assess and manage them effectively. Our political leadership must embrace this mindset to transition from a resource-based economy to a manufacturing powerhouse.”

Divided opinions

Former chief scientist Ian Chubb, now the secretary for ­science policy at the Australian Academy of Science, says ­Craighead’s idea is exactly the type of bold, calculated risk ­Australia needs if it is to ­become globally competitive in manu­facturing – to turn itself from a digger to a maker.

However, not everyone is a fan of the policy. Former prime minister John Howard says Albanese “wants us to believe that subsidies and incentives for certain enterprises are a world away from tariff protection and will be totally free of harmful consequences”.

It’s an argument that Howard says would not have impressed their predecessor, the great ­reformer Bob Hawke. But still, our manufacturing capabilities slumped miserably over the almost 12 years Howard was in power, following the Hawke-Keating ­reforms.

Economists are facing off at each other from 40 paces in a duel with loaded Casio calculators over the policy. A posse of boffins from the Productivity Commission recently rode out, stating that support for key industries could lead to a “slippery slope” for companies that couldn’t survive without government help. They were set upon by a company of 70 economists from major universities who declared that, without a bold plan, Australia risked being locked into an “extract and export” economy and that the country would miss out on creating hundreds of thousands of high-paying jobs in this new industrial revolution.

Ivan Power, the former Macquarie Group banker, who now heads the $15bn National Reconstruction Fund, which will back many of these grand manufacturing ventures with loans, was quoted earlier this year as saying the fund was not in the business of “picking winners” – a move that the International Monetary Fund warned had led some governments to waste money on uncompetitive industries.

Alpha HPA product development engineer Nikhil Aravindakshan.

But he did say the NRF could take gambles where the private sector may baulk. “We can’t give grants,” Power said. “We’re not a lender of last resort, we have to ­invest commercially, responsibly; but we can look at risk differently to the private sector.”

Chubb believes we need to be more ambitious than this and that we absolutely need to take big, ­calculated risks.

“Picking winners is what the rest of the world has been doing for as long as I can remember,” Chubb says. “We keep getting told that we are not allowed to pick winners, that the government can’t put money into this or that. Tell that to the Americans, the ­Europeans, the British, the Irish, the Chinese … we’ve got to stop ­listening to the economists first, and maybe listen to them second or third or fourth.

“You’ve got to be willing to assess the risk and manage risk. And I don’t think we’re good at that and certainly our political leadership (isn’t). I don’t think that gives me great confidence they have the capacity to think like that. We’re frightened of big things. We don’t think in terms of scale. And we fund across a very broad range rather than have a coherent strategy and policy with def­inite vision (and) definite aims.”

Chubb says we have to accept that not everything is going to be a winner. Some things are going to fail. “Australia ought to be building up its domestic capability to ride out the perturbations, the pandemics and global conflicts that are likely to occur,” he says. “What I expect is for the government to have a vision about what the country could be like, and that means you have to pick winners.”

Food for thought

Kristi Riordan reckons she may be jockeying a winner.

She’s chief executive and co-founder of Harvest B, an innovative food manufacturing business that is developing a range of plant-based – and some mixed plant and meat-based products – that provide consumers with better value and nutritious and healthy meals.

Think of it as always having a packet of plant-based dried mince in the cupboard to feed the kids spaghetti bolognese that’s affordable and healthy.

Harvest B co-founders Alfred Lo and Kristi Riordan.

Australia is a massive producer of food – both grain and meat – but when we meet up in her Surry Hills office, which contains a test kitchen, Riordan delivers a sobering statistic from the Australian Food and Grocery Council. “We export $39.4bn worth of food,” she says. “And yet we import $46.4bn worth of food products.”

Shiploads of soybeans, sugar, wheat and beef get sent off and then come back – or a fraction of them do – as tofu, soft drinks, biscuits and beef jerky.

“We send off volume and we buy back value,” Riordan says.

She wants to change this ­equation.

Joining us around the kitchen bench are Harvest B’s other co-founder, Alfred Lo, and director of research and development Daniel Mullette, who has an apron on and is cooking up some meals as we chat. What they are aiming for is to produce proteins that have similar textures and qualities to meat, but that are more healthy, nutritious and fibrous and with less cholesterol and fat – and, that are more affordable than meat

“We’re having conversations with the defence sector, the aged care sector, the mining sector … we are developing protein as an ingredient that is allowing the chef at home to be able to create highly nutritious meals,” Riordan says.

Some of their main clients are companies that produce ready-made meals for athletes and fitness freaks.

“A lot of the fitness world is consuming these ready-made meals because it’s a great way to get your macros (nutrients) and micros totally balanced for the day … I don’t think there’s a more ­affordable protein product on the market,” she says.

The first meal they serve up is a chicken noodle soup made of “chicken-style shred”, which is popular in the aged care sector.

“They’re trying to hit a budget of $11 to $14 a day … everything you put in front of them has to pack a punch with a dense amount of nutrition, because they’re not eating much,” Riordan says.

I have a spoonful. It’s pretty good, tasty and with the texture of shredded chicken. It is a protein made from high-grade Australian wheat. They believe that their business has huge potential in the export and domestic market, producing meat-like proteins that have a long shelf life. They are already supplying the supermarket chains Walmart and Krogers in the US.

They have a factory in western Sydney and an office in the city. Their business is in its infancy “between a seed stage and a Series A stage” where it will seek institution funding.

In the start-up world, this is known as the “valley of death”.

“It’s not the very beginning,” Riordan says. “And it’s not once you’ve proven your business model and you’re profitable and your cash is flowing.”

Australia, she says, is not good at shepherding promising and ­innovative young companies through the valley of death.

The National Reconstruction Fund will lend companies such as hers $10m, but will not put up all the money, making it a $20m project, which she says is slightly out of reach at this stage for the business. “You need to have scale to be globally competitive,” she says.

“But for novel technologies to introduce complexity into our economy, we have to find a way to support the businesses that are in that phase where they could really get into trouble of not having access to sufficient capital, whether it’s debt or equity or grants.

“So I think that is probably the biggest gap in the country.”

The big dilemma for Harvest B, as it looks to scale up, is whether it sets up its factory in Australia, or abroad. “For every business in Australia that wants to become big they have to sell globally,” ­Riordan says.

She says the Research and Development Tax Credit program is substantial. “But pound for pound, what you see Australia doing in terms of deploying capital to invent and support and grow new industries, it’s just nowhere near what’s happening in other countries,” she says.

It is well behind Canada, the US, and much of Europe. “That’s where Australia has to do more and they have to do it faster to ­retain industries and build an ­ecosystem (of manufacturing),” Riordan says.

Germany, the US and many other countries now have generous incentive schemes to lure innovative companies such as Harvest B to build their factories on their shores.

Harvest B is in a conundrum: it can keep its research and development here in Australia, but will it be more attractive to go abroad to build its factory?

The question for Australia is: do we pick winners, or do we stand back and watch as they’re picked off by someone else?

Innovate? We dig it

Alpha HPA is the golden child in Albanese’s dream team.

The minerals processing firm has a market capitalisation hovering below $1bn and it has grand plans for expansion.

With $400m in loans from the Future Made in Australia policy – backed by $120m from private investors – it will build the world’s largest high-purity alumina products refinery, 500km north of Brisbane at Gladstone, which will create hundreds of jobs in the coastal city.

It’s moved on from spinning wool into jumpers; it’s racking up $10,000 suits.

Alpha has developed a process to turn mined aluminium into high-purity alumina and high-­purity aluminium salts, which are essential components in semiconductors, lithium-ion batteries, LED lighting and synthetic sapphires. It increases the value of the base alumina hydrate by roughly 10,000 per cent – from 35c a kilo, to $35 a kilo.

This is value-adding on steroids. It is taking on the world – and winning.

The company’s chief executive, Rimas Kairiatas, explains that in 2017 it was looking at a nickel and cobalt mine in western NSW that was also rich in aluminium. The money was in the cobalt and nickel but they also wanted to capture some value from the aluminium. They got in contact with a Brisbane company that had developed a wet chemical process to extract aluminium.

“It was a light-bulb moment for the business,” Kairiatis says.

Alpha HPA managing director Rimas Kairaitis. Picture: Steve Pohlner

The business at that stage was him and another bloke. They thought, what if they could develop a technology that could extract the aluminium in a form that was ultra-pure and ultra-refined “that we could then convert into a really high-value material”?

And that’s what they did. They developed a very clever technology here in Australia, a low-energy method of extracting high-purity aluminium. “The fact that it is an Australian IP advantage that we capture (the value) here is really important,” Kairiatas says.

He says Australia has “resources in the ground” that other countries don’t have and we should be looking to increase the value of those resources before shipping them out. “But one of the other great advantages we have is a really well-functioning equity market,” he says.

As does Canada. The Canadians have set up a flow-through shares scheme, “so if there is a particular industry that a government is trying to stimulate, and with the Canadians it was for minerals exploration,” investors get a tax credit. He says he would like to see a similar scheme here for certain critical industries, such as downstream minerals processing, or batteries, or research and development into food processing. This would give Australia a great advantage over China, he says.

Kairiatas was also fortunate that, at the right time, someone could see that his business plan was a great idea with enormous potential and that it needed backing. In 2019, when Alpha HPA was in its infancy, the Advanced Manufacturing Growth Centre gave it a $400,000 co-investment grant towards setting up a pilot plant to prove that its technology would work. It did – and five years later it has gone from two people to being worth almost $1bn.