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Transcript – National Press Club Address Q&A

20 May 2020

Subject: coronavirus, Australian manufacturing, supply chains

E&OE

Minister for Industry, Science and Technology Karen Andrews took questions at the National Press Club.

Sabra Lane: Thank you Karen Andrews in delivering your first National Press Club address. As you point out, Australia has experienced a major disruption in global supply chains here and it’s been a wakeup call for businesses, and we appear to be paying a price for leading the pack internationally in calling for an inquiry into the coronavirus. With exports to China facing extra tariffs now as a result, and the US benefitting, some contracts are now going their way. Is the end result of this disruption that Australia, to experience a prosperous future, just has to become more self-reliant?

Karen Andrews: There's been, I think, a seismic shift in the thinking of Australian consumers and businesses in relation to their experiences during the COVID-19 pandemic. So many of our businesses- many consumers, but particularly our businesses faced massive disruption to their supply chains. They were dependent on product coming in from overseas, whether that be a finished good, or whether that be the raw materials, the supply inputs that they needed. So their disruption was significant. And they had to look at other sources for their input materials. There has been a significant wake-up call to them. They now understand that they need to diversify their supply chains. They need to look at what they can procure locally. Not only did they have difficulty sourcing product, but they had extreme increases in the price of freight and difficulties getting that product here to Australia. That has led to a significant rethink by many businesses. So yes, many businesses have already said to me that they are looking at how they can source products in Australia, how they can look at shoring up supply chains, how they can look at diversifying their supply chains. So there has been a significant difference, and we can look forward to some significant changes in Australia's manufacturing sector.

Lanai Scarr: Hi, Lanai Scarr from The West Australian newspaper. You said that there will always be a need for imports and we will never fully be self-sufficient in Australia. Our current top source of imports are from the US and China. Do you see that remaining the same, especially given the current tensions that we're seeing with China? And the second biggest source of imports to Australia are mineral fuels. Do you think the resources sector needs more support in order to do more exploration and get that sector up and running more?

Sabra Lane: Sorry, I'm going to stop you there. You can answer one of the questions because there's a long list to get through.

Karen Andrews: Thank you. We will always be a trading nation. We will always look to import some goods, we will always want to develop our export market, and we are clearly looking at how we can diversify those markets over the coming weeks, months and years. Yes, we have been very reliant on finished goods being imported into Australia. We have, as I said in my speech, we had very little PPE being manufactured here. And we actually have to differentiate between the goods that we need during a crisis, such as the personal protective equipment, the medical equipment, where we do need to have a level of self-sufficiency, and/or the ability to pivot our manufacturing to what the longer-term needs are. And I'm on the record as saying that Australia can't continue to try to be all things to all people. We have to look at what our comparative and competitive advantages are and maximise those strengths now and develop a strong manufacturing sector here. So yes, we will continue to import.

David Crowe: Thank you, Sabra, thank you, Minister. One of the big trends in Australian manufacturing over the last decade or two has been the sheer difficulty of competing with China on cost. That's decimated some Australian industries because the labour costs cannot be as low as it is in China. That has been one of the biggest single trends that Australian manufacturers have had to deal with on so many fronts. What exactly can the Government do to try to help Australian manufacturers deal with that? Do you see that dynamic changing much after the COVID crisis? You've mentioned procurement, but can procurement from the Government really do enough to reverse that trend? Is there anything else that the Government can do, such as subsidies?

Sabra Lane: Sounds like a sneaky three-part question there.

Karen Andrews: Well, it was actually, there were multiple parts to that question, but I'll try and answer it as succinctly as I can. We actually have to be very clear about our needs to be able to manufacture some products in a crisis, so PPE and medtech equipment. Our biggest inputs to manufacturing from a cost point of view are the cost of labour, and we are certainly not looking to change that. We are a high wage nation, and that will remain. The other significant input cost for many of our businesses is the cost of energy. So Angus Taylor, as the Energy Minister, has the lead role in that as a minister. I work with him, I also work with Keith Pitt, there's actually three of us involved in that. From my portfolio point of view, I'm at the consumer end. So for Australian manufacturers, I want to make sure that they get the best energy prices that they can, so price and reliability are important.

It's also important that we start to shift the mind set so that we're not trying to compete on cost. Given that we are a high wage nation, given that we don't mass produce many goods. And in fact, our niche is our capability to transit really quite quickly to change our manufacturing to be very agile and nimble in what we're doing in manufacturing. So we don't have the long runs that the likes of other countries overseas have. So for us to be competitive, we have to start looking at manufacturing on value, not on cost. So price is a part of the value equation, but it is not the only part of it. When we look at value, we also look at the longevity of the product. We look at economic indicators. We look at freight. We look at costs of manufacturing here in Australia and the benefits of that. So the shift needs to be from cost to value.

I've also said that this needs to be enterprise and industry led. We will be there. The Manufacturing Modernisation Fund was really well received, and about 25 per cent of the total project costs came from the Federal Government. That indicates to me very strongly that businesses are willing to step up. What they need to know is that their Government is behind them and will support them. But many of them will say that the last thing that they want is subsidies because they don't believe that it is sustainable.

Sabra Lane: Just on that point, good quality costs more. A lot of businesses are going to be scratching for every cent. How do you make that case that they're going to have to pay more?

Karen Andrews: What I'm saying to our businesses is that we need you to look at the value proposition. We need you to look at the value of those goods. Now, clearly, there will be times when each and every one of us, businesses included, will need to buy on a cost, on price basis, that they will be looking for the lowest cost. But what those businesses have experienced is that they actually had some difficulties with supply during the crisis, because they could not get the materials that they needed. So when they look at their longevity as a manufacturer, look at how you're going to shore up your own supply chains. And look to whether or not you can source that product from Australia. And by doing so, you have reliability of supply in a crisis.

Greg Brown: Greg Brown from The Australian. You spoke a bit about Australia exporting too many of our minerals instead of adding value here. Would you be able to tease out where the opportunities are for Australia? There's been some people in Labor who have jumped on the idea of green steel. Do you see steel manufacturing being a big opportunity rather than sending all our iron ore overseas? And what about in the area of lithium? Do you see lithium battery manufacturing being an opportunity and do you think that these sectors can be large scale?

Karen Andrews: Okay. So let me respond as fully as I can to those questions. I've been part of discussions that have happened around me for many years, where there has been significant criticism of the fact that Australia is actually very good at digging things out of the ground, putting them on a ship and sending them overseas and paying a lot of money to buy them back as a finished good. And that that needs to change. And I have heard those discussions in many forms for many years, and we actually now have to start doing something a bit differently. So, let me talk about one of the examples, and what we've actually done so that this is not so much future-looking. We are looking at our rare earths, critical minerals and looking at battery manufacturing here in Australia. It won't be to manufacture every single type of battery, but we're looking at what those niches can be. So we've established a CRC. We're looking at innovative batteries. We're looking at how we're going to develop that sector. So that is clearly one of the opportunities where we will do the value-add here. We'll work with our resources sector. We will develop the technology that's needed. We will move that into the production phase, the manufacturing phase, and then we will be looking to export so the value-add is done here in Australia.

The second very obvious one is in food. We are very good and well regarded food producers here. About 25 per cent of our manufacturing is food based. So we have enormous opportunities to value-add along the way with our food. Many of our nearest neighbours, in particular, are very interested in not only our meat, processed meat products, but also what we can do with our cropping to produce processed goods. So food creates a real opportunity for us to continue. Resources, I will of course continue to work with Keith Pitt and also on the energy front with Angus Taylor to look at what we can do in that space.

Finally, on steel. The steel industry is important to us. There has been, for a number of years, a global oversupply of steel. So around the world, there is excess steel capacity. What we need to do is make sure that our steel producers here are as competitive as they possibly can be. Energy is a critical input for them. I'm aware that some of them are looking at hydrogen as an energy source. I encourage them to look at how they are going to reduce the energy costs, but let's be mindful that hydrogen is something that we are investigating, we’re looking at, we’re determining how and if we can build our capacity there. But hydrogen is still a number of years away, so it won't be in place overnight.

Simon Grose: Simon Grose from Canberra IQ, Minister. Let's look at the value, cost and sovereignty kind of tri- thing through the example of masks that you've talked about. I figure that the masks that we are making now in Australia are high quality, so value, but they wouldn't be cheaper than a mask that could be got overseas. And throw forward two, three years, world supply chains are back in place; how would a government like yours express the sovereignty need by maintaining local supply of masks in the context of cost and value?

Karen Andrews: So, for a Federal Government point of view, we have the National Medical Stockpile. So we will actually be looking at what we can do with procurement. That's exactly what we've done during the COVID crisis. That obviously sits as a matter for Greg Hunt. But during the COVID crisis, he actually approached me and my department and tasked us with sourcing the PPE that was needed. States and territories are also very interested in using their procurement powers to look at what they can do to purchase the supplies that they are likely to need and to make sure that there is continuity of supply. And the third part of that is that we have worked with the AMGC, the Advanced Manufacturing Growth Centre, to establish a platform now which seeks to put together suppliers and purchases. So we are actually starting to see the private sector coming in to look at where they can purchase locally-produced PPE products here in Australia.

I'm not suggesting for a second that this is a silver bullet, this is going to solve all our problems, because it's not. But we need to start making steps along that way. And of course, there is a risk that businesses in Australia will decide that they are going to go back to their practices that they had before and that they will look to secure product at the cheapest possible price and they will look overseas for that. But I am hoping that the groundswell of support that I am seeing, that I am sensing and that is being put to me, is going to translate to demand for Australian manufactured goods. Clearly, we can't have Australian manufacturers manufacturing goods to sit on a shelf. There has to be a market. So we need to look at developing Australian markets, as well as export markets.

Ronald Mizen: Thank you. Ronald Mizen from the Australian Financial Review. Minister, some states and territories have called for the creation of a national order book to provide certainty. You’ve spoken about the importance of procurement. Is that something the Government would look to introduce to provide that certainty?

Karen Andrews: Yeah. So that option was raised during one of the manufacturing roundtables that I held with my state manufacturing colleagues as well too. Look, it's been put on the table. In the first instance, I would encourage the states and territories to work together to look at their own procurement. We would obviously, as the Federal Government, be happy to play a part in the coordination through hosting more conferences, more roundtables, to share ideas and bring things together. Nothing is locked in at this point in time but it has been raised as an option, and it is being explored by a couple of states and territories.

Jade Macmillan: Jade Macmillan, ABC. Thanks for your speech. You say that there are always going to be some things that Australia shouldn't and won’t be making. What are they? And apart from the areas that you've already mentioned, are there any sort of growth or new opportunities that you see that we're not currently doing here that should be explored?

Karen Andrews: There are probably a number of things that Australia is not likely to look at producing here, and the iPhone springs to mind. So, what we will be looking at what are our comparative strengths. And let's be clear and let me use an example. Our comparative strengths are where we have a natural advantage. Resources is one of them because we are a resource rich nation. When you actually look at our competitive advantage, we certainly are competitive in mining and resources because we’ve developed the skills and the expertise that we need, and are quite frankly, world-leading in equipment and mining and resources sector. So, comparative and competitive advantage are really important.

What I'm keen to do is to build on those capabilities. We know we have historic strengths in mining and resources and in agriculture. We also know that we are developing skills in a number of areas. That includes plastic and waste recycling, and it includes the emerging space industry, where we are already on target to triple the size of that sector. So what I want us to do is work in the areas where we have comparative and/or competitive strengths and to build that, and again, not try and be all things to all people. Let us play to our strengths.

Rebecca Gredley: Hi Minister. Rebecca Gredley from AAP. Thank you for your speech. In terms of future industries, how do you see vaccine manufacturing playing a role? And is that something that the Government would put financial support towards?

Karen Andrews: When we embarked on the process of looking at what our needs were going to be, vaccine manufacturing was identified very early as one of the things that we needed to look at. And we had established a health industry coordination group to look at procurement, but also look at what some of the other options were. I also tasked CSIRO to start mapping what our capability was to manufacture a vaccine.

Now, we're working across a broad range of areas at the moment because firstly, we don’t know when the vaccine is going to be developed. We don't know what it's going to look like. We don’t know whether it's going to be something that needs to be injected or whether it's going to be in tablet form. So we're starting to map what our capability is with our pharmaceutical manufacturers here in Australia to see what they would need, and how we could assist to produce that vaccine as and when it became available. There's probably about 100 different vaccine candidates around the world now at various stages of development. Some are being tested here in Australia. But we will work to do all that we can to be one of the nations that is manufacturing the vaccine for those who need it and want it here in Australia and also to meet needs of potentially our nearest neighbours and elsewhere around the world.

Mark Kenny: Thank you. Mark Kenny from Australian National University and also the Press Club board. I've got four questions. No, I'm just joking.

I wonder if I could stray into the political a bit. We're in the middle of a crisis here. Your party made huge political capital out of the GFC and Labor's spending during that time. The narrative said that they spent too much. There was a debt and deficit disaster. We were told a fiscal hangover, all that sort of thing. Now that you're in the middle of a crisis yourself, would you concede that you only ever have fragmentary information about what's going on? You don't know how it ends? You don't know how deep it's going to go? And that you have to err on the side of caution? You have to err on the side of doing enough or doing more rather than not doing enough? And has that been the guiding principle of your government's response? And would you now like to see any mention of there having been too much GFC spending consigned to history?

Karen Andrews: I'm probably a person that tries to stay out of the politics of undermining other political parties because I don't see that it's a particularly worthwhile strategy. I would think that today we’ve had the opportunity to really approach a new way of looking at manufacturing- a new way of looking at Australian industry. What I will say is that there have been some issues in the past, specifically related to manufacturing, and that has been across the board. It's been decades long that have got us to this. I could spend a lot of time, if I wanted to - but I don't - raking over the coals of the past. I'd prefer to look forward. If I speak specifically about the JobKeeper payment, I do believe that it was necessary. We understood when we were doing it quickly, that there would be issues as a result of that. But we believed at the time that it was an important thing for us to be doing and every day, I have businesses approach me and say: we were only able to stay afloat because of the JobKeeper payments.

So I would say in response to your question - let's not go back to politics as usual, let's be forward focusing in what we're trying to do. Let's actually try to keep together the united approach as long as we possibly can, and focus on, in this case, developing a strong Australian manufacturing sector.

Paul Karp: Paul Karp from Guardian Australia. Thanks very much for your speech. You've spoken about the opportunities of natural gas, but I want to ask, please, about the costs or risks. How much will taxpayers be on the hook for in terms of grants, loans, indemnities against policy changes, in order to get cheaper gas for manufacturing?

Karen Andrews: So Angus Taylor has the lead on gas. As I indicated when I spoke earlier, my role in that is looking at it from a consumer's point of view. Obviously, our manufacturers talk to me, all of industry talks to me about the need to reduce our energy costs. When I'm in my own electorate on the Gold Coast, they talk to me about the costs that they're experiencing with their high electricity bills. So we know that energy costs in Australia are significant, and that we need to reduce them. Angus Taylor is working to deliver the technology road map. That will be released, my understanding is before the end of the year. I will be working with him on key parts of that, which is my focus, particularly being on costs. So the taxpayer has already paid an extraordinary amount of money during this COVID crisis to keep things as afloat in Australia as we possibly could. So my focus going forward is to engage with industry, to engage with business, and have them to lead.

Katie Burgess: Katie Burgess from The Canberra Times. Thank you for your speech. You've acknowledged how vital the local manufacturing industry is going to be for Australia's recovery post-pandemic. However, your government revived a bill last year that would cut $1.8 billion from the research and development tax incentive over the next four years. Will you consider withdrawing that bill to, you know, keep those incentives in place to help kick start advanced manufacturing over the next couple of years?

Karen Andrews: So, you're referring to the R&D Tax Incentive. So there are a number of things that I'd like to say about the R&D Tax Incentive. Some of them I actually covered in my speech, which actually discussed the other parts of innovation that’s happening around this nation but is not generally recognised and doesn’t fall under the R&D Tax Incentive. And that’s the work being done every single day in the manufacturing businesses.

We also know, too, that with research and development, our business investment has been declining for a number of years. And if I speak to the university sector and our researchers, what they say to me is that they're very keen to engage with businesses, with industry to make sure that we increase the research industry engagement. We actually, as a government, want businesses to start looking at research and investment opportunities in innovation, because we know that when they do that, the outcomes are going to be better for them.

So the R&D Tax Incentive - I understand, has had a lot of criticism, that software developers have been particularly concerned. My department has actually worked hard to make this a more user-friendly process for them, to give some guidance up-front as to what is going to be likely accepted under a claim, what would likely fall outside it. And then it's up to the individuals to make the determination as to whether or not they're going to proceed. I understand that research and development is very critical to this nation, and that we need to work hard to lift that investment.

Tim Shaw: Minister, Tim Shaw, National Press Club board. Austrade does a remarkable job telling our story internationally for Australian manufacturers. Let's talk Aus-made and Aus-owned. That's your push today. How do I change Australian consumer behaviour? What will be the triggers that manufacturers will heed to be able to deliver more than just value? Cost is an issue in this kind of economic environment. What are the triggers for Australian manufacturers to ignite Australian consumerism for locally made and owned Australian goods?

Karen Andrews: So my focus is to grow the Australian manufacturing sector, and by doing that, they will need to focus on the value concept rather than the cost focus themselves. I'm actually sensing that there's a groundswell of support for people to look at Australian-made opportunities. So the demand is likely to be there. But clearly, it relies very heavily on there being a market for the goods that Australians are producing.

So the demand has to be here in Australia, and we have to work with Austrade and our Trade Minister, Simon Birmingham, to look at how we open up export opportunities for those. So it's not an easy, simple fix. These are the things that we need to work at, and I went through quite a number of those. We need to make sure that we have the skilled workforce. We need to make sure that we get rid of the cumbersome and difficult red tape and regulation.

Michael Keating: Michael Keating from Keating Media, Minister. The only countries in the world that will experience GDP growth this year will be East Asian nations, while Western countries will go backwards. What is the Department of Industry doing to grow the interactive dollar relationship between Australia and these countries as they'll surely be targeted by the EU, US and UK?

Karen Andrews: So let me be clear that today I'm speaking about Australian manufacturing and what our opportunities are going to be. Now, we are still going through the COVID pandemic. We are still experiencing it here in Australia, and that's well evidenced by the reactions to some of the states, in particular to opening borders.
We have a long way to go still, and we have to be very mindful that we're not going to get a second wave. What we do know is that things have changed globally in the way that we have conducted business.

And whilst I said right at the beginning, we were looking at manufacturing and more broadly, industry, and the work that we'd done last year, we were now revisiting it through the COVID lens, that is going to need to be ongoing.

Our relationship with many nations is going to be quite different in terms of the products that we will be looking to source from them. And I'll give you one example of it. We had historically bought in filter material for masks from Taiwan, for example. We've now had to bring it in from other countries and my understanding is that we're actually purchasing from Scotland.

So we'll actually be looking at spreading our reach as much as we possibly can. And that is a very important part of growing our industry here, but it is, and will continue to be, a work in progress as we come through the COVID crisis.

Jane Norman: Thanks, Sabra. Hello, Minister. At the start of this crisis, obviously factories in places like China had to shut down because of the outbreak of the pandemic. But then it moved to effectively nationalise their mask supplies rather than exporting them. So has this crisis, beyond the issues with supply chains that have been exposed, has the crisis shown that China can't be relied upon during a crisis?

Karen Andrews: I would not say that at all. What I would say is that we need to be prepared and we need to have very diverse supply chains. One of the risks that we've had with Australian manufacturing has been that they have looked to just the one country for much of their input supplies. They’ve now found that when things such as the pandemic that's being experienced now happens, it is quite difficult for them to get the supplies. So they need diversification of supply. And that’s why some have come to me and said: we are actually looking to get in behind Australian manufacturers and support the supply.

So I would encourage Australian manufacturers to look very broadly at where they are going to source their input materials from, starting from Australia. If they can't source it here and they don't believe we have the capability to develop that, then look at other nations. But
diversify.

Sabra Lane: The future is a smart workforce, as you've pointed out. Universities have missed out on JobKeeper during the COVID crisis. A rapid research paper that the Government commissioned about the impact of COVID-19 on the sector last week warned that 21,000 full-time jobs are at risk during the next six months and that women are likely to be more impacted here. If universities are a big driver of research, development, innovation, why is the Government seemingly indifferent to their plight right now?

Karen Andrews: I don't accept that the Government is indifferent at all to the plight of universities. I am working very closely with some universities to see what we can possibly do from a research and a science perspective, to look at solving some of the issues that we are facing. One of the issues is that with research and development, universities - and this is not a criticism at all - universities have been very good at engaging with big businesses. They have been less effective at engaging with small and medium enterprises.

I have discussed for a number of years, quite frankly, with universities, options for them to start looking at how they may engage with small businesses and medium enterprises to help them do things that would lift their productivity, whether that's supporting them through the use or development of a new material, a new manufacturing method, whether it’s helping them to source other markets.

I think now is the time for universities, and there’s a willingness from the universities to do that, that they look at engaging with Australian businesses at all levels, small, medium and large, and building their research capability.

I am very concerned from a female perspective that our female scientists, female engineers, our female STEM professionals are not shut out of opportunities in the future. I will be working with as many universities and research organisations as I possibly can over the coming months and years. I will also be working with Professor Lisa Harvey-Smith as our Women in STEM Ambassador to discuss precisely the issues of how COVID has affected women in science, technology, engineering and maths and what we can do to support them.

Sabra Lane: Everybody, please join me in thanking the Minister Karen Andrews.

ENDS