Economic Recovery

‘Manufacturing matters’

Manufacturing has taken on new importance after Covid-19 and advocates say a new report shows it needs more attention, Dileepa Fonseka reports

Our manufacturing sector is even more of a 'national good' in the wake of the pandemic, industry advocates argue.

S.A.F.E Engineering manager Barry Robinson said the public was starting to wake up to its importance.

"I've been thrashing this around for years and crying inwardly as we lose our major manufacturing infrastructure," Robinson said.

"I think this Covid-19 has actually brought home to some laymen that it is really important that manufacturing is in New Zealand."

The NZ Manufacturing Alliance has released a new report 'Manufacturing Matters' as factories worldwide have been repurposed to make medical kit and other essential goods to help countries fight the virus.

Manufacturing Matters is a pitch for government to join the manufacturing sector and co-develop a national strategy that would cover innovation, trade, skills, procurement, investment, and environmental policy.

"New Zealand is lagging behind its peers in taking such an approach," the report says.

Manufacturing is 10 percent of our economy, but it accounted for 52 percent of exports last year. The sector also drives over 30 percent of the country's business R&D spending.

However, the proportion of the labour force working in manufacturing has shrunk 1.5 percent since 2013. Of OECD countries, only Iceland experienced a larger decline than New Zealand over that period.

'Not the 70s'

Robinson said members of the public still pictured the manufacturing sector as something out of the 1970s: low-skilled staff working on a conveyor belt in a factory with a funny-shaped roof and a chimney snaking out of it.

The report notes while manufacturing is a significant export earner, we still import more manufactured goods than we export. 

"The trade imbalance has been growing in recent years – despite the recovery of manufacturing – and it would be desirable to reduce this trend through import replacement manufacturing," the report says.

RAM3D chief executive Warwick Downing believes we shouldn't try to manufacture everything within our borders either, even in the aftermath of a pandemic.

"Could we do everything? Yeah possibly, but are we going to go back to making cars?" Robinson said.

"We need to be realistic about what we can do and what we should do," he said.

In his view, the way forward is "Industry 4.0": the use of sensing and communication technologies, robots, 3D printing, artificial intelligence, and virtual reality.

The report says integrating artificial intelligence into manufacturing could add up to $6.3 billion in value to the industry by 2035.

Advanced technologies could also see our country become competitive in manufacturing sectors we've long given up on.

Downing said RAM3D, a 3D metal printing service provider, was price-competitive with Chinese competitors thanks to its use of new technology. 

"You're moving beyond selling labour rates, you're moving into selling being clever."

However, the report notes we have been slow on the uptake of these technologies as a country.

"The application of Industry 4.0 technologies is still relatively limited.

"This is due to many manufacturers having a limited understanding of the value of the technologies, a lack of expertise to apply them, and concerns about costs and data security," it says.

Plastics New Zealand CEO Rachel Barker said Industry 4.0 technologies like artificial intelligence were used in plastics manufacturing worldwide, but less so over here. 

Policy tools like 'accelerated depreciation' - where a greater part of an asset's value was deducted for tax purposes in its early years - could help turn that around, she said. 

Downing put part of that slow adoption down to our much-vaunted "number eight wire" mentality.

Number eight wire was a low-tech 'she'll be right' fix that made do with what people had rather than putting pressure on them to purchase new tools.

"On the farm all you had was number eight wire and you had to fix everything with number eight wire," Downing said.

"Number eight wire [mentality] works in some aspects, but it doesn't in this.

"Now we have so many more tools."

'National good'

Downing said manufacturing was a "national good that sits in reserve" for situations like Covid-19. 

"If we don't have it, we can't respond," Downing said.

The report says manufacturing's reach stretches across a whole realm of different industries, including the $2.54b wood and paper products industry.

"Several manufacturing industries have relatively large direct and indirect impacts on wider economic activity."

S.A.F.E's Robinson said the whole sector needed to be supported in much the same way as in other countries.

He gave the hypothetical example of duelling Australian and New Zealand manufacturers competing for a government contract here.

Procurement policy here was for Australian manufacturers to be treated like domestic manufacturers within a tender process.

However, Australia's government gave its own manufacturers much more support across the ditch. Robinson noted a manufacturer in Australia might be able to claim "dollar for dollar" government funding on equipment it bought to compete for that contract. 

"We have nothing like that here.

"That's why Australian companies - when it comes to buying innovative new tools, equipment, and machinery - they can outperform us."

Canada, Singapore and Italy are all identified in the report as having introduced different policies to encourage manufacturers to up their spend on research and development. 

Most of those policies revolve around depreciation. Italy allows its companies to claim "hyper depreciation" - 150 percent - on investment in new "4.0" technologies.

Plastics New Zealand's Barker said testing standards on manufactured goods at the border also needed to be addressed. They had allowed foreign manufactured products to compete on a less-than-even footing against domestic manufacturers.

Over the last few years those cases have hit the headlines, particularly around important construction goods that later proved to be defective.

Environmental pressures

In the years ahead, our manufacturing sector is also expected to face environmental pressures, especially when it comes to climate change. 

Some manufacturing processes have no clean alternatives. Steelmaking requires coal and there is no way of producing lime or cement without releasing carbon dioxide. 

Then there is the issue of waste going to landfill.

Barker said the plastics sector had encountered this pressure too - until relatively recently of course, when 80 percent of the sector became essential and plastic packaging became a safety barrier against Covid-19.

"It's been very interesting to see the shift in perception of plastics over the last two months from being number one enemy to being 'oh yay' plastics," Barker said. 

However, the sector needed to move to a circular supply process where more outputs were re-used, she said.

This was especially important now other countries like China are no longer accepting waste for recycling and our landfills are coming under increased pressure. 

"We absolutely have to sort out that end of life issues still and make sure that circular economy is there."

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