By Innes Willox, Chief Executive, Australian Industry Group

For six decades, Australia has benefited enormously from the dynamism of Asia. As the region’s countries progressively went through the transformation of industrialisation and urbanisation, we have been ideally positioned to reap the rewards of economic partnership.

Australia has developed world-class export industries – in resources, agriculture, technology and education – built specifically to service burgeoning Asian markets. We have attracted billions of investment as a platform to Asia, and our businesses have in turn invested in Asia’s success.

Today, another transformation – the energy transition – is sweeping across Asia. Entire economies will be reshaped as the region decarbonises its manufacturing, transport, urban and energy systems. 

Australia has developed ambitions to be Asia’s energy transition partner of choice. Leaders across government and business aspire to leverage our abundant renewables endowments to become a regional energy superpower. The Government’s Future Made In Australia agenda seeks to build the new manufacturing industries that will power the net zero transition, not just at home but in our economic partners.

Past success will not deliver future results 

But do we have our own economic settings right to make the most of this new opportunity with Asia? Past success does not mean future results, and its clear we have a lot more to do.

Australia’s economic relationships in Asia have hitherto been predicated on two strengths: nature and knowledge. Our resource and energy exports capitalise on natural resource endowments. Services exports – whether education, professional services, tourism, and more beside – leverage our knowledge base.

In these industries, Australia can rely on complementarity: we have the natural and human capital that Asia sorely needs. But these advantages are not necessarily decisive for net zero opportunities. Especially if we have ambitions to move further up the value chain. 

Consider the battery industry, where the Australian Government has ambitions to carve out a major global role. Our geology has earned us a seat at the table: Australia already supplies around half the world’s primary lithium. But many years of policy effort to move to higher value-adding – first into lithium processing, then onto cathodes and cells – have yet to bear any fruit. 

This is because success higher up the value chain relies on more than just nature and knowledge. The battery industry is highly competitive, with well-established incumbents in China, Korea and Japan leading global value chains spread across Asia. The United States and European Union  governments are also moving into batteries to support their automakers’ shift to EV platforms. 

New industries, new competitors

Similar dynamics are at play in most energy transition-related industries. Whether critical minerals processing, solar panels, wind turbines, hydrogen electrolysers, green metals or clean energy technologies, Australia will be entering a market already populated by highly-capable competitors. 

This does not mean that we cannot earn ourselves a competitive niche in these high-value industries. Indeed, our natural and human capital gives us an enviable headstart. But if we are to succeed, we need to ensure we have the full suite of assets needed for competitiveness.

Workforce is one area we must focus on. Australia’s labour market is exceedingly tight, and is afflicted by chronic skills shortages. Seventy-five per cent of businesses currently report difficulties hiring for technical and trades roles, those most important for these projects. We need a significant industrial workforce and skills uplift if we are to staff the factories of the net zero transition.

Another challenge is our high and escalating costs. While we fret about consumer inflation at 3.8 per cent, producer inflation rose a worrying 4.8 per cent last financial year. Supply chain constraints, transport bottlenecks and excessively rigid industrial relations arrangements all contribute. Some foreign investors have indicated Australia is just too expensive for new industrial projects.

Permitting adds yet more difficulties. Securing industrial approvals takes many years, and requires navigating multiple bureaucracies across local, state and federal levels. Australia has yet to adopt the expedited one-stop-shop approach which greets investors in many other jurisdictions. 

More examples abound. Australia has the second highest corporate tax rate in the Organisation for Economic Cooperation and Development. Our industrial relations system is one of the most complicated in the world. Business expenditure on R&D is at a two-decade low. Labour productivity has not grown in the four years since the pandemic. 

All of which points to the challenge facing Australia in our next phase of Asian economic engagement. The factors needed for competitiveness in the industries of the future are much broader than those of the past. We need to get our entire economic house in order to ensure we make the most of Asia’s net zero transition.

The good news is some of this is already underway. Serious policy discussion about skills, supply chains, approvals and more are belatedly beginning in Canberra. Genuine tax reform – for long left languishing in the too hard basket – desperately warrants attention soon.

But Asia moves fast, so we need to move fast too. In five years the train may have left the station. Policy reform to bolster our whole-of-industry competitiveness can’t wait.

Australia’s natural and human capital gives us a foot in Asia’s door, we now need to bring the rest of our economy along.

Innes Willox is the Chief Executive of the Australian Industry Group, the peak national employer organisation representing traditional, innovative and emerging industry sectors. 

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