For confirmation that even a 30 percent currency drop cannot turn round Australian manufacturers, look no further than Boeing Co’s metal component factory in Melbourne.
Actually, you cannot, because it is gone — to India.
Hobbled by labor costs that more than doubled in the decade to 2011, Australia’s hopes that a weaker Australian dollar would revive its industry are not panning out.
Shuttered factories are not being restarted and planned capital spending by the country’s manufacturers is at record lows.
“Lose an export market and it’s challenging to get it back,” Andrew Charlton, a former adviser to Australian Prime Minister Kevin Rudd and cofounder of economic consultancy AlphaBeta Pty, said in Sydney. “A reversal of the exchange rate doesn’t automatically reverse the market erosion. You’ve lost capabilities and customer relationships.”
Australia lost one in nine manufacturing jobs over the past decade, while as many as 50,000 more could go by the time the last car plant closes in 2017. Its manufacturing sector as a proportion of the economy is the smallest among members of the Organisation for Economic Co-operation and Development (OECD) after Luxembourg.
Mahindra & Mahindra Ltd bought the machinery from Boeing’s Melbourne plant in 2010 and is to restart it later this year near Bangalore.
“The Boeing situation is a microcosm of what’s happening across the country,” said Roy Green, dean of the University of Technology, Sydney’s business school. “Businesses in the low-cost space, based on repetitive manufacturing, are not going to stay.”
On a drive through the country’s manufacturing heartland west of Melbourne, heavy industry’s retreat is clearly evident.
About eight minutes from the city center is General Motors Co’s Holden plant. It produced Australia’s first wholly locally made car in 1948 and is scheduled to close in 2017. Two minutes down the road is Boeing’s Fisherman’s Bend factory, whose metal fabrication equipment was sold to Mahindra & Mahindra in 2010.
Further on and across the Yarra River is Toyota Motor Corp’s plant, which is scheduled to close in 2017.
In the port city of Geelong 45 minutes away, Ford Motor Co’s 90-year-old factory is scheduled to be shuttered in October next year.
Nearby, Alcoa Inc’s Point Henry aluminum smelter shut down in July last year, cement maker Boral Ltd cut jobs at its Waurn Ponds site in 2012 and Qantas Airways Ltd last year closed its heavy maintenance base for 747s.
Australian labor costs were higher than any other Group of Seven economy in 2013. They are now lower than all but Japan, Canada and France, according to the OECD, yet there is still no sign of an investment revival.
Australian businesses currently expect to dedicate just 6 percent of their long-term capital spending to manufacturing, or A$6.27 billion (US$4.6 billion), down from a peak of 28 percent in 1992, according to government data. That is less than Melbourne-based BHP Billiton Ltd has budgeted to upgrade just one of its pits, the Escondida copper mine in Chile.
“Business is reluctant to invest in future growth, so we’re going to continue to see capex disappoint,” Moody’s Analytics economist Katrina Ell said in Sydney. “Hopefully, by 2016 the lower currency will cause some improvement, but we still probably need to see another 5 percent to 10 percent depreciation.”
The Australian dollar fell to a six-year low of US$0.73 on Wednesday last week and is down from a post-float peak of US$1.10 in 2011.
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