WESTERN Australia to many is the 10% state. The West Coast Eagles have won just over 10% of AFL finals. WA accounts for about 10% of Australia’s population. It contributes about 10% of Australia’s GDP. In many economic statistics, the WA share is often about 10%, not really surprising given the importance of demographics to economics (and, maybe, to football, too).
What is surprising, perhaps, is that WA contributes around 10% of the value of Australia’s manufacturing sector’s contribution to national GDP. The actual contribution is just under 9%, $7.6bn of $88.7bn in 2003. We think of the West as being Australia’s mining powerhouse. And so it is at 18%. But manufacturing has an important role to play, too.
In comparing these data with Australia as a whole, WA is not radically different in terms of the importance of manufacturing to the overall economy. In Australia as a whole, the contribution of manufacturing to GDP is about 11.9%.
When we look at jobs, WA’s manufacturing sector employs about 100,200 people. This is equivalent to 9.5% of total employment and is in line with manufacturing’s share of output. About 7.9% of all of Australia’s manufacturing jobs are based in the west.
However, just as for Australia as a whole, the share of manufacturing in WA’s economy is falling. Twenty-five years ago, manufacturing’s share in the state economy was over 11% (and for Australia as a whole, around 15%). Does this mean that the WA manufacturing sector is going into decline?
The answer is tentatively no. This is for three reasons. First, the manufacturing sector in the West is tied closely to the dominant mining sector and the mining sector has a bright future. The major components of manufacturing in WA are metal product manufacturing (31.1%); petroleum, coal, chemical and associated products manufacturing (15.3%); and machinery and equipment manufacturing (13.9%). The strength of the mining sector will create a synergy between manufacturing and mining in the West, which will continue to lead to specialisation and niche market development.
The second and related driving force is the rapid growth of China into an industrialised country plus the rapid growth in Asia. WA manufacturing is, already, relatively export-oriented. Exports account for about 28% of all sales of WA manufacturers, compared with 15.7% for Australia as a whole, and manufacturing exports comprise about 15% of all WA exports. Moreover, WA manufacturing exports for key niche markets have grown dramatically.
Exports of elaborately transformed manufactures (ETMs) grew nearly five-fold over the 1990s (from $279m in 1988-89 to $1,477m in 1999-2000) and even more spectacularly, exports of simply transformed manufactures (STMs) grew 13 fold over the same period (from $108m to 1,525m). By 2000, ETMs and STMs accounted for over a half of all WA manufacturing exports, up from less than a third in the early 1990s.
Combine this export-orientation with the opportunities presented by the growth in China and the rest of the region (and factor in the rapid growth in the relatively untapped Indian sub-continent) and there are potent prospects for a vast market in which to gain the long-missing economies of scale that has bedevilled WA manufacturing (and Australian manufacturing in general, for that matter). Emerging Bilateral free trade agreements will only help this process.
The third reason that the outlook for WA manufacturing may be bright, is the relative propensity for WA manufacturers to invest.
While WA manufacturing accounts for a little under 9% of Australian manufacturing turnover, it contributes around 12% of all investment in Australian manufacturing as a whole. Moreover, much of this is concentrated in metal products, highly tied in with mining.
Importantly, WA manufacturing has a strong propensity to invest in research and development. Close to 40% of WA’s expenditure on R&D was made by the manufacturing sector, and although this is comparable to the rest of Australia (47%), it is not the sign of a declining or moribund sector.
In summary, manufacturing in the West is alive and well and proportionally comparable to the manufacturing sector in the rest of the country. Although manufacturing’s share of the WA economy might be declining, its importance is not. It is facing a set of drivers which position it well in the coming decades.
*Peter Kenyon is a Professor of Economic Policy at Curtin University of Technology, Perth, WA.