PRIME MINISTER
EMBARGOED UNTIL 8.00 P. M. CHECK AGAINST DELIVERY
SPEECH BY THE PRIME MINISTER
HEAVY ENGINEERING MANUFACTURER'S ASSOCIATION
CANBERRA 17 SEPTEMBER 1984
I would l ike to thank you, Mr Chairman, arid your
Association, for your kind invitation to me to be quest of
honour at this, your 16th Annual Dinner.
I particularly appreciate this opportunity to renew my
acquaintance with the top management of an industry which
for so long has played such a vital and dynamic role in the
development of Australia's resources and economy.
Your role has notably expanded and diversified with the
great demands associated with the development and
exploitation of the resources discovered particularly in the
last twenty years.
Your industry has also been instrumental in the creation of
the industrial, transport and energy infrastructure which
forms an integral part of Australia's contemporary economic
strength. Through your efforts Australia has been the beneficiary of
some truly great projects. The Snowy Mountains Scheme, the
first phase of the North West Shelf project, and several of
the mining and processing facilities established over the
past two decades rank with any internationally.
They are clear proof of the sophistication of Australian
engineering skills and of the success with which you have
developed techniques and skills appropriate to a harsh and
often unyielding environment.
The entrepreneurial and innovative flair demonstrated by
your industry has been an important part of making Australia
the great nation it is today.
The current difficulties being experienced by the industry
should not obscure its proud record.
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Indeed the present circumstances of the heavy engineering
sector are rather unique. Unlike other parts of the
economy, your sector has yet to reap the benefits of the
domestic and international economic recovery.
This reflects in part the end of the resources development
boom. It also reflects the expansion of capacity the
industry undertook to meet the demands of that boom. As
well, your industry was badly hurt by the major increases in
labour costs associated with the wages explosion of 1981/ 82.
The coincidence of the end of the resource boom construction
phase with the downturn in the international economy was
especially unfortunate. The increases in Australia's
capacity to produce and export our mineral resources came
precisely at the time when demand for thos6e resources fell
away. It also came at a time of increased capacity among
other international producers.
In 1981 the volume of iron ore exports fell over ten per
cent. In 1982 the volume of coal exports fell two per cent.
That decline in international demand and resultant
over-capacity in the international mineral industry quite
radically changed the outlook for new resource developments.
At the same time, new investment in domestically oriented
industries was also declining. In 1982/ 83 non dwelling
private business investment fell 13.8 per cent.
Most recently, however, there have been firm signs that
demand is picking up.
Resource exports have lately performed very strongly. In
the six months to June 1984 the volume of iron ore exports
were 28.9 per cent higher than in the same period in 1983.
Exports of coal have also shown accelerated growth, with the
1983/ 84 volume being almost a third higher than in 1981/ 82.
While this turnaround was in part a reflection of increased
demand associated with the international recovery, it was
also very much a response to international appreciation of
the marked improvement in Australia's reliability and
competitiveness as a supplier.
Australia in the past year has experienced a remarkable
movement towards industrial harmony the last twelve months
saw the lowest number of industrial disputes in sixteen
years. This is now being translated into a willingness on
the part of international buyers to place orders with
Australia. This very satifactory situation is a direct
result of the Government's highly successful. Prices and
Incomes Accord, as well as of the special consultative
arrangements that we have been developing in key resource
industries.
The rapidly increasing utilisation of capacity in some
resource industries ( although not in the foreseeable future
leading to full capacity utilization for the coal industry),
together with the moderation of inflation and interest rates
and the generally more favourable economic outlook, mean
that soon some new resource projects will be joining the
general pick-up in investment activity.
While it does not constitute another resources boom, the
level of activity now ready to commence is high by
historical standards. This obviously presents real
opportunities for the industry.
The industry's own efforts, at both management and union
level, to deal with its problems have been impressive. The
Government, through its trade policies, its macro policies
stimulating growth and stability, and through budgetary
measures, has also contributed significantly to the type of
environment needed by the heavy engineering industry.
There are, nonetheless, currently strong calls for some
measure of more direct Government involvement with the
problems of the industry.
But we should ensure that only well-considered solutions
appropriate to the requirements of the industry and
consistent with wider community interests are adopted.
It is in this spirit that the Government has asked the IAC
to report within three months on measures needed by the
industry in the short term. We shall also be getting later
from the IAC a report on the long-term assistance needs of
the industry.
These reports, together with proposals put by the industry
itself, should provide a basis for any necessary short-term
and long-term action by the Government.
Any such action should be considered within the wider
context of the Government's general approach to industry
policy. We have already demonstrated through the motor
vehicle and steel industry plans how, on the basis of
extensive consultation with all interested parties, policies
can be devised that will make long-term employment secure,
restore profitability and safeguard the contribution of such
crucial sectors for the economy more generally.
At one level EPAC has played a crucial role in this
consultative process. Its consideration of medium and
long-term economic trends represents a critical step in
establishing the framework for necessary sectoral decisions.
EPAC's success in exercising this role is now widely
recognised. This is reflected in the high level of public
interest in its work and in the representations to the
Government regarding the membership of EPAC. Most recently,
when I met representatives of the Australian Chamber of
Commerce in Canberra last week, they reiterated their
request for participation in this consultative body, which
they saw as having a valuable role to play.
At another level the Australian Manufacturing Council is now
making good progress on developing advice on a broad
framework for Australian manufacturing development. I was
particularly pleased that the statement on manufacturing
industry policy that was issued by the Council last Friday,
reflected consensus on an approach which left behind the
sterile old arguments, within which free t'tade and
protection were seen narrowly as the only issues in industry
policy. Consistently with views that John Button and I have
put forward over the past year or so, the Council declared
that Australian manufacturing industry must expand sales
both in international and domestic markets, and that the key
to success in both areas was enhanced competitiveness. The
challenge now for all of us is to identify and nurture the
processes through which we achieve enhanced international
competitiveness. The emergence of this broad consensus on industry policy,
admittedly at a high level of generality at this early
stage, is of great importance. It sets the context within
which we might now, with far greater confidence, address
otherwise seemingly intractable industry development
problems. Perhaps most importantly, it has served to
highlight the futility of narrowly-based, and often
ill-conceived, solutions to the problems of Australian
industry. The sharpened focus on competitiveness raises doubts about
some suggestions that the problems of your industry can be
addressed effectively by increased protection from imports
and higher public sector expenditure on the output of your
industry. Such palliatives could have quite the Opposite impact to
what is intended. They would raise costs faced by other
industries and the community at large. In this way the
national strategy for general economic recovery would be put
at risk.
None of us can afford to ignore the broader inflationary
impact of higher costs at the very start of the production
process. With firms throughout the economy striving to
restrain costs and remain competitive, cost pressures
arising from increased protection for an industry basic to
the economy would be a serious blow to Australian business
confidence. They would also kill off the very resource
projects the industry itself needs for its own growth and
development. 7
We should also consider the increased costs to exporters of
increased tariff or non-tariff protection from imports.
There is also the possibility of adverse reaction to such
measures from our trading partners.
Indeed any increased imposts on exporters, direct or
indirect, could only impact negatively on an industry such
as yours, being as heavily oriented as it is to resource
development. Obviously import replacement and export expansion are
thoroughly good things if secured through improved
competitiveness. The real task confronting us as a nation,
and industries such as your own in particular, is to remove
impediments to such competitiveness.
The focus for all concerned should be on securing the
conditions of improved competitiv~ ness, and on establishing
fair access to international markets for all Australian
suppliers. It is to these points that the Government, I
believe very successfully, has been directing all its
efforts. Some have suggested that major increases in public spending
are needed if ' the heavy engineering sector is to be
revitalised. There is, however, already a very high level of capital
expenditure in the Government's budget. You would all
appreciate how the positive impact on demand of the high
level of public sector spending on non-dwelling construction
will be of real benefit to the industry.
But I am sure you would all also agree there is no point in
building new capacity for example in electricity
generation in advance of demand for output. More
generally, you would also appreciate that the Government's
economic strategy has required the utmost restraint on
public spending consistent with the Government's social
responsibilities. Increased expenditure could only be financed by some
combination of increased taxes and higher Government
borrowing. Either course would adversely affect private
sector expectations and expenditure and would jeopardise the
economic recovery.
Greater spending would also represent a reversal of the
Government's commitment to ongoing budgetary restraint.
Such restraint is required to lower the public sector's call
on the domestic capital markets to ensure room is made for
private sector investment. Otherwise, there would be the
prospect of a sharp clash between public and private sector
borrowing requirements, which would put upward pressure on
interest rates and the exchange rate.
Either consequence would be disastrous for the investment
and market development interests of the heavy engineering
sector. Indeed the lower levels of the exchange rate in
recent months, which may not have emerged without the
Government's deregulation of financial markets, should be a
major factor in restoring confidence to the sector.
The obvious success of the Government's economic policies in
achieving non-inflationary, sustainable growth in an
atmosphere of declining interest rates is readily apparent.
We are not about to reverse those policies.
Nor, as I have suggested would it be in the best interests
of the Heavy Engineering industry for us to do so.
Neither can the Government hope artificialfly to recreate the
investment conditions of the resources boom.
Nor would we want to.
What we can do, and are doing, is to create the framework in
which a sustained period of investment might be undertaken.
The improved business and consumer sentiment apparent in
recent surveys, and the reduced inflation and interest rates
now achieved, will provide the atmosphere most conducive for
the long-term investment expenditure which your industry
needs. The success of the Accord in reducing the growth of prices
and labour costs has been important in creating these
conditions. We have also provided explicit support to
business investment in the Budget through significant
changes to taxation arrangements. These measures will have
beneficial effects both in 19B4/ 85 and in the years ahead.
In particular, I would point to the increased rate of
depreciation for non-dwelling construction and the
deductibility against income from any source of money spent
on general mining exploration. The extension of eligibility
for the investment allowance to plant and equipment in place
by 30 June 1987, also carries real benefits for the large,
long-term project developments of particular importance to
your industry.
More generally, it is clear that all levels of Government
both Commonwealth and State and the heavy engineering
industry itself need to identify projects in which the
skills and resources of the industry can be used.
In this regard, a special meeting was called on 30 August of
the Australian Industry and Technology Council to discuss
the difficulties facing Australian industry and, in
particular, the heavy engineering sector. I am told that at
that meeting it was agreed that a final appraisal would be
made of the short and medium term outlook for ongoing or
Committed public and private projects, immediately following
presentation of current State Government budgets.
The Machinery and Metal Engineering Council has also
recommended that the Commonwealth establish an industrial
supplies office for the Australian machinery and metal
engineering industry. Innovative approaches of this kind
will be given the closest consideration.
I see much merit in the concept. In co-operation with
industry and the States, such an industrial supplies office
could play an important role in increasing the awareness of
Australian firms of construction opportunities.
I should expect more such opportunities to present
themselves in the months ahead. The fact that the
international economic outlook is now the brightest it has
been for some years, must give grounds for confidence for
the future.
The recovery underway since mid 1983 is broadening and
consolidating. Most relevantly, world steel production has
risen sharply in recent months. OECD steel output in the
five months to May 1984 was up almost 13 per cent on the
comparable period in 1983 and the highest since 1981.
Recent monthly annualised steel production rates in Japan
are the highest for four years.
The improvement in the international economy, and of the
domestic economy under the Labor Government's policies,
bodes well for business confidence and investment in
Australia. The greater predictability and certainty of conditions
associated with the Labor Government's economic policies
present unprecedented opportunities for investment interest
in Australia. Obviously, these opportunities are now being
seized to the great advantage of all Australians.
Amongst very recent developments we can point to the
agreement on the Portland aluminium smelter, the Bunbury
aluminium smelter and power station project, the Channar
iron ore mine in the Pilbara to supply the Chinese market,
the progress on the North West Shelf export phase, and the
range of major investment decisions announced over the last
month or so in both the motor vehicle and steel industries.
The industry itself needs to recognise, however, that in the
near term there is unlikely to be the level of investment
expenditure domestically that will fully employ its
resources. The industry must look overseaS.
The inward looking economic policies of earlier Governments
have tended to shield our industry from the opportunities
as well as the challenges of the international market
place. That has been to our cost and to the detriment of
the industry.
I believe it is now widely understood in the community that
it is to our benefit at the level of the firm and the
nation as a whole to expand our horizons to take advantage
of the rapid changes occurring in the world and our region.
Dynamic growth in the economies to our immediate north and
technological advances in communications have created
opportunities which we can and must exploit.
In this way, the obvious limitations of a relatively small
domestic market can be overcome.
We are well equipped to pursue such a course. The capacity
of Australians and Australian firms to compete successfully
internationally using the lessons and skills learnt at home
is undoubted. There are a multitude of in-stances in fields
as diverse as sport through music to business that show
Australians can excel against the ' toughest opposition.
An industry which has a record of achievement as impressive
as yours should not be backward in pressing its claims
overseas. The recent success of BHP Engineering and Export Development
Australia in getting the contract for the construction of
the Shun Chang cement plant in Fujian Province in China is a
clear demonstration of what is possible. It is also an
obvious example of what is being achieved through the
Government's considerable efforts to build a substantial
trade relationship with China, including in this case direct
representations by Lionel Bowen and myself on our respective
Visits to China this year. I am pleased that many parts of
Australian engineering industry are now recognising and
pursuing the enormous market possibilities now opening up in
China. There is also great opportunity for Australia in the
dynamism and opportunity of the neighbouring Southeast Asian
economies. The recent acceptance by the Malaysian
Government of Leighton's bid for the Telok Intan Hospital
project was a major breakthrough for the Australian
construction industry. Direct Government representations in
support of this bid played an important part in our securing
it as also did the restoration, through my own and Dr
Mahathir's visits to each other's countries, of close,
businesslike relations between Australia and Malaysia.
Another closely related development was the successful
negotiation, also by Leighton's, of a joint venture
arrangement with the Promet Corporation of Malaysia. This
offers yet another instance of the type of initiative that
can only increase the chances of successful off-shore work
for Australian industry and is a pointer to the continuing
validity of the priority attached by the Government to the
development of soundly based trade relationships with the
countries of the region.
Certainly, if Australia's heavy engineering industry can
secure consistently contracts such as these, its future is
assured.
For this, among other reasons, the Government will continue
working hard, both bilaterally and through exercises such as
my regional trade initiative, to consolidate and develop
further Australia's place in the markets of the region.
Credit lines provided by the Export Finance and Insurance
Corporation and the support available through the
Development Import Finance Facility will continue to be
extended to well considered Australian project proposals, as
they were in BHP's bid for Shun Chang and in Leighton's
success with the Telok Intan Hospital project.
The Government intends doing everything il: can to see
Australian enterprise securing its rightful share of the
burgeoning opportunities of our re-gion.
The benefits to be derived from outward looking industries
and trade and economic policies can no longer be ignored.
In an economy like Australia's, such approaches are
absolutely essential if we are to make the most of our
opportunities to provide all Australians productive
employment at high living standards.
To become a richer nation we need a more resilient,
responsive, diversified and competitive, outward-looking
economy. In this regard, production for domestic and foreign markets
should not be seen as competing claims. They are mutually
supportive. It is important that our resources human,
intellectual and physical be directed to where they can be
most usefully employed.
What is required are national policies to promote sustained
economic growth and a flexibility within the industry to
respond to the opportunities both domestic and
international such policies will provide.
There is no answer to the industry's problems either in
trying to close out the rest of the world or in ignoring the
opportunities that our own region is now presenting.
Rather what the industry needs is growth and the reality
is that this is only possible if the industry ( and indeed
all sectors of the Australian economy) adopt an
international orientation.
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In short, the industry must now seek off-shore opportunities
aggressively. This, together with the enhanced
opportunities that the reversal of fortunes of the domestic
economy will have, even for heavy engineering, as investment
picks up in the year and years ahead, and successful pursuit
of enhanced competitiveness, will bring your industry to a
new stage of achievement and service to Australia.
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