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A time for action

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Future of processing and manufacturing industries | Chemeca 2021 | 27 August 2021

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It is a privilege to begin by acknowledging the traditional custodians of the land on which we all stand today and I pay my respects to elders past, present and future.

Distinguished guests, ladies and gentlemen, friends. I’m delighted to join the chemists and engineers here today and I would like to focus on three critical issues:

  • Firstly, the now inevitable commitment to achieve  net-zero by 2050

  • Secondly, the disruption to supply chains and the need to build increased sovereign capability

  • And finally, the need to accelerate action on the implementation of the Modern Manufacturing Strategy embraced by the Federal Government. 

 

Elements common to all three issues - ambition, leadership and action - featured prominently in the speech by President Biden at the United Nations recently and it is clear the US is firmly back into a leadership role as indicated by this quote: 

“In the vital goal of limiting global warming to 1.5 degrees Celsius, every nation needs to bring their highest-possible ambitions to the table when we meet in Glasgow for COP26 and then to keep raising our collective ambition over time. 

...Making these ambitious investments isn’t just good climate policy, it’s a chance for each of our countries to invest in ourselves and our own future. 

It’s an enormous opportunity to create good-paying jobs for workers in each of our countries and to spur long-term economic growth that will improve the quality of life for all of our people.”

 
ALL OF THE ABOVE ENERGY STRATEGY

This continues the work done in 2014 with a program  I worked on with President Obama and then Vice President Biden. This program, which we came to describe as All Of The Above Energy Transition Strategy had 4 key phases, that were run simultaneously (in parallel): 

 

First, a focus was put on making best in class energy efficiency standards ubiquitous - appliances, transport, building etc. 

Second, the fossil fuel mix was then to be optimised to lower emissions as we headed towards eliminating them from the mix completely. This will take time to be done in an affordable manner

Third, a move to renewables accelerated and calls were made for investments to be made in solar and wind and geothermal and hydro and nuclear. Innovation hubs that worked with the universities and national labs on technologies like lightweight metals, batteries, fuel cells, etc.  

And finally, financial markets and regulators were asked  to put in place the rulebooks to do this with:
 

  • a price on carbon and removing fossil fuel subsidies  - this is now a subject that is a real-time discussion with the G7 plus 4 (including Australia). 
     

  • research and development incentives
     

  • appropriate and transparent metrics, such as those developed by the Task Force on Climate-related Financial Disclosures and MSCI.

 

All four were started, but the final one derailed and is now back on the table.

President Obama and now President Biden wanted to see the mix move to renewables and adopt the net-zero target by 2050 as quickly as possible. 

If an economy the size of that of the United States can manage to progress its transition, there is no excuse for Australia dragging its feet. 

And while the world watched Australia’s response to the pandemic in 2020, their admiration quickly turns to frustration as they see our inaction when it comes to transforming our economy into one that will deal with climate change. 

SUSTAINABILITY

Australians are coming to the realisation that after 18 months of seeing the impact of climate change reach our front door, there is no more appetite for catastrophic droughts, impacting our ability to grow the food we need, catastrophic floods destroying cities and making it impossible for our farmers to produce or catastrophic fires, destroying homes, livelihoods, flora and fauna.

There is increasing recognition that neither Australia nor the world is on track. And there is an understanding that we are in a race against time. 

COP26 GLASGOW

COP26 will be held in Glasgow this year and I will join the B Team and support their call for:

  • Plans for a  just recovery | This looks like COVID recovery packages that integrate climate action, nature restoration and ensure a just transition to account for inequalities and disproportionate impacts on communities.
     

  • And aligning our ambition with the science | Australia must now support robust 1.5C aligned national plans which include a just transition for workers and communities and we need to land a global deal to be nature positive by 2030.
     

  • For sustainable financing for the transition | Australia will need to step up and follow through on its commitment to support developing countries’ transitions and redirect fossil fuel subsidies by 2025 and environmentally harmful subsidies by 2030 towards those industries that support a regenerative economy and end the burning of coal by 2030. I will be encouraging all businesses to accelerate emissions reductions, invest in nature and ensure a just transition of their workforce and communities. The evidence has been in for a number of years. The IPCC report is a ‘code red for humanity’ and current Nationally Determined Contributions (NDCs) will only get us to a 2% reduction by 2030, which is far short of what was agreed in Paris. 
     

  • And it is clear this is happening because the incentives are not aligned | Businesses, superannuation funds and governments need to coalesce around a common, global ESG reporting standard, to help translate public commitments into concrete actions, and to promote sustainable investment. Of course, it is difficult. Of course, it is complicated. The fact that it hasn’t yet happened suggests we need a new kind of leadership playbook that brings the diversity of experience, thinking and tradition so that better solutions can be imagined, tested and implemented.

  • And we need to diversify the range of experiences from which we draw our solutions | It has been proven time and again that diverse teams outperform homogeneous teams, yield more creative ideas that appeal to broader customer bases, open new markets, and are better at planning for an uncertain future  
     

There are a number of global exemplars including: 
 

  • adidas who teamed up with Parley for the Oceans to design a sneaker made with yarn produced, at least in part, from recycled ocean plastics. The brand also says it aims to be using 100% recycled polyester (which makes up about half of all of their products) by 2024.
     

  • v2food an Australian company committed to making delicious food that is good for you and good for the planet. v2food is developing a range of plant-based meat products that taste great for all consumers and is part of the growth of a new $6bn+ industry in Australia and a major exporter throughout the world as part of the goal to feed 10 billion people by 2050.
     

  • ENEL X  - a global business offering Virtual Power Plant (VPP) that provides Demand Response and critical grid services to support Australia's transition to renewable energy, while earning participating businesses regular payments and enhancing operational resilience.
     

Electrification and the switch to renewable energy technologies will create unprecedented demand for products like lithium, copper, cobalt, nickel and rare earth elements, which are used to manufacture batteries, turbines, solar panels and power cables that will underpin a decarbonised energy system.
 

As IEA executive director Dr Fatih Birol, observed recently: “Critical minerals are not a sideshow in our journey to reach climate goals – they are a part of the main event.”
 

The good news is that Australia currently controls a sizable portion of global output, according to the IEA, while China dominates refining.  There are significant opportunities for Australia if we can produce minerals in a sustainable and responsible manner. A shortage of critical minerals is on the horizon that threatens to jeopardise the low-carbon transition and destabilise global energy security unless immediate efforts are made to safeguard future supply chains.

SECURING GLOBAL SUPPLY CHAINS

Securing supply chains is now at the forefront of the minds of governments and the global business community. We have seen first-hand what happens if we are not in control of our supply chains. This relates to both movement of goods and production. 

In relation to the movement of goods, it’s worth reflecting on the recent Joint Statement from The Quad Leaders, which sees a greater focus has been  placed on creating a green shipping network to enable the creation of advanced infrastructure making this possible

And in relation to production, the shortage of semiconductor chips is a case in point. The situation was exacerbated by the sophistication of the manufacturing process and the supply chain and it has had an impact on many industries, for instance, companies that produce sensors to measure temperature in the ground to tell how quickly cement is hardening so that it’s secure were impacted, which then caused delays on construction projects. 

Worse still, it is estimated that the shortage will cost the global automotive industry alone $210 billion in revenue in 2021. Try to buy a new car, or get anything new in the United States at the moment and you can’t get it. Companies like GM and Ford are cutting back production because they can’t get parts. And it is not just carmakers. 

I was recently on a call with one hundred CEOs from the United States and every one of them is seeing price hikes. Across all sectors are impacted, no one is immune. And this is causing massive price inflation. The problem is acute, and the White House held its second summit in five months with semiconductor manufacturers and buyers last week (fact sheet from the first meeting is here).

SOVEREIGN CAPABILITY

The issue of supply chains is complicated by geopolitical considerations and now countries like Australia are necessarily turning their minds to building sovereign capability in the event of supply chain disruption. 

One way to do so is to invest in advanced manufacturing. With the uptick in automation, augmentation and addition of new technologies, it becomes cost-competitive to bring production back to higher-cost locations. Advanced manufacturing has arrived. 

Lucid Motors which I chair, are manufacturing in the United States, as is Tesla, which has its operation in California, which is not widely regarded as a low-cost location.

You also know that the latest chemical manufacturing equipment using less energy and solvents, producing less waste, and being less capital-intensive, they are less expensive to operate, making local production more competitive.

Similarly, a new generation of compact bioreactors could allow makers of biopharmaceuticals and vaccines to produce smaller batch sizes economically, again favouring domestic production. 

Continuous-flow manufacturing can significantly increase the resilience of the supply chain for small-molecule generic drugs by making producers less dependent on imported active pharmaceutical ingredients (APIs) and DARPA has funded one initiative in this area: the development of flexible miniaturized manufacturing platforms and methods for producing multiple APIs from shelf-stable precursors as specific medical needs arise.

Additive manufacturing or 3D printing can dramatically reduce the number of steps required to make complex metal shapes; it can also lessen dependence on distant suppliers of the machinery and tools needed for, say, the injection moulding of plastics. Rapid advances in 3D printing are making it possible to economically produce an ever-expanding array of items in much higher quantities.

TRANSITIONING THE ECONOMY

And if we are to transition the Australian economy, the question to ask then is the transition to what? 

We are a nation of 25 million people from 270 different ethnic groups in a region of the Indo-Pacific with a population of 4.3 billion people who buy $254.3 billion in products and services from Australia. China, until recently, accounted for almost 40% of our total exports (when you include Hong Kong). We are also the 10th richest country in the world, with a GDP per capita of USD52,825 in 2020. 

So what happens when we cut our production and export of fossil fuels, by necessity or design? Well, we know that countries whose exports are more complex than expected for their income level, grow faster. That is because growth is driven by a process of diversifying knowledge to produce a broader, and increasingly more complex, set of goods and services. This is also because economic growth is driven by diversification into new products that are incrementally more complex. ⁨

And yet, according to the Atlas of Economic Complexity,  Australia⁩ has added only ⁨3⁩ new products between 2004 and 2018(A product is considered ‘new’ if it was absent 15 years ago and present today). The three products? Activated carbon, Hydrochloric acid and Lead foil. These products contributed $⁨2⁩ in income per capita in 2019. 

That is correct, only two dollars in income per capita in 2019. This compares with: 
 

  • Canada⁩ adding ⁨8⁩ new products between ⁨2004-2018⁩ and these products contributing $⁨48⁩ in income per capita in ⁨2019⁩
     

  • Ireland⁩ adding ⁨5⁩ new products between ⁨2004-2018⁩ and these products contributing $⁨768⁩ in income per capita in ⁨2019⁩
     

  • Singapore⁩ adding ⁨17⁩ new products between ⁨2004-2018⁩ and these products contributing $⁨1,746⁩ in income per capita in ⁨2019⁩

 

Unfortunately, Australia⁩ has diversified into too few products to contribute to substantial income growth.⁩ This has seen us drop from 55th in the world in 1995 to 87th in 2018 on the Atlas of Economic Complexity created by Harvard University. Despite billions invested in programs to stimulate growth, not a single Australian ecosystem appears on the top 20 Global Ecosystem Rankings just released. 

Why is that? 
 

  • It is because of our short term solutions and misaligned incentives
     

  • Our public investments that are fragmented and spread too widely and performance that isn’t managed rigorously
     

  • And most frustrating of all, because of the limited talent pipeline and workforce capability.

 

When I speak of innovation, I mean:
 

  • the kind that takes research and commercialises and launches a company that scales globally, solving a problem for the world. Companies like blood products and vaccine giant CSL is now the fourth biggest company on the ASX by market value, worth a staggering $117 billion, and rapidly catching up with Rio Tinto's $128 billion valuation. I also mean companies like the up-and-coming biotech firm is PolyNovo, which makes biodegradable, body-safe plastic for regenerative medicine
     

  • the corporate innovation that is needed to keep companies competitive, that extends their shelf life and keeps thousands of workers employed. In global markets, for example, that includes AO Smith in the United States, that saw the introduction of water technology increase revenue by 100% and delivers compound annual growth of 25% since 2009. It also includes Neste in Finland, which experienced a 70% growth in revenue from the introduction of renewable fuels, with company annual growth since 2010 of 24%
     

  • the digital transformation of government services that makes it better, faster and simpler to serve citizens. The transformation that takes cost out and delivers services with minimum friction, that allows governments to recycle the funds into areas that need more attention. Examples like the UK Government Digital Services and our very own world-leading transformation undertaken by Service NSW.  
     

  • the entrepreneurs who solve problems or create opportunities on digital platforms that are not impacted by our distance from global markets. Platforms that can scale fast and serve global markets. Platforms like CanvaSafety Culture and Octopus Deploy.

 

I also mean insisting that the global multinationals operating in Australia send their manufacturing, R&D and innovation teams, not just their sales team. We need to be top of mind in their corporate headquarters. It is critical we attract the factories, the research and development, the production facilities that are needed to then develop the next generation products, giving us a competitive and comparative advantage. 

Because we seemed to have overlooked the fact that if we own production, we own research and development. As I have said many times, if we own research and development, we own the products. This then becomes our competitive advantage. Manufacturing then becomes a capability and modern manufacturing becomes an ecosystem. 

And as every engineer will tell you, the ecosystem of manufacturing is from research to prototyping to production and scaling and selling and designing the prototype for the next product. Which then gives you the next research project!

And yet, we haven’t invested in building a competitive and comparative advantage in enough sectors, nor have we invested in building ecosystems, because we have insufficient production capability in Australia. 

I would be disappointed if those listening today thought I was discounting the efforts of the many successful companies across the country that are doing all of these things. I have cited many examples. I am in fact suggesting we need more of them, clustered around specific sectors and supported by more complete ecosystems. 

MODERN MANUFACTURING STRATEGY

Just over a year ago, the final report of a Taskforce I chaired was delivered to the Australian Government with proposals for a Modern Manufacturing Strategy which has been implemented by Government. It encourages Australia to sharpen its focus on outcomes and take more informed risks with the money taxpayers commit every year in the name of industry innovation.

The focus of the Modern Manufacturing Strategy is not more spending. The focus is on putting a deliberate focus on delivering better outcomes. Taxpayers already spend between $6-8billion each year to fund programs to spur innovation. We have seen 60 reports prepared by the Commonwealth on innovation between 2000 and 2015 and the billions of dollars Australia spent on “research and innovation” was spread across 13 portfolios and 150 budget line items. The return on investment is underwhelming and some might argue, abysmal. To add insult to injury, we have seen nine Ministers in charge of the portfolio in the past seven years. The levels of frustration across the business community are at extraordinary levels.  

And to my friends in the public sector, let me say this, the reports need to end and the focus must shift to delivering outcomes not hiring more consultants. For the cost of one report by a global consulting firm, we can run 100 small experiments which help us make more and better progress towards improving our product and service delivery. While developing the Modern Manufacturing Strategy, we recognised that choices need to be made. Yes, that means picking winners. Which involves identifying sectors, not companies. 

The Modern Manufacturing Task Force Report identified a number of high potential sectors that play to Australia’s strengths. They are: 
 

  1. Space 
     

  2. Medical products 
     

  3. Resources technology and critical minerals processing
     

  4. Food and beverage
     

  5. Defence
     

  6. Recycling and clean energy

These sectors must now be the focus, nationally. They need to drive our public and business sector agendas. These sectors need to inform our investment decisions. We need more deliberate investment, the building of ecosystems around specific sectors. 

Grants will not solve very deep structural problems. The duplication of effort across sectors by each state and university will not make Australia more competitive globally. This is wasteful. It is confusing to both the domestic and global markets. It is distracting and it has delivered poor outcomes for more than 20 years. 

And ignoring the benefits of a circular economy in each sector robs us of the benefits of better managing limited resources, controlling the cost of production, innovating for better outcomes and growing sovereign capability. 

When I turn to our situation in Australia I think of Thomas Edison’s aphorism: “Good fortune is what happens when opportunity meets with planning."

There are some extraordinary opportunities that are now available to Australia. They cannot be fully exploited by a fragmented and scattergun approach with every Australian institution competing in the global market. They can only be secured by adopting a collaborative national strategy. A strategy that promotes a cohesive single national Australian narrative. 

If not now, then when? 

The opportunities are significant and the best we have seen for a generation. If you just look at the relationship between Australia and the United States, you see: 

  • An FTA signed in 2005 and it is time to leverage this for Australia’s benefit
     

  • We are a member of The Quad together with Japan, India and the United States that is investing in the Indo-Pacific. This gives us even better reasons to focus on deepening ties with these countries and their economies. 
     

  • The Bipartisan Infrastructure Investment and Jobs Act has been passed in the United States. The US government will be investing over USD1 Trillion in programs designed to improve investment in public transit, passenger rail, dedicated bridge investment, clean drinking water and wastewater infrastructure, reliable high-speed internet, clean energy transmission and EV infrastructure and creating a new Grid Deployment Authority to build a resilient, clean, 21st-century electric grid. There is a tremendous opportunity for Australia to improve its exports to the United States and enter the supply chain to help the USA achieve its ambitious program. 
     

  • The strength of the relationship between Australia and the United States has again been strengthened by signing the recent AUKUS Alliance. It also refreshes our historical ties with the United Kingdom.

 

These agreements and alliances allow us to tap new markets and in so doing, reshape the Australian economy.

CHANGE UNLEASHES OPPORTUNITY

We have the impetus of a global move towards a green revolution, opening up tremendous opportunities for commercialising our research and opening up new industries and markets. With the recent announcements by Treasurer Frydenberg, it appears that there may be the beginning of the sort of change Australia needs. 

We have the opportunity to onshore manufacturing and to introduce advanced manufacturing and build out our sovereign capability. We have economic partners that are undergoing their own transformation and investing in rebuilding their infrastructure. However, our partners are not waiting, they are acting. 

I have been back in the United States for under a month, and in this short time:
 

  • They have doubled down on hydrogen, especially green hydrogen and committed publicly to creating their version of the Green New Deal and are committed to making COP26 work
     

  • They created AUKUS and passed a trillion US dollar program to upgrade their infrastructure
     

  • They decided to onshore more of their manufacturing. 

 

I was in Australia for 18 months and saw a level of inertia that was quite frankly confounding. It was always easier to do nothing than try something. That may have been the modus operandi while a customer was happy to buy everything we dug up and shipped out. 

We have to stop only being a farm, a quarry, or a hotel. Our world has changed. Our new customers demand greater focus, responsiveness and confidence. They also demand new products and value add. The shift will take place irrespective of whether Australia participates or not. 

There is an opportunity to embrace the diversity of thought, and be an enabler of innovation and drive the creation and transformation of new skills for the economy, it is time to act with ambition, with confidence, with determination and above all, with haste. 

C’mon Australia must become our call in the boardrooms, the labs, the factories, not just on the sporting field. 

It is time for action.

Thank you.

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