Manufacturing Matters- Tuesday Top-Up 41

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Recent key developments in MAKE│NZ

To kick off this Tuesday, I come with a question for you all –

Which is more appealing? The draw of a look around a factory or the potential for new knowledge in a sit down meeting? Let us know.
(obviously a combination of both is the ideal, but you can only pick one)

• We mentioned the legislation defining the new shape and format of vocational education and training in New Zealand in last week’s edition and said we’d make a submission to the Education and Workforce Select Committee on that. We did, on behalf of the Manufacturing Alliance, and here it is:

Recent key developments in New Zealand

Tony Nowell is a well-known entity in New Zealand’s food & beverage industries. And he has just – on LinkedIn – published a very thorough analysis of what it would take for New Zealand’s food & beverage exports to contribute their fair share towards the government reaching its target of doubling the value of our exports by 2034. The depth Tony has gone to in this data-driven analysis behind the paper is highly commendable. If only the economic development policy decisions by our government were based on similarly thorough analyses – not to mention other portfolios …

As Tony has worked out, we need to achieve an average 7.2% CAGR (Compound Annual Growth Rate) across the value of all of our product exports (excluding services) over the next ten years to double our exports. The report then looks at CAGRs for different product groups for the decades 2000 to 2010, 2010 to 2020, and the entire period 2000 to 2023 (latest available data). For food & beverage, it provides a detailed analysis of CAGRs over these periods for a large number of product categories down to the HS4 level.

In spite of the periodic commodity price fluctuations, exports of commodity animal products (dairy and meat) achieved an exact 7.2% CAGR over the entire period (2000 to 2023). Value-added food & beverage products (manufactured, processed and packaged foods) did even better at 9.2% for the entire period.

According to the report, most other product exports showed a decline, or moderate growth only, in CAGR over the period in question, resulting in the overall CAGR for all product exports over the entire period at 5.1%. That equates to a deficit of USD26.5 billion compared to the 7.2% CAGR required to achieve doubling export growth.

What about manufacturing exports outside of food & beverage? MBIE’s 2018 sector report for manufacturing reports an overall manufacturing export CAGR for the decade from 2007 to 2017 of -1.47%, with machinery and equipment exports at -0.5%.

Looking at more up-to-date data, and aggregating numbers for what could – somewhat arbitrarily – be called ‘elaborately transformed goods’ (excluding furniture, clothing and footwear), i.e. 2-digit HS codes 84 to 91, this is what we get in terms of CAGR data for the last 10 years:

We didn’t go as far as Tony Nowell got in his analysis, looking at contributions from individual HS4-level categories. Suffice to say that in our analysis, HS84 (Nuclear reactors, boilers, machinery and mechanical appliances; parts thereof) and HS85 (Electrical machinery and equipment and parts thereof) are by far the biggest contributors in the range we included. Anyway, these numbers look a lot better than those in the MBIE Sector Report but fluctuate a lot between years and still aren’t enough to meet the ‘doubling exports’ CAGR target of 7.2%.

Recent key developments in the World

• We can look at the efforts of the current US government to reshore manufacturing as a matter of interest (or not) from afar. Those of us who believe that manufacturing will have to play a key role in New Zealand’s economy and are aware of the statistics quoted above may also take it as an opportunity to learn.

We are all aware of the importance to manufacturers of stable upstream supply chains for goods and services. What about the ‘supply chain’ for labour? To maintain – let alone increase – manufacturing activities, we need a stable/growing supply of labour. That supply becomes the more critical, the more specialised the labour is we require.

Take tool and die makers. Quite a few New Zealand manufacturers have outsourced that function to China in the past, and some still do. Not always with a positive experience. The point is that if you want to make a particular industry resilient in the sense of not being dependent on upstream inputs from other countries, that includes the need for a domestic supply of critical workers – like tool and die makers. Here is some data on tool and die makers in the US:

Data available comes from different sources and isn’t always consistent. Here is some (albeit patchy) ‘official’ data from the US Bureau of Labour Statistics on numbers of tool and die makers employed:

Showing a much faster and stronger decline. Their prediction (for what it’s worth) for 2033 is a further decline to 53,300 tool and die makers in employment.

And here is what Apple CEO Tim Cook said in an interview with Fortune Magazine in 2017 (!) about why they are producing (most of) their phones in China:

“The popular conception is that companies come to China because of low labour cost. …The truth is that China stopped being the low labour cost country many years ago. That is not the reason to come to China from a supply point of view. The reason is because of the skill, and the quantity of skill in one location, and the type of skill it is. The products we do require really advanced tooling, and the precision that you have to have in tooling and working with the materials we do are state-of-the-art, and the tooling skill is very deep here [in China]. In the US, you could have a meeting of tooling engineers, and I’m not sure you could fill the [this] room. In China you fill multiple football fields. It’s that vocational expertise is very, very deep here and I give the education system [in China] a lot of credit for continuing to push on that, even when others were de-emphasising vocational education. Now I think many countries have woken up and said: ‘this is a key thing, and we’ve got to correct that’, but China called that right from the beginning.”

• We’ve reported a lot recently on manufacturing in the US, and Germany. What about The UK and France, for example? Here is a high-level snapshot of trends in manufacturing in both countries – a more detailed analysis will follow.

For the UK, the total manufacturing output (in constant dollars) has hardly changed over the past ten years, apart from the usual COVID-19 dip and post-COVID-19 spike.

For employment, following a steady decline over 30 years, numbers have largely been flatlining since 2008:

In September 2020, French President Macron announced his France Relance ten-year economic recovery plan, which included significant additional investment in manufacturing, as well as vocational education and training. It allocated €30 billion over five years to boost industrial competitiveness and invest in future technologies. Key priorities include:

• Development of nuclear power, especially small modular reactors.
• Decarbonization through gigafactories and green hydrogen leadership.
• Production targets for electric and hybrid vehicles.
• Doubling electronics production and securing semiconductor supply by 2030.

The data below shows the plan might be working …