AUSTRALIA’S SECTORAL TRADE: HAS MANUFACTURING’S PERFORMANCE DECLINED?

bY BOB CONLON*

There is a deep and obvious concern in the community arising from Australia’s balance of payments and foreign debt problems. There is a perception that manufacturing is not pulling its weight in overcoming these problems; and a perceived need for the sector to reverse a “decline” in its trade performance in recent years. As a consequence there is pessimism regarding the future of manufacturing in this country. I

While the future of manufacturing may well be clouded, at least some light may be shed on its past performance to see if perceptions of decline are well based.

If we look at the relative values of Australian manufacturing exports in the value of total commodity exports, and compare them with those of agriculture and mining; or if we compare the ratio of manufactured exports to GDP with the ratios of the other sectors, there is no decline. Indeed, by these definitions, manufacturing’s export performance has tended to improve since the late 1960s (agriculture has been the big loser).’

If there is a “problem” with manufacturing’s trade performance, it is not so much its export performance (though whether the sector should be doing better in this respect is a matter for debate), but rather, an apparently declining ability to displace imports. Put in a wider perspective, Australia’s position as a trading nation has deteriorated since the 1950s, and any perceived deterioration of manufacturing’s trade performance in Australia should be considered in the context of that overall decline.

1. An overview of Australian commodity trade since the 1960s (i) Exports

Table 1 shows the sectoral distribution of commodity exports over the

~ ~~~~ - ~~

* University of New South Wales. 1. For example, “Future for manufacturing exports is grim”. Sydney Morning Herald, 26

August 1990, p. 22; “Changes needed to lift export gloom”, Business Review Weekly, 20 August 1990. p. 33-34; “The challenge of industry policy”, The Age, 31 January 1991, p. 13.

2. If data from the period 1955-79 are examined, manufactured exports rose fairly consistently from 6.1% of total exports in 1955 to 23.1% in 1979 (the year the series, based on the Australian Export Commodity Classification, ceased). The proportionate growth in manufacturing was at the expense of agriculture. Over the same period, “processed” exports (as defined by the Statistician] ranged from 35 to 45% of the total, but in most years remained close to 40% of total exports.

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period 1969 to 1990.3 Chart 1 is derived from these data, and discernible from it is a slight upward trend in the contribution of manufacturing to total exports over the full period. However, more obvious is first, the dip in manufactured exports during 1973 to 1979 (the early part of this period was characterised by significant exchange rate revaluations); and second, the rather more sharp decline from 1983 to a twenty-five year low in 1985, followed by almost as sharp and (at least to 1990) sustained recovery. Indeed, in each of the last three years, manufacturing’s relative contribution was greater than in any of the years since 1969.

TABLE 1 SECTORAL DISTRIBUTION OF AUSTRALIAN EXPORTS

(PERCENTAGES OF TOTAL COMMODITY EXPORTS]

Year Agriculture Mining Manufacturing SITC 5 to 8

1969 34.70 15.58 49.73 24.59 1970 29.65 17.74 52.61 27.52 1971 28.62 22.65 48.74 26.42 1972 25.69 20.50 53.82 28.23 1973 26.31 18.66 55.03 26.93 1974 28.04 19.79 52.18 26.92 1975 25.77 24.37 49.86 28.51 1976 24.31 27.34 48.35 24.69 1977 23.59 27.27 49.13 24.68 1978 20.71 29.00 50.29 25.77 1979 19.12 25.45 55.43 22.67 1980 25.18 21.74 53.08 22.63 1981 22.30 22.74 54.96 21.69 1982 21.84 25.84 52.32 2 1.06 1983 17.10 28.22 54.68 20.86 1984 19.00 28.35 52.65 21.08 1985 21.43 32.00 46.58 19.10 1986 20.71 31.14 48.15 19.16 1987 17.82 27.38 54.80 23.03 1988 18.17 24.19 57.64 24.25 1989 19.22 23.39 57.39 25.62 1990 15.65 25.35 59.00 26.33 1991 n.a. n.a. n.a. 2 7.0[ e)

Notes: [e) Estimate based on the first three quarters of 1990/91. n.a. Not available. Columns for Agriculture, Mining and Manufacturing sum to 100. Years ending 30 June.

Source: Australian Bureau of Statistics, Foreign Rode Australia, Comparative and Summary Statistics (various issues).

3. Based on the Australian Standard Industrial Classification (ASIC] introduced by the Statistician in the late 1960s.

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Also included in the table is the relative contribution to total exports of commodities classified by the Standard Industrial 2ade Classification (SIX) 5 (chemicals), 6 (manufactured goods classified chiefly by material), 7 (machinery and transport equipment), and 8 (miscellaneous manufactured articles). These commodities are comparatively highly fabricated manu- factures-the “high value-added’’ commodities, production of which the Australian government wishes to encourage.

From the mid-1970s to the mid-l980s, the data show a decline in the relative contribution of these goods to total exports. From a high of more than 28% in 1975, it fell to just over 19% in both 1985 and 1986-these last two years coinciding with the very significant devaluation of the Australian d01lar.~ This decline, and particularly the trough experienced during 1984-1986, may well be at the heart of the present concern for manufacturing in this country. However, since that time the relative contribution of manufacturing has risen in each year, reaching levels in the last two years5 higher than at any time since its 1975 peak.

The ratios of sectoral and S I X 5-8 exports to GDP are shown in Table &and illustrated in Chart 2. Broadly, these data are consistent with the data just discussed. They show a decline of agriculture-the ratio in 1990 is the lowest in 22 years; an improvement of mining-though the last three years have been relatively poor;e and an improvement in manufacturing-three of the last four years have had ratios higher than in any of the previous eighteen years, except 1980. The S I X data show a recovery in the last four years to the levels of the 1970s.

On these data at least, it is difficult to sustain a case against manufacturing’s recent performance.

(ii) Imports Table 3 shows the distribution of imports by sector for the period 1969

to 1990. Manufactures obviously dominate imports, providing in most years over 90% of the total. Taken over the entire period, there is again no dis- cernible trend. The data, however, are characterised by a trough between 1979 and 1984. Since 1984, from a twenty-two year low of 88% of total imports, the proportion of manufactured imports has risen to 96% in the

4. %king 1984 as a base, the US$/A$ rate fell by 18% in 1985, and a further 2% in 1986. while the SDR/A$ rate fell 27% in 1985 and further 9% in 1986. (End of period central rates.) (IMF, Financial Statistics Yearbook (New York. 1990))

5. Data for the first three quarters of 1990/91 has been treated as a full year, and should be considered as indicative only.

6. The (relative) decline of agriculture and mining exports in the last two or three years has been brought about in large part by agricultural protectionism and by the slowdown in the world economy, respectively. Prices for wheat and iron are have been particularly hard hit in recent years, while between 1988 and 1990, wool prices fell by more than 25%. and export volumes by more than 35% (IMF, Financial Statistics Yearbook (New York, 1990)).

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TABLE 2 RATIOS OF SECTORAL EXPORTS To GDP [CURRENT PRICES)

VALUE OF EXPORTSIGDP [Olo] ~ ~

Year Agriculture Mining Manufacturing Total srn: 5-8

1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1.983 1984 1985 1986 1987 1988 1989 1990 1991

3.75 3.53 3.41 2.97 3.41 3.39 3.24 2.88 3.01 2.54 2.35 3.55 2.83 2.57 2.10 2.32 2.91 2.79 2.35 2.43 2.37 1.98 n.a.

1.68 2.11 2.70 2.37 2.42 2.39 3.07 3.24 3.48 3.55 3.13 3.07 2.89 3.04 3.46 3.47 4.35 4.20 3.62 3.23 2.89 3.21 ma.

5.38 6.26 5.82 6.23 7.13 6.30 6.27 5.74 6.27 6.16 6.81 7.49 6.98 6.16 6.70 6.44 6.33 6.49 7.24 7.70 7.08 7.46 n.a.

10.82 11.90 11.93 11.57 12.95 12.08 12.58 11.86 12.76 12.25 12.28 14.11 12.71 11.78 12.25 12.23 13.59 13.48 13.21 13.36 12.34 12.65 13.5(e)

2.66 3.28 3.15 3.27 3.49 3.25 3.59 2.93 3.15 3.16 2.78 3.19 2.76 2.48 2.56 2.58 2.60 2.58 3.04 3.24 3.16 3.33 3.6(e)

Notes: See Table 1. Sources: See Table 1.

Reserve Bank of Australia, Australian Economic Statistics, 1949-50 to 1989-90 [Occasional Paper No. 81, Sydney. Reserve Bank of Australia, Australian Economic Statistics, 1949-50 to 1989-90 [Occasional Paper No. 8J. Sydney.

last year. Indeed, the figures for each of the last five years are higher than for any of the preceding seventeen years. The ratio of manufacturing imports to GDP (see ’Igble 4 and Chart 3) does show evidence of an increasing trend, though it is characterised by two significant troughs: from 1971 to 1974; and 1982 to 1985. Imports of capital goods comprise about 35% of manufactured imports, and thus, not surprisingly, the ratio of imports of these goods to GDP track the manufacturing imports ratio closely.’ The chart does not provide strong support for any contention that imports of capital goods “took off” in the mid-1980s at a rate greater than other manufactured imports.

In summary, manufactured imports [in proportionate terms) have shown a broad tendency to increase since the late 1960s. Over the first 11 years

7. When capital goods imports are subtracted from manufactured imports, the ratio of the residual to GDP show a pattern similar to the capital goods import ratio.

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TABLE 3 SECTORAL DISTRIBUTION OF AUSTRALIAN IMPORTS

VALUE OF IMPORTS [ o h )

Year Agriculture Mining Manufacturing Capital goods

1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990

3.01 2.91 2.82 2.82 2.91 2.84 1.94 1.93 2.46 2.55 2.00 2.20 1.70 1.34 1.56 1.67 1.52 1.59 1.65 1.62 1.46 1.19

6.46 5.19 3.08 2.91 2.59 3.67 5.06 4.72 4.44 4.81 4.08 8.90 9.78 9.42 10.10 5.45 4.02 2.58 2.33 3.44 2.92 2.85

90.53 91.90 94.10 94.27 94.51 93.49 93.00 93.35 93.11 92.64 93.92 88.91 88.51 89.24 88.34 92.87 94.45 95.83 96.02 94.95 95.62 95.96

n.a. n.a. n.a. n.a. n.a. n.a. n.8. n.a. n.a. n.a. 31.60 26.60 29.81 33.83 30.12 30.37 31.74 33.94 34.68 32.50 34.47 35.72

Notes. sources: See Table 1

of the period 1969-1990, the mean of the value of manufactured imports as a percentage of GDP, was 9.9%; over the second 11 years it rose significantlv to 12.1%. If, then, there is a “problem” with the trade performance of Australian manufacturing, on these figures it apparently lies more in its inability to displace imports than an inability to export its products.

So far, we have looked at Australia’s trade in isolation from the performances of other countries. How then, does Australia’s performance compare when it is put in the context of world trade?

2. Australian exports in world trade lbble 5 (Chart 4) shows total Australian exports as a proportion of total

world exports. The picture it presents is of a clear deterioration in Australia’s contribution. ’&king the period 1960/69 as a benchmark, Australia’s share declined from an average of 1.80% of world exports, to 1.47% in 1970/79; to 1.24% in 1980/85; and to 1.20% in 1986/90-an overall deterioration of one-third.

8. The difference is statistically significant at the 1% level.

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TABLE 4 VALUE OF IMPORTSIGDP ( O h ]

Year Agriculture Mining Manufacturing lbtal Capital goods

1969 0.33 0.72 10.05 11.10 n.a. 1970 0.32 0.58 10.24 11.14 n.a. 1971 0.30 0.33 10.17 10.80 n.a. 1972 0.25 0.26 8.50 9.02 n.a. 1973 0.24 0.22 7.92 8.38 n.a. 1974 0.30 0.39 9.86 10.55 n.a. 1975 0.22 0.59 10.76 11.57 n.a. 1976 0.20 0.48 9.42 10.10 n.a. 1977 0.28 0.50 10.51 11.29 n.a. 1978 0.28 0.54 10.30 11.12 n.a. 1979 0.24 0.49 11.31 12.04 3.80 1980 0.27 1.10 10.98 12.35 3.28 1981 0.22 1.24 11.22 12.68 3.78 1982 0.19 1.31 12.43 13.93 4.71 1983 0.19 1.23 10.76 12.18 3.67 1984 0.20 0.65 11.00 11.84 3.60 1985 0.20 0.53 12.33 13.05 4.14 1986 0.22 0.36 13.35 13.94 4.73 1987 0.22 0.31 12.85 13.38 4.64 1988 0.21 0.45 12.38 13.04 4.24 1989 0.20 0.40 12.95 13.54 4.67 1990 0.16 0.39 13.10 13.65 4.88

Notes, sources: See 'lbble 1.

TABLE 5 AUSTRALIAN AND WORLD COMMODITY EXPORTS, 1970-1990

Year Commodity exports-SIX 5-8 lbtal exports

Aust(eJ World Austlworld Index Austlworld Index (US$B) (US$B) ( O h ) Austlworld (ole) Austlworld

11970 = 100) (1970 = 100)

1950 1955 1960169 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981

- 1.2 1.3 1.6 2.4 2.9 3.0 3.1 3.2 3.3 3.9 4.5 4.3

- - - 202.3 226.7 270.6 364.2 482.8 518.9 585.9 671.5 811.9 978.1 1142.4 1124.8

- - - 0.60 0.59 0.60 0.65 0.59 0.57 0.53 0.48 0.40 0.40 0.39 0.39

- - - 100.0 99.6 101.1 109.6 99.7 96.1 88.5 80.2 67.5 67.0 66.1 65.0

2.86 2.05 1 .80 1.66 1.62 1.68 1.79 1.39 1.47 1.43 1.27 1.19 1.21 1.17 1.17

172.3 122.8 108.4 100.0 97.6 101.2 107.8 83.7 88.6 86.1 76.5 71.7 72.9 70.5 70.5

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TABLE 5-CONTINUED AUSTRALIAN AND WORLD COMMODITY EXPORTS, 1970-1990

Year Commodity exports-SIX 5-8 ’Ibtal exports

Aust(e) World Austlworld Index Austlworld Index [US%BJ [USSB) [OIoJ Austlworld [Ole] Austlworld

11970 = 1001 11970= 100)

1982 1983 1984 1985 1986 1987 1988 1989 1990

4.4 ,. 4.2 4.6 ’ 4.3 4.3 6.1 8.0

1080.3 1087.8 1180.2 1127.4 1360.4 1635.1 1912.9

0.40 0.38 0.39 0.38 0.32 0.37 0.42

67.7 64.5 64.9 63.6 52.7 62.2 69.7

1.28 1.24 1.33 1.28 1.13 1.13 1.23 1.30 1.2 114

77.1 74.7 80.1 77.1 68.1 68.1 74.1 78.3 72.9

Sources: ABS-See ’IBble 1. IMF, International Financial Statistics Yearbook [various issues), Washington, DC. United Nations, International n a d e Statistics Yearbook (various issues), New York.

Notes: 1. [e) Estimate. Total Australian exports in US$B (calendar-year IMF data) appor- tioned by S I X 5-8 exports (year to end June ABS data).

2. (a) Estimated from data for the first three quarters of 1990.

The proportion of world SIT, 5-8 exports of total world exports over the period 197011988 (the latest available data) varied between 60 and 70% of the total. For Australia, the corresponding percentages remained at about 25 % of the total until 1977, and thereafter fell to about 20%. The ab le shows a deterioration in Australia’s share of world exports of SITC 5-8 commodities over the 197011988 period, though initially at a rate slower than the deterioration in its overall share of total world exports. The index of Australia’s S I X 5-8 exports as a proportion of world S I X 5-8 exports remained above the index of total Australian exports as a proportion of total world exports until 1977, and thereafter remained below it. In 1978 there was a decline in the Australian S I X 5-8 remained at about 64 unit1 1985; fell by a precipitous 12 points in 1986; and was followed by an equally sharp recovery in 1987 and 1988. Indeed, the index in that last year was the highest since 1977.

Thus, the overall picture shows Australian manufacturing losing its share of world trade from the 1950s and 60s, suffering a very sharp fall over 1977 and 1978, recovering until the decline of 1986 and 1987, followed again by r e c o ~ e r y . ~ ~ ~ ~

9. The 1990 data should be regarded as preliminary. 10. In terms of the commodity composition of trade, Australia’s reliance on exports of food,

beverage and tobacco (SIX 1) declined Over the period 1970/1990. the decline being offset by a growing contribution of mineral fuels and related materials (SIX 3). Within S I X 5-8. there was no clear pattern of change.

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3. Conclusion Whether manufacturing's trade performance has in fact declined depends

very much upon the criteria which are used in making the assessment. By the data presented here, on balance it would seem that recent judgement has been coloured by the experience of the clear general deterioration in Australia's export performance-not just of manufacturing-experienced in the early to mid-1980s. At that time manufacturing did not fare signifi- cantly worse than agriculture or mining. Since that time there has been an apparent recovery, and if anything, manufacturing has led the way.

Moreover, viewed in an international perspective, it may be seen that it is not so much that Australian manufacturing has performed significantly worse than other sectors in the Australian economy; rather, any perceived deterioration of manufacturing in Australia may be seen largely as part of an overall deterioration of Australia's position in world trade since the 1950s.

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CHART 1 SECTORAL EXPORTS-PERCENTAGES OF "CAL COMMODITY EXPORTS

I

0 0 , YEAR

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CHART 2 RATIO-SECTORAL EXPORTS TO GDP

I - SlIC 5-8 I

CHART 3 RATIO-IMPORTS TO GDP

- MANUFACTURES

- CAPITAL GOODS - MANUF LESS CAPITAL GOODS

- TOTAL IMPORTS

YEAR

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CHART 4 INDEX-AUSTRALIAN EXPORTS AS A PROPORTION OF WORLD EXPORTS

'. Index

(1 970-100)

W 1 o o m YEAR

- AUST SlTC 5-8 EXPORTS /WORLD 5-8 EXPORTS

- TOTALAUST EXPORTS /TOTAL WORLD

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