Lack of semiconductor manufacturing will consign Australia to “second-tier status”: report

The nation’s dearth of semiconductor manufacturing creates a strategic vulnerability and it should build up manufacturing capability in areas matched to research strengths, according to an Australian Strategic Policy Institute report published today.

“Opting out of semiconductor manufacturing will severely constrain Australia’s growth as a technological nation and consign it to second-tier status,” write authors Alex Capri and Robert Clark in Australia’s semiconductor national moonshot, released on Wednesday

Capri, a research fellow at the Hinrich Foundation, and Robert Clark, a former CEO of the Defence Science and Technology Organisation, do not downplay the ambition of the recommended development – hence the report’s title – while pointing out the criticality of semiconductors to every facet of an advanced economy.

Australia’s contribution to the global semiconductor value chain is small, and as one national review of the sector published in late-2020 put it: “This study was unable to uncover a major Australian company, whose core business activity is participation in the semiconductor design, development and production value chain”.

According to ASPI, the authors advise pursuing public-private partnerships from an existing R&D foothold, embedding Australian enterprises in friendly and reliable value chains, attracting talent and investment, and leveraging our relationships with strategically-aligned and technologically advanced partners. 

The authors estimate a $1.5 billion government investment via grants, subsidies and tax offsets could lead to $5 billion in manufacturing activity.

“Economic liberalism and mostly unrestricted free trade have given way to the less optimal but necessary practices of ‘managed trade’ and the pragmatic application of techno-nationalism,” write Capri and Clark.

Global value chains will continue to decouple, fragment and ‘localise’, not only because of geopolitics, but also as a reaction to supply-chain problems resulting from the Covid-19 pandemic. Climate change will further accelerate fragmentation, as governments look to shorten and localise global supply chains as part of their decarbonisation efforts.”

The global semiconductor industry has been valued at an estimated $US 600 billion, expanding about 20 per cent over 2021, and tipped by McKinsey to reach a trillion US dollars a year by the end of the decade.

Australia’s semiconductor national moonshot can be read here.

Picture credit: Narumon Bowonkitwanchai/Moment/Getty Images


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