engineering our economic prosperity

The value added by professional engineers to the Australian economy

A S S O C I A T I O N O F

Association of Professional Engineers Australia (APEA) is a division of Professionals Australia.

ENGINEERING OUR ECONOMIC PROSPERITY

2 | Engineering our economic prosperity

C O N T E N T SThe value added by professional engineers to the Australian economy – key figures ....................... 3

Summary ........................................................................ 5

Engineering value in the economy ................................. 6

Engineering value in our businesses .............................. 7

Engineering value in government .................................. 8

Job creation .................................................................... 9

The global marketplace and export earnings................. 10

Innovation ...................................................................... 11

Research and development ........................................... 12

Skills ................................................................................ 14

Challenges ...................................................................... 14

Investment in engineering ............................................. 14

Decision-making ............................................................. 14

Workforce development ................................................ 14

The future ....................................................................... 15

Report prepared by Stephen Gargano

Engineering our economic prosperity | 3

“Without advances in science, technology, engineering and maths over recent decades, our economy would be far smaller, our industries far less competitive, our jobs greatly depleted and our incomes less secure.”– Ian Chubb, Chief Scientist Australia (2010-15)

The value added by professional engineers to the Australian economy – key figures

Engineering-enabled industries are worth $479

billion or 32 per cent of national gross value

added.

Exports from engineering-enabled industries

excluding mining totalled $92 billion or 29 per cent of total exports. This figure swells to

$249 billion or 78 per cent of exports if mining is included as mining is also heavily reliant on engineering processes

and services.

Scientific advances – developed, practically

applied, designed and manufactured by engineers – provide a $330 billion boost for the economy through productivity gains and

flow on effects.

2.61 million Australians work in engineering and

engineering-enabled industries – around 22 per

cent of job market.

Engineering-enabled industries account for

47 per cent of business expenditure on research

and development, investing approximately

$9 billion in 2013-14.

More than a quarter of Australia’s economy exists due to scientific

and engineering advances over the past 20 to 30

years.

Greater engineering skill in the public sector has the potential to deliver

$8 billion to $16 billion in savings by reducing waste

over the next decade.

IBISWorld Australia Industry Reports (ANZSIC).


Engineering is fundamental to almost every goal we have as a nation. It is absolutely critical to positioning us for the future as a leader in science and R&D-driven innovation and to ensuring our ongoing economic prosperity in a rapidly-changing global environment.

Human progress relies fundamentally on engineering. Engineering today is about the practical application of technology, science and research-based solutions to the major challenges and opportunities presented by the 21st century.

The traditional model of innovation has engineers taking scientific discoveries through a process of applied research, design, manufacture or construction and commercialisation with a view to larger-scale production – moving ideas from theory to practice. The contemporary reality is vastly more complex and is characterised by interdependent science and engineering research and development processes. These processes combine with new technologies to drive collaboration and innovation in areas as varied as construction and manufacturing, renewable energies, infrastructure development, the prevention, diagnosis and treatment of human disease, effective counter-terrorism technologies, food security and communications technologies.

Because engineering is so pervasive and diverse, it is sometimes difficult to fully grasp its contribution not only to the advancement of human endeavour, but to Australia’s economic performance and prosperity.

This aim of this report is to highlight the contribution engineering makes to the Australian economy - to business, effective government, job creation, improving our competitiveness in the global marketplace, to innovation and research and development (R&D), and through providing a workforce to allow us to transition from a manufacturing and mining-based economy to a high-skill, knowledge-based economy.

Engineering is fundamental to almost every goal we have as a nation. It is absolutely critical to positioning us for the future as a leader in science and R&D-driven innovation and to ensuring our ongoing economic prosperity in a rapidly-changing global environment.

Chris Walton Professionals Australia CEO

Dario Tomat Engineers Division President


S U M M A R YEngineers are key drivers of economic prosperity, both in Australia and globally. A large share of our national wealth hinges on the contribution of our engineers, and their ability to derive new ideas, products and solutions to economic challenges. The contribution made by our engineers is becoming increasingly pervasive, with engineers working in a wide array of sectors including construction, manufacturing, mining, electricity, gas and water, information and communications technology, consulting and defence.

A holistic valuation of the contribution that engineers make to the economy is difficult due to the dispersal of engineering products and services and flow-on effects across the economy. However the value of engineering to Australia’s economy can be measured through the contribution of engineering-enabled industries to national GDP, which totalled a staggering $479 billion in 2014-15 . This figure measures the value of profit, wages and investment derived by engineering-enabled industries in Australia.

The contribution of engineers to the economy is even larger when considering the capacity of engineers to drive business success, public sector efficiency, job creation, innovation, research and economic growth. Engineering-enabled industries are some of the greatest innovators in Australia, investing heavily in research and development. Innovation will undoubtedly provide our nation’s greatest opportunity for growth over the coming years as we transition from manufacturing and mining to a knowledge-based economy, and engineers will be at the forefront of this growth.

While the value added by engineering is wide and varied, Australia’s outgoing Chief Scientist Ian Chubb recently suggested that “more than a quarter of Australia’s economy exists due to scientific advances over the past 20 to 30 years.” The challenge ahead is to ensure that our scientific and engineering stocks are strong enough to drive similar growth into the future.

W H AT I S E N G I N E E R I N G ?Engineers are the single most important group of professionals in Australia’s economy. They are the key enablers of our industries and our businesses, the drivers of our exports and the minds behind our national competitiveness.

Despite the major role that engineers play across the economy, their work is largely misunderstood, with much of the public unaware of the vital work carried out every day by engineers. Similarly, most people haven’t considered the role that engineers have played in building the Australian economy, and the increasingly important role that they will be required to play in strengthening the nation going forward.

“Engineers design, build and maintain infrastructure routinely used by the community – roads, railways, ports, water, electricity, gas and communications. They perform key roles in feasibility scoping, structural and system design, damage control and maintenance – monitoring and addressing safety and quality throughout systems. Engineers develop and test practical solutions to everyday and extraordinary problems. Engineers conceive, design and manufacture innovative products, processes and systems that contribute to the nation’s prosperity, security, health, culture and environment.”

This definition underlines the reality that few industries and businesses would operate without the current or past contribution of engineers. However, for the purposes of this investigation, the economic contribution of engineering has been determined on the basis of key engineering-enabled sectors and industries. These areas include construction, manufacturing, engineering consulting, mining, information and communications technology, electricity, gas, water and waste services. These industries rely heavily on engineering to facilitate their core functions, operations, products and competitiveness. Without engineering, a large portion of the products and services provided by these industries would cease to exist.

ANET, Realising an innovation economy: A practical roadmap to ease the Australian engineering skills shortage, 2012

ABS Catalogue 5204.0 - Australian System of National Accounts, 2014-15.

Ian Chubb AC, Launch of CIE reports on the importance of advances in the sciences, Chief Scientist Australia, Canberra, January 22 2016.


E N G I N E E R I N G VA L U E I N T H E E C O N O M YEngineering-enabled industries contributed $479 billion to the economy 2014-15, or as much as 32 per cent of gross value added

Engineers make an enormous contribution to Australia’s economy. While it is difficult to quantify the exact value of engineering, determining the economic contribution of engineering-enabled industries is one way of assessing the value that engineers create in Australia. While these industries employ a wide range of personnel, their products and services in most cases would not be possible without the contribution of engineers and their skills.

In Australia, engineering-enabled industries contributed $479 billion in gross value added in 2014-15, or as much as 32 per cent of national gross value added. Without the vital work of our engineers, these industries would be unable to operate and many of the businesses that have made Australia great would cease to be viable.

While the direct economic contribution of engineering-enabled industries alone is enormous, the impact of engineering on the Australian economy is likely even larger when considering the assistance that engineers and their services provide for downstream industries. Without engineers, what products would our retail and wholesale industries sell? What roads would we take to and from work each day? What buildings would we work or live in? Would our electricity networks be so reliable? How would we communicate with each other?

Australia’s outgoing Chief Scientist recently released a report stating that scientific and engineering advances provide a $330 billion boost for the economy through productivity gains and flow on effects.

Ian Chubb AC, Launch of CIE reports on the importance of advances in the sciences, Chief Scientist Australia, Canberra, January 22 2016.

ABS Catalogue 5204.0 - Australian System of National Accounts, 2014-15.

Engineering contribution of Australian gross value added 2014-15 by industry


E N G I N E E R I N G VA L U E I N O U R B U S I N E S S E SA failure to invest in engineering capability is a failure to invest in innovation. Investment in engineering capability tangibly improves business performance.

While there is a significant body of evidence to demonstrate the value that engineering creates in the wider economy, it’s also critical that the productivity and innovation advantages that engineering provides at the enterprise level are clearly understood. Businesses with a strong engineering capability outperform those that don’t on the innovation front with existing engineering expertise being first port of call for companies looking to innovate.

Engineers are ideally placed to apply their skills in mathematical and physical theory to manage the longer-term benefits and short-term risks inherent in the innovation process. Engineers play a fundamental role in commercialising R&D. They solve technical problems and develop novel options – they can think outside the square while bringing their technical expertise and systematic thinking to the table. They provide the skills and know-how that enable businesses to disseminate new technologies and develop new systems, products, procedures and services. These new systems, products, procedures and services are the factors that differentiate one business from another, and ultimately determine the success of an enterprise.

The ABS consistently monitors the performance of innovative businesses in order to determine key success factors. Businesses that innovate consistently achieve greater sales, are more profitable, are more productive and create more jobs than their competitors that do not innovate. Without a strong stock of engineering talent, businesses would not be able to achieve this level of innovation, and their sales, profit, productivity, exports and job numbers would suffer.

The strength of an organisation’s engineering workforce is a proxy for its innovation capability. A failure to invest in engineering capability is a failure to invest in innovation. Investment in engineering capability tangibly improves business performance.

Australian Government, Department of Industry, Science and Research (2011). Australian Innovation System Report, p.36.

ABS Catalogue 8167.0 - Selected Characteristics of Australian Business, 2013-14.

Figure 1: The effect of innovation on business performance 2013-14


E N G I N E E R I N G VA L U E I N G O V E R N M E N TThe average blow-out is 6.5 per cent across all projects and 12.7 per cent for projects over $1 billion. Using just the average 6.5 per cent waste cited by Deloitte, $8 billion will be wasted through inefficient infrastructure spending over the coming decade if the budget of $125 billion of spending on infrastructure is maintained.

One of the most serious and significant responsibilities of government across Australia is the management of our complex infrastructure. Effective infrastructure investment and maintenance is vital to preserving our quality of life and driving our economy. Additionally, infrastructure is also one of the largest costs faced by governments, making efficient and informed investment all the more important. The lack of engineering capability in government is directly responsible for this waste.

According to data released at the time of the 2014 Federal Budget, $125 billion of spending on infrastructure was forecast for the decade to 2024. Engineers will be integral in managing this spending, guiding the initial scoping phase of projects, informing decision makers, managing projects, prioritising maintenance and delivering value for taxpayers’ money. Every day the decisions made by Australia’s engineers ensure that our infrastructure spending goes further, providing better-value outcomes that meet the needs of the community.

Engineers already play an essential role in our infrastructure delivery and management processes, however, government agencies and private consultants have pointed to a lack of engineering resources in the public sector as a driver of waste. While placing a dollar figure on the current value provided by engineering in the public sector is difficult, it is possible to value the present level of waste that occurs due to a lack of engineering investment in the public sector.

Recent figures from Deloitte Access Economics – in a report prepared for the Australian Constructors Association – highlight the level of waste in infrastructure spending. The report found the average blow-out is 6.5 per cent across all projects and 12.7 per cent for projects over $1 billion. Using just the average 6.5 per cent waste cited by Deloitte, $8 billion will be wasted through inefficient infrastructure spending over the coming decade if the budget of $125 billion of spending on infrastructure is maintained.

Engineers already provide significant value to the public sector, enabling the effective management of our most important assets. However, the value provided by engineers could be more significant. Greater investment in the engineering capability of the public sector has the potential to deliver enormous value for the economy, through better infrastructure, cost savings and reduced waste.


J O B C R E AT I O NOver 2.6 million people work in engineering and engineering-enabled jobs in Australia.

Engineering-enabled industries are major employers throughout Australia, providing 2.61 million jobs as at 2015.

The value of engineering reaches far beyond the engineering process itself. Engineers, innovation and research are major drivers of employment throughout Australia. Engineers are the key enablers of many industries and businesses, allowing them to operate safely and effectively, developing products and services, and driving growth. This job creation is not confined to engineering itself, but extends through other professions as they benefit from engineering outputs.

For example, a firm may employ a team of engineers and scientists to develop a new product. If the team is successful, the company will require skilled and/or unskilled staff to mass produce the product, logistics professionals to transport the product, marketing and sales staff to distribute the products and accounting staff to manage the company finances. This job creation would not be possible without the initial work carried out by engineers and technology-based professionals.

By building our investment in engineering and improving our development of engineering graduates, we can drive greater job market growth, minimise unemployment, and improve quality of life for all Australians.

Engineering-enabled industries employment 2015

ABS Catalogue 6291.0 Labour Force, Australia, Detailed, Quarterly


ABS Catalogue 5368.0 - International Trade in Goods and Services, Australia, Nov 2015.

IBISWorld Australia Industry Reports (ANZSIC).

T H E G L O B A L M A R K E T P L A C E A N D E X P O R T E A R N I N G S“..it is increasingly difficult to compete on input costs in many industries. Instead, value is increasingly associated with the uniqueness and quality of the goods and services offered to customers.” – Department of Industry, Australian Innovation System Report 2014

Globalisation is changing the way the world does business. Businesses are no longer tied to geographic boundaries as companies routinely operate internationally, purchasing and selling goods and services from all over the world. Over the coming years, our national wealth will rely on our ability to capture a larger portion of the global marketplace by exporting our goods and services abroad.

Australian companies exported a total of $319 billion in goods and services during 2014-15. Engineering-related industries excluding mining contributed $92 billion or 29 per cent of total exports. This figure swells to $249 billion or 78 per cent of exports if mining is included, as mining is also heavily reliant on engineering.

In recent years, Australia has signed a raft of free-trade agreements with China, Japan, Korea, and most recently the Trans-Pacific Partnership (TPP). Signatories to TPP alone account for over 25 per cent of world trade, making Australia more exposed to globalisation and trade markets than ever before.

While international trade poses significant challenges for Australian businesses, it also presents some amazing opportunities. If Australian businesses are to be in the best position to capture a large share of the global marketplace, our companies and industries need to become even more competitive. To do this, we need to build on our strengths by increasing our level of technical skills, as this will allow us to produce better, higher-quality, more desirable products than the competition.

It is no longer viable to produce cheap, basic products and services and expect to compete with low-cost providers throughout Asia. Many industries have already recognised this trend, and have sought to differentiate themselves based on quality and skill. Professional engineering capability is a key factor in this differentiation. Advanced manufacturing, high-tech and precision products, and new and innovative processes have all been developed by engineers, and further advancement will require additional input from engineers.

Harnessing the skill of our engineers will provide the foundation for our next economic boom. The world already recognises the skill of our engineers, with engineering-heavy industries dominating Australia’s exports. With the global market for our exports expanding and trade partnerships removing the barriers between our businesses and foreign competitors, we will only protect our businesses and increase our share of the global market through investment and development of our engineering talent.


I N N O VAT I O N“There is strong empirical evidence that innovation has a positive impact on the economy and the competitiveness of Australian businesses.” – Department of Industry, Australian Innovation System Report 2014

Engineering capabilities are a strong indicator of our national ability to innovate. Our innovative capacity will become increasingly important over the coming years, as our companies and industries seek to compete in an increasingly diversified and globalised economy. Our successful transition to a knowledge-based economy and our future economic prosperity will rely on a strong base of engineering skill and in turn our innovative capability. Engineers have already made an enormous contribution to the prosperity and economic strength of our nation. However, this contribution is expected to grow significantly over the coming decades as innovation becomes more important. According to the Federal Government’s National Innovation and Science Agenda, “innovation and science are critical for Australia to deliver new sources of growth, maintain high-wage jobs and seize the next wave of economic prosperity.”

Research and innovation are drivers of both productivity and economic growth, as shown by the United States where half of the economic growth in the last 50 years can be attributed to scientific innovation. Similarly, Australia’s former Chief Scientist Ian Chubb estimates that scientific advances are responsible for over 25 per cent of our economy, and over one million jobs. Businesses engaging in innovation also report much better performance across a range of categories than those not engaged in innovation.

These findings demonstrate the nation owes much of its fortune to the engineering and STEM professions and their ability to innovate. What is also clear is that we will need to ensure the ongoing strength of our engineering and STEM sectors if our future generations are to benefit from the economic growth that we have experienced in recent decades.

Australia is currently ranked 17th on the Global Innovation Index which measures a country’s ability to innovate based on a wide range of factors. Lifting our ranking will depend not only on the right settings at the policy and enterprise levels, but on a strong and diverse engineering capability.

Commonwealth of Australia, Department of the Prime Minister and Cabinet, National Innovation and Science Agenda.

Chief Scientist (2013). Science and the Economy. http://www.chiefscientist.gov.au/2012/03/science-and-the-economy/.

Cornell University, INSEAD, and WIPO (2015): The Global Innovation Index 2015: Effective Innovation Policies for Development, Fontainebleau, Ithaca, and Geneva.

Figure 3: Global innovation index 2015


R E S E A R C H A N D D E V E L O P M E N TIndustries and businesses across Australia have come to recognise the importance of engineering skill and innovation in determining their success. Investment in engineering inherently improves the capacity of Australian firms to develop high-quality products and services. This investment in staff must also be met by a willingness to conduct the research required to drive development.

Engineering-enabled industries are at the peak of Australia’s research and development work. Companies in these industries recognise the economic dividend that stems from a knowledge-based economy. Engineering-enabled industries account for 47 per cent of business expenditure on research and development, investing approximately $9 billion in 2013-14.

This investment not only drives the financial success of these businesses and industries, it drives the growth of the economy as a whole, delivering more jobs, greater foreign investment and more exports. However, Australia is not alone in planning for the future, with other advanced economies and cheaper producers throughout Asia consistently improving in quality and technology.

Australia’s engineers have been pivotal in building our reputation as a provider of high-quality goods and services. However, our investment in engineering and research and development must continue if Australian businesses are to remain among the highest-quality in the world.

Figure 4: Industry spending on research and experimental development 2013-14

ABS Catalogue 8104.0 - Research and Experimental Development, Businesses, Australia, 2013-14.


S K I L L SAustralia’s specialisation has been falling in the past two decades in natural sciences, engineering and even agricultural sciences – Department of Industry, Australian Innovation System Report 2014 Australia’s engineering workforce is relatively strong, providing a firm foundation of engineering knowledge. According to the latest census data, in 2011 there were 263,890 engineers in the labour force. Based on historical growth rates, this figure is likely to be well over 300,000 in 2016. New graduates and skilled immigration has ensured solid growth in engineering stocks, and as a result, the worst of the skill shortages in engineering experienced over the past decade have eased.

While skill shortages have reduced across the industry, our greatest weakness as a nation is our development of engineering graduates. Currently Australia produces only one third of its engineering graduate needs, with skilled migration filling the gap. Given the significant scope for additional job creation through engineering, the development of engineering graduates should be prioritised and encouraged.

According to the Global Innovation Index 2015, Australia performs relatively poorly in its development of engineering graduates, ranking 77th in the world. This places Australia below the vast majority of developed nations in production of graduate engineers, despite clear evidence that engineers are responsible for a large share of our growth in recent decades. If we do not improve our development of engineers, our potential for future growth will be seriously impacted.

Figure 5: Graduates in science and engineering – 2015 country rankings

Cornell University, INSEAD, and WIPO (2015): The Global Innovation Index 2015: Effective Innovation Policies for Development, Fontainebleau, Ithaca, and Geneva.


C H A L L E N G E SA number of significant challenges and potential obstacles stand in the way of the continuing contribution of our engineers to the national economy.

Investment in engineering As Australia transitions to a knowledge-based economy, businesses that recognise the importance of maintaining and developing a strong engineering capability will be best placed for growth. Those businesses that fail to innovate, upskill and develop more advanced products, processes and services will likely be left behind.

Engineers face ongoing challenges as businesses seek to cut jobs and operate from a lower cost base. Engineers have not been immune as jobs have been cut, and research and innovation budgets slashed. In order to develop sustainable and more efficient business models, organisations need to invest in better processes and systems, capable of delivering better output at a lower cost. Investment in greater engineering capability, innovation and research is the key to lower costs, reduced waste and higher profit margins.

Decision-making Another major challenge facing the profession is the lack of engineering knowledge in the decision-making process, both in the public and private sector. Engineers, aided by their knowledge and expertise, are best placed to drive informed decisions on key issues. However, in recent years, businesses and governments alike have often failed to maintain engineering and technical capability at management and decision-maker levels. In doing so, they have placed greater emphasis on low cost rather than best value, foregoing the benefits of in-house engineering advice, at times abrogating their public interest responsibilities and compromising their ability to act as an informed purchaser.

The engineering profession will not be able to maximise its contribution to the economy without a recognition that they make an important contribution to informed decision-making. By involving engineers in this process, business and governments will make better and more informed decisions.

Workforce development A rich base of engineering skill is reliant on a continuing stream of engineering graduates from our universities. However, at present Australia’s engineering graduate numbers are unimpressive. In fact, Australia’s development of engineering graduates ranks 77th in the world, leaving us trailing far behind most of the world’s developed nations. As a result, our graduate numbers only cover one third of our engineering needs. Unless this discrepancy is rectified, our pool of engineering talent will not be adequate to tackle the challenges of the future.


T H E F U T U R E“The talent and skills of our people is the engine behind Australia’s innovative capacity.” - National Innovation and Science Agenda

Australia needs an engineering workforce capable of playing a central role in addressing our key economic challenges and driving growth. We need the right settings at the policy and enterprise levels to ensure industry can contribute to realising an innovation-based economy. We need strong investment in research and development and a focus on collaboration and commercialisation. We need to build our innovation capability and support the industries of the future, to drive the creation of new businesses and more jobs. We need our engineers.

Australia as a nation is currently faced with a massive new challenge - to remain competitive amongst many rapidly developing economies around the world. If we are to face this challenge successfully, we need to recognise that the social and economic value added by the engineering profession is massive, and the potential for future growth equally significant.

However, our engineers also face a raft of challenges as underinvestment, a lack of recognition and reward, and poor graduate numbers threaten their ongoing contribution to the economy. Only through greater respect, recognition and reward will we strengthen the standing of the profession, fully utilise their skills, and attract and develop the next generation of engineers.

The best time to invest in our future is now. By strengthening our professional engineering workforce and providing support for research and innovation, we will be better able to face the economic challenges of the future and to engineer our national prosperity.

Commonwealth of Australia, Department of the Prime Minister and Cabinet, National Innovation and Science Agenda.

ENGINEERING OUR ECONOMIC PROSPERITY

A S S O C I A T I O N O F

The Association of Professional Engineers Australia (APEA) A division of Professionals Australia

Level 1, 163 Eastern Road SOUTH MELBOURNE VIC 3205 [email protected] 1300 273 762

engineering our economic prosperity

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