Stemming the decline

Dr Gerd Winter on the Australian Academy of Science's plan to revitalise Australia's chemistry sector

This is a pity, not only because of the importance of chemistry to our society.

The plan, which was prepared by the National Committee for Chemistry (NCC), makes salient points about the state of innovation in Australia, and its economy, such as that Australia should be reducing its exports of raw mineral products, as it has led to a decline in innovation. This insight may come a little late in the game.

But the NCC plan highlights that with the right incentives and resources in place the chemical industry could drive urgently needed downstream value-add to natural ores and mineral deposits.

Possible measures put forward include lowering the tax rates on minerals or other raw inputs sold internally while keeping full tax rates on exports. The report also suggests reserving key inputs of the chemical industry - e.g. gas - for domestic use at competitive prices.

Unfortunately, it is unlikely that any of this is going to see the light of day, given the political realities.

Notably, though, the NCC also takes on our funding system, by saying that the heavy reliance on ARC funding focusses on 'run of the mill' research, hindering ambitious and higher risk research (probably the same could be said for the reliance of medical sciences on the NHMRC).

Then there is the time burden and the low chance of getting selected, together leading to low research efficiency and productivity in chemistry.

The NCC is really not holding back here, adding that "the focus on ARC research funding is a disadvantage for women in the academic sector...".

These issues are not confined to the chemistry sectors, they are core problems affecting Australia's innovation system (see also our analysis NHMRC Hunger Games).

While chemistry is in pretty much everything we use, in Australia the industry contributes only around $11 billion of GDP, with a total turnover of $38.6 billion. As the NCC plan points out, this is small by global standards.

In 2014, the global chemical industry contributed 4.9% of global GDP, and between 2006 and 2015 gross revenue rose from $1.6 trillion to US$5.2 trillion, with 54.2% generated in Asia , up from 40.9% just a decade ago.

Australia should benefit from this global shift, instead we are in danger of missing out.

Still, we have Orica and Incitec Pivot (Australia), globally ranked at 69 and 103, respectively. Also, the Australian chemicals and plastics industries make up the second largest manufacturing sector in Australia; its outputs support a broad range of Australian industries, including manufacturing (valued at $19.3 billion), construction ($6.6 billion), agriculture ($2.9 billion), mining ($1.7 billion) and health care and social assistance ($1.4 billion).

But the outlook into the future is worrying. The overall annual trade balance of Australia's chemical industry has been declining for over a decade, and there are warnings that unless there is stronger emphasis placed on R&D, Australia will lose its footing in the international market.

"This is not only due to the number of companies moving processing and research off-shore, but also due to the decreasing number of university students enrolled in chemistry'," the report says.

Given the death roll that has gripped major parts of Australia's manufacturing sector, this bleak assessment should send sweat glands into overdrive among our decision makers. Exciting times to be Australian indeed.

It's not that we haven't heard it all before, and the ARDR certainly has highlighted this on plenty of occasions: the issue is that our innovation system simply does not work as it should.

The NCC makes the point emphatically: Australia is poorly represented in the global system for production of the final, advanced manufactured chemicals. Global companies represented here do their marketing but stay somewhere else for the value-adding.

"The industry is heavily weighted towards low-end, primary chemicals that capitalise on the availability of natural resources, such as broad acre agricultural chemicals."

And the NCC plan debunks the mother of myths: "This cannot be attributed to Australia's small population."

As so often, Switzerland and the Skandinavian countries shine a bright light on how it's done:

"The Scandinavian countries and Switzerland all have highly efficient, technology-based economies with advanced innovation systems and efficient translation mechanisms. They focus on niche applications and ensure they offer unique products that cannot be duplicated easily elsewhere."

The low rate of collaboration between universities and enterprises has now frequently been noted.

And no, it is not that we are not entrepreneurial minded. In fact, the report clarifies that Australia has a pretty high patenting rate, sufficient to be more competitive. But the catch is this: in Australia patents happen in public research organisations, and from there it is a long way to the market.

We are losing the game in the private sector, where we are not producing enough IP. This is not a new insight - the ARDR and others have been pushing this point for a long time - but I applaud the report's authors to say it so candidly.

"The Australian entities with the largest number of patent applications in 2013 were CSIRO and Cochlear, followed by Monash University, the University of Queensland and the University of Sydney. Conversely, the top 10 entities submitting patent applications in the US were all industrial companies. Fine organic chemicals (4.1%) also constituted a significant fraction of patents in the US. By comparison, Australia depends far too strongly on public sector research for IP creation and R&D outcomes."

Attracting top students to chemistry is becoming difficult: the outlook for a long-term career in academia is increasingly poor, and there is no industry base that comes to rescue.

While in other technologically advanced nations 70% of PhD graduates enter industry and 30% stay in academia, the reverse is the case in Australia.

The concentration of Australia's IP in the public research sector and the low translation and low R&D efficiencies together constitute a major weakness.

The report finds:

• there is low awareness of the potential of patentable innovations to drive industry competitiveness in a global, carbon-constrained environment;
• Australian chemical companies have a limited understanding of the capacities and capabilities of Australian research providers to help drive innovation;
• small industry companies are disadvantaged in their interactions with R&D providers;
• the declining viability of Australian chemical companies makes chemistry an unattractive career choice; and
• traditional university education models limit the value of graduates and research professionals to industry employers.

Again, these problems are not by any stretch unique to the chemical industries, but affect a sector that has the largest value-adding chain in Australia. Here is where we can make the step from producing primary goods at the bottom of the value chain to generating products at the top of the chain. And our policy makers are not helping. Thus the report also finds:

• government appears to be unaware of both the industry's importance through policy setting and its role in ensuring the productivity of each sector and the value chain as a whole;
• government is seen as having a focus on short-term cost and red-tape reduction, whereas it needs to take a long-term, proactive and strategic view of the overall operating environment across the entire value chain;
• resourcing for translation of research outcomes into products, processes and services is inadequate and of insufficient scale;
• resourcing for translation of research outcomes into products, processes and services is inadequate and of insufficient scale; and
• stakeholders attribute poor policy development and lack of value chain thinking to the low science literacy of both policymakers and the general public. Policymakers and the public remain deeply suspicious of anything associated with the word  chemical'.

'Low science literacy' - now this will go down well in Canberra, but as they say - truth hurts while ignorance is bliss.

"Australian leaders often fail to grasp the full implications of technical innovation. Conversely, in China, eight out of nine of the top government officials have scientific backgrounds."

It is a problem that we face across society, with STEM literacy at alarmingly low levels.

Employment prospects are still good - 86% of BScs have a job three months after graduation. But the report notes that staff to student ratios are increasingly unfavourable, leading to poorer teaching outcomes, and that graduates and postgraduates are not getting equipped with the set of skills the industry actually needs.

Increasingly in demand are transferable skills such as mathematics and problem solving skills, and students will need to acquire more practical industry experience.

The NCC also notes the lack of mandatory minimum entry requirements for chemistry courses at universities, and that smaller regional universities often struggle to provide the same quality of chemistry teaching than their counterparts in the urban centres.

But the identified problems are not confined to university education, as the erosion of TAFE and technical schools has led to a drastic decline in the numbers of skilled technicians that underpin chemical manufacturing.

A Decadal Plan Implementation Committee is to implement the plan, and should undergo a review of the progress in 2020.

It will have significant work at hand if it is to fully implement the broad range of detailed strategies addressing the following key goals:

• raise chemistry knowledge and skills;
• improve the capabilities of the research sector;
• raise the level of innovation efficiency and enhance the capacity; and
• improve the image of chemistry.

Among the proposed measures, the NCC plan suggests to make it mandatory that every school leaver has an age-appropriate knowledge of chemistry and/or science. It also proposes an outreach program for politicians to raise their understanding across scientific issues.

Research infrastructure is to be enhanced, including through a National Chemistry Research Infrastructure Register that is accessible to researchers across the public and private sectors.

The NCC plan also calls for a broader variety of funding sources supporting more directed research. There should be incentives for industry investment in academic institution-based R&D, while at the same time there is a need to more clearly delineate core strategic research in the national interest, which is to be funded by the taxpayer, and industry funded R&D for commercial benefit.

Proposed strategies supporting SMEs include the development of models that facilitate the transformation of SMEs into more advanced chemical companies.

Several measures target raising the level of research and innovation efficiency, and improving the translation of research outcomes. For example, the plan proposes a pilot scheme similar to the Swiss CTI model with specialised mentors who are able to facilitate a better match of industry company needs with research provider capabilities.

Across the chemical products value chain sectors do not consult enough with each other and this should be addressed with a common communication plan.

The NCC also aims to overcome the poor image chemistry has with the public and with its political leaders. To this end it proposes the development of a coherent media strategy, a nationally coordinated outreach program and the development of mechanisms that provide the public with access to chemistry experts.

It will not be possible to change attitudes towards a sector that more than any other impacts on our lifes overnight. But the NCC plan does make a step in the right direction, also by demonstrating that far too long the sector has been neglected. The ball is now in the court of politicians, unfortunatley. After all, as the AAS so openly bemoans, it is their lack of scientific literacy that has cemented the trouble Australia's chemical industry finds itself in.