Construction is Australia’s Largest Importing Industry

What products are imported by Construction?

 

 

The previous post on products used in Construction was based on the ABS supply-use table, which do not include imported products. However, the ABS input-output tables that the supply-use tables are based on have data on imports of product groups by industry groups, in the same matrix of 115 product groups by 64 industry groups. 

 

This post looks at the latest release of the input-output tables for 2022-23 for the four Construction industry groups of Residential building, Non-residential building, Heavy and civil engineering, and Construction services (the trades). The four industry groups are combined to get shares of total use of products by Construction.

 

The post first looks at imports by the Construction industry groups, and compares their shares of total imports to some other industry groups. The major products imported by Construction in 2022-23 are identified and the Construction share of those imports discussed. 

 

Comparing the share of imports over time is difficult, but there are a couple of measures that can be used. The ABS calculates Primary input content per $100 of final use by industry. Primary inputs are Imports, Compensation of employees, taxes and subsidies, and Gross operating surplus. This estimate includes the initial increase plus the direct and indirect effects. Another estimate from the share of imports in Total intermediate use of products uses the value of imports as a percent of the value of products produced in Australia and used in Construction.  

 

Construction accounts for 80 to 90% of imports of timber and wood products. A 2022 research report for the industry association Forest and Wood Products Australia analysed the demand for sawn softwood timber to 2050 and meeting that demand. The report’s data on imports is discussed.

 

Product Imports by Construction

 

When the four Construction industry groups are combined, their share of total imports in 2022-23 was 17.2%. This makes Construction by far the largest importing industry in Australia.

 

 

Table 1. Imports by Construction industry groups 2022-23

 

In 2022-23 the industry group that had the largest share of total imports was Construction services, at 9.6% it had more than twice the share of the next largest industry group of Road transport’s 3.7%, and three times the share of total imports of many other product groups. 

 

 

 

Table 2. Imports by industry groups 2022-23

 

 

 

Construction has very large shares of some product imports. In particular, for Sawmill and Other wood products the shares are 80 and 90% respectively. For Ceramic products, the Construction share  is 91%. There are several other product groups where Construction is 40 to 50% of imports, such as Iron and steel, Structural and Fabricated metal products, and Electrical equipment. There is a very high import share of 73% for Domestic appliances.

 

Table 3. Major products imported by Construction 2022-23

 

 

Comparison of 2022-23 Import Shares with 2012-13

 

Comparing the share of imports over time is difficult because the input-output tables are in current dollars and not adjusted for inflation. An accurate estimate requires not just local prices each year for each product, but also global prices for traded products and their cost in Australia including customs, insurance and freight. This data is not readily available. There are, however, a couple of measures that can be used

 

Each year the ABS calculates a figure for Primary input content per $100 of final use by industry. Primary inputs are Imports, Compensation of employees, taxes and subsidies, and Gross operating surplus. Final use is the total demand for a product. This estimate includes the initial increase plus the direct and indirect effects of an increase in an industry’s output as demand increases. Because it includes these second and third round multiplier effects it is not a measure of industry output.

 

It does, however, allow a comparison between years of the role of imports in Construction for the four industry groups, and since 2012-13 there has been an increase for all groups. Table 4 shows Non-residential building has had the largest increase of 4.5% since 2012-13. As an aside, in 2022-23, the average of the four Construction industry groups in Table 4 is 18.2%, close to Construction’s 17.2% share of total imports in Table 1.

 

Table 4. Import content of final use in Construction

 

 

Another approach is to use the share of imports in Total intermediate use of products, which is the value of imports as a percent of the value of products produced in Australia and used in Construction.  This is in Table 5, which shows the same trend as table 4, with increases in the import share for the four Construction industry groups, although in this case the largest increase is in Residential building. For Total construction the increase of 2% is equivalent to a 20% increase in imports.

 

Table 5. Imports percent of Australia products used in Construction

 

 

Figure 1. Imports Used in Construction

 

 

 

The increases in imports by the Construction industry groups in Tables 4 and 5 are reflected in the increases in the Construction share of imports of most of the major product groups, in Table 6. This generally reflects the decline of Australian manufacturing, as with Electrical equipment and Domestic appliances, but the increased imports of Sawmill and Wood products is due to demand outstripping local supply. Since 2012-13 there have been some declines, in Petroleum and coal products and Structural metal products for example, but for the majority of products there were increases.

 

Table 6. Major products, percent imported by Construction

 

 

 

Sawn Softwood Imports

 

A 2022 report for Forest and Wood Products Australia, an industry association, was on the Future Market Dynamics and Potential Impacts on Australian Timber Imports.  The report focused on the demand for sawn softwood timber and the challenges in meeting that demand. There is some data on imports and forecasts out to 2050 for demand, local supply and imported timber products. Demand for sawn softwood is primarily driven by the Australian housing industry. In 2002, the proportion of locally produced sawn softwood used for framing and structural purposes in Australian houses was 66.2%, but in 2021 the proportion had fallen to 50.4%. Sawn softwood production peaked at 3.746 million m3 in 2017-18, before the 2019 bushfires affected output.

 

The report argues global sawn softwood production has increased at 1.06% per year over the last 25 years and per capita production of sawn softwood has been falling. There is international competition for timber resources, limiting availability for Australian imports. In 2020-21, local production was 3.619 million m³ while demand was 4.566 million m³, and the gap between sawn softwood demand and local production is expected to widen because local sawn softwood annual production is static at 3.6 to 3.8 million m³. ​

 

Figure 2. Timber imports 2005-2021

 

 

The existing softwood plantation estate has not expanded significantly since the early 1990s, and was 1.028 million hectares in 2020. Projected average annual demand for sawn softwood from 2046 to 2050 is 6.5 million m³, with local production limited to 3.6 to 3.8 million m³ the projected gap is 2.6 million m³ by 2050, or 40.5% of total demand. 

 

The report finds Australia's timber imports would need to triple to meet the implied gap. However, global production and imports have been declining, making it unlikely they can fully meet Australian demand in the future, because there will be a significant increase by 2050 due to population growth. Up to 468,000 more hectares of softwood plantations would be needed to meet that demand.

 

 

Figure 3. Sawn Softwood Demand, Local Production and Implied Gap 2021–2050

 

Conclusion

 

It is not widely recognised that, of all Australian industries, Construction is by far the largest importer of products. Combining the four Construction industry groups of Residential building (3.3%), Non-residential building (2.3%), Heavy and civil engineering (2.1%) and Construction services (9.6%), Total Construction imports were 17.2% of total imports by value in 2022-23. The industry group with the largest share of products imported into Australia is Construction services, at 9.6% of total imports it is more than twice the second largest Road transport, with 3.7%.

 

Construction has very large shares of some product imports. For Sawmill and Other wood products the shares are 80 and 90% respectively, for Ceramic products, the share  is 91%, and for Domestic appliances imports are 73% of the value of products used.

 

The ABS calculates the import share for Construction of Primary inputs per $100 of final use by industry group. For Residential building this was 19.7%, for Non-residential building 20.2%, for Heavy and civil engineering 14.4% and for Construction services 18.5%. Since 2012-13 the import share of final inputs has increased by 4.5% for Non-residential building and by 1 to 2% for the other groups.

 

Another estimate is the share of imports in Total intermediate use of products, which is the value of imports as a percent of the value of products produced in Australia and used in Construction.  This has the same trend since 2012-13 as Primary inputs per $100, with increases in the import share for the four Construction industry groups, although in this case the largest increase was 3% in Residential building. For Total construction the increase of 2% is equivalent to a 20% increase in imports.

 

The significant role of imported products in Australian construction is not widely recognised, and has not been included in any of the recent reports on the industry. There could be two reasons for this lack of attention. The first is simple acceptance that manufacturing in Australia is too expensive, and lower cost imports have won market share. Closely allied to that is the idea of lack of scale, because the domestic market is too small to support globally competitive factories. There are other contributing factors like energy costs, which could be among the lowest in the world if most of our natural gas was available to local industry instead of being exported by foreign multinationals, or if sufficient solar energy had been built over the last decade. 

 

A second reason could be reluctance to highlight the lack of investment in capacity by Australian business and fund managers. This is most obvious in softwood plantations, where despite growing demand, the area planted in 2020 was the same as in 2000, while imports of sawn softwood used for framing and structural purposes have increased to over 50% of demand. A report for Forest and Wood Products Australia finds Australia's imports of sawn softwood would need to triple to 2.062 million m³ a year to meet projected demand. However, global production has been declining, making it unlikely imports can meet that demand.

 

The decline in Australian manufacturing is reflected in the increase in imported products used in Construction. While there are many reasons for this decline, fundamentally it is because of the strength of the Australian dollar from the high value of mining and resource exports. This is known as ‘Dutch disease’, after the hollowing out of Dutch manufacturing and agriculture after the 1959 discovery of the North Sea oil and gas fields led to an increase in gas exports that boosted the currency and made other exports uncompetitive. This has been the experience of Australia over the last couple of decades, as the boom in iron ore, coal and gas exports has reduced the competitiveness of other exports and import-competing industries.

 

 

 

 

Sources of Products Used in Australian Construction

Changes in product shares suggest an increase in prefabrication

 

The Australian Bureau of Statistics publishes a set of supply-use tables every year. These are the ‘building blocks’ of gross domestic product, measured as gross value added for all industries [1]. National accounts estimates are benchmarked to the supply-use tables to maintain consistency within the system from year to year. Although the data goes back to 1994-95, the first publication of supply-use tables by the ABS was for 2016-17. 

The ABS explains the supply table shows the total supply of products from domestic and foreign producers, and the use table the amount of a product purchased by each industry as an intermediate input into the industry’s production process. These products are valued at purchasers’ prices, meaning that taxes, transport costs, and wholesale and retail trade margins are included in the total. A row in the table represents a product group and a column represents an industry group. 

There are 68 industry groups. Construction is divided into four industry groups: Residential building, Non-residential building, Heavy and civil engineering, and Construction services (the trades). There are 115 product groups, however, many have little or no use by construction. Because many product are used, no single group has a significant share of the total, with the exception of Construction services. Examples of product groups with zero use are Aircraft manufacturing, Water and Gas supply, Education, Library, and Social care services. Examples of very low use (under 1% of the total) are Dairy products, Wholesale and Retail trade, Sports, and Personal services. 

 The data in this post is from the use table. It first breaks down the shares of each of the Construction industry groups in total Construction and then their share of use of Construction services. This within industry supply is explained. The post next identifies the seven major product groups currently used in construction, using the most recent data for 2022-23, and details the major product groups in manufacturing and services. In these tables the four industry groups have been combined to get shares of total use of products by Construction. 

The post then looks at changes in the use of products, comparing the 2016-17, 2019-20 and 2022-23 data. Use table values are in current dollars, and the historical data is not adjusted for inflation. Therefore, the analysis uses the percentage shares of the industry and product groups in total construction, rather than the dollar values.

Structure of the Construction Industry

Table 1 shows the total use of products by the four industry groups, with Construction services accounting for 51% of the total value of products used. These shares are broadly in line with the shares of work done in 2022-23. 

Table 1. Value of use of products by Construction industry groups 2022-23

However, Construction services is also the largest single source of products for all Construction industry groups, because Construction services provide many intermediate inputs to a large number of tasks and processes, and the value of that input includes the wages and salaries of more than three quarters of a million workers employed in Construction services. As Table 2 shows, Construction services supplied 41% of the products used in construction, and between 35 and 50% of all intermediate inputs, including 41% to itself.  

Table 2. Construction services share of products used 2022-23

Intermediate Supply of Inputs in Construction

 Many industries are not just end producers but also consumers of their own output. In a supply-use table, when an industry supplies products to itself some of its output is being used internally, within the industry, as an intermediate input to produce more goods or services. This is easy to see with vertical integration, where different stages of production occur within the same firm, for example a steel manufacturer produces raw steel and uses it to make finished steel products, or a chemicals manufacturer uses its own basic products to make more complex ones [2]. 

In construction, a contractor may do demolition, steel fabrication or precast concrete inhouse, or directly employ trades like carpenters, electricians or form workers. Many large firms use a hybrid model, self-performing selected core tasks while subcontracting specialised work. Contractors will often supply many of the materials and components used in a project, even if placed or fixed by a subcontractor, and the value of those items is included in their industry group not Construction services. 

Subcontractors self-supply when they provide their own materials, tools, equipment, and expertise rather than relying on the head contractor. For example, a plumbing subcontractor can bring their own pipes, fittings, and fixtures, or a tiling subcontractor can supply tiles, grout, and adhesives. Subcontractors can use their own machinery and tools, and they self-supply skilled labour. Sometimes they provide design-build services like HVAC systems, custom cabinetry or engineered steel framing.

 The stages of a construction project are all intermediate inputs, from site preparation through structural work and concreting, followed by trades like electrical, plumbing, HVAC, roofing, and painting. Thus there is a large element of self-supply in construction, because contractors supply many of the materials and equipment used and the widespread use of subcontracting and pyramid contracting for specialised trades. This is why Construction services supply 41% of the services and products used within construction. 

 Current Data for 2022-23

 The seven largest categories of products and services used by the construction industry totalled $115.3 billion in value in 2022-23, over a quarter of total use value. These were: 

• Professional, scientific and technical Services, with $33 billion;
• Manufactured wood products (including sawmill products) with $22.4 billion;
• Structural metal products was third at $16.2 billion;
• Iron and steel manufacturing was $13.7 billion;
• Polymer products were $12.4 billion ;
• Electrical equipment was $11.6 billion; and
• Cement/lime/ready-mixed concrete was $11.4 billion 

The following tables have the percent share of product groups that accounted for over 45% of construction’s total use of products in that year. Adding Construction services share of 41%, this is over 85% of the goods and services used in construction. To get a clearer perspective of the importance of the products used in construction, the following tables have two columns, one showing product shares of total construction and the other their shares of the total when Construction services 41% share is excluded. 

Manufactured Inputs

Manufacturing product groups add up to 32% of the total, excluding food and beverages. Table 3 has the major manufacturing product groups supplying 1% or more to Construction, accounting for over 27% of the total and 45% of the adjusted total. After Construction services, these twelve manufacturing products make up the largest group of inputs to construction. 

Table 3. Manufacturing product groups with 1% or more use in total Construction

Services Inputs

 Table 4 has the eleven major service product groups. These contribute nearly 19% of the total, or 32% excluding Construction services. Finance includes banks, Regulatory services include regulation, licensing and inspection activities, Rental and Hiring Services (except Real Estate) includes motor vehicles and transport equipment, and hiring, leasing or renting heavy machinery and scaffolding without operators [3]. Computer systems design and related services is included in the table to emphasise the low level of expenditure on these services. Also of note is the high value and share of Public administration and regulatory services. 

Table 4. Service product groups

Industry Input Shares Since 2017

 Data from the three use tables for 2016-17, 2019-20 and 2022-23 are compared. Table 5 has the industry group shares of total construction in those years.

Table 5. Share of Construction industry groups in total

Table 6 has the share of Construction services in the inputs to the industry groups. This shows a gradual change in the structure of the industry, as the share of Construction services in total Construction declined by 2.7% between 2016-17 and 2022-23.

Table 6. Construction services share of products in Industry groups

 The share in total Construction of the major manufacturing product groups increased by 1.4% between 2016-17. However, as table 7 shows, there were some manufacturing products with a decreased share, like Cement, Plaster and Other wood products, some were stable, like Petroleum and coal and Polymer products, while the others like Sawmill products and Electrical equipment had increases. The big changes in shares were increases in Iron and steel, Structural metal and Other fabricated metal products, which strongly suggests there has been an increase in prefabrication and offsite manufacturing in construction. 

 Table 7. Manufacturing product groups percent of total construction

The was also an increase in the share of the eleven major services product groups. Again, there is a mixture, with decreases in Finance, Public administration and regulation and Non-residential property services and rental and hiring, some unchanged like Auxiliary finance and insurance and Computer systems design, and some with increases like Professional, scientific and technical services, Building cleaning, pest control other support, and Automotive repair and maintenance. 

 Table 8. Services product groups percent of total construction

Between 2016-17 and 2922-23 there was a decline in Construction services’ share of products used, from 44.1% to 41.4%, matched by a similar small and gradual increase in the shares of the major manufactured products from 25.8% to 27.3% and of services products from 18.3% to 18.9%. Although these shifts of one or two percent are too small to indicate serious structural change, they do suggest the industry is continuing to evolve and substitute offsite manufacture and design work for some of the onsite work done by subcontractors. 

Figure 1. Changes in product groups used in Construction

Source: ABS 5217, Table 2. 

 

Conclusion

The supply-use tables from the ABS provide granular detail on the flow of goods and services between industries. The use table shows the amount of a product purchased by each industry as an intermediate input into the industry’s production process. There are 68 industry groups and 115 product groups in the table. The most recent data is for 2022-23. Construction is divided into four product groups and four industry groups.

The shares of the four Construction industry groups in the $444bn total of products used by Construction in 2022-23 was: Residential building 21%, Non-residential building 20%, Heavy and civil engineering 10%, and Construction services (the trades) 50%. A distinctive feature of Construction is the within industry supply of 41% of products used from Construction services. When an industry supplies products to itself, some of its output is being used as an intermediate input to produce more goods or services. 

 Contractors will often supply many of the materials and components used in a project, even if placed or fixed by a subcontractor, and the value of those items is included in their industry group not Construction services. Subcontractors self-supply when they provide their own materials, tools, equipment, and expertise rather than relying on the head contractor. Therefore, there is a large element of self-supply in construction, because contractors supply many of the materials and equipment used and the extent of subcontracting.

In this analysis the four industry groups have been combined to get shares of total use of products by construction. After Construction services, the seven major product groups currently used in construction accounted for another 26% of all products. The largest product or service used was Professional, scientific and technical services ($33bn), followed by Wood products ($22bn), Structural metal ($16bn) and Iron and steel products ($14bn).  The other three were Polymer products, Electrical equipment and Cement/lime/ready-mixed concrete, all around $12bn. These seven largest categories accounted for accounted for 26% of total inputs to construction activity. 

More broadly, the twelve major manufactured product groups were 27.2% of all use, and the eleven major service product groups were 18.9% of all products used. Looking at changes in the percentage shares of product groups in total construction, comparing the 2016-17, 2019-20 and 2022-23 use tables, there was a decline in Construction services’ share of products used, from 44.1% to 41.4%, matched by small increases in the shares of the major manufactured and services products, from 25.8% to 27.3% and from 18.3% to 18.9% respectively. 

 The big changes in product shares between 2016-17 and 2022-23 were increases in Professional, scientific and technical services, Iron and steel, Structural metal and Other fabricated metal products. These changes in product shares strongly suggest there has been an increase in prefabrication and the industry is continuing to substitute offsite manufacture and design work for onsite work done by subcontractors.

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 [1] This is the production approach to measuring GDP, as the sum of gross value added by all  industries. This is the difference between an industry’s cost of inputs and its value of output. The supply-use tables align the income, expenditure and production approaches used to measure GDP.  

[2] Measuring industry self-supply accurately is important for understanding productivity, cost structures, and value-added in the national accounts.

 [3] These definitions are from the Australian and New Zealand Standard Industrial Classification (ANZSIC). 

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