WEST AUSTRALIA: BUSINESS HUB IN THE TWENTY FIRST CENTURY?
Mrs GINA RINEHART
CHAIRMAN HANCOCK PROSPECTING GROUP
Distinguished guests and friends.
Today I intend to outline very briefly, as excellent speakers before me have also given their views on this, our current economic situation, speak about the challenges facing us as a nation and also mention the opportunity before us to transform ourselves into a growing business hub for this century, should we so choose that path.
In terms of the near term outlook, Australia’s resource industry and its related industries are poised to continue to underpin our economic prosperity. From our nation’s perspective, West Australia has clearly been the leader in this regard.
On the one hand, recent strong commodity prices and increasing demand from overseas markets, particularly in Asia, have driven Australia’s terms of trade to record levels.
Further, Australia was famously termed “the lucky country” in 1964 by sociologist Donald Horne and has been routinely rated in international surveys as a world leader in liveability, political stability and other social measures. In short, it is great to live in Australia! Our economy has been underpinned by resources and related industries, and other primary industries. In an economic context this has given Australia a good base from which to launch into the 21st century and for West Australia to act as a growing business hub for the AsiaPacific region in particular, should it so choose.
The resources industry has been proven to be pivotal in attracting investment and business to Australia.
The economic rise of China and India has arguably been the greatest boom to Australia since iron ore was discovered in North West Australia in the mid twentieth century by my father, Lang Hancock. In years since then, this has led to strong growth in trade links with our neighbouring countries and last year more than half of Australia’s trade was conducted within the Asia Pacific region.
In addition to the incredible growth of the resources and related industries, Australia has a growing services industry.
The growth in services may increase regionally given the growthof the Asian and Indian economies. What might have been known in the eighteenth, nineteenth and twentieth centuries as the ‘tyranny of distance’ may now, in the twenty first century be referred to as the ‘advantage of proximity’.
Geographic advantages are of course limited without the requisite infrastructure and ability to provide the goods or perform the services required on a competitive cost basis. A bright future is not a foregone conclusion, and the advantages we currently enjoy are tempered by challenges that will test our capacity to deliver goods and services competitively. So let’s get down to it and look at this “other hand” because the other hand cannot be ignored if we wish a bright economic future for Australia, and if we wish West Australia to earn a position as a business hub in the 21st Century.
As Hugh Morgan mentioned at the Forum yesterday, one of the issues that need to be tackled is the cost, risk and time lost on approvals, permits and licences before revenue can be earned, has very greatly increased in Australia, making it almost impossible for small companies to carry and comply with such burdens.
To open a new mine, build a rail and largely a new port, it takes 3104 permits and approvals. It could be more, that’s what we have identified to date. Last year we said about 1500 permits and approvals but unfortunately we’ve found even more! This burden is simply too great for small and even medium companies and must be drastically reduced if we wish to be a business hub.
Further, any discussion on WA becoming a business hub of the 21st century can’t ignore thecurrent Australian government’s introduction of a carbon tax, given Australia’s already very high costs by world standards. Firstly, this creates uncertainty at a time when Australia needs to provide certainty to investors and in a period where there is very considerable economic and financial uncertainty in both Europe and the USA, which will impact much of the world.
Ernst and Young for instance, whilst stopping short of making a statement on the merits of tax, has conceded that it has confused foreign investors.
Ratings agencies Moody’s andStandard and Poor’s also concluded that business ratings were likely to be impacted in the medium to long terms across all sectors.
The second major concern is that the carbon tax is a tax which other countries competing with Australia, do not have to bear to such a high extent which makes Australian commodities, products and even some services less competitive in terms of pricing, and reduces investor confidence that Australian industry can compete. The estimated cost of introducing the carbon tax varies in terms of jobs lost or not created, however, the prevailing view, confirmed by multiple analysts throughout Asia and Europe is that the carbon tax, and later, the emissions trading scheme will diminish Australia’s attractiveness to foreign investment and encourage companies to move investment and projects offshore Australia. Which is happening.
Another major challenge to attracting foreign investment is what analysts Ernst and Young, in a recent report have labelled ‘resources nationalism’ – or in the Australian context the Minerals Resource Rent Tax, MRRT. This will have the flow on effect of discouraging companies to invest in exploration for minerals, currently iron ore and coal. Ernst and Young rated ‘resource nationalism’ as the single biggest risk to business within the mining industry, it too damages investor confidence and renders formerly attractive and value adding projects less viable.
Even in this state of West Australia, the leading resources state, we have seen overall meterage in exploration drilling drop to pre-mineral boom levels. Without exploration our mining industry cannot expand and as my father used to say, “Minerals are not like crops of wheat or wool that grow every year. You have got to find more each year and more each decade if Australia’s standards of living are to continue”. We need policies which attract such investment.
Another major challenge facing Australia is the declining level of relative productivity.
Australia’s productivity has been in decline for many years and has recently reached levels where the World Trade Organisation warned Australia against complacency.
Adding to this is the reluctance of workers to travel to our hot and remote north to work, away from their families, friends, and city conveniences. Shortage of labour has become a real risk for projects, especially those in our north. Australia needs to open its doors to those wanting work on a short term visiting worker basis. This would be a win win win, a win for visiting workers who have difficulty in supporting their families overseas, a win for Australia given the assets and businesses are then able to be built in Australia and Australia can benefit from these for decades ahead, and a win for the companies who otherwise may think the decision to invest in Australia is too risky and they must invest offshore Australia instead.
Hence creating businesses and jobs offshore Australia and West Australia instead.
Complacency and unsuitable government policy not in touch with the critical fact that Australia needs to be cost competitive in a changing world, has the capacity to undo much of the hard work and natural advantages that Australia and West Australia enjoy.
The multitudinous approvals, permits and compliance with same, carbon and mining taxes are prime examples of government limiting Australia’s ability to remain cost competitive without regard to Australia’s need to be cost competitive and hence without adequate regard for Australia’s and West Australia’s future. The indication as to the “merit” of the carbon and mining taxes resides in their poor reception by Australian and overseas investors and the misgivings of leading analysts and ratings agencies and the reduction of investment in exploration in Australia. Much has been said by the Opposition, the Coalition, against these new taxes including for instance quoting from recent media August 17, 2011,
The Coalition brought to Australia’s attention a survey of accountants, which “showed 70 per cent believed small business would be negatively” impacted by a carbon tax.
The Institute of Public Accountants survey showed 63 per cent of accountants believe that small business will not be adequately compensated by the government once the carbon tax is introduced.”
63% of small businesses. This is not a boost to West Australia being a leading business hub.
The biggest cause for optimism is that the most severe threats to Australia’s and West Australia’s capacity to act as a business hub over the next century, are self-imposed and therefore should be under our control, should we so choose, to rectify. If we choose to face up to the reality that Australia needs to be costs competitive in this world and not be mesmerized by our current good fortune with strong commodity prices, a good fortune that will not last, and avoid imposing anti-business taxation measures and policies which destroy Australia’s international competitiveness, and continue to invest in appropriate infrastructure then Australia and West Australia may serve as a business hub long into the future.
How do we do this? To ask any federal government to rectify the self-imposed problems Australia wide during only 1 term of office, when Australia is now additionally burdened with massive debt, is an enormous task. A very difficult task – May we show the debt slide please?
This slide doesn’t show the increased debt position should national broadband be implemented, a further $50 billion or more of debt or state debt.
What we should do initially is start long term Special Economic Zones in our north welcoming to investment and with policies conducive to opening and developing successful businesses, to enable more opportunity for exciting vision and development, with low taxation for those Australians who want to work and live in our north.
Hopefully we will listen to the important messages the leaders of Africa and other countries are conveying at this Forum and successfully at other venues and realise we are living in a changing world and should stir ourselves out of our current good fortune complacency.
Countries in Africa are telling the world and the world is listening “we are open for business”! These African countries want investment, and businesses and jobs for their peoples. They encourage investment, which enables the creation of businesses and jobs and wealth for their people. They are not telling us we will be facing if we invest in their countries – 3104 or more permits and approvals to start new mining projects with new valuable infrastructure, compliance costs, carbon taxes, MRRT and the great risk of a shortage of labour. And hundreds of West Australian companies are listening, thinking and consequently moving their dollars offshore Australia.
Australia needs to encourage our business leaders and world business leaders to believe in Australia and its future. We need to realise the world is changing and won’t delay to suit Australia. We need to and can transform ourselves, we need to keep cost competitive, we need to implement special economic zones, to welcome investment, businesses and people, if we wish West Australia to be a business hub in the twenty first century.