The Australian Financial Review
24 August 2012
By Tony Shepherd
President, Business Council of Australia
We have seen a number of announcements this week about scaling back or deferring investment in major mining and capital projects.
While we should not jump to any hasty conclusions about the fate of the resources boom, these events highlight that we cannot take investment in the resource sector for granted.
Australia must take steps now to lock in a future investment pipeline by increasing our competitiveness, encouraging skills development and building economic infrastructure.
Since the great gold rush, Australia’s wealth of natural resources has helped to build an economically resilient and prosperous nation. Many of us take for granted our position as a formidable player in the global resources market and the enormous contribution that our resource industry has made to our quality of life and prosperity. In 2011, iron ore accounted for about 24 per cent of Australia’s total exports – in dollar terms $64.2 billion. Almost all, or $62.8 billion, of that revenue was generated in the Pilbara, one of the world’s leading iron ore regions.
Last month I visited two of Fortescue Metals Group’s mines. I was interested in the challenges and opportunities we face as a nation, including some of the key issues we are working on at the Business Council such as infrastructure investment, the supply of skilled labour, productivity, regulation, international trade and indigenous participation.
The first thing that strikes any visitor to the Pilbara is the sheer scale and complexity of construction and mining operations in a harsh and remote environment.
The community benefits heavily from the taxes they pay, the employment they generate and the influence they bring to bear at the international trade level.
All Australians are sharing directly or indirectly in the wealth generation created by the resources sector and the secondary and tertiary industries that support it.
What is often forgotten or not fully understood is the significant risk taken on by the owners, investors and financiers in these mega projects, which are key contributors to the national economy. Tax and other policies should act to promote, rather than deter, the investment required to establish and expand these projects.
The flawed process that led to the poorly designed mining tax is an example of how not to do tax reform, as it undermined confidence in Australia as an investment destination. Excessive layers of environmental regulation continue to cause delays in the development of major projects and affect their ability to bring products to market.
The Business Council is working with the commonwealth and the states, through the Council of Australian Governments process, to streamline approvals and reduce double handling. There is also strong evidence of investment in future productivity in the sector, with a focus on training and preferential employment of Australian rather than overseas workers for both operations and construction. More skilled workers from the eastern states are also taking the opportunity to work in Western Australia.
Another important aspect of increasing productivity is the level of innovation and preparedness to innovate, for example the use of surface miners rather than the conventional drill and blast method of mining. This both improves yield and reduces the impact on the environment
The Pilbara also provides an example of how Australian employers can engage traditional indigenous owners. For example, Fortescue has established dedicated Vocational Training and Employment Centres (VTECs) in Port Hedland and Roebourne.
VTECs provide skills training and medical and other assistance to Aboriginal people to prepare them for jobs guaranteed by Fortescue and its contractors. VTECs operate with the support of the West Australian and federal governments, and have delivered strong results for Aboriginal people.
Rio Tinto and BHP Billiton also have extensive programs for indigenous participation.
The resources industry is the single largest contributor to our export revenue. The benefits of mega projects extend throughout the national economy through training and employment of many thousands of people, and the involvement of Australian businesses in supply and support industries.
We need to ensure that our policies at the federal and state levels reflect an understanding of the scale and the risk that our resources companies and their investors are undertaking, so we can all continue to enjoy the benefits.