This article was first published in the 2013 edition of WA Mining Club‘s Minesite, an annual collection of the club’s activities as well as those of its members. Ron is an active participant of WA Mining Club and never misses an opportunity to pen a few words.
If Western Australia was a separate country, it would rank among the world’s top 40 economies measured by GDP, roughly equivalent to Egypt, Portugal or Israel. As Chairman of the Mannkal Economic Education Foundation, Ron Manners has regularly voiced his concern that WA will never attain its true potential unless it overcomes the four ‘diseases’ infecting the resources sector: overbearing governments, weak management, rampant labor unions and environmental extremists.
Here, in his characteristically wry style, Ron teases out the deeper issues underlying the seemingly simple question – has Australia’s mining prosperity really hit the skids? Despite obvious apprehensions, Ron believes opportunities will continue for those prepared to adjust and willing to learn to enjoy constant change. Illustrating his piece with astonishing contrasts between Australia’s approach to development and that of China, Ron’s article concludes that the secret to success for participants in today’s resources industry id to the adaptable and flexible.
Many people have asked the question: “Is this the end of Australia’s mining boom?” In my opinion, almost certainly the peak of the capital expenditure (CAPEX) boom is over – but the boom for the restructuring and productivity experts is about to begin.
In July 2013 the Grattan Institute released a 53-page report titled The Mining Boom: Impacts and Prospects. The report can be summarized as follows:
- This has been the biggest mining boom in Australia’s history (the 1850s gold rush comes close). We have seen a $400 billion investment in the past 10 years, but that has dropped off, as have our mineral exports, our national income and government revenue.
- Overall, this boom has been good for all Australians.
- The major concern is that the benefits of the boom have not been saved and that concern is justified.
I have been through some interesting booms and busts, a phenomenon which Australia seems to repeat regularly. My first was in 1962 and it is interesting to compare the similarities and the subtle differences between each vigorous cycle.
Each downturn or bust teaches us the same easily forgotten lessons. Our boom and bust cycles are exaggerated in Australia because we have never developed the art of having a broad front of industries which all perform well at the same time. If one is a ‘star’, as has been the case with our resource industry over the past 10 years, everyone tries to climb on board and, predictably, sinks the ship.
The political catch-cry for the past 10 years has been ‘sharing’ the benefits of the mining boom, rather than ‘earning’ a share of the mining boom.
I have been fascinated by Australia’s habitual boom and bust culture and have written a book called Heroic Misadventures. When I started the book, it was intended to be about my own turbulent business experiences, but halfway through writing it I realized it was more about Australia’s experience than my own.
The book covers the period from the early 1970s when Australia had just emerged from what was called the nickel boom, where in the game almost everyone was a millionaire. Once the nickel boom fell over – it was like the tide having gone out leaving all the boats stranded on the beach.
This is being repeated right before our eyes now; having come through this remarkable 150-year event in Australia, as detailed in the Grattan Institute report, the tide is proceeding to go out. As Warren Buffet says: “It’s only when the tide goes out you can see who is swimming naked”.
Previously there has been a single major cause for a boom’s demise, but this time it seems that there is a whole orchestra of enemies working against Australia’s mining industry., which although it has not quite killed the industry altogether, has changed the shape and the direction of investment in the industry. There are some sobering messages in this downturn for Australia.
Australia and China are both currently confronted with a downturn, but the attitudes of each country’s government stand in stark contrast to one another. You might think we that we lived on different planets.
On getting into this tight spot, the two countries have travelled different roads. China’s government usually has an eye to prioritizing expenditure on projects that stand a chance of generating benefits which exceed the real cost of debt, whereas Australia’s government rarely thinks beyond ‘buying votes’ at the next election.
Let me give you two start examples of both governments’ attitudes to new private projects. Kim Williams, former CEO of News Ltd, used this example in his address to the Business Leaders Forum in Perth in June 2013:
“I am currently chair of the Business Council of Australia’s deregulation taskforce. Some of the examples of compliance costs on mining companies almost drain you of the will to live. I was shocked to learn that a mining company in Queensland submitted a document that was 46,000 pages long to meet the Commonwealth and state regulatory obligation. Fourth-six thousand pages long! It’s preposterous.
I guarantee you that no one has read the whole thing other than perhaps the company’s lawyers and compliance people. Frankly, all of us, as people and companies, only have so much energy. I am not saying for a moment that there is no place for regulation, but it needs to be judiciously applied and be applied with a clear eye to its costs.”
It is enough to make you weep for Australia’s prospects of ever achieving her true potential.
Now contrast this with China’s attitude to deregulatory legislation. Pro-development headlines are a daily occurrence in China and are put clearly and unambiguously. One example comes from the National Business Daily (August 2013):
Cabinet to reduce red tape
The State Council, China’s cabinet, on May 16 issued a document to abolish central government administrative approvals on 117 items. The document made 104 of the items public, while the other 13 remained undisclosed on the grounds of national security. The listed items cover projects such as investment in civil airports and urban transportation projects. The cabinet said such projects will no longer need government approval or will only require review from lower-level authorities.
“The move is part of the government’s reform plan to reduce government bureaucracy and regulatory overhang. But some experts expressed concern that easing government controls could lead to an investment boom.”
To return to the question: “Is the Australian mining boom over?” The days of companies outlaying large capital expenditure are over – we are moving into a period of restructuring and increased productivity. As the construction teams move out, they will be replaced by the thousands of operators and contractors whose challenge will be to bring profitability to the over-budget projects in an effort to pacify angry shareholders who are starting to demand dividends.
Booms and busts offer great opportunities, and in today’s ‘bust’, there are some remarkable bargains around for those with cash and who are patient enough to sit out a five-year cycle. The secret to success for the immediate future is survival through flexibility.