Resources industry still powering the economy
Resources is to the Australian economy what the baggy green is to Australian sport: totemic; iconic; indispensable to our national story and synonymous with our national identity.
But frankly it goes beyond that. The Australian resources sector has helped lift millions of people out of poverty and improved the lives of many more. It is essential for infrastructure and economic development, and enhances Australia’s strategic importance throughout the world.
This is not lofty rhetoric but observable fact, over a long period. The case for maintaining a strong and vibrant resources sector is as compelling today as it has ever been.
By tracing the history of mining and energy development in this country one can see how we turned from a series of struggling, underpopulated colonies in the early 19th century to a prosperous, cohesive commonwealth that has continued to navigate its way successfully through choppy international economic waters in this century and the last.
But the success of the resources sector must not be seen simply as a historical footnote; rather it is a living, breathing modern success story, driving the economy forward even at times of market turmoil and lower commodity prices.
Never was this better illustrated than during the global financial crisis. Business investment in Australia grew 5 per cent between 2007 and 2009 as the GFC unfolded. This compares with a fall of almost 17 per cent in Britain and a fall of more than 11 per cent in the US as both countries plunged into deep recessions.
The growth in Australian business investment was fuelled largely by a lower exchange rate and demand from China. Preparedness met opportunity at this critical juncture.
Today the resources sector, in which I include energy as well as minerals, represents more than 10 per cent of gross domestic product and employs more than 300,000 Australians.
As a sector it has the largest proportion of indigenous employees in the nation, pays the highest wages and employs large numbers of skilled workers such as engineers, geologists and surveyors and young apprentices.
The taxes and royalties that subsequently have been paid by the resources industry are simply enormous. In the decade to 2014-15, the Minerals Council estimates the sector paid about $165 billion in taxes. This is more than annual public health spending and more than what is spent on education, including schools and universities.
This revenue flow is just part of the economic dividend that comes from being the No 1 exporter of iron ore, the No 1 exporter of coal, the No 1 exporter by 2020 of liquefied natural gas, having the largest known reserves of uranium, and being in the top five for deposits of copper, gold, bauxite, lead, zinc, nickel and lithium.
We are truly a global powerhouse when it comes to the resources sector.
But now we have reached the end of a decade-long super-cycle in which record prices were fuelled by record demand.
We are seeing more normalised, cyclical patterns of demand, particularly in China, as its economic growth moves from double digits to settle around 6-7 per cent and its economy transitions from investment to consumption and a greater focus on services.
But to paraphrase Mark Twain, the rumours of the death of Australia’s resource sector are greatly exaggerated. International demand for Australian resources remains strong, our companies remain resilient and the depreciation of our dollar has acted as “an automatic stabiliser”, increasing our competitiveness.
The reality is that over the decades ahead hundreds of billions of dollars will flow to Australia as demand and supply increase.
A good illustration is Australia’s export earnings from coal and iron ore between 2011-12 and 2014-15. Despite price falls of between 43 per cent and 57 per cent, export earnings from these commodities fell only 16 per cent. This reflects the lower dollar and a 30 per cent increase in coal export volumes and a 60 per cent increase in iron ore export volumes.
When it comes to LNG, there is an even more powerful story to tell. Export earnings between 2011-12 and 2014-15 have increased by more than 40 per cent and, driven by increased volumes and a lower dollar, export earnings are expected to almost triple to $49bn by 2019-20.
The Chinese economy also continues to grow: 6.8 per cent annualised growth in 2015 is equivalent to 14.2 per cent annualised growth in 2007.
It emphasises how important it is to avoid drawing conclusions from simplistic comparisons of annualised growth rates.
But the China story is not the only game in town. Economic growth in India as well as in Southeast Asia is driving increased demand for Australia’s resource exports. In 2015, India’s economy grew by 7.4 per cent and there is an expectation of growth of 6.5 per cent a year from now to 2020. On the numbers the Indian economy will be five times bigger in 2040 than it is today and, as a result, demand for coal, gas, iron ore and renewables is taking off.
There will be significant demand for our energy and minerals going forward and this forms the basis for long-term optimism for our resources sector.
It’s the consequence of simple arithmetic. Between 2010 and 2030 there will be a 23 per cent increase in the world’s population, the world’s urban population will increase by 42 per cent and the world’s middle class by more than 100 per cent, all of which fuels demand for hard commodities.
Josh Frydenberg is the federal member for Kooyong and the Minister for Resources, Energy and Northern Australia. This is an excerpt of his address to the National Press Club yesterday, published in The Australian newspaper on 17 February 2016.