The Year of Change

Some of our Gen Y readers probably don’t know of the Leyland Brothers (you’ll have to google it guys), but at NPR, this year has seen us experiencing extensive travel across Queensland. We have always prided ourselves as being a business that does not rely solely on desk top research.  We wear out boot leather, car tyres and frequent flyer cards.  In our travels we get to see what is spruiked or simply negative media hype.  Often the reality falls somewhere in between.

As the press shifts its focus from one bad news story to the next, it is with a degree of scepticism that we note that the resource boom is already in a bust position.  Without question the resource industry is experiencing some head-winds, these are a combination of factors that range from the high Australian dollar, high labour costs combined with falling commodity prices.  At the recent UDIA State Conference, David Peever the MD of Rio Tinto raised some very real concerns surrounding Australia’s productivity.  He also noted that the country was losing marketshare to the rest of the world, despite its geographical and quality advantages.  In the last five years he stated costs have doubled to get a new mine out of the ground, clearly an unsustainable business position.

However the greatest threats remain in the Project Approval Process.  Whilst the development industry has long been frustrated by the burden of the various “tape colours” bureaucracies continue to use as part of the indecision process, it would seem the resource industry has been in a similar situation.  However, due to the scale of these projects, the flight of capital to other international projects that have more certain outcomes leave many resource businesses in Australia struggling to create their own future.  This can certainly make the edges of a cycle more steep than perhaps they need to be.

The Queensland government is well aware of this position and has given both the resource and property sector a commitment to make the approval process much more streamlined and accountable.  Much of this will occur through the Local Governments, an outcome that is both desirable but potentially problematic when larger projects require a higher skill set.  This will also necessitate good leadership and key accountability measures to ensure that the tail no longer wags the dog.

Coal, aluminium and beef prices per tonne 1995-2012

 As the staff of NPR have travelled across the State, the differences in the towns and regional centres is stark.  Those that have grown on the back of decades of agricultural production have generally more amenity and arguably a more stable population.  Those that have been growing rapidly in recent times as a result of the mining boom have tended to be playing catch up with regard to most aspects of good community.  There is also a broad range of opinions in many of these centres around small lot housing and the benefits it can bring to their population.

Whilst one cannot deny that the resource sector is under pressure, the good news and often overlooked part of the Australian economy is that the agricultural communities are again getting back on their feet.  What we need to ensure is that this sector does not get taxed as heavily as its cycle again enters a more positive phase.

In pulling this all together, again it seems that whilst we are being overloaded with information, many forget that we operate in cycles.  With the sharp growth experienced across many minerals and energy products in 2006-2008, these conditions are not likely to be replicated into the short to medium term.  China’s slow down in growth is healthy and successful in terms of China’s economic policy.  This is often overlooked as a controlled landing rather than the more popular scaremongering.  The reality is that they will continue to grow, that won’t be stopped anytime soon.

However as the RBA Governor recently stated when addressing the Standing Committee on Economics with reference to the domestic economy, “…domestic final demand rose by five per cent in real terms over the year to March, even with a small contraction in public spending. The strongest growth was by business investment in the resources sector but even consumption spending by households rose by about four per cent according to the national accounts.”

The final word goes to Glen Stevens, “Looking back then, the economy appears to have been recording reasonable overall growth, relatively low unemployment and low inflation. Looking ahead, the peak of the resource investment boom as a share of GDP, the highest such peak in at least a century, will occur within the next year or two. After that the rate of resource investment is likely to decline while the export shipments of the resources themselves will pick up. By then we might expect that some other sectors that have been weak of late, like residential and non-residential construction, might be starting to pick up. Overall growth is forecast still to be close to trend, albeit with a different composition from that seen in the past year or two, and inflation consistent with the target.”

Clearly another indication that the glass is half full and far from empty.