Africa is increasingly desirable, but some worry about local investment.
THE Nigerians clearly came for business when they arrived en masse at the Commonwealth Heads of Government Meeting and its related business forum.
The 200-strong Nigerian delegation was intent on using CHOGM to find ways to improve key industries in what is Africa’s most populous nation.
Although it has resources experience as a big player in global oil production, Nigeria wants to develop other sectors – especially mining.
Like many other African leaders and their representatives, they must have thought they were on the right track when they arrived in Perth, a city that thrives on mining investment.
Mining was a big theme at the Commonwealth Business Forum, which took place in the few days before CHOGM proper:
• the University of WA was revealed as the administrative heart of a $123 million federal government mining initiative, including a $31 million International Mining Centre for Development to be headed by Ian Satchwell;
• the Perth-based Chamber of Minerals and Energy will lead the development of a Commonwealth Mining Network; and
• there was the new Australia-Nigeria Trade and Investment Council, which was understood to have included Rio Tinto among its inaugural membership.
Much of this was focused on Africa, which has the biggest grouping of member countries and clearly represents the most likely sources of major greenfields minerals development in the former British Empire.
Each of these concepts puts Perth at the heart of high-level linkages predominantly centred on the development of mining in Africa, helping to raise the status of Western Australia as both a resources province and a global hub for the sector’s intellectual property.
There are major business opportunities in this, not just for WA’s miners who understand the difficulties of operating in harsh and remote environments. There are numerous local geologists, bankers, accountants and other professionals who can also cash in on this thriving business. West Perth is evidence of that.
Networks
Of course, CHOGM-related initiatives are one thing; the reality is dozens of Perth companies are already on the ground throughout Africa, some budding miners and others serious producers.
Perth-based players in Africa include Paladin Energy and Sundance Resources.
Chamber of Minerals and Energy CEO Reg Howard-Smith said the mining network was intended to improve the governance and standards of mining in emerging markets, where laws controlling safety and other important elements of mining operations were often lax.
The mining network includes mining companies and mining service providers who were involved with the business forum along with mining chambers from Commonwealth countries.
The CME has a two-year contract as the facilitating chamber, further signalling Perth’s high involvement in these international networks.
Mr Howard-Smith said the move had the best interests of the industry at heart because so many of the chamber’s members were doing business in places such as Africa, where developing their mining regimes would provide protection and create a more level playing field.
“There is no doubt there are many aspects to this issue but when we looked at it, it was mainly assisting Australian companies,” he said.
Avonlea Minerals managing director David Riekie is trying to get a mining project up and running in Namibia, one of a number of African countries actively trying to promote minerals investment.
Mr Riekie said he was too optimistic to see this as a threat to Australian industry. although he acknowledged the rising costs of operating in WA made Africa increasingly attractive despite the risks.
“It goes back to the 70s and 80s,” he said.
“How competitive is your economy to attract investment? It is not just employment, everyone used to bash up Africa but Australia is no different, we created a lot of uncertainty.”
Mr Riekie said some significant players in capital markets believed Africa was the place to invest.
They were funding the Australian knowledge and can-do attitude, which was a key part of developing mining in the region.
“Australians are viewed as top of their field in most things, it is not just Africa; it is Asia, including places like Mongolia,” he said.
Resources rivalry
Nevertheless, some players are concerned this amounts to little more than a transfer of hard-earned skills and technology to places that could ultimately become rivals that want access to WA’s markets and sources of capital.
While Premier Colin Barnett was buoyed by the success of CHOGM, less than two months ago he identified cheap African resources as a key threat to WA’s economy. He believes the state has about 10 years to build the transport infrastructure to let WA-based companies export commodities efficiently before African nations flood world markets with iron ore and other resources.
“Africa is rich in natural resources,” Mr Barnett said. “Some of their iron ore deposits are richer than ours, but they are often inaccessible. To get to the coast you have to go through different countries and there’s obviously all sorts of political instability. Africa is difficult but I would expect that in the next decade Africa will get a lot easier.”
Mr Barnett said it was inevitable African resources would enter world markets and China was working on foundation projects.
At the time he warned that the Gillard government’s mining and carbon taxes could, combined, be considered a “real sovereign risk”, a point he returned to during CHOGM when he attacked the proposed mining tax.
Even without those costly taxes, however, those wanting to develop minerals projects have other challenges such as high labour costs, growing industrial relations issues and the state’s own approvals process.
These, as much as the incentives offered by Africa’s budding resources nations, are providing the impetus for companies to look elsewhere.
In a Commonwealth Business Forum speech, Hancock Prospecting chairwoman Gina Rinehart warned that Australia’s resources sector could lose market share to other countries if new exploration incentives were not introduced and costs continued to rise.
Mrs Rinehart said the high cost of regulation here was hampering exploration, which was vital for the future expansion of mining.
“You’ve always got to remember we’re not the only people with commodities,” she said.
“There are new frontiers opening up which have much, much lower costs than Australia, so it’s not really a good time to keep looking at ways to make costs higher and higher.”
World class
While at no point do these reported public comments seek to embargo Australian involvement in the development of other nations’ resources, logic suggests that channelling resources away from WA in the midst of a global race for production growth would tend to accelerate the very threat both Mr Barnett and Mrs Rinehart are referring to.
Perth businessman Mark Barnaba, who co-chaired the forum’s WA steering committee, said he understood the concern of some that new nations could become resources rivals, especially as it was getting harder to do business in WA – something he would see firsthand as a director of Fortescue Metals Group.
But Mr Barnaba thinks there is more to be gained for local industry from participating in offshore development, which he expects will directly flow from the extensive networking at the business forum, than would be lost to the state’s miners due to competitive production.
He believes Africa’s production represents a drop in the ocean compared to the Pilbara.
“If the flipside of that (argument) is don’t do anything outside Australia, you will never have a world-class mining industry,” Mr Barnaba said.
“I don’t think the response is don’t go to Africa because they are going to be a competitor. In some respects you are better off to be in the environment with your competitor because you want to know what they are going to do.”
