27/11/2012 - 09:11

Analysis: The problem with being rich

27/11/2012 - 09:11

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Living rich is surprisingly difficult, as Perth commuters are discovering, but if WA’s economic success is stretching services today, just wait until the real boom starts and the State looks even more like Norway.

Unlikely as that might sound because of the extreme geographic and climate differences there are fascinating parallels between what’s happened in Norway over the past 20 years and how WA is struggling to cope with wealth that sets the State apart from the rest of the country.

Oil and gas are the common threads linking the chilly waters of the Norwegian Sea with the tropical waters of north-west WA. Both areas are remote and both are extremely expensive places to do business, not least because labour costs have exploded.

Managing cost inflation, which is the primary complaint of business managers in Perth, is an even bigger issue in Norway, a country almost as thinly populated as WA.

The answer, and this is where business and unions are on a collision course, is automation, and lots of it.

WA’s first brush with “labour-less work”, which is one function of automating an industrial process, is in the iron ore mines of the Pilbara where driverless trucks have made an appearance, driverless trains are on their way, and workerless ship loading might not be far away.

In Norway, which is much further down the oil and gas pathway than WA, the rush to automate is leading to even more remarkable innovations such as remote-controlled underwater welding machines which can join two bits of pipe already carrying gas without slowing the gas flow.

Hot-tapping, as it called, is nothing new for skilled welders, but for such a dangerous job to be done remotely and with minimal human involvement is an example of how far a company will go to avoid employing super-expensive skilled tradesmen.

How expensive? Well, that’s when the comparison between WA and Norway becomes particularly interesting because the cashed-up bogans working in the iron ore industry of the Pilbara are just a warm-up act for what’s happened in the Norwegian oil and gas industry.

A few months ago Norwegian oil workers, who earn an average of close to $200,000 a year, went on strike for even higher pay and easier shifts despite the fact that they are already paid close to double the average for oil workers in Britain and get four weeks off for every two weeks working at sea.

If that sounds familiar to the WA v Rest of Australia situation that’s because it is, all the way down to a cost analysis which shows that doing business in Norway is around 40% higher than in Britain, which shares North Sea oilfields.

Norway has struggled to cope with its extreme resource-generated wealth which has set it apart from the rest of Europe, a fact I discovered when visiting the country in June. Warnings before making the trip about the high costs of Norway were quickly discounted when it was found that Perth is already more expensive than Oslo.

Over the next few years, and perhaps for much longer, WA will have identical growth and cost issues as Norway, as shown in the latest economic growth figures and the complaints about overcrowded highways and public transport.

The most startling comparison was in gross state product per head with WA topping the $100,000 mark while the rest of the country managed just $64,725 – a gap which will continue to widen as the resources boom moves into its oil and gas phase – which it will despite threats by some companies to avoid doing business here.

Those warnings about withdrawing from WA are hollow, and only apply to companies with sub-standard projects, as a senior executive of Shell Australia explained yesterday.

Bruce Steenson, senior vice-president for Shell Development’s Prelude floating LNG project said the combination of demand for gas in Asia would keep WA at the forefront of oil and gas investment.

In a way, that was a very predictable comment because the gas is here, the world wants it, and is prepared to pay for it – a mirror image of the Norwegian situation.

If there are differences between WA and Norway it lies in currency and politics. Norway has declined to join the near-bankrupt European Union whereas Australia is welded to the rest of Australia, whether it likes it or not, and Norway has its own currency whereas WA has the dollar.

Those differences, currency and politics, mean that WA will develop in a different way to Norway, but the core problem of being a rich enclave surrounded by poorer relations is WA’s fate, complete with government services struggling to keep up with rapid private sector growth.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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