02/11/2011 - 11:18

CHOGM: colonial relic or valuable forum?

02/11/2011 - 11:18

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Meeting has important economic and political outcomes for Australia.

THE Commonwealth Heads of Government Meeting might be over but it’s still worth asking whether there was any value in it for Western Australian business.

I put this question out on a couple of online forums and had some interesting replies.

From a pure on-the-ground business perspective, I’m sure hotels and hospitality groups in the CBD and nearby would have done well from the influx of delegates and their staff, at least until the Qantas debacle.

Office-based businesses may have lost out in terms of productivity, not just due to the actual event disruption but also the months of civil construction and beautification, which has slowed transportation in the city.

Then again, most of the bigger end of town were represented at the Commonwealth Business Forum and would be looking for long-term benefits from the access to key trade and political figures from potential markets and investment locations.

I did some analysis of the Commonwealth countries in last week’s paper and, from just a cursory look at the map and a small amount of knowledge on global markets, it’s easy to see the value in this organisation to WA.

The Indian Ocean rim represents the bulk of the Commonwealth nations, in number, population and potential. 

Not only are major markets such as India, Malaysia and Singapore on that rim, so are numerous developing African countries where Perth-based firms have already invested significantly. 

WA is the middleman between the commodities production and markets, as well as being geographically at the crossroads between the Commonwealth and China.

It is an interesting place.

One comment I received questioned CHOGM with regard to its place in our investment world.

“How many of Australia’s top 10 trading partners are actually Commonwealth countries?” was the comment I received.

“And noting India’s minimal presence at CHOGM? I’d be inclined to guess there’s a fair bit of ho hum, but those outside of the resources sector may benefit.

“I’d hope so for the dollars we’re spending.”

Disappointingly, it’s extremely difficult to determine where Australia’s outbound investment goes. No doubt it’s held by various government departments but none was making it simple to find.

I did locate Australian Bureau of Statistics data that showed Commonwealth nations represented about 30 per cent of the nation’s $39 billion investment income in 2010 – with the UK, New Zealand, Canada and Singapore representing the great bulk of that. That is somewhat different from inward investment to Australia, which mainly comes from the US, UK, continental Europe and Japan.

But the statistics seem to show little record of the significant expenditure taking place in Africa by WA companies, some of which might be relatively small by overall investment standards but which ultimately is venture capital being invested in one of the next regions of minerals growth.

In fact, the role of Australian companies investing in developing markets might actually be masking the true reason for increasing amounts of foreign investment in Australia.

There is increasing corporate activity around companies with foreign assets, notably from Chinese investors who may well think it is easier to buy an Australia-listed company than acquire their offshore assets.

A recent Gresham note on resources company activity indicated the takeover of central African-focused Anvil Mining by Chinese-owned Minmetals’ Australian business.

Another example was the takeover bid for Mongolian-focused Hunnu Coal by Singaporean group Banpu Minerals.

While I have mixed feelings about such moves, it is worth recognising that Australian companies have proved adept at finding and readying remotely located projects for development. That expertise, learned here, is now being applied to Africa and other developing areas.

Even here, though, the practice has been to find foreign capital to complete the project. 

Thus, the same is likely to occur with assets held offshore, either by direct sale, joint venture or foreign takeover of the Australian-based owning entity.

This is our strength, we’re the venture capitalists of the minerals world, and we are paid a premium for it. 

Nevertheless, it is also reflective of how increasingly difficult it is to do business here. Slow approvals and high labour costs were bad enough; now we have a difficult industrial relations environment and two major new taxes. It is one thing to leverage our expertise, it is another to chase business away from our own country.

Trade and aid relationships between countries are important elements that can help Australian companies gain access to foreign development opportunities.

But there might also be a downside to inviting competitive resources nations to see first-hand the success mining brings.

I am sure Africa’s leaders will be even more keen to compete for our resources markets when they see the wealth generated here, and witness the obstacles that a developed nation can put in front of investment.

Regional grouping

ANOTHER view on the opportunity within CHOGM is the fractured nature of the organisation.

The historical legacy of the British Empire has left numerous tiny nations dotted around the globe, many within reach of Australia.

While we often talk of the opportunity that population giant India offers, there are many pitfalls for Australian companies doing business in such markets.

I have long taken the view that Australia, small in population terms, ought to focus its attentions on its smaller neighbours, creating an economic cluster that makes us look bigger than we are.

My view is that it is difficult for a smaller nation’s business culture to succeed in a bigger one. Australian businesses have shown this many times with their failures in the US, UK and China. Recently, Woolworths withdrew from a joint venture in India. By comparison, Australian companies have been successful in New Zealand.

This rule is derived from nature where the rule of the jungle shows that flora and fauna from bigger habitats – that is more subject to competition – tend to win when they come into contact with species from smaller habitats. Australia is a great example, having seen its plants and animals lose out to many invading species.  

By contrast, Australian biological exports are few and far between, a notable one being the raven and its descendants.

So the Commonwealth offers many smaller neighbours in the Pacific and Africa, especially if we think in economic terms rather than population.  

We have a chance to play a significant role in many of these economies – well beyond mining – and we ought to be taking up the challenge.

Collectively, Australia stands to gain much by being viewed as a major entry point to the much larger economic organisation of the Commonwealth, but we need to bind the ties between those nations as close as we can as quickly as possible.

• mark.pownall@wabn.com.au

 

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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