20/01/2011 - 00:00

Gearing up for new opportunities in Africa

20/01/2011 - 00:00

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Africa is looming larger on the radar for Australian miners as a combination of factors entices investment there.

THINK of tax exiles and the first image that comes to mind is of a fat-cat London banker living the high life in Monaco. In fact, a new class of tax exile is emerging in Perth thanks to its curious status as one of Africa’s biggest mining cities, and Africa’s status as the world’s next boom region.

Three factors are at work in changing the way an important part of the Western Australian economy works; two are well known, the third is new, but has the potential to super-charge the trend.

The key local issue is the plan to levy a super-tax on mining profits, starting with iron ore and coal, and inevitably moving on to all mined products no matter what promises are made by today’s politicians.

A secondary issue is the complexity of mining in Australia, a business increasingly tied up with green, black and red tape.

That’s why the lure of Africa has proved so strong over the past decade and explains why Africa’s second biggest mining conference, Africa Down Under, is held in Perth. Bizarre, but true.

Enter the third factor, explosive growth in some of Africa’s forgotten countries, which have ended their 20th century experiments in socialism and are now embracing the benefits of capitalism, and an African version of democracy.

A survey published last week, based on data generated by the International Monetary Fund, revealed that six of the world’s fastest growing economies in the decade to the end of 2010 were African.

It gets better. Forecasts for the next five years point to seven of the top 10 being African. China and India will top the growth chart but will be followed by Ethiopia, Mozambique, Tanzania, Congo, Ghana, Zambia and Nigeria.

Annual average growth in the African members of the top 10 will be around 7 per cent, which means plenty of opportunities for investment by foreign companies, and job-creation for the locals.

The African countries are rising off a low base, but the fact that so many are rising at the same time indicates that something important is happening in a region sometimes dubbed ‘the hopeless continent’.

Now for the Perth connection because mining, which is facing a hostile environment in Australia, is welcome in all seven of the top seven African countries, with Australian miners active in most.

Combine the factors, and apply a long-haul version of fly-in, fly-out, and it is possible to see a situation where Perth might remain a pleasant place for the families of the people doing the exploring and mining but Africa is where the work is done, as well as the tax base for the companies doing the mining.

Perth, over time, becomes a sort of Monaco-of-the-south, with tax-exile workers spending their leisure time here, when not doing business over there.

If this sounds far-fetched then you’re overlooking the power of tax to be both an incentive (when low) and a disincentive (when high).

Australian gold and uranium miners have been the early movers to Africa, a function of geology and Australian politics. Iron ore miners are starting to move, led by Rio Tinto and a long list of smaller players such as Sundance and Sphere.

Until now the trend has been akin to a migration. It will become a stampede as the tax net tightens at home and as Africa cements its growing status as a good place to do business with surprisingly fast-growing economies.

Bigger battle ahead?

THE battle for Brockman Resources took a curious twist last week when the Australian company won an interim freeze order from the Takeovers Panel against a number of Asian investors. And while that is interesting, there might be a bigger corporate game unfolding in the background.

Wah Nam International, and friends, were the target of the freeze order, which Brockman had requested because it was concerned that a number of companies were “acting in concert” to buy Brockman shares, possibly in breach of Australian corporate law.

The merits of that case will be determined in a formal hearing of the Takeovers Panel, but also on trial will be the question of how Australian law fits into the Asian way of doing things.

Central to the Brockman case is that a number of companies active in its shares all gave 7500A Beach Road, Singapore, as their legal address. Brockman said in its submission to the Takeovers Panel that the conduct of Wah Nam and “the Beach Road shareholders” had given rise to unacceptable circumstances.

As the game stands today, it is an Australian corporate regulator responding to a request from an Australian company listed on the Australian Securities Exchange about the activity of investors based in Singapore.

What might happen in the future should the Singapore Stock Exchange succeed with its takeover bid for the ASX? Would we then have an Australian corporate regulator trying to enforce Australian law against Singapore companies that work under Singapore law and stock exchange rules?

Ways can be found around these legal issues but it is an early heads-up example of what might happen should an important Australian institution such as the ASX become a branch office of another country’s stock exchange.

An unhealthy union

THE number of the week is seven, because that is the percentage to which private sector union membership has fallen in the US. Australia has double that rate at 14 per cent, but both numbers might be pointing to an emerging clash of cultures.

The problem is that while private sector workers have almost universally abandoned the union movement, government workers cling to union membership as some form of safety net, with 36 per cent of US government workers in a union and 46 per cent of Australian government workers doing the same.

As an ideal, unionism has its place. In practice, it has lost its way. In time there will be a reckoning, especially as governments around the world are forced to address their mountains of debt and overly generous benefit packages, which are paid for by private sector workers.

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“All money nowadays seems to be produced with a natural homing instinct for the Treasury.”

Prince Philip

 

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