Surging resources sector investment is great for WA, but local industry could be doing better.
THIS week’s cover feature on major resources projects paints a remarkably positive picture for Western Australia.
Fifteen projects worth $82 billion are currently under construction, a further 10 projects worth $59 billion are close to proceeding, and an even longer list of projects worth $140 billion is undergoing advanced evaluation.
One of the most unique aspects of WA’s resources sector is its diversification; the state is well known as a global powerhouse in mining (iron ore, gold, nickel, bauxite, and so on) and is emerging as a player in petroleum.
The scale and diversity of the sector helped to cushion some of the fallout from the global financial crisis, and augurs well for future prospects.
The surging investment in resources projects continues a spectacular run that has underpinned WA’s strong economic performance.
A recent presentation by Reserve Bank deputy governor Ric Battelino highlighted the state’s impressive growth pattern.
Over the past two decades, WA has achieved average annual growth in gross state product of 4.5 per cent, slightly below Queensland, which also has a large resources sector, but well above the national average.
On a per-capita basis, WA’s growth figure was 2.7 per cent, putting it ahead of all states, including Queensland, which has experienced much higher population growth courtesy of interstate migration.
Mr Battelino’s presentation demonstrated the mining sector’s status as a driver of growth.
During the past two decades, the mining sector’s share of GDP has increased from 5 per cent to 7.7 per cent.
The construction sector has also grown, from 6.3 per cent to 7.7 per cent. Visitors to the Burrup Peninsula or Port Hedland will know that resources projects are big drivers of construction spending.
Looking ahead, the deputy governor sees more good news.
“Most importantly ... we think that economic growth will be driven by strong business investment. This will be concentrated in the mining and gas industries,” Mr Battelino said.
Mining investment typically runs at about 1.75 per cent of GDP, and in past mining booms has reached up to 3 per cent of GDP.
Mr Battelino said that, in the current boom, it had risen to 4.25 per cent and, “even on conservative assumptions, is expected to rise significantly in the years ahead”.
Against this backdrop, why do many business people in WA have misgivings about the pattern of economic development?
Few people are prepared to speak publicly on this topic, but talk privately and the answer is that many still see the state as essentially a ‘quarry’ and are concerned at the lack of a wider industry development strategy.
Premier Colin Barnett has famously stated that the state’s workshops will be full for years to come on the back of large resource projects like Gorgon and Pluto.
The reality is different. The Australian Steel Institute says the six largest steel fabrication workshops in Perth have experienced a fall in employment from 963 tradesmen and apprentices in 2008 to 448 presently.
High labour costs, a strong Australian dollar and the small scale of the Perth workshops have all conspired against local industry.
Instead, mining and gas projects are turning to lower-cost and more efficient suppliers in Asia.
The construction of entire liquefied natural gas plants in modular form in Asian construction yards shows there is almost no limit on what can be built elsewhere.
Even the humble donga is being imported, cruelling the prospects of local firms such as Fleetwood and Nomad, which thought they would be enjoying healthy growth.
Concern over low Australian content on large projects extends beyond the blue-collar manufacturing sector.
Much of the white-collar engineering work is done offshore, particularly for gas projects, for which design and procurement is run from the established LNG engineering centres of Houston, Reading or Yokohama.
Of course, WA industry has not missed out entirely.
Thousands of engineers, geologists, projects managers, environmental consultants, even bankers and lawyers, owe their livelihoods to resources projects.
The state’s universities have also benefited, particularly UWA and Curtin, which are competing to attract money and expertise to their respective mining and energy institutes.
What is lacking is a strategic plan from government, which has invested enormous energy in facilitating new resource projects but relatively little time and effort in helping local industry development.