One of the big questions going around is whether Western Australia is heading for yet another one of its cyclical busts or if, just maybe, the state is going to snub its nose at history.
One of the big questions going around is whether Western Australia is heading for yet another one of its cyclical busts or if, just maybe, the state is going to snub its nose at history.
It’s an interesting piece of conjecture based on a whole bunch of suppositions a decent economist would probably have a field day with.
I’m not one of those, so I’ll just plug away with some fanciful thoughts. Bear in mind, though, in the background to this fuzzy thinking is the crystal clear notion that we are a commodities-focused region that can do little to influence the price of those commodities.
One school of thought is that WA has simply grown big enough to sustain its own economy, even if the investment dollars for resources stop coming.
While a good economist could probably tell us if there’s some magic in the population figure of two million the state is said to have reached earlier this year, there is a bit of logic in the idea that, at some point, the number of people you have must create some kind of self-sustaining momentum.
Obviously, that would still require the key sectors in our economy to keep kicking in with some new projects to employ what is now a sizeable services sector.
But, even still, economies grow to a point where ancillary service industries – from retail to leisure and entertainment – become better able to withstand the shocks of a downturn in a key sector such as resources.
Another school of thought is that WA has now got the scale to survive a commodities downturn.
While current local operations need to be maintained, lower commodity prices may well make foreign resources development more attractive on price.
But the state’s services sector has got to the point where it is well placed to play a big part in that by doing the work here. Like many world-class centres of excellence, the manufacturing need not take place in your own backyard to keep an economy thriving.
In some ways we have the best of both worlds – big enough to be a regional centre but small enough to maintain a niche that our economy can rely on.
It’s not a bad position to be in.
Of course, it may well be wishful thinking.
Resources precinct plan needs work
I was intrigued to note that the idea of a resources precinct is starting to take hold in Perth.
It was an idea spawned by resources organisations the Chamber of Minerals and Energy and the Australian Petroleum Production and Exploration Association and was flagged in our newspaper around Christmas time.
On December 22, in an article about Perth’s growing strength as a unique resources capital we wrote: WA Business News is aware of two resources-focused ideas being touted at the highest levels by leaders of that community.
One is some form of institution of higher education centred on resources, a resources university that would harness some of the strengths of Perth’s academia in this field and place it close to the commercial operators which abound in Perth at all levels.
While WA already has engineering, geology and mining courses at two local universities at least, as well as significant energy and resources research capacity through CSIRO and other collaborators, the idea of harnessing that kind of expertise under a banner that could claim global recognition is attractive to some in the industry.
There is also talk, admittedly, very vague, of a “resources precinct”, as one proponent put it.
Exactly what shape this would take is unclear, although it was meant to have both commercial and public appeal but was “not a museum”.
Maybe both these ideas belong together – placed right in the heart of the ‘incubator’ of West Perth?
I understand that, while an educational facility is mooted, it is a long way down the track. Secondly, West Perth is not the desired location, with something focused around the western end of St Georges Terrace – where many of the biggest resources players are headquartered – being openly discussed.
In fact, a key issue is just how broad this idea is.
The CME and APPEA have taken the first stage of their idea to the City of Perth, which only recently created a policy to allow for individual precincts.
Such an idea, at first, would be more about branding and providing a feel that would link the parts of the CBD chosen with their resources strength.
But, as always, there’ll be some who feel the idea is widespread enough, and others who feel it’s too narrow.
I think this is one idea best left to the proponents who have given it thought and know what’s needed to communicate the message they wish to send.
Good luck.
Market’s eyes firmly on Wesfarmers
Wesfarmers Ltd’s move to buy OAMPS Ltd for $700 million is likely to be well scrutinised.
Of course the purchase, if it succeeds, is not a company maker by any means.
The price is a small proportion of Wesfarmers’ current $12 billion-plus market capitalisation and the move is simply a bolt-on to existing insurance operations.
But, as the first major initiative of Wesfarmers CEO Richard Goyder, the market will be watching it closely.
Firstly, despite the unanimous acceptance by the OAMPS board, there will be many watching for any signs of dissent among shareholders. If there is any, there’s always the likelihood of some greenmailer interfering with the best-laid plans of those who hatched the deal.
If no-one enters the fray, questions about the price paid may focus on whether it was too much.
There is also the matter of the insurance market itself, and whether the strong profits of the recent past and big market gains by larger players will continue.
Still, Mr Goyder might be new at the helm, but there’s a lot of deal-making experience at Wesfarmers.
