06/06/2012 - 10:52

Reminder the sky might not fall

06/06/2012 - 10:52


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Three of Western Australia’s top industry leaders have a refreshingly sanguine view on the state’s prospects.

Three of Western Australia’s top industry leaders have a refreshingly sanguine view on the state’s prospects.

In the current political and economic environment, it’s easy to paint a gloomy picture of the state’s business prospects.

The European debt crisis seems to be getting worse by the week, with Spain joining Greece as the country most likely to get into real strife. 

Against that backdrop, banks around the world have adopted a very cautious approach to new lending, including Australia’s highly profitable major banks.

China, which has kept the global economy moving, is slowing down.

The federal government stumbles from one crisis to another, damaging investor and consumer confidence. Its mining tax has just been introduced and its carbon tax is due to kick-in at the start of July, adding further uncertainty.

Locally, rising cost pressures are making life difficult for businesses.

One factor that has moved in the right direction for business is the Australian dollar. Its decline to about US96 cents is not good for travellers but will provide some relief for exporters and producers competing with imports.

With interest rates heading lower, the dollar may fall further.

Despite the dark storm clouds, Wesfarmers managing director Richard Goyder, his Woodside counterpart, Peter Coleman, and Fortescue Metals Group chief executive Nev Power do not seem to be raising a sweat.

Appearing at a business lunch last Friday hosted by Deutsche Bank and The Australian, all three had a very calm and considered outlook.

Each of them acknowledged serious issues facing their respective businesses but none bought into the woe and gloom in which many commentators indulge.

To some degree, they were just doing their job. No chief executive wants to talk down their business’ prospects. But they also need to be realistic.

Take China, for instance. Mr Goyder said the country was so important to Wesfarmers’ future that the entire board was going there later this month.

Mr Goyder urged the audience at Friday’s lunch to do the maths, in order to understand the China story.

China’s annual growth rate may be slowing from 10 per cent to 8 per cent but that still means the country will double in size over the next decade.

Given the scale of the Chinese economy, “demand for commodities into that economy is going to be pretty strong … so I think we’re in pretty good shape,” Mr Goyder said.

Mr Power was also relaxed about the outlook for commodities, saying he welcomed the fall in iron ore prices from $US180 per tonne.

“At that level, even turkeys would fly,” he said.

Mr Power said prices around $US130 to $US140 per tonne were more sustainable. “I think that’s a good thing overall for the industry,” he said.

Mr Coleman, by contrast, was still grappling with what he called “quite a fundamental change”.

This was caused by the pending emergence of the US as an LNG exporter and the shift by big Middle East exporters, notably Qatar, from Europe to the Asian market.

The business leaders agreed that the planned carbon price was causing uncertainty. 

While each business was able to plan for the direct impact of a carbon price, based on their own emissions, they were not sure about the impact on their suppliers.

“The key thing … will be what our suppliers bring to the table,” Mr Goyder said.

He said the company, and the Australian Competition and Consumer Commission, would want to ensure any cost increases were justified.

Mr Coleman had a similar message, saying “our suppliers are now knocking on the door”.

He said Woodside had no capacity to pass on higher costs, adding that it still did not understand the impact the carbon tax was going to have.

All participants in the forum called for greater certainty from government, with Mr Power saying he wanted government to consult widely with business and Mr Coleman saying he wanted policy settings to be predictable.

Interestingly, this view extended to the issue of workplace relations, with all of the business leaders preferring a tweaking of the current system rather than wholesale change.


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