The challenges of growth

Premier Alan Carpenter has a keen desire to deal firmly and decisively with corruption scandals swirling around his government.

“You have got to deal with them as quickly as you possibly can, and as well as you can, and then refocus everybody on the main game,” he told WA Business News.

Unfortunately for Mr Carpenter, he made that comment 12 months ago when he was reflecting on the scandals surrounding former ministers, John D’Orazio and Norm Marlborough.

Roll forward one year and the problem is still there.

John Bowler and Tony McRae have been forced out of the ministry, but backbencher Shelley Archer, her husband, union boss Kevin Reynolds, and their old friend Brian Burke are still big problems for the government.

Mr Carpenter has been blunt in describing the impact of former premier and lobbyist Mr Burke and his business partner, Julian Grill.

“Their conduct, their influence and the way they exert it, has had a malignant effect, which has to be stopped,” he said earlier this year.

Dealing with these issues has become a huge distraction for the government, draining it of time and energy.

One of the difficulties for the government – and the opposition – is the uncertainty over what the Corruption and Crime Commission will reveal next.

The CCC is the most powerful investigative body of its kind in Australia, akin to a standing royal commission. Its ability to tap telephones and private houses has resulted in the most extraordinary revelations.

Health Department boss Neale Fong has been caught up in these matters, after he was belatedly forced to admit to an exchange of emails with Mr Burke.

That was a jolt to Mr Fong’s boss, Health Minister and Attorney-General Jim McGinty, who is responsible for the CCC.

Considered the most powerful and influential people in the state government, Messrs Carpenter and McGinty have been enmeshed by corruption inquiries and ministerial scandals.

The task of driving policy reform, particularly as it relates to the business community, increasingly has passed to other ministers.

Deputy Premier and Treasurer Eric Ripper added the state development portfolio to his responsibilities earlier this year, making him an even more important player.

Planning and Infrastructure Minister Alannah MacTiernan continues to be one of the most energetic performers.

Another minister of note is Mark McGowan, who was given responsibility for managing the education and training portfolio.

Beyond this small group, it is hard to identify ministers who have made their mark on the state.

The biggest challenge for the state government, and for the business sector in Western Australia, is managing the state’s extraordinary economic boom.

China continues to be the main driver of the boom; it has become WA’s main trading partner, with exports to China valued at $14 billion.

The Chinese have acknowledged WA’s important role as a supplier of raw materials and possibly technology.

China’s president, Hu Jintao, visited Perth in September on his way to the APEC summit in Sydney.

That followed visits to WA by China’s premier Wen Jiabao, vice-premier Zeng Peiyan, and chairman Wu Bangguo in 2005.

This level of contact is unprecedented and reflects increased Chinese investment in iron ore, oil and gas and other resources projects.

The Chinese are also interested in Rio Tinto’s HIsmelt technology, which is a new, more environmentally friendly way of processing iron ore into pig iron.

Mining giants BHP Billiton and Rio Tinto have led the expansion of the iron ore industry.

Andrew Forrest’s Fortescue Metals Group is set to become the third big producer next year.

It will be followed by George Jones’ Gindalbie Resources, which will develop a magnetite project in the Mid West with Chinese backing.

Other aspiring miners, such as China’s CP Mining, are keen to follow.

The oil and gas sector has also witnessed big growth, with Woodside Petroleum proceeding with its $12 billion Pluto liquefied natural gas (LNG) project.

Chevron is pursuing development of its Gorgon LNG project, estimated to cost about $20 billion, while groups such as Japan’s Inpex and BHP are planning further projects.

The resources boom has been accompanied by increased activity in the construction sector, with more cranes on the Perth skyline than have been seen for more than a decade.

The boom has filled the government’s coffers to overflowing. Soaring tax receipts and mining royalties have produced record budget surpluses; and despite constant pleading, the government has resisted big tax cuts.

The boom has also led to rising costs for everyone from home builders to major project developers.

The Perth to Mandurah railway has been affected by rising costs, but has fared better than many private sector projects.

The railway is about to start operations at a time when WA’s rapid population growth, driven by interstate and overseas migration, is making the city busier than ever.

The government is in the process of preparing an infrastructure strategy to help it deal with the state’s continued rapid expansion.

This will be a major challenge, as there is pressure to upgrade everything from ports to roads, railways, hospitals and schools.

The privately owned Perth airport is also in desperate need of an upgrade.

The other big growth challenge is dealing with the labour shortage. With unemployment around 3 per cent, WA has gone from having a skills shortage to a fully-fledged labour shortage.

There were also landmark changes in Perth’s corporate sector last year.

The biggest issue in the first half of the year was the controversy surrounding Alinta, after its former chairman John Poynton and its former managing director Bob Browning teamed up to propose a management buy-out.

That triggered an auction, resulting in the sale and break-up of Alinta, which had been one of WA’s most dynamic companies.

The biggest development in the second half of the year was Wesfarmers’ successful $20 billion takeover of Coles Group.

It was Australia’s biggest ever takeover and made Wesfarmers the country’s biggest employer and biggest retailer.

• The next edition of WA Business News, published on January 10 2008, will include a review of the top corporate deals of 2007.