30/10/2007 - 22:00

The new WA economy

30/10/2007 - 22:00

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The term ‘new economy’ was a popular buzz phrase during the dot com boom of the late 1990s.

The new WA economy

The term ‘new economy’ was a popular buzz phrase during the dot com boom of the late 1990s.

It was a time when instant experts talked about new paradigms and asserted that a lot of traditional commercial rules were old hat. The dot com boom imploded in 2000, silencing many of the so-called visionaries.

Roll forward seven years and increasingly there is a talk of a new economic paradigm, driven not by technology but by the rapid and sustained growth of China.

There is an emerging consensus that the China boom will roll on for many years, helped by the emergence of the other BRIC economies: Brazil, Russia and India.

WA has already been a beneficiary of this trend and many companies around the world seem to be betting that it will continue. To use another buzz phrase, the boom will be ‘stronger for longer’.

That is the only way to explain extraordinary events like Swiss company Xstrata’s $3.1 billion bid for local nickel miner Jubilee Mines.

Jubilee, like many other nickel stocks, has enjoyed a stellar rise in recent years. Despite this, Xstrata stunned the market by offering a big premium to the prevailing share price – and punters are already suggesting it may not be enough to secure control.

This deal only makes sense if you accept that the world economy, and commodity prices, will remain strong for a long time yet.

 

Pressure points need to ease

Rapid and sustained growth presents major challenges for the state and federal governments, and for the business community in Western Australia. It lifts visionary planning to a higher order of importance.

Government and business need to develop strategic plans that recognise the profound changes happening in our state. Economic and social infrastructure will continue to be under pressure as the state experiences continued population growth.

The Carpenter government has been working on a state infrastructure strategy, which is not expected to be released until next year. In the meantime, plans are progressing for some of the state’s most critical economic infrastructure, such as this week’s proposal to triple the capacity of the harbour at Port Hedland.

The labour shortage is another critical pressure point. Take the example of smallgoods manufacturer D’Orsogna Ltd. Turnover among its unskilled staff is in the high 30 per cent level, according to chief executive Brad Thomason. Turnover at that level makes it extremely difficult for any manager to properly run a business.

D’Orsogna is not on its own, but its problem highlights once again the pressing need to bring more workers into the labour force.

There is no silver bullet. Boosting migration, both permanent and temporary, is part of the solution. Encouraging older workers to remain in the labour force, perhaps on a temporary basis, is another part of the solution.

Providing improved training opportunities and offering more flexible working arrangements can also help. However employers should not hold their breath for a return to the old labour market conditions. Dealing with labour shortages is the new reality.

 

Let private firms help

Letting the private sector provide goods and services that have traditionally been the domain of government can also assist.

Take the energy generation sector as an example. There has been a lot of misguided debate about the impact of the state government’s energy reforms, which included the break-up of Western Power.

A sharp rise in gas prices has led some to reach the simplistic conclusion that the reform agenda has been a failure.

But what about the emergence of new private sector players in the energy generation sector? Alinta was an early mover, striking an innovative deal to build efficient cogeneration power stations at two of Alcoa’s alumina refineries.

Rick Stowe’s Griffin Group has also become a major player in the energy sector, building a wind farm and a coal-fired power station at Collie.

The group is now investigating a range of green energy projects to take advantage of increased government support for green energy, whichever party wins this month’s federal election. This could include more wind power projects as well as biomass and wave power projects.

NewGen Power, jointly owned by Queensland’s ERM Power and investment bank Babcock & Brown, is building a baseload power station and has this week gained environmental approval to build a peaking plant.

What is most striking about these developments is that they weren’t anticipated. That is the beauty of a pri-vate enterprise system where companies and individuals have the freedom to respond to market opportunities, often in quite unexpected ways.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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