WA needs to keep its resources

THE news from the pundits that we can look forward to reasonable economic growth should be welcomed by all.

Not only is the news a welcome Christmas present for everyone in business but the fundamental reasons for this continued performance underline the value of natural resources as the keel which keeps the State’s economy steady.

Of course, the experts often get it wrong, but recent history has shown us that tight budgeting and tough decisions at a fiscal level leaves an economy better prepared for any shocks that lie in store.

That ought to be remembered by any politician who thinks they need to spend big to win an election.

The news is particularly good for WA’s gold miners who have had a pretty tough time of it, albeit smoothed by the performance of the Australian dollar.

But gold miners should get too complacent when it comes to talk of a jump in precious metal prices.

A recent survey by Pricewaterhouse Coopers found that the mining industry returned just 4 per cent to shareholders during the past financial year.

That is not a spectacular performance in anyone’s book.

As PWC partner Nick Henry told an audience of mining types last week, at that rate you may as well leave your money in the bank.

Even better, he suggested, invest in bank stocks where, during the same period, your money would have returned 18 per cent.

Ouch. That is hard to beat when miners will already tell you how efficient they are.

Unfortunately, their efficiency at the rock face has a two-fold effect.

Firstly, it highlights the growing overhead cost of head office, where many a chief executive appears to be living off a bloated salary when shareholders are seeing returns stagnate.

In addition, cutting operational costs has dramatically slashed the workforces of mining companies throughout Australia, and nowhere more so than here.

Since 1991, the number of employees in the nation’s mining industry has plummeted from 80,000 to 51,000.

Sure, there are also some 17,000 contractors offering extremely flexible options for miners, but essentially as Australia grows, the sector is shrinking in importance to the average Aussie.

That amounts to a massive reduction in the industry’s political clout.

And all at a time when foreign resources companies are moving into our patch, and eyeing the savings they can make by lopping a number of highly paid executives from the cost structure.

Already, the resources industry has become so irrelevant to mainstream Australia that it has been removed as one of the core sectors making up the ASX indices.

This is a dangerous precedent, not only from the point of view of miners and their well-paid leaders but for the State.

Every executive living in Perth provides a host for dozens of others who service their needs.

On top of the direct trickle down, head offices offer job opportunities for talented individuals, who in turn create interesting work for the professional sector.

They also make decisions in the interest of the region they live in.

Consolidation by foreign giants will end this, taking those jobs, income, opportunities and vested interests elsewhere.

But the fact is this consolidation of the sector has started in a big way this year and will only continue.

There are some natural dynamics at work here, with investors quite rightly looking to profit and put their money in new places, be it in mining stocks or Wall Street run managed funds.

But we all have to consider the significance of losing major decision making centres in an industry which has proved its worth in maintaining the economic stability of WA.

Policy makers should be doing everything to encourage mining companies to remain based here, or our forebears might not always have such cosy festive seasons. Merry Christmas.