27/03/2007 - 22:00

Will it be different this time?

27/03/2007 - 22:00

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No boom lasts forever, but over the past week Briefcase has seen evidence that this boom really is something completely different and might, just might, live up to the expectations of the optimists and kick on for at least another decade…or two.

But, before considering the evidence to support this latest round of a multi-trillion dollar game of ‘love me, love me not’, it is worth considering what this means for the economy of a resource-rich state such as Western Australia.

Property prices alone are worth a chapter or two, because if you think they’re high now, and overdue for a major correction, then everyone had better prepare themselves for much higher prices in the future.

Skills shortages, from professionals to finding enough people to flip burgers and wash glasses at local hotels, will also become a serious issue for the WA community.

Corruption, as we have seen in the sorry saga of crisis-ridden WA government, will remain a worry for everyone as the greedy chase the bags of money they crave.

All this awaits WA thanks to the mounting evidence of China (with India to come) creating a perfect storm of excess demand chasing too few commodities.

Now, why does Briefcase believe that this time, it really is different – and why we aren’t simply travelling through a traditional boom/bust cycle that has been the way of this economy for the past 50 years?

Firstly, because of what we saw last week, when BHP Billiton calmly rolled out a $2.3 billion expansion of its iron ore operations – with much more to come courtesy of oil and gas projects.

Secondly, because the news from the rest of the resources world is not nearly so positive, which might sound a contradiction, but what it really means is that WA is emerging as the world’s number one choice for resource investment as the wheels fall off elsewhere.

On the first point – BHP Billiton’s iron ore expansion – it is important to remember that a few years ago a project of this size, even if simply a brownfields expansion of an existing operation, would have triggered enormous excitement. Today, it is just another project – a comment on how multi-billion projects, which effect everyone in the community, are being taken in their stride.

On the second point, Briefcase knows a man who has just returned from South America, having followed in the footsteps of US president, George W Bush, who recently popped in for a chat with leaders in exotic destinations such as Brazil, Uruguay and Colombia.

The news from that part of the world is anything but optimistic for resource companies, with extreme left-wing politics rising unpleasantly and threatening a range of potential mining and oil investments.

What, you might ask, has this got to do with our part of the world?

Everything, is the answer, because what we’re seeing in South America is an astonishing re-run of history, which has the potential to eliminate competitors from a range of industries and divert the flow of global capital to ‘safe’ places, such as WA.

•••

Briefcase will not bore his reader with the detail of exactly what’s happening in South America, the continent is too diverse, and what happens in one country does not necessarily affect another.

However, the fact that President Bush found time for a whirlwind tour of the region underscores the point that, for the first time in decades, South America has become important; not just because it is in the backyard of the US, but also because it is one of Australia’s major competitors in world commodity markets.

If, as seems likely, large parts of South America disappear down the s-bend, then countries with stable government and a strong rule of law, like Australia and Canada, will emerge as the resource-world winners, again.

The visit by President Bush, and a rival tour of the region by his nemesis, the Venezuelan president, Hugo Chavez, is a dramatic illustration of how the forces of the left, and the right, are gathering for a showdown in South America.

If it was just about any other region of the world this left versus right battle of ideologies would be confined to political table-thumping, and oratory.

•••

But, South America is not like anywhere else in the world. Passions run high, and guns always play a role as the place lurches from crisis to crisis while it swaps extreme forms of socialism for extreme forms of military dictatorship.

Already there are maps being drawn up showing ‘red’ and ‘blue’ countries, just as there are red and blue states in US elections. In effect, sides are being chosen and positions taken for what looks likely to become a decade of instability.

In the red corner is Chavez, a man who sees himself continuing the good work of Cuba’s communist dictator, Fidel Castro, and the great South America leader of centuries earlier, Simon Bolivar. It was Bolivar who attempted to create a single country in South America, and now it is Chavez who wants to try again.

The big, seriously big, problem with Chavez’s plan is that Colombians hate Venezuelans, Paraguayans hate Argentineans, Bolivians hate Chileans … etc etc etc.

Three clear points emerge from all this murk.

• Australia is a long way from the inevitably awful events emerging in South America;

• instability, civil disturbance, demands from left-wing governments for higher taxes from miners, and the threat of military intervention, will trigger a flight of risk capital looking to cash in on the resources boom; and

• the risk capital ear-marked for South America will find its way to Australia, Canada and Asia.

Hence, the boom in this part of the world, is intact. Yippee!!

•••

There is, somewhat curiously, a corollary message from the emerging mess which is South America, and that is the likely effect on the US, which remains one of Australia’s major trading partners, but which seems to be sliding deeper into a morass of self-pity.

Fortress America, an expression popular a generation (or two) ago of an America which turns its back on the world is becoming increasingly likely – if not deliberately, then by accident.

Intense personal and public security is starting to bog down the simple pleasure of visiting, or doing business in America – and Americans are becoming less trusting of the world as they see themselves as isolated and unloved.

For business, this rather pathetic sight of a country withdrawing into itself, carries a number of messages, such as:

• be wary about doing business in America, it’s getting harder every day for foreigners;

• focus on countries that are easier to deal with, even China beats America when it comes to business, which has to be the biggest irony in the history of the world; and

• be wary of a US economic meltdown if South America goes pear-shaped, an event which will have good-and-bad implications for Australia – but will be very good for gold miners.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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