Speaking at a mining convention in the Western Australian capital of Perth last week, Qantas chairman and former Rio Tinto chief executive Leigh Clifford told delegates the current transition phase offered an opportunity for companies to step back and consider the economic fundamentals and identify what national priorities must be given to the changing circumstances.
The mining industry had witnessed many companies trimming the fat in recent months, including majors such as BHP Billiton and Fortescue Metals Group, cutting back expansion plans, assets and staff.
Clifford said the resource slow down enabled the focus to shift onto what’s driving the projects instead of focusing on the next expansion.
It also meant a dedicated evaluation could occur of where infrastructure and skills training were most needed.
“In my experience, this industry has always been adaptive, companies are quick to recognise the changing environment and respond to it, usually before governments, in fact,” Clifford said.
“In a high-cost, lower-price environment there must be a premium on efficiency. One of the reasons the Australian resource industry has performed so well is because we’ve led the world so well by supply side development.”
There is $A200 billion worth of projects under construction or committed to construction in Western Australia alone and the priorities for now have switched to value, return and productivity.
“Clearly things were not how they were, the industry is worried about costs and about its competitive position,” Clifford said.
“Projects which are under construction will continue to go ahead, but undoubtedly more projects will be deferred.
“From my experience, the industry and others have a tendency to underestimate the extent of the peaks and the troughs.”
Clifford said that if Australia worked to its strengths and addressed its weaknesses during the changing environment it could produce more favourable outcomes by focusing on building upon what’s important.
“Australia has a strong currency, low unemployment by world standards, is well endowed with minerals and recoveries, with stable institutions and a stable population,” he said.
“On the other hand, we face skill shortages, infrastructure shortages and falling productivity and high costs.”
Productivity was the common thread tied to all these issues and the key to securing economic well-being in the face of waning investment in a cautious climate.
Clifford referred to a study by McKinsey which estimated Australian labour productivity had increased by 3.1% each year in the 1990s, but only risen by 0.3% in the past six years at a time where investment was much higher.
“As the latest McKinsey report found, good cost control and execution accounted for a third of productivity,” he said.
“We’re allocating more capital for a lower return.”
With little national consensus on the country’s infrastructure priorities and disagreements between the federal and state governments and industry, Australian urban infrastructure did not compare well with many major cities of the Asian Pacific region.
“We should use our changing economic circumstances to bring about a more sensible, rigorous approach to national infrastructure funding and development,” Clifford said.
“Broader infrastructure needs will need to focus on projects which stack up in order to attract the necessary project investment.”
Clifford said the mining industry had driven demand for skills and knowledge which had rippled across the economy.
Work force engagement and using technology processes would also be crucial to employee motivation and ultimately productivity.
This article first appeared in ILN's sister publication MiningNews.net.
