I too would like start by recognising the Traditional Owners of the land on which we meet, the Wurundjeri people of the Kulin Nation, and by extending my respect to their Elders both past and present.
Thanks to the Australia-Israel Chamber of Commerce for the opportunity to speak today. I know the Chamber regularly provides a great platform for reflection on some of the important issues facing Australia and beyond. And today I’m going to be talking about resources – mining and oil and gas, including the opportunity the industry continues to present to the nation.
I’ve spent a good part of my career in resources around the world, in fact all of it. And as some in the audience will know, I love this industry. Other than maybe agriculture, there’s not many industries that bring with them quite the same rich range of very local to very global, from the physical dirt movement in an open-cut or being in the dark a kilometre underground through to high finance and trading, from the most basic of manual effort to the application of some of the most advanced technology in the world.
And in all of the major economies in which I’ve worked, no-where do resources investment and production play as important a role in the economy and in the day to day lives of people as they do here in Australia, where the resources industry has helped to provide the foundation for the rich, vibrant, prosperous economy that we enjoy today.
There remains a lot of opportunity ahead for Australia in resources and the industry will continue to be an important feature of our national prosperity. Not only can we continue to simply do more of what we’ve done in the past, but we can leverage our strength in resources in a way that further amplifies the broader dividend accruing from the industry, including through the platform it provides for the development and growth of the technology and services sectors.
Our comparative advantage
Before I talk more broadly about that though, let me make a small detour to talk to an anecdote that might help to give a sense for my passion to see us build upon the foundation that our resource endowment provides. The anecdote relates to the Israel half of the Australia Israel Chamber of Commerce.
Small show of hands – how many people here have been to Israel?
Ok. So some of you will know where I’m coming from.
I spent six years in the Netherlands running some of our marketing and trading operations.
And back in 2006 I was invited down to Israel for a few days to meet with one of our major energy customers. It was a short trip but it left a lasting impression.
Some of the things that really struck me were:
- Just how small the country is – many hundreds of times smaller than Australia.
- How relatively limited it is in natural resources – certainly nothing like we enjoy.
- How arid much or most of the terrain is – in spite of which they’ve been able to develop a remarkable agricultural industry.
- And of course the ever present security challenges that were felt both in the checks on the way in, as well as when we were out and about during our trip.
Now of course these are common knowledge but experiencing them there in the moment certainly brought them home. And what left perhaps the greatest impression on me was how, in spite of these natural disadvantages or challenges, they’d managed to build up such a thriving, vibrant economy.
For a small country, they punch above their economic weight. Today they lead the world in expenditure on research and development as a proportion of GDP. They’ve become a global hub for innovation. Only the U.S. and China have more companies listed on the NASDAQ.
GDP per capita on a PPP basis is not quite as high as Australia, but it ranks right up there, and their economy is growing more quickly and unemployment is about on par.
I came away from my visit thinking, holy cow, if they can achieve what they’re achieving without some of the natural advantages and relative security that we enjoy, imagine what we can achieve if we really turned our minds to it.
We have a pre-existing strength to play to – our rich natural resources endowment. Now the flip side of that of course is that perhaps we’ve been able to prosper without needing to be quite as skilled or aggressive when it comes to technological innovation or in stimulating investment.
The irony of course is that the strong foundation we have should in fact provide us with more opportunity to do these, not less.
Resources in the economy
Australia is now in its 26th year of consecutive growth. We are the envy of the world when it comes to economic growth. This has been great for all Australians.
By no means has it been the only reason, but resources has certainly supported this growth even through the GFC. Mining alone has invested almost $600 billion in Australia over the last 10 years, five times as much as manufacturing, and much of it won from overseas. The total economic contribution the extended industry generates is about 15 per cent of our GDP, and it accounts for approximately 10 per cent of total employment.
I was in Canberra a couple of weeks back for the annual Minerals Week. Some of you may also have been there. I came away really encouraged by the positive energy and sentiment towards resources, not least of which because it really felt to me like the public narrative is starting to move beyond this notion that somehow resources is an industry in decline whose best days are behind it.
The future is bright – and in some senses I think it could be argued our best days are yet to come! The industry will continue to make a significant contribution to the economy well into the future. This isn’t just because of the significant capital already sunk, it’s because there’s still so much to play for in terms of ongoing investment and other opportunities.
The world economy is expected to triple by 2050 and global population expected to near 10 billion, an increase of a few billion.
And as the population grows, there will be disproportionate growth in the middle class. Around three billion more people will enter the middle class over this same time frame.
More people, more investment and more consumption is going to require more resources. Demand for energy, metals and minerals will continue to be strong for decades to come.
If we just take global energy for example, annual demand will grow by around 40% by 2050. The increase alone being over 30 times BHP’s current annual energy production. In copper the world needs four or five more Olympic Dams each year for many years. Australia remains well-placed to continue to benefit from this ongoing growth.
It’s not all roses though. While demand will continue to grow, it’s not going to be at the hyper-charged rates of the past period. Nor will it be greatest in those commodities in which Australia has the strongest competitive positions.
Yes there’s a lot to play for and we can still benefit from the growth, but we’re going to have to work a bit harder at it.
Innovation and technology
One of the things we need to focus on is getting better at the development and application of technology. Now this isn’t just a challenge, it’s a magnificent opportunity.
Here we have a large resources industry where technology has much to offer in terms of improved safety and improved value. What a ready foundation for innovation and development!
More rapid deployment of technology can help us become ever more productive. We can make the industry markedly safer. We can reduce our environmental footprint. We can make the industry accessible for a more diverse range of potential employees. And importantly we can make it an even more connected, more exciting place to work.
Through working with local enterprises on this, we can stimulate home grown innovation, with all of the flow on benefits in terms of investment and jobs that brings, including as some of those enterprises then begin to compete globally.
We’re already seeing this accelerate. In the past 12 months in my operations alone, I’ve seen some really exciting and promising advances in design and technology. Too many to mention here, but a few include:
- A redesigned ore car repair shop in our Iron Ore operations. This facility is partially autonomous. It has been designed to be safer, more productive and a better place to work through removing people from the line of fire and reducing the physical effort needed to perform the work.
- In Queensland, I’ve seen us working with a local supplier to develop a zero diesel particulate matter emissions engine for use in underground coal – putting us on path to significantly reducing or eliminating worker exposure to a carcinogen.
- We’ve stood up a high tech remote operating centre in Brisbane for our Coal business.
- In our maintenance activities, we are deploying machine learning to aid with development of strategies that allow us to keep our equipment in better nick and operating for more hours.
Even with the exciting things I’m seeing in the here and now, my sense is that there is still far to go in our journey to fully unlock the benefits that technology can bring.
A focus on innovation and technology will help to keep us strong in a fiercely competitive global commodities market, and it can help Australia to sustainably reap an even greater dividend in the broader economy from our industry.
A better coordinated effort in this regard between industry players like BHP, and local equipment, technology and services suppliers can really help to accelerate our performance, and can provide a great development platform for local business.
To that end, the likes of ourselves, Rio Tinto and others are making it easier for local business to access opportunities and we’re also increasingly collaborating with local suppliers on new technology development. The example I mentioned earlier on the zero emissions engine is but one of many.
Success in technology will stimulate different jobs, in many cases which will be even more highly skilled. These jobs will be not just in companies like BHP, but in the thousands of companies that work on developing and applying new technologies in the industry. There’s some exciting opportunities in here for the next generation!
Enabling the future with the right settings
For Australia to realise the true potential of the industry though, we need to be enabled by policy settings that support ongoing investment and continued international competitiveness. The three things I’ll call out here are money, power, and people.
I’ll start with money, or investment. Business investment has been such a strong contributor to Australia’s long-run of economic growth. In fact it’s grown as a proportion of GDP on average over much of that 26 year period of growth.
Business investment as a share of GDP has run well in excess of other advanced economies for many years. Recent years however have seen a sharp deceleration. We’re ceding our historical advantage.
Of course some of this is a result of slowing resources investment. That’s not the whole story though. Even excluding mining, Australian business investment has been falling.
We need to ask ourselves what can be done to re-secure our historically strong advantage in terms of attracting investment.
There’s a range of things that can help, but the one that I’d like to focus on here is tax reform.
We can improve competitiveness and make investment more attractive through closing the company tax rate disadvantage that we have relative to most OECD countries. Australia’s company tax rate of 30% is much higher than the OECD average. In fact there are only a few countries that have a company tax rate as high as Australia.
Capital is global in nature and it will flow to where the most attractive opportunities exist. Australia needs to guard against the risk that it gets gradually priced out of the market through falling behind countries that are becoming ever more attractive for investment through rebasing their company tax rate.
Closing this gap wouldn’t just help to secure the latent opportunity for ongoing resources investment, it would support business investment more broadly.
Secondly – power, or energy. There’s not a morning I wake up these days and there’s not something in the news. And that’s good because this is a seriously big deal. It’s a big deal for everyone, including for the likes of the resources industry and of course manufacturing.
Increasing energy prices and unreliable supply hinder the competitiveness of Australian businesses and threaten future investment.
One important dimension is of course affordability. BHP alone spends over $1.6 billion per annum on energy inputs into its Australian operations, of which $300-350 million is for East Coast electricity. With prices in some instances having almost doubled over the last two years, this is a pretty big cost impost.
And then there’s reliability. A smelter full of hot metal that suddenly loses power is far from a good thing. Unexpected power disruptions have the potential to cause significant damage to our infrastructure.
It is of course critical that energy affordability and reliability be achieved in a way sees greenhouse gas emissions falling and the risk of climate change mitigated.
Now energy markets reform is notoriously tough given the number of variables and stakeholders and it takes time to put into effect any changes agreed. These things play out over many years.
It has been great to see the effort that has been mobilised at the federal level and on the part of some states like South Australia to try to address the issues and achieve reform. We certainly support a strong bias to action and we support the recommendations included in the Finkel Review.
We need clear, stable, refreshed energy policy that enhances the structure and operation of the market while realising the emissions reductions that are so important for us to achieve.
Now this is an area as well where technology is our friend. The policy should be technology neutral when it comes to achieving emissions reductions. Anything other than that is likely to result in a higher cost, less effective outcome.
We look forward to continuing to work closely with government in support of their efforts.
Finally, people, or education.
Innovation requires the human capability to drive it. And in the case of technology, that is mainly in the STEM disciplines.
For a company that engages in the sort of technically challenging work we do, it is concerning to see Australia sitting as low as it does relative to other OECD countries when it comes to people graduating in STEM. We rank close to the bottom at around 16-18%. We are falling behind some others who have one in three graduating in STEM disciplines.
The nature of our work is evolving. We need to make sure that education is setting people up for success. We need more effective focus and investment in STEM skills at all education levels.
We also need to recognise that even those who are simply applying new technologies rather than developing them are, in many instances, going to need to be equipped with an increasingly more technically oriented set of skills and capabilities.
There are two fronts we need to tackle here: strengthening the pipeline and continuous training.
Governments need to continue to push funding and policy that encourages and enables STEM education. Business needs to play a role as well.
This can be through being clear about trends in our future workforce requirements. It can be through greater collaboration between businesses and universities and it should also extend to increased effort in terms of investing in vocational training and retraining of employees.
In addition to our support for industry wide initiatives and the employment opportunities we provide for those with STEM backgrounds, BHP has committed $55 million over five years to Australian programs to stimulate STEM education.
All of us – governments, business and civil society – can benefit from a STEM-enabled workforce, and we should all play our part to make sure we achieve it.
As I noted earlier, I’m really passionate about what this industry has to offer and I’ve been encouraged to see the growing recognition that our future is not one of resources in decline. It’s maybe a slower rate of growth but off a much higher base. It’s not one of technology instead of resources, it’s one of technology and resources, or even possibly technology because of resources.
Now this future isn’t a certainty. A darker one would be one in which we are slow to innovate, we continue to operate with old technology and operating practices, and where the policy settings are such as to stifle fresh investment.
I don’t believe we’ll let that be our future though. Our resource endowment is a strength, and it’s one we can leverage even more for the benefit of the broader economy. Supported by the right policy settings, and through ongoing investment and more effective application of technology, we can maintain our competitive advantage, even in the face of a shifting mix in commodity demand. And our efforts can help to strengthen the equipment, technology and services sector here in Australia.
Through a bit of burning ambition, a collective eye towards the opportunity at hand, and a bit of policy reinforcement, we can make this future so.
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