16 March 2016
Andrew Mackenzie, Chief Executive Officer
AFR Business Summit
Melbourne, Australia, 16 March 2016
Good morning everyone.
I would like to acknowledge the trabditional owners of the land on which we are gathered on – the Wurundjeri people of the Kulin nation - and pay my respects to their Elders past and present and extend that respect to other Aboriginal persons present.
I also want to thank the Australian Financial Review for creating this important forum. Important because, as Michael Stutchbury (Editor in Chief of the AFR) wrote in his introduction to the Summit ‘The Australian business landscape is being reshaped by two fundamental forces - the next phase of Chinese and Asian development and the disruption of digital technologies.’
I would like to add one rider to Michael’s remarks though. My rider is this. It is not just the Australian business landscape that is being reshaped. The fundamental forces we are here to discuss are reshaping the whole global economy.
Every city, in every nation, on every continent, is changing. People say these changes are the biggest since the Industrial Revolution. Some of those profound shifts are already evident.
The arrival of electric and driverless cars could well revolutionise the automotive industry in ways unimagined just a few years ago.
Big Data is being used for predictive analysis crunching mountains of digital information to forecast how groups of people and natural systems behave (and for us – it’s taking productivity to new levels at our operations!).
The greatest changes (the ones so profound we cannot yet conceive of them) are closer than we realise. Without a doubt one of the most profound economic changes is happening a few hours north of Darwin.
The continual growth of an Asian middle class that (by 2030) is predicted to number 3.2 billion people.
Hundreds of millions of people in China and across Asia have been lifted out of poverty in the past 20 years, thanks in part to Australia’s natural resources, which helped create the foundation for unprecedented growth right across the region.
This growth took Australia by surprise. The events leading up to this change happened at a scale and a pace we simply didn’t see coming.
Many (including BHP Billiton) were unprepared for what has been the greatest commodities boom of our time. And while BHP Billiton anticipated emerging trends that signalled the end of the boom, we didn’t expect the scale and the speed with which it happened.
This has taught us all a critical lesson. There are no certainties in the 21st century and the state of the global economy reflects this.
However, rapid change in any form doesn’t just bring uncertainty. It brings promise and opportunity - and we know this at BHP Billiton because we have seen it before.
While BHP Billiton’s heritage is Australian (we were born as a public company on the Melbourne Stock Exchange that operated on this very street) we’re a global company too.
We’re a global company that’s been around since the 1880s. And we’re a global company that operates in an industry where production cycles (the lifetime of a mine) are measured in decades, generations.
Put it this way, BHP Billiton is the kind of company that could open a mine before a baby was born and that mine could still be operating when that child celebrated their hundredth birthday.
You won’t be able to say the same for your Apple watch!
Our cycles of opportunity are that long. And one of the benefits of size and longevity is perspective.
We’ve seen mining booms before. The boomerang-shaped lode of silver chloride we found in Broken Hill in the 1880s was more valuable than all of the wealth created by the Gold Rush.
And (despite the fact that silver prices were falling) we prospered, as did our shareholders and our employees and the nation as a whole.
We prospered because we invested in the best people and the best equipment and ran a very productive enterprise. We prospered because we planned and acted in generational and global terms, casting our ambitions beyond the horizon.
That’s how a small mining operation became a global company. And that’s why the return to normality in prices and demand in the commodities sector today is not cause for long-term pessimism.
The perspective we gained through experience told us that the super profits (the boom prices) of the past decade simply could not be sustained.
Sooner or later natural market forces would bring prices back down to earth and when that happened the same approach that saw us prosper (on the downside of the silver boom in the second half of the 1880s) would see us prosper again.
That’s why we still invest so heavily in new technologies and productivity and that’s why we fight so hard in every market we enter - from potash to iron ore\ - to sell our products into open and transparent markets.
Because history tells us that cartel pricing is unfair and inefficient and ultimately unsustainable because it creates uncertainty and makes it harder to plan for the future.
That’s why BHP Billiton believes free trade is essential for doing good business and it reflects the Australian values of opportunity and fairness.
We believe it’s good for business to buy and sell at a fair price in a way that promotes sustainable economic growth and we believe it’s good for business to be transparent.
Although BHP Billiton has grown into a global company, our DNA is Australian. And we’re proud to do business the Australian way. In fact, Australia has been on a similar journey to BHP Billiton.
Australia has been a global leader in advocating for free trade and reducing import protection. For instance, in the 80s and 90s, Australia was braver than the nations of Europe or the US in reducing agricultural subsidies.
At the same time, alongside our historical relationships with the US, UK and Europe we forged deep relationships with our neighbours in Asia. This commitment to international engagement and free trade gives Australia a unique opportunity to enhance its role in a rapidly changing world.
The Australian way has become a matter of international interest in recent times.
In the aftermath of the Global Financial Crisis more than a few leaders in Europe in particular cast an envious eye towards Australia. Yes, China’s industrialisation helped, but there was more to Australia’s prosperity than just the mining boom or stimulus packages.
Australia prospered because a generation of leaders (in politics, in business, in academia, in the union movement) cast their ambitions beyond the horizon and thought about what Australia needed to do to become more prosperous.
And so the economy was opened up in the1980s. Competition policies were embraced in the 1990s. And debt was reduced and financial regulations tightened in the 2000s.
In many ways the cycles of opportunity for nations are very much like the cycles of opportunity for mining companies.
It takes time. Progress takes time and courage. You have to plan for it, you have to invest for it, you have to have conviction.
The time has come for this nation to renew its commitment to creating a stronger future, cast its ambitions beyond the horizon again and plan, invest, and act to create a more prosperous and resilient Australia.
An Australia that has the skills and industries to profit from the long boom in services that Asia’s middle class will certainly demand. An Australia that remains open to new ideas and new people.
An Australia that rewards those who are prepared to innovate and build new businesses and industries.
Commodities will always have a place in Australia - that’s part of this country’s heritage. The natural resources that this country is endowed with are fundamental to life. But the future is not certain.
The Australian economy needs to grow across other parts of the economy. And Australian businesses (including BHP Billiton) aren’t just competing against each other for investment or market share.
Because one of the by-products of this digital global economy is that Australian businesses are now competing on a global stage. There is no alternative but to be globally competitive and not wait for another once-in-a-century boom in commodity prices.
This is what BHP Billiton has done throughout its history. It has been in a constant state of evolution taking opportunities to position its portfolio to prosper in high times and to stay strong during the lows.
Taking chances takes strong leadership. But leadership looks different in this new era. It’s not just required from the Prime Minister or the Premiers or CEOs, central bankers or union secretaries.
People have to be engaged, enlisted and empowered to become more productive and engaged in the selections of their leaders.
That means investing in skills, education and preventative healthcare. That means investing in infrastructure to make sure our cities remain liveable as they grow.
That means using Australia’s enviable lifestyle as a magnet to attract and retain skilled migrants. And that means a policy debate based on the Australian values of respect and equality of opportunity.
And that’s how we’ll prepare the country for the challenges that lie ahead.
This requires all of us - government, industry and media to think expansively about Australia’s future and to take international economic and political developments into account as we think about Australia’s challenges and opportunities.
One of the most important policy challenges is to create a more productive nation. To work together to continually improve. And to seize opportunity we must embrace new ways to compete.
BHP Billiton believes it’s in the national interest to simplify workplace agreements so that our teams have the flexibility to succeed in the global market.
Taxation reform is another area that needs further debate. At BHP Billiton, we’re concerned about the taxes that impact on competitiveness and productivity such as company tax.
Australia has a higher company tax rate than the OECD average of 25 per cent. Having a higher rate disadvantages Australian businesses making it harder to compete globally, and making it harder for us to employ, train and promote Australian talent.
At BHP Billiton, projects compete internally for investment capital. As a global company, tax is one of the factors taken into account in determining how and where we spend our capital.
Yet in Australia there are still demands for the corporate sector to pay even higher and (despite the introduction of the GST in 2000) there is still a raft of inefficient state taxes, like stamp duty.
And so we need a debate on both the revenue challenges facing governments and the growth opportunities that tax reform could provide.
Reform is never easy but it has never been more necessary than now. The responsibility to lead reform belongs to all of us.
Change won’t be easy - we live in a very different world to the 80s.
The cycles of news and public opinion have never been shorter or more volatile. But to look beyond the horizon we need the same courage of conviction those leaders had to make sure we take the opportunities in front of us.
Let me leave you with this thought. BHP Billiton and Australia have travelled a parallel path to prosperity.
This company has a humble history. We started out in a dusty outback camp that became a town.
Back in January I travelled to that town that is now a city – Broken Hill. Back in the 1880s it cost almost as much to travel from Sydney to Broken Hill via train and coach as it did to catch a steamer from London to Sydney!
Back in the 1880s, the wealth that came out of Broken Hill was astonishing.
It paid for corporate offices in Collins Street and countless mansions and family homes in Adelaide, Sydney and Melbourne.
It also helped build this country. Beyond that boom, this company became a national and then international force. The same thing happened with this country.
Australia grew from a collection of colonial economies to a national economy, to now a major player in the global economy (and one of China’s top trading partners).
This company and this country share many aspects of our histories. Only time (and courage) will tell what kind of future we share. Because the perspective we’ve earned has taught us that the cycle of opportunity waits for no one!