Policy challenges: A minerals industry perspective
Australia’s mining industry is a “price taker” in highly competitive global markets with strong competing sources of supply. It is Australia’s most globalised and export-oriented industry. Costs cannot simply be passed onto customers. To quote BHP Billiton’s Dean Dalla Valle in today’s Australian: “the world sets our prices and Australia sets our costs.”
Capital investments are large and span decades, with significant commercial risk and often long lead times before mines become profitable.
People, technology and capital in the industry are globally mobile. Sovereign risk is real and fiscal stability matters.
Industry costs structures along the whole value chain and the capacity to adjust to changing market conditions are critical to competing successfully in the international market place.
In the long run, a situation in which our relative costs are out of line with our relative productivity is not sustainable. Nor is the exchange rate a magic bullet that cures that problem. To begin with, nominal exchange rates are currently affected by unusual monetary policy conditions internationally; and even if nominal exchange rates adjust, they are a blunt way of dealing with distortions to relative domestic input prices.
In short, national cost competitiveness and flexibility in response to changing market conditions are crucial to our industry’s success and, dare I say it, to national economic success.
In saying this, I do not believe I am parroting some variant of Australian mercantilism. I’m not saying only exports are good and that policy should be directed towards the singular goal of maximising exports. Nor am I calling for the stripping away of regulations or long-standing institutional arrangements that serve the public interest; or advocating a so-called “race to the bottom” on wages, taxes, social foundations, environmental standards or animal welfare.
What I am saying is that we need to continually test our policy and regulatory settings to ensure they support productivity growth and cost competitiveness, including in those industries that operate in the global marketplace, where we have demonstrated comparative advantage and where we know increased costs cannot be simply passed on to others.