Waltzing to a mineral boom
"Roo-bucks." That's what the Australians call the money now bouncing to their resource-rich country. Exactly where that wave of foreign investment will take the "lucky country," as it's known, is open to debate. But for the moment it's a heady experience for the Aussies, participating in the second wave of resource development to break over the country in the last 15 years.Skip to next paragraph
Subscribe Today to the Monitor
As one Aussie put it, "It's like surfing down a wave; you don't know when it will break, but it's great fun while it lasts."
In the past fiscal year, ending June 30, some $6.85 billion ($6 billion Australian) has flooded into the country -- an increase of over 500 percent from the previous fiscal year -- to help finance the new coal mines and aluminum smelters. More is expected since $33 billion worth of capital projects are slated and 130 mining projects are currently under consideration or construction.
Even if a portion of these projects are scrubbed -- and there are already signs some of the aluminum smelters are being scaled back -- Australia will still look like a construction company's dream.
According to the federal treasurer, John Howard, in this fiscal year alone some $13 billion worth of capital projects will break ground. Real investment by business increased by 20 percent in the past fiscal year and this year's growth is expected to at least equal that feat again. In the prior five years, real capital spending increased by only 1 percent per year.
This new wave of investment is mainly energy related. Draglines are gouging coal out of the earth in Queensland and New South Wales; and aluminum pot lines are bellying up to power plants in Queensland and Western Australia. The Northwest Shelf project is preparing to ship vast quantities of natural gas first to Perth and later to Japan as liquefied natural gas. Uranium mines are opening up in the Northern Territories and Queensland. Drilling for oil is picking up again in the Bass Strait and Western Australia.
Politicians from the state governments are arranging trips to Japan and the US to sell foreign investors on Australia's "cheap coal power," as they price the cost of their electricity far under world levels. Pundits call Australia the "Pacific power station," as ships queue up in harbors waiting to load steaming coal to power the factories of Yokohama and Seoul.
Unfortunately, there is another aspect to this tidal wave of investment.
Points out Heinz Arndt, professor of economic research with the School of Pacific Studies at Australian National University, the influx of foreign capital , combined with a strong Australian dollar -- which is attracting speculative money -- is putting pressure on the money supply target of between 9 and 11 percent.
To counter this pressure, the government has continued to ease the upward pressures on the Australian dollar through active intervention in the exchange markets. However, this policy has its political liabilities since many exporters, particularly in the farm sector, have contracts linked to the US dollar. Internally, there is also pressure to keep interest rates down since home ownership is considered a constitutional right in Australia and mortgage money must be readily available.
The new projects also present "a danger of overheating the economy," admits Sen. John Carrick, the minister for development and energy, adding, "We must have a stable economy and a lower inflation rate than our trading partners."
The government is expecting 4 percent real growth in nonfarm gross domestic product (GDP) this fiscal year, ending June 30, the highest level of economic activity in seven years. (The first quarter showed a total GDP growth of 4.3 percent, with nonfarm products gaining 5.6 percent and farm products dropping 13 percent due to the prolonged drought.)
Economic forecasters are predicting a 10 percent inflation rate for the Aussies as long as wage demands are not exorbitant.Last year, real wages rose 2 to 3 percent, worrying some businessmen. "If this trend persists," says Ray Pelham-Thorman, executive director of the Australian Chamber of Commerce, "it could be dangerous since it could make Australian industry less competitive."
Faced with the danger of a spiraling inflation rate, the government has clanked into action. Prime Minister Malcolm Fraser has turned his stern demeanor toward those companies which agree to a 35-hour workweek. And he has threatened monetary and fiscal retaliation for labor settlements he feels the country cannot live with.