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In Australia's two-speed economy, mining booms but tourism suffers In Australia's two-speed economy, mining booms but tourism suffers
(about 2 hours later)
In the Bowen Basin coalfields 600 miles north of Brisbane, a gold rush is in full swing. Black gold. Coal from this part of central Queensland – home to the country's biggest deposits – is driving the economy to set new records.In the Bowen Basin coalfields 600 miles north of Brisbane, a gold rush is in full swing. Black gold. Coal from this part of central Queensland – home to the country's biggest deposits – is driving the economy to set new records.
"Huge just doesn't do it justice," says a recent Deloitte Access Economics report on the state's resources boom. "Humungous might bring us closer to the mark." Chris Richardson, a partner at the firm, says Australia has been riding in the slipstream of China and other emerging economies. "We have opportunities that the likes of the UK and others don't to sell our resources in a period where half the world is having an industrial revolution. That's magnificent for us." "Huge just doesn't do it justice," says a recent Deloitte Access Economics report on the state's resources boom. "Humungous might bring us closer to the mark." Deloitte's Chris Richardson says Australia has been riding in the slipstream of China and other emerging economies. "We have opportunities that the likes of the UK and others don't to sell our resources in a period where half the world is having an industrial revolution. That's magnificent for us."
But when the London-listed miner BHP Billiton this week shelved plans to build the world's biggest open-pit copper and uranium mine in south Australia, the Sydney Morning Herald website ran the headline: "The bubble has burst." BHP said it was a financial decision based on slowing demand and the high price of expansion in Australia, with its tight labour market and high exchange rate.But when the London-listed miner BHP Billiton this week shelved plans to build the world's biggest open-pit copper and uranium mine in south Australia, the Sydney Morning Herald website ran the headline: "The bubble has burst." BHP said it was a financial decision based on slowing demand and the high price of expansion in Australia, with its tight labour market and high exchange rate.
This year the minerals and resources industry will account for 8.5% of Australia's GDP, compared with the long-term average of less than 2%. It will make up more than half of the country's export income. Australia is the world's biggest exporter of coal and iron ore.This year the minerals and resources industry will account for 8.5% of Australia's GDP, compared with the long-term average of less than 2%. It will make up more than half of the country's export income. Australia is the world's biggest exporter of coal and iron ore.
The industry has shielded the country from the economic storms that have buffeted Europe and the US. Saul Eslake, chief economist at Bank of America Merrill Lynch (Australia), says Australia's strong financial position is a combination of good luck and good management. "What China is doing for our exports is not a result of anything politicians have done in Canberra, but we have also had good monetary policy backed up by good, prudential management of our banks. Unlike most other western countries who ran deficits during the boom years, Australia ran surpluses, which put it in a very strong position to deal with the financial crisis when it came." The industry has shielded the country from the economic storms that have buffeted Europe and the US. Saul Eslake, chief economist at Bank of America Merrill Lynch (Australia), says the country's strong financial position is a combination of good luck and good management. "What China is doing for our exports is not a result of anything politicians have done in Canberra – but we have also had good monetary policy backed up by good, prudential management of our banks. Unlike most other western countries, who ran deficits during the boom years, Australia ran surpluses, which put it in a very strong position to deal with the financial crisis when it came."
Australia remains one of only eight countries worldwide to have AAA sovereign debt ratings from all three main ratings agencies. While much of Europe is mired in a financial crisis, unemployment in Australia is 5.1%, inflation stands at 1.2%, official interest rates are 3.5% and growth is predicted to be 3.1% in 2012 (according to the International Monetary Fund), compared with 0.2% in Britain. Australia remains one of only eight countries worldwide to hold AAA sovereign debt ratings from all three main ratings agencies. While much of Europe is mired in crisis, unemployment in Australia is 5.1%, inflation stands at 1.2%, official interest rates are 3.5% and growth is predicted to be 3.1% in 2012, according to the International Monetary Fund, compared with 0.2% in Britain.
The strong economy, however, has not brought benefits to all sectors. At Mission Beach, north Queensland, an hour and half's drive south of the barrier reef hub of Cairns, Atalanta Willy is preparing to take a small group of tourists on a half-day sea-kayaking trip to a nearby tropical island. "Many small towns like this are only just keeping their heads above water," she says. The strong economy, however, has not brought benefits to all sectors. At Mission Beach in north Queensland, an hour and a half's drive south of the barrier reef hub of Cairns, Atalanta Willy is preparing to take a small group of tourists on a half-day sea-kayaking trip to a nearby tropical island. "Many small towns like this are only just keeping their heads above water," she says.
Strong economic fundamentals and the mining boom have pushed the Australian dollar to sustained highs, hurting industries such as tourism. Five years ago £1 bought you $A2.50; today it's closer to $A1.50. "The foreign tourists that come through here find it unbelievably expensive," says Willy. Strong economic fundamentals and the mining boom have pushed the Australian dollar to sustained highs, hurting industries such as tourism. Five years ago £1 bought you A$2.50; today it's closer to A$1.50.
Full- or half-day sea kayaking trips were once the backbone of her business, but demand is much lower now. "Tourists used to have more money in their pockets and stay a bit longer. Now the high dollar means they're moving through towns like this much faster." Shops and cafes in the small community have closed. Last year Willy's husband, David Tofler, went back to work as a sound recordist to supplement their income. He's likely to do it again in the upcoming wet season. "The foreign tourists that come through here find it unbelievably expensive," says Willy. Full- or half-day sea kayaking trips were once the backbone of her business, but demand is much lower now. "Tourists used to have more money in their pockets and stay a bit longer. Now the high dollar means they're moving through towns like this much faster." Shops and cafes in the small community have closed. Last year Willy's husband, David Tofler, went back to work as a sound recordist to supplement their income. He's likely to do it again in the upcoming wet season.
CatastrophicCatastrophic
Across north Queensland it's a similar picture. Tourism in the area fell 8% in the year to March, with substantial dropoffs in the lucrative European backpacker market, down 18%. The numbers of Japanese tourists, who make up more than half of all visitors to the state, fell at the same rate.Across north Queensland it's a similar picture. Tourism in the area fell 8% in the year to March, with substantial dropoffs in the lucrative European backpacker market, down 18%. The numbers of Japanese tourists, who make up more than half of all visitors to the state, fell at the same rate.
"It's been catastrophic for some businesses and many have hung on for dear life," says Daniel Gschwind, chief executive of the Queensland Tourism Industry Council. In Cairns, which for years has thrived on tourism, unemployment is now 8.3%, well above the 5% national average. "It's been catastrophic for some businesses and many have hung on for dear life," says Daniel Gschwind, chief executive of the Queensland Tourism Industry Council. In Cairns, which for years has thrived on tourism, unemployment is 8.3%, well above the national average.
Manufacturing has also been a significant loser in Australia's two-speed economy. Manufacturers have been reporting falling output since March and the latest Australian Industry Group's monthly index for industrial performance, in July, showed a sharp 6.9-point fall to 40.3 points – the lowest level since the global financial crisis began.Manufacturing has also been a significant loser in Australia's two-speed economy. Manufacturers have been reporting falling output since March and the latest Australian Industry Group's monthly index for industrial performance, in July, showed a sharp 6.9-point fall to 40.3 points – the lowest level since the global financial crisis began.
The high dollar has hit export-reliant industries such as steel and aluminium, making them uncompetitive internationally. Job losses have been painful, the majority coming in the south-east corner of the country, far away from the mining boom. It has dampened consumer confidence in those areas, which in turn has hit other manufacturers. Last month Ford laid off 440 workers at its plants in Victoria.The high dollar has hit export-reliant industries such as steel and aluminium, making them uncompetitive internationally. Job losses have been painful, the majority coming in the south-east corner of the country, far away from the mining boom. It has dampened consumer confidence in those areas, which in turn has hit other manufacturers. Last month Ford laid off 440 workers at its plants in Victoria.
By contrast, mining projects in remote parts of north-western Australia face skills shortages. In May the world's richest woman (and Australia's wealthiest miner), Gina Rinehart, won the right to bring in 1,700 foreign workers for the construction of an iron ore mine in Pilbara. The move, which enraged union officials, demonstrates the lopsided nature of the Australian economy and the difficulty mining companies have in persuading workers to leave their homes in Sydney and Melbourne. By contrast, mining projects in the remote parts of north-western Australia face skills shortages. In May, the world's richest woman (and Australia's wealthiest miner), Gina Rinehart, won the right to bring in 1,700 foreign workers for the construction of an iron ore mine in Pilbara. The move, which enraged union officials, demonstrates the lopsided nature of the Australian economy and the difficulty mining companies have in persuading workers to leave their homes in Sydney and Melbourne.
So what of the future? "There has never been a boom which goes on forever," says Deloitte's Richardson. "By the standards of booms, this one is already pretty old and will go for some time given the sheer size of the seismic shift under way in places like China and India, with people moving off farms and into factories."So what of the future? "There has never been a boom which goes on forever," says Deloitte's Richardson. "By the standards of booms, this one is already pretty old and will go for some time given the sheer size of the seismic shift under way in places like China and India, with people moving off farms and into factories."
Eslake thinks the mining boom has another decade to run, and says the real challenge will come after that. "The history of Japan and Korea tells us that the intensity of demand for commodities falls away once a country reaches per capita income somewhere between $US18,000 and $25,000 (£11,000-£16,000). In China, I think that's about a decade away. Eslake thinks the mining boom has another decade to run, and says the real challenge will come after that. "The history of Japan and Korea tells us that the intensity of demand for commodities falls away once a country reaches per capita income somewhere between US$18,000 and US$25,000 (£11,000-£16,000). In China, I think that's about a decade away.
"The challenge then will be what else we can sell to the Chinese when they don't want our minerals. The answer won't be manufacturing but is more likely to be some sort of agricultural products and services." In the meantime, Australians can only be grateful that they don't face the sorts of economic challenges that Europe does. "The challenge then will be what else we can sell to the Chinese when they don't want our minerals. The answer won't be manufacturing but is more likely to be some sort of agricultural products and services."
In the meantime, Australians can only be grateful that they don't face the sorts of economic challenges that Europe does.