'Resources curse' or untapped opportunity?
Richard Roberts, 1 December 2011
A REPORT on the development of Australia’s mining equipment, technology and services (METS) sector suggests the sector is at “a key stage of evolution”, and that it must get better at promoting itself and become more familiar to policy makers.
“The significance of this sector is underestimated,” author Don Scott‐Kemmis said in the report.
The senior fellow at the University of Sydney’s Centre for Innovation’s ‘pilot study’ for the United States Studies Centre at the University of Sydney, entitled, The Formation of Australian Mining Technology Services and Equipment Suppliers, says while a “vigorous process of entrepreneurship” has helped develop a diverse population of METS firms, “there is little evidence that the public policies designed to support new venture formation or the formal ‘commercialisation’ infrastructure, have significantly assisted”.
“Calling mining quarrying and Australia a quarry is not only long out of date, it fails to grasp the nature of the opportunity that mining brings.”
Drawing on a number of reports on the Australian METS sector, minerals research and development, and domestic mining industry spending on locally supplied mining goods and services, the study says the sector arguably could make an even bigger contribution to the Australian economy if it was, firstly, properly represented, and second, if it was better stimulated.
Research on the sector is scant, with some studies focusing only on high-tech elements. This e-magazine has published the only comprehensive annual survey of more than 100 Australian-based and controlled firms, privately and publicly owned, which showed on fiscal 2010 data a sector generating annual mining-related sales exceeding $A27 billion, employing more than 80,000 people directly, and chalking up exports worth more than $6 billion a year.
HighGrade is about to publish a new survey which will present, for the first time, a snapshot of the Australian-based but non-locally-owned part of the METS sector as well as the domestically controlled and based component, using FY11 data.
Scott-Kemmis says HighGrade’s “inclusive” Australian METS sector survey showed a segment of the country’s economy that was “substantially larger, much more export active, growing more rapidly and almost certainly more prospective than the heavily subsidised automotive sector”.
He wrote that many Australian METS firms were global leaders in their niche.
“Most [METS] firms were formed by entrepreneurs from the mining industry or their suppliers,” Scott-Kemmis reported.
“They typically began and developed through close interaction with the mining firms, often around problem solving.
“Spin-offs from research organisations, venture capital-backed start-ups, and innovation supported by government grants have played a minor role in the development of the sector.
“Today the [METS] sector is at a key stage of evolution. Many firms, including relatively small firms, are internationalising rapidly through exports and particularly through opening offshore offices. At the same time many firms are transforming their strategies, structures and organisational arrangements to support growth. A greater awareness of the strengths and performance of the sector would assist firms in attracting investment.”
Don Scott-Kemmis
He said the resources boom that was reshaping the Australian economy was one aspect of a “wider perspective … [that] informs the [METS sector] study”.
“Does Australia have the policy settings to avoid the ‘Dutch Disease’ and ensure that, after the resources boom, it will be better positioned for economic development?” he asked.
“Minerals are not simply economic resources with a value independent of the capabilities to identify, exploit and process them. The history of the United States and other countries show that clearly. Those histories also show that developing those capabilities, and leveraging resource development for wider industrial development, requires strategy and investment that are not the outcome of market forces alone.”
As well as the US, Canada, Sweden and Finland were countries that had leveraged resource development for industrial and technological transformation. Scott-Kemmis said a brief review of the relevant histories of these countries highlighted the “importance of capability development in industry, the role of coordination (through strategy and sectoral organisations), positive externalities and facilitating the wider processes of cluster evolution”.
“Rising global competition, accelerating technological change and more open markets have two unavoidable implications that are highly significant but poorly understood,” Scott-Kemmis wrote.
“First, countries need to more actively build their ‘comparative advantage’. Hence the mechanisms through which comparative advantage is built, strengthened and renovated are of central importance to any economy. Second, new ventures play a key role in exploring areas of new opportunity and new approaches to value creation – they are the business experiments which signal profitable paths for investment.
“The mechanisms and capabilities that stimulate and support new venture development, particularly in innovative areas, are vital and their importance in an economy is increasing.”
Scott-Kemmis said Australian METS firms continued to be at the heart of key changes in the mining industry, such as increased outsourcing of skills and expertise, and massive knowledge-intensive investment. There were new patterns of demand for equipment and services that favoured emerging, innovative firms over “long established global suppliers” to the mining industry.
“These new patterns of demand are the most important factor stimulating the development of internationally competitive Australian [METS] suppliers,” he wrote.
“Calling mining quarrying and Australia a quarry is not only long out of date, it fails to grasp the nature of the opportunity that mining brings.”
Scott-Kemmis doesn’t try to address the question about Australia’s policy settings being adequate (or not) to help the country avoid ‘Dutch Disease’ – from natural resource wealth somehow impairing other parts of a nation’s economy – or the so-called ‘resources curse’, attributed to countries that have squandered natural resource wealth. If his 90-page report stretched to 900 pages, he might scratch the surface of that one. But he did include a reference to “public policy failures” and quoted the University of California, Los Angeles (UCLA) political science professor Michael L. Ross: “The failure of states to take measures that could change resource abundance from a liability to an asset has become the most puzzling part of the resource curse”.
Scott-Kemmis said his assessment suggested Australia’s “research infrastructure related to mining has not been designed, or has not evolved to support the development of the [METS] sector”.
“This is potentially critical as firms climb the technology ladder and require deeper engagement with research organisations and specialist expertise,” he wrote. In the long run there was “little point in focusing public investment on developing competencies in research organisations and not in [METS] firms”.
“Capability in the former cannot substitute for capability in the latter.”
The author said other studies showed “extending the knowledge frontier” could grow a nation’s mineral wealth, and certainly that “mineral development can stimulate wider industrial and technological development”, as was happening in Australia.
Who knew?
Also in the December 1 - 7, 2011 edition
- AFRICA
- Food for thought
- Liberia drilling to start next month
- ASIA DESK
- Africa leads Renaissance reckoning
- Emmerson, HeliTEM give Friedland plenty to talk about
- BREAKING NEWS
- Gold drives nickel miner value
- Manganese boost for Tawana
- CENTRAL ASIA
- New Kyrgyz leader holds development key
- COAL
- Bringing in the big guns
- Modun racks up impressive Mongolian maiden
- Rio exits US thermal coal
- CONSULTING
- Change in the air
- CONTRACTING
- Contractually bound
- Walking the contract tightrope
- EXPLORATION
- Betting on billions of tonnes
- Cullen has promising year ahead
- FINANCE
- Market’s ups and downs weigh on Phillips River
- FROM THE CAPITAL
- Missed targets cost Sundance shareholders $400m
- GOLD
- Red 5 cash could be returned to investors
- Resolute's new horizon
- Transitional Enterprise
- HEAVY METAL
- Cat invests in trucks and engines in India
- Sany gets top billing
- MINING
- BC on the move
- MINING INTELLIGENCE
- Charting an optimistic path to disappointment
- Why JORC can be code for failure
- MINING IT
- ioHUB launch countdown underway
- Maptek introduces 12kg site scanner
- Product focus: Avizo Fire
- RepRisk offers monitor to non-financial enterprises
- Research improves pit slope modelling software
- Software developer primed for 2012
- PEOPLE
- Coal body's leadership change
- Look beyond the pay packet to secure the best professionals
- People on the move: Sinclair Knight Merz, Vale, Venturex, BC Iron, TNG, EMED Mining
- PROJECT WATCH
- Karara the key to Midwest future
- Tungsten back in the spotlight
- UnCUT
- Cameco's Paladin view; Resolute's new broom; golden real estate
