Australian productivity relies on innovation

If Australia is to remain a leading resources and energy exporter, our productivity and competitiveness must rise, writes Minister for Industry, the Honourable Ian Macfarlane.

Feature article from resourceful: Issue 6, March 2014

Australia has long been a world leader in the resources and energy sector.

The Honourable Ian Macfarlane, Minister for Industry

From exploration to development, export and mine site rehabilitation, we have set the pace in the productive and competitive development of environmentally responsible, economically important, world-class resources and energy projects.

But with the rapid increase in global demand and prices for resources over the past decade, competition is increasing amongst countries around the world to supply valuable commodities to developed and developing nations.

The challenge we face is clear: if Australia is to remain a leading resources and energy exporter, our productivity and competitiveness must rise, especially as the major discoveries that are the backbone of these industries become less frequent.

Over the past decade, mining productivity has declined in Australia, as it has in other mature resource-producing nations such as the United States and Canada. Factors contributing to this decline include the delay between capital investment and mine output and labour shortages exacerbated by the construction phase of the resources boom.

PricewaterhouseCooper’s March 2012 productivity scorecard noted that despite productivity falls of 50 per cent in the past 10 years, the mining sector continues to have the highest level of labour productivity compared to all other industry sectors in Australia.

The December 2013 scorecard showed annual productivity in the mining sector grew by 7.6 per cent in the year to September 2013 as a result of a significant increase in output.

The move from construction to production activity will result in some productivity improvements, however more needs to be done.Productivity advances also require innovative solutions to pressing challenges such as resource depletion and cost pressures related to rising energy costs.

This provides huge opportunities for organisations such as CSIRO and other innovation-focussed bodies such as cooperative research centres and universities, which are driving the next wave of productivity advances like the pioneering of mine automation.

For Australia to compete globally, technical solutions are essential to ensure we remain a high-skill, high-wage resource and energy producer.

Our international advantage is that our workforce is educated and adaptable. It’s one of the reasons our labour costs are higher than many other jurisdictions.

This won’t change – nor should we wish it to.

Australia will never become a low-wage mining country, but looking at wages alone does not tell the whole story.

Those who work closely with the industry would be well aware that it is not complacent, especially as commodity prices have moderated, a number of marginal mines have closed and projects have been deferred.

The industry has shown a heightened interest in sustainable productivity initiatives and process improvements that will embed productivity savings.

As a result, labour productivity is expected to improve significantly as major projects come online and large construction workforces are replaced by smaller operational workforces.

The good news is that Australian mining companies have been quick to adopt new technologies, resulting in the development of one of the world’s most innovative mining equipment technology and services sectors.

Many of these companies began their life in CSIRO labs and workshops.

It’s important to remember that the word ‘industry’ is the ‘I’ in CSIRO and the organisation will be integral to improving technology and boosting productivity across Australian industry.

The paradox is that as prices moderate and company profits are squeezed, the need to innovate becomes greater but the capacity to invest falls.

The Australian Government appreciates these conflicting demands and understands our role to promote productivity and, with it, feed greater competitiveness.

To help free up company capital, the government is working to reduce the red tape that increases costs to resource development, to reduce energy costs by abolishing taxes such as the carbon tax, and to promote investment in a more skilled workforce.

Reducing red tape will make Australia a more attractive location for investment – another global marketplace in which Australia is just one of many competitors.

This is a key part of the government’s deregulation agenda to strengthen essential industries such as resources and energy.

In December 2013, the Council of Australian Governments agreed to implement a one-stop shop for environmental assessments and approvals within 12 months.

To this end, the government has committed itself to establishing a single approval process that meets all state, territory and Commonwealth laws.

The Commonwealth will accredit state environmental assessment and approval systems under national environment law, to create a single approval process that satisfies both state and Commonwealth requirements.

Faster approvals will create certainty for investment, reduce costs for business, boost productivity and create jobs while maintaining the current high standard of environmental protection.

The government is also streamlining environmental approval processes for offshore petroleum and greenhouse gas storage activities.

Approvals will be faster and costs reduced by removing the need for these activities to be assessed under two separate processes by two separate regulators, which ultimately have the same objective of environmental protection.

Australia’s current strong environmental safeguards will be maintained while reducing regulatory burden for industry and interested parties.

The Minister for the Environment was due to approve the streamlined approvals process for these activities by the end of February 2014.

The Australian Government will also launch the Exploration Development Incentive on 1 July 2014 to further drive the next generation of Australian resource projects.

The incentive will enable Australian resident shareholders to deduct the expense of mining exploration against their taxable income.

It will be available to junior mineral explorers with no taxable income incurring exploration expenditure in eligible hard rock mineral ‘greenfields’ in Australia.

The scheme will be capped at $100 million over four years.

The government is working with industry to finalise implementation details to ensure value for money for taxpayers and the industry.

As Australian mining transitions from the construction phase to the production phase, innovative solutions are more important than ever to capitalise on recent investments and there is no better time to engage with the resources and energy sector.

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