Operating in a lower commodity price environment where margins are being squeezed is prompting Australia’s mining sector to discuss what can change to improve returns on the massive amount of investments companies made during boom years.
Speaking at the Minerals Council’s annual industry conference in Canberra today Rio Tinto Australia managing director Phil Edmands said he’s concerned about the country’s flailing productivity, uncompetitive labour market and regulatory burdens.
Pointing to the latest Global Competitiveness Report 2013-2014 from the World Economic Forum, Edmands explained Australia has dropped out of the top 20 to sit at 21, behind New Zealand.
Edmands said there are three issues around Australian productivity which need to be addressed “urgently”.
1. Australia has become competitively complacent
Australia’s reputation of being the “lucky country” has bred complacency, Edmands said.
“There is only so long that we can rely on commodity returns to hide the fact that we are steadily losing ground to our competitors,” he said.
Australia’s competitive advantage has in the past been boosted by relative political stability which other riskier investment destinations which are mineral rich, including parts of Africa, cannot offer up.
But Edmands said using sovereign risk factors as a shield was a flawed strategy.
“Competitors in the developing world will not stand still, they will continue to improve – in some cases much more rapidly than used to be thought possible,” he said.
“When that happens at scale, this key advantage of Australia’s will evaporate. If we as a nation are not then competing in areas like tax, we will simply lose the investments we so badly depend on.”
2. Australia’s labour market is costly and out of touch
Australia’s comparatively high wages have long been a burden on the mining sector with many mining companies voicing their concerns over the high cost of labour and doing business in Australia.
Edmands said reining in labour costs without dropping real wages means upping productivity and improving labour market flexibility.
“We need an industrial relations system that is flexible, and not ‘one size fits all’,” he said.
A recent World Economic Forum report on competitiveness notes:
“The main area of concern for Australia is the rigidity of its labor market (54th, down 12), where the situation has deteriorated further. Australia ranks 137th for the rigidity of the hiring and firing practices and 135th for the rigidity of wage setting.”
Edmands said there is no way to achieve increased productivity without changing the country’s labour systems.
One change he proposed was altering the system to limit the ability of claims which cause delay or hurt flexibility, to be made by workers during an enterprise bargaining situation.
Pointing to one of Rio’s operations that is currently suffering margin squeeze he said some of the employee’s demands included:
- Seats in crib huts do not have cushions on them;
- 7 and a half days extra annual leave a year;
- Sick leave accrued annually; to be cashed out after two years or upon leaving or termination; and
- Compassionate leave to be utilised for significant pets or animals, horses, cattle etc.
3. Australia is over-regulated
While Edmands recognised Australia needs regulation, he said its tendency to expand and multiply can change the game significantly over time.
“They [regulations] can become the playthings of interest groups with agendas quite remote from their original purpose,” he said.
Pointing to Rio’s Mount Thorley operation in the New South Wales Hunter Valley which has come across multiple approval hurdles in the past four years, Edmands said it is an example of an over-regulated approvals process that has lost sight of its original purpose.
“Laws created to foster responsible development have been abused by those wishing to halt all mining development,” he said.
Australia’s tax system is another area Edmands says needs to be simplified.
“Restraining expenditure is certainly a necessary part of the answer – but equally important is the need for a far more efficient, less complex and better targeted tax system,” he said.
“This will attract investment, which if coupled with higher productivity, means stronger economic growth.”
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