Australia’s Paydirt, Issue 326
The Australian Federal Government’s response to the global dynamics in the critical minerals space continues to develop, with Prime Minister Anthony Albanese announcing related funding programmes would come under one new policy umbrella, the Future Made in Australia Act.
The Government sold the new policy, currently an amalgamation of $15 billion of existing grants and initiatives, as Australia’s answer to the US Inflation Reduction Act ($US1 trillion) and the European Critical Raw Materials Act (circa €500 million). That the Future Made in Australia package looks a drop in the ocean compared to those policies brings us back to the question of how far Australia should go in pursuing its portion of the global critical minerals supply chain and how much funding the Government should commit to support it.
There is no doubt Australia has to act in some capacity. The global COVID pandemic and subsequent supply chain crisis have shifted government thinking completely. Having relied on the free market and globalisation to solve every issue prior to the pandemic, western governments were thrown into disarray by the lockdown, then Russia’s invasion of Ukraine.
In the US, there was decades of bipartisan acceptance that local manufacturers would never again compete with cheap Chinese imports. This was fine such imports were restricted to low-end consumer goods, but when the country’s defence industry began to realise just how intrinsic China was to material supply, the risks became unpalatable.
In Europe, Russia’s invasion of Ukraine and the related embargos reminded governments how they had forgone energy resilience and independence for cheap solutions.
Now that the energy transition is full swing, neither the US or Europe want to be in the same position in this new sector and as such the traditional rules of global trade no longer apply.
In his speech to the Queensland Media Club last month, Albanese raised this issue.
“Nations are drawing an explicit link between economic security and national security,” he said. “The so-called ‘Washington consensus’ has fractured – and Washington itself is pursuing a new direction.
“This is not old-fashioned protectionism or isolationism – it is the new competition. These nations are not withdrawing from global trade or walking away from world markets or the rules-based order, and let me be clear, nor should Australia.
“Our government will be proactive when it comes to backing Australia’s comparative advantages and delivering on our national interests.”
It is the last line which will cause the Government the most intense headaches. Exactly where do our “comparative advantages” lie?
We are not going to compete with the US, EU or Saudi Arabia in offering funding packages to attract investment so we need to leverage what we have.
Exploration and mining is certainly an arena where Australia is among the best on the global stage. We have more geologists, mining engineers and metallurgists than anywhere and continue to lead R&D in the extractives industry, but if we are to move beyond a dig-and-ship model, how far?
Without a car industry in the country, there is little point in pursuing the value chain all the way to battery assembly so we must head back upstream a little. We are already seeing investment in the first few steps such as nickel sulphate, lithium hydroxide and graphite purification in Australia, but there are now calls to take further steps such as precursor cathode-active materials and other related chemical products.
However, building these industries will require a major influx of skilled workers. The problem is, Australia struggles to fill existing requirements. Wherever we turn, Australian businesses cannot fill seats, whether that is in the haulpack cab, the plant control room, the primary school classroom or the café.
If it is already a problem in our current industrial base, how can we possibly create chemicals and battery manufacturing industries from scratch without experienced people in the timeframe required?
The regulatory environment is another area government can exert a positive influence.
I said in last month’s column Australia can’t afford a “race to the bottom” on laws and regulation because it is a key advantage in ensuring our products pass the various ESG standards being put in place at the end destinations.
However, more needs to be done to make our processes better, in a climate where everything is changing so quickly, investors want assurance that the regulator can meet their own decision timelines.
The third area is taxation. The Association of Mining & Exploration Companies (AMEC) has made the most progressive suggestion so far, offering up a model for a production tax credit which will equalise some of the benefits being bestowed on downstream producers in the US.
Canberra may not be able to write the same size cheques as Washington, but if we can make our country an attractive place to do live and do business, we may just be able to stay relevant on this new global playing field.