Impacts Of Mining Boom On Australian Economy And Non-Metropolitan Regions

Service and Manufacturing Sectors of the Australian Economy

Discuss about the Natural Resource Extraction and Indigenous.

The economy of Australia has been steadily increasing since the year 2001. Among the most developed economies of the world, the economy of Australia is the strongest due to the fact that it has shown a great resistance towards the global financial crisis which has dismantled many of the global economies of the world. One of the biggest supports for Australian economy during the global financial crisis has been the boom in the mining sector of the economy. In the year 2010, the mining sector of the economy experienced a boom in the form of more resource such as copper, iron and many more. Before that, the country was an importer of these minerals which were used in any form of production. The mining boom of the economy not only reduced the production cost of the economy, it also generated a huge pool of employment for the people of the economy. According to Downes, Hanslow & Tulip (2014), the job in the mining industry of the economy increased by 31% between the year 2010 and the year 2013. The corresponding policies and the strategies of the government have also assisted the economy to enjoy the maximum benefits out of the opportunity the country had. The objective of this study is to focus on the impacts of this mining boom on the non metropolitan regions of the country. Through the analysis, the paper also answers the question regarding the capability of the mining boom in ensuring a sustainable development for different regions of the country.

The economy of Australia is one of the most well performing developed economies of the world. In terms of the per capita GDP measured in PPP, Australia is third best performers among the global powers. Apart from that, the overall wealth of the people of the country is also very high. Per capita wealth of the nation is second in the world just after Switzerland. Given these information, it is interesting to know that, the main source of income for the people of the country has been the wage income. The service sector of the economy accounts for a thumping 70% of the overall GDP of the country (Dwyer et al. 2016). Compared to that, manufacturing sector of the economy has been mediocre in the past years. The economy of Australia imported most of the manufactured products from foreign countries mainly from East Asian countries. Therefore, the feat of the Australian economy to have a steady economic growth rate over the years has been borne by the service sector.

The Mining Boom and its Impact on the Australian Economy

The mining boom that Australia experienced in the year 2010 increased the supply of the natural resources which are extensively used in the energy production. As a result, more and more foreign investors and companies started becoming attracted to invest in the Australian manufacturing (Zhang & Moffat, 2015). The government at that time responded with more liberal policies and reduced tax rate for the corporate and the consumers of the market. Subsequently, the aggregate demand and hence the output of the economy increased manifold. Most of the FDI inflow and new business development has been in the mining sector manufacturing of the economy. The wage in the manufacturing sector increased a lot following the increase in the output and the performance. As a result, more and more labours across the country started to move into the mining and manufacturing industry that further amplified the production level of the economy. Thus, the mining boom strengthened the manufacturing sector of the economy where mining resources are used heavily. McLennan, Becken & Moyle (2017) stated that the collective effects from the huge service sector of the country and the emerging manufacturing sector ensured that the economy of Australia resist the negative impacts of the global financial crises and grows steadily over the years.

The most explicit and direct impact of the mining boom in the economy of Australia is the increase in the revenue of the mining companies of the country. According to Fleming & Measham (2015), the revenues of the mining companies of Australia increased by more than $60 billion. This was available due to the high rate of investment both from the side of the government and the foreign investors. However, it is important to note that, during the mining boom of the economy the wage of the labours in the economy went up as well. This reflected on the production cost of the mining companies. Nevertheless, the increase in the revenue of the company outpaced the increase in the cost of production which eventually increased the revenue of the mining companies (Basu et al. 2015). The mining boom indirectly made it easier for the small businesses to start their operations in the mining sector of the economy as well. The government ensured to extend credit to the private mining companies for their hassle-free entry into the industry. In adaptation to that, the likeliness of both foreign and domestic investors increased due to the fact that the mining boom had an immense opportunity for the economy management.

Impacts of the Mining Boom on the Non-Metropolitan Regions of Australia

One of the notable benefits of the mining boom is that it compelled the companies to invest their margin on the development of the capacity of the organisation. Fleming & Measham (2014) highlighted that the mining company owners understood that, the economies of scale can reduce the cost of production which can further increase the profit of the company in the future. This indirectly benefitted the local economy and the nonmetropolitan regions of Australia. The areas of Australia such as Pilbara, goldfield experienced a rapid infrastructure development fowling the boom in the mining industry of the economy. Most of the benefit was accrued to the nonmetropolitan regions of the country due to the fact that, mining locations of the country were far away from the urban areas.

The mobility of the labours in the mining sector resulted in a huge number of migration of labours across the country. The populations of the mining locations and the nonmetropolitan regions of the country increased significantly during the mining booms. As a result, the government also spent a huge amount for the development for these locations as well. Söderholm & Svahn (2015) highlighted that, post the mining boom era, the connectivity of these regions to the metro cities of the country improved. Resource supply chain in these nonmetropolitan regions strengthened during the mining boom in order to meet the needs of the citizens of these areas. The burden of the government was minimised due to the high tax payment to the local government of the area.

Furthermore, the terms of trade of the Australian industry improved over the years as well. These terms of trade of the country indirectly influenced the income growth of the consumers of the economy. Chapman, Tonts & Plummer (2016) stated that both the biggest sources of income for the people of the economy, wage and the government support increased after the onset of the mining boom. The high revenue of the mining companies of Australia improved the tax revenue of the government of the country as well. As a result, the benefit payment to the citizens such as unemployment benefits was increased. However, Robson (2015) in this case criticised that, real income did not increase for the citizens and the labours of the nonmetropolitan regions of the economy. The main reason for the stagnant real income for the consumers of these is is the appreciation of the exchange rate. The high opportunity and the economic expansion increased the demand for Australian currency during the mining boom. Cheshire, Everingham & Lawrence (2014) also criticised the government for the stagnation of the real income of the consumers of the economy. The nominal wage of the labours increased manifold, however, the equivalent increase in the inflation rate made sure the real income of the consumers remained same over the years. The reserve bank of Australia during the mining boom increased the interest rates in order to attract more foreign investment in the mining manufacturing sector and other sectors of the economy. However, this high-interest rate reduced the aggregate demand for the goods and the services of the economy leading to a dampened output growth. Tulip (2014) noted that the nominal income of the labours and the consumers of the economy would have risen more had the economy of Australia managed to operate at the full employment level management. 

Positive Impacts of the Mining Boom on Non-Metropolitan Regions of Australia

Another positive impact of the mining boom on the development of the nonmetropolitan regions of the country is that it benefitted the resource owners of these areas. The resource owners of land and labour in the nonmetropolitan regions of the country experienced a high demand during the mining and energy boom. Chapman, Plummer & Tonts (2015) stated that the income of the resource owners doubled within the first two years operation of the mining manufacturing sector in the rural areas of the country. This is also the reason for the increase in the wealth of the population of the country. One of the good things about the mining boom is that the wealth development of the resource owners in the local areas was redistributed accurately in order to spread the benefit. Infrastructure was developed in these areas with the tax collectors and the royalty. The action of the government to improve the economy of the local region further attracted foreign investors and new companies such as retail in the nonmetropolitan areas. Thus, the employment in these areas not only grew in the mining sector, it also grew in the other sectors such as IT and services as well. Bell & Hindmoor (2014) highlighted that one of the biggest problems that the nonmetropolitan areas of the country faced before the mining boom is the lack of private investment. Thus the mining boom helped the development of the conditions in the nonmetropolitan areas through the enhancement of wealth for the resource owners.

Despite the positive impacts of the mining and energy boom of Australia, there are some of the associated events which hurt the interest of the people living in the nonmetropolitan areas of the countries. One of the most important pitfalls of the mining and energy boom is the higher value of the Australian currency. Gilberthorpe, & Hilson (2016) noted that Australia is one of the key agricultural exporters in the East Asian markets. Thus, the rise in the value of the Australian currency reduced the demand for the agricultural products produced in nonmetropolitan regions of the country. The export reduced by 15% following the mining boom of the Australian economy in the year 2010.  In this context, it needs to be noted that, most of the agricultural land of the country is in the nonmetropolitan regions of the country. Thus, while on one hand, the mining boom increased the wealth and the income of the resource owners of these regions, it drastically affected the agricultural workers of these regions. 

Negative Impacts of the Mining and Energy Boom on Australia

Apart from that, regional disparities have also been resulted due to the mining boom of Australia. Ivanova (2014) highlighted that regional policies of the local government resulted in inequality in the economic conditions of different regions. In addition to that, the mining boom only provided job opportunities in mining locations of the nonmetropolitan areas. However, other nonmetropolitan areas as a whole failed to enjoy benefits out of the mining boom of the economy. The regional disparity among different nonmetropolitan regions has also been noticed in terms of unemployment. While the unemployment rate in the mining locations reduced impressively, it increased shockingly in the other areas. Although, Chapman, Tonts, & Plummer (2015) suggested that, government policies could have managed the disparities, there was no action taken from the side of the government in order to redistribute the gains among the nonmining locations. The difference also existed for the private players of the agricultural companies. While mining locations such as Pilbara allowed the agricultural companies to get easy access to business loans, small companies in other nonmetropolitan regions of the country struggled to fund the operation. Therefore, the mining boom paved the way for inequality and disparity among the different locations of rural Australia.

Furthermore, labour market adequacy also resulted due to the mining boom of Australia. Although the mining industry of the economy did not employ a huge number of labours, the demand for skilled workers increased following the boom in the mining sector of the economy. The skilled workers were as important as the investment inflow in the mining and manufacturing sector (Bell & Hindmoor, 2014). This had its effects on the wages of different labours of the market. While the skilled workers in the mining industry experienced a huge increase in the average real wage rate, the unskilled labours associated with the mining and energy manufacturing industry experienced a stagnant real wage. This also resulted in high inequality among the people of the country. Dockery (2014) highlighted that the government failed drastically not only to extract the most benefit out of the mining boom, it failed to redistribute the gains among the citizen of the people of the country as well.

The economic contribution of mining boom of Australia has all the potential to create sustainable development for the nonmetropolitan areas of the country. This is due to the fact that the benefits acquired from the boom are much more than the pitfalls. However, given the weaknesses in the government policies, its potentiality can still be questioned. The government of Australia needs to focus on the redistribution of the gains among the other nonmetropolitan locations of the country. Furthermore, the development can also be sustainable if the government takes care of the other sectors such agriculture. Equal loan availability and reduction in the value of the Australian currency would enable the agricultural sector to extract benefit as well. As a result, the service sector, agricultural sector, and the mining manufacturing sector would contribute to the GDP growth and hence a sustainable development for the nonmetropolitan areas of the country.

Conclusion

Thus, mining boom in the Australian economy overall improved the living standard and the national wealth of the country. The boom in the mining sector not only improved the wages of the labours in the nonmetropolitan areas but it also increased the income of the government as well. This increased income of the government further which reflected in the infrastructure development in nonmetropolitan areas as well. The tax of the local government also amplified in the nonmetropolitan areas as well. Furthermore, private investment increased in these areas enabling more opportunities for the new businesses. However, despite its positive impacts, the mining boom of Australian economy also created a problem for the nonmetropolitan areas as well. Economic disparity in terms of development and unemployment is one of the concerns that might have reduced the intensity of the output growth of the economy post the mining boom.

Reference

Basu, P. K., Hicks, J., Krivokapic-Skoko, B., & Sherley, C. (2015). Mining operations and corporate social responsibility: A case study of a large gold mine in regional Australia. The Extractive Industries and Society, 2(3), 531-539.

Bell, S., & Hindmoor, A. (2014). The structural power of business and the power of ideas: The strange case of the Australian mining tax. New Political Economy, 19(3), 470-486.

Chapman, R., Plummer, P., & Tonts, M. (2015). The resource boom and socio-economic well-being in Australian resource towns: a temporal and spatial analysis. Urban Geography, 36(5), 629-653.

Chapman, R., Tonts, M., & Plummer, P. (2015). Exploring perceptions of the impacts of resource development: A Q-methodology study. The Extractive Industries and Society, 2(3), 540-551.

Chapman, R., Tonts, M., & Plummer, P. (2016). Reshaping Rural Communities ‘at a Distance’: The Resource Boom, FIFO, and Non-mining Towns. In Labour Force Mobility in the Australian Resources Industry (pp. 59-80). Springer, Singapore.

Cheshire, L., Everingham, J. A., & Lawrence, G. (2014). Governing the impacts of mining and the impacts of mining governance: Challenges for rural and regional local governments in Australia. Journal of Rural Studies, 36, 330-339.

Dockery, A. M. (2014). The mining boom and Indigenous labour market outcomes. In Resource Curse or Cure? (pp. 75-89). Springer, Berlin, Heidelberg.

Downes, P. M., Hanslow, K., & Tulip, P. (2014). The effect of the mining boom on the Australian economy.

Dwyer, L., Pham, T., Jago, L., Bailey, G., & Marshall, J. (2016). Modeling the impact of Australia’s mining boom on tourism: a classic case of Dutch disease. Journal of Travel Research, 55(2), 233-245.

Fleming, D. A., & Measham, T. G. (2014). Local job multipliers of mining. Resources Policy, 41, 9-15.

Fleming, D. A., & Measham, T. G. (2015). Local economic impacts of an unconventional energy boom: the coal seam gas industry in Australia. Australian Journal of Agricultural and Resource Economics, 59(1), 78-94.

Gilberthorpe, E., & Hilson, G. (2016). Mining in Aboriginal Australia: Economic Impacts, Sustainable Livelihoods, and Cultural Difference at Century Mine, Northwest Queensland. In Natural Resource Extraction and Indigenous Livelihoods(pp. 53-72). Routledge.

Ivanova, G. (2014). The mining industry in Queensland, Australia: Some regional development issues. Resources Policy, 39, 101-114.

McLennan, C. L. J., Becken, S., & Moyle, B. D. (2017). Framing in a contested space: Media reporting on tourism and mining in Australia. Current Issues in Tourism, 20(9), 960-980.

Robson, A. (2015). The Australian Economy and Economic Policy During and After the Mining Boom. Economic Affairs, 35(2), 307-316.

Söderholm, P., & Svahn, N. (2015). Mining, regional development and benefit-sharing in developed countries. Resources Policy, 45, 78-91.

Tulip, P. (2014). The effect of the mining boom on the Australian economy. RBA Bulletin, December, 17-22.

Zhang, A., & Moffat, K. (2015). A balancing act: The role of benefits, impacts, and confidence in governance in predicting acceptance of mining in Australia. Resources Policy, 44, 25-34.