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July 8, 2021

Why mining is the key driver of Australia’s economy

Mining has been the key FDI sector in Australia in 2020, accounting for over one-third (35.1%) of total FDI.

By Duncan West

Australia has been witnessing growth in FDI, with values increasing by 6.3% between 2016 and 2020. Between 2018 and 2019 FDI increased 5% from A$993.6bn to A$1.04trn. A small decline of 1.6% was witnessed between 2019 and 2020 when values fell to A$1.02trn. This was a much smaller decline than was felt across other countries during the Covid-19 pandemic. FDI into the UK declined 17% in 2020, France witnessed a 19% decrease and FDI into Germany declined 9%.

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Mining and quarrying was the top FDI sector between 2018 and 2020. In 2018, A$374.6bn was invested in the sector, increasing to A$375.8bn in 2019. In 2020 the sector recorded A$360.4m, accounting for over one-third (35.1%) of total FDI into Australia in 2020.

Mining is also a key sector for Australia’s economy. The mining sector has been the top sector in gross value added (GVA) terms since June 2018, when it accounted of 9.2% of total GVA. It overtook financial and insurance services, which accounted for 9.1% of Australia’s GVA. Australia’s mining sector has been growing both nominally and in terms of market share. Data between March 2012 - March 2021 shows mining GVA increased by 83% – the largest growth of any sector. In the same period, the mining sector’s share of total GVA increased by 2.8 percentage points – from 8.8% to 11.7% of total GVA.

The transition of mining into a leading sector has been more recent. Historically, between March 2003 and March 2008, manufacturing was the leading sector by GVA, accounting for 11.9% of Australia’s total GVA in March 2003. In contrast mining ranked tenth and accounted for 5% of GVA in March 2003. By March 2021 the mining sector ranked first and accounted for 11.7% of the country's total GVA.

Following a 13.3% decline in GVA in March 2016, the mining sector has been ever growing. GVA increased 65.3% by March 2017 and has continued to increase, growing 3.4% in March 2018, 27.3% in March 2019, 2.6% in March 2020 and a further 12.1% in March 2021 demonstrating its importance to the growth of the Australian economy.

Which foreign companies are investing in Australia’s mining sector?

In 2019, India-based Adani was granted approval to construct a coal mine in Queensland's Galilee Basin. The highly controversial $1.49bn Carmichael mine project was initially proposed 12 years prior. The project faced hold-ups due to environmental approvals, including concerns about the effect of the mine on the nearby Great Barrier Reef. The project itself included construction of a new railway line connecting an Australian port to the mine.

In June 2021, the first coal was produced from the Carmichael project, with production set to reach 10,000 tonnes of coal per year. The company plans to use 3.1 million tonnes of coal to make plastic at a new $4bn plant in India.

In 2020, Shell Australia, part of Netherlands-based Royal Dutch Shell agreed to develop the first phase of Arrow Energy’s Surat Gas Project in Queensland, Australia. Arrow Energy is a 50-50 joint venture between Shell and China-based PetroChina. Production is estimated to peak at 90 billion cubic feet which will flow to Shell-operated QGC to be sold locally and exported through its plant on Curtis Island. First gas sales are expected in 2021.

In 2019 UK-based Anglo American announced plans to expand its metallurgical coal operations in Central Queensland’s Bowen Basin. The $226m expansion is expected to start producing premium quality hard coking coal in early 2022.

Governments push back

Despite the growth of the mining and quarrying sector in Australia, in April 2021 the New South Wales government ceased the development of two coal mines. China's Shenhua Energy is being paid $77.17m to withdraw its mining lease application for the Shenhua Watermark Coal project in the Hunter Valley, north of Sydney. Australian Pacific Coal’s application to turn its underground coal mine into an open cut mine, was also refused.

John Barilaro, Deputy Premier, Minister for Regional New South Wales, Industry and Trade stated ‘We want to make sure that coal mining can take place in areas where it makes sense. Coal mining generates jobs for communities and royalties that can be used for essential public services and infrastructure and regional economies will depend on coal mining as a key industry for decades to come."

Mining is a key sector for Australia’s economy and generates employment, particularly in areas which are sparse for other industries. Mining employs approximately 278,800 persons, which accounts for 2.1% of the total workforce. Over the past five years, employment in the industry has increased by 27.1%. The value of the mining sector by FDI and GVA highlights the important role the sector plays in the economy.

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Numerous mega trends are impacting the mining industry, making an effective resilience program more important than ever to ensure that operations continue as intended. From ESG considerations, through to the use of advanced technologies such as Internet of Things devices, AI, and digital twins, as well as workplace safety, volatility in commodity markets, and the spectre of Covid-19 still looming. Each mega trend has a different impact that needs managing correctly, with a one-size-fits-all approach insufficient. This white paper identifies the mega trends affecting mining businesses, while exploring the opportunities, risks, and implications for operational resilience, with expert insight from Dynamiq on the best practices and approaches to improve business outcomes. Download this document to learn more.  
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