Representing the Australian Gas and Oil Industry - Case Study Example

?Issues in Global Business and Strategic Concepts Executive Summary This essay particularly emphasises on learning the contributions of mineral extraction as performed in Australia, along with providing a brief description of the domestic and international obstacles faced by the sector in its smooth functioning. Providing with a short introduction about Australian mining sector and the mineral extraction trend observed in the economy, the research conducted in this essay aims to explore about the conditions of the sector in the recent phenomenon. As per the obtained findings in this study, Australia has an abundant source of natural resources, wherein the contribution of each and every element has discussed significant influence on the economic versatility of the country within the international paradigm. Being a major contributor to the economic growth process, Australian mineral extraction sector supports a better quality and standard lifestyle of the citizens. Nevertheless, the research also revealed that there are also few noteworthy negative consequences caused by the increasingly expanding functioning of this sector, affecting especially the indigenous people and the environmental stability of the continent. Table of Contents Executive Summary 2 Table of Contents 3 Introduction 4 Contribution of Mineral Extraction in Australian Economy 4 Benefits and Advantages of Mineral Extraction to Australian Economy 8 Domestic and International Issues in Australian Mining 10 Conclusion 12 References 13 Introduction Australia is world renowned for its rich and unique natural vegetation, cultural diversity and democratic stability in comparison to other developed nations, which makes it one of the strongest economies in the world (The Associated Press, 2013). Apart from these characteristics, Australia is also appreciated in the global realm for its abundant and diverse natural resources, which has since long been attracting the foreign investors. It includes an extensive collection of copper, gold, uranium, coal, iron ore, natural gas and renewable energy sources (Central Intelligence Agency, 2013). Australia, with a Gross Domestic Product (GDP) of AUS$ 1.57 trillion and a wealth of AUS$ 6.4 trillion, can be considered as one of the world’s biggest capitalist economies (Central Intelligence Agency, 2013). In rewarding the economy with its leadership position in the global platform, on the basis of its GDP growth, its mineral extraction sector can be regarded to have a major role. For instance, the mining sector in Australia signified approximately 19% of its total GDP as on the fiscal year 2011-2012 (Colebatch, 2012). In Australia, mining ores have a major contribution in boosting up the economy’s growth prospects in comparison to other mineral extraction functions. Based on the above facts it can be affirmed that having low inflation, low government debts, low unemployment rate, highly skilled workforce and a high quality education system, Australia has emerged as the fastest growing regions in the world (McHugh, 2010). Contribution of Mineral Extraction in Australian Economy Major active mines in Australia include the Olympic Dam and Super Pit Gold Mine. Large quantities of minerals are extracted here, which includes iron ore, nickel, aluminium/bauxite, diamond, uranium, silver, gold, copper, zinc, coal, petroleum and natural gas among others. For instance, in 2008, Australia was counted as the world’s third largest supplier of iron ore after China and Brazil, with a supply of 332 million metric tonnes (Jorgenso, 2010). Additionally, Australia was also attributed as the world’s 2nd largest producer of Nickel in 2006 after Russia (Louthean, 2007) and world’s largest producer of Bauxite/Aluminium in 2011 (Bray, 2012). In case of gold, Australia is referred as the 2nd largest producer in the world, after China (McHugh, 2010). Similarly, like gold, Australia is also the 2nd largest producer of Zinc, after China contributing 14% of the total world production of the Zinc (Tolcin, 2010). Correspondingly, Australia is responsible for 11% of the world’s production of uranium and was the world’s third largest producer of the mineral, after Kazakhstan and Canada (World Nuclear Association, 2013). Similarly, Australia is also reputed as the world’s fourth largest producer of coal, following China, USA and India (Geoscience Australia, 2013). Also, Australia is the 28th largest producer of Petroleum (APPEA, 2007), and the third largest deposit of diamonds, after Russia Botswana in the world index (Ibp, 2005). Apparently, this signifies the diversity and richness of mineral sources in the economy, which further offers it a distinctive positioning in the global platform. Apparently, minerals are one of the major valuable natural resources in Australia, given that the demand of the minerals is increasing day by day in the modern world, which in turn increases the economic value of the country in the global plethora. Arguably, the future value of Australia is also largely dependent on the extraction of these mineral resources in the most economically beneficial and sustainable manner (Deloitte Access Economics Pty Ltd, 2012). As a major contributor to its GDP, the economic well-being of Australia, since the development of its first goldfields, has been largely dependent on the extraction of minerals. As on 2013, the sector has been accounted to contribute 62 % of the country’s commodity export income, 45% of the product exports and 35% of all exports (Central Intelligence Agency, 2013). It is worth mentioning in this context that Australia still is significantly dependent on the export of the natural resources, whereby its mechanism to source a major percentage of its income from the export of mineral sources has been criticised globally referring it to be a blessing and a curse at the same time. As a part of blessing, it supports economic interdependency and national sovereignty of the economy, differentiating it from the other countries that have to depend largely on foreign collaborations to sustain and maintain their well-being. Again, on the contrary, it has somewhat prohibited or rather barricaded Australia from developing into other major industries, which can contribute significantly during economic difficulties, especially in case of vulnerabilities witnessed in the mineral commodity prices fall. Moreover, the fact that mining produces nearly about 10% of the Australia’s GDP but employs only 2% of the national workers; noteworthy questions have been raised on the positive impacts of the mining sector to the economy in terms of its employment scenario (Colebatch, 2012). Nevertheless, the contribution made by mineral extraction to the economic growth of Australia is a non-negligible phenomenon. A detailed replication of the contribution made by the extraction of minerals in the total GDP of Australia and other sectors are evaluated in the table below. Source: (Hancock, 2001) From a critical point of view, it can be assessed that besides oil, other mineral sources are available in abundance in Australia. As the contribution of the sector has increased continuously from 1960s, a negative community perception has emerged among the stakeholders at the national and the international levels, which threatened the sustainability of the industry to a substantial extent (Hancock, 2001). Furthermore, the contribution of mining has been continuously increasing after the year 2005, whereby the contribution of the sector increased to 7.7% in 2008-09 from 4.9% in 2005-06 (Central Intelligence Agency, 2013). It is worth mentioning in this context that minerals are the one element of Australia’s main natural resources, which also include forestry, fisheries and agriculture. Subsequently, the government have been much concerned regarding the negative impacts of mineral extraction on these wide ranging sources of natural wealth, keeping the contribution made by the mining sector to the economic prosperity of the country intact (Central Intelligence Agency, 2013). Benefits and Advantages of Mineral Extraction to Australian Economy As discussed above, mineral reserve is vast and abundant in Australia. Also, the pace in the development of its technology sector is indicating towards a better growth prospect for the economy. Among the various benefits of its mining sector contribution, it has been recently observed that at least 60% of the world’s mines operate with Australian made software systems, which further gives a competitive advantage to the economy in performing a partially monopolistic influence on the global suppliers. Apparently, mineral resourcing industry acts as a key pillar for the Australian economy and accounts for more than 6% of the Australian’s economy and has invested approximately 125 billion Australian dollars in the last 10 years (Central Intelligence Agency, 2013). According to the recent data, the mining industry contribution to Australian economy has been accounted for an average of around AUS$ 121 billion. Through export, extraction of minerals further contributes AUS$ 138 billion per annum. Additionally about AUS$ 21 billion is paid as company tax and royalty payments, which further assists the economy to maintain a low level of debts from the foreign investors. Nonetheless, the mining industry spends 35.2 billion Australian dollars on capital investment, 5.7 billion Australian dollars on exploration and 4.2 billion research and development that further contributes to the overall growth of the economy (The Hudson Report, 2011). Australian mining companies not only have been contributing to the continuous growth of the Australian economy, but also to the society and the environment as a part of their Corporate Social Responsibility (CSR). Therefore, Australian companies are found to be intensively engaged with infrastructure development and delivering support for cultural, educational and sports events. In remote regions, Australian mining companies have been providing few business and development opportunities. It also provided significant opportunities in related subsidiaries and services industry contexts, thus developing the growth prospects of the economy and an all-inclusively framework. In addition, it has been reputed as the largest employer of indigenous Australians in the recent phenomenon. In this context, noting the example of Mineral Council of Australia (MCA) shall be worthwhile. It is important to note that more than 60% of the Australian mining operations are developed through the Mineral Council of Australia (MCA), which is a specific framework that guarantees the engagement of the investors with indigenous stakeholders of the economy, making its growth structure an all-inclusive one. Across 200 types of mining operations, there are 432 indigenous land agreements to support the local population (GoName, Inc., 2013). Domestic and International Issues in Australian Mining One of the issues that Australian mining companies are facing is that they are lacking in clear public commitment to gain the consent of the indigenous people before commencing project on their land and therefore raising political disputes within the country. According to the Company Obligations and Community Approval report, it has been found that Australian mining companies lacked policies and positions to consider indigenous people’s right along with their ability to participate in the decision of setting up frameworks to extract minerals. The Australian mining sector, as similar to the case of the global mining sector, has been facing greater difficulties regarding the growing demand from the indigenous people for mine development and operational advancements in a more secured manner. In addition to it, mining industries can have a negative impact in the developing countries including environmental degradation, contamination of water sources for drinking, farming and fishing, deterioration of human health such as malnutrition and destruction of natural heritage places having cultural and spiritual significance. In order to maintain the sustainability in the mining business for the long run, the companies operating in this sector must understand potential legal, financial and reputational risks of attempting mineral extractions in a political approved and legally viable manner (Oxfam Australia Media, 2013). For instance, the mining sector has been found to heavily contribute towards the growth of Mongolian economy. A critical understanding of the recent affairs in the economy however reveals that despite of the major contributions from the mining sector, Mongolian economy is still facing the difficulty of human rights and democracy principle violation. The human rights commission of Mongolia has therefore filed documentation of environmental degradation and serious human rights violation due to irresponsible mining in the region. Furthermore, corruption has always remained a threat for a sustainable development of the mining industry (Rogers, 2013). Social issues regarding gender inequality and maltreatment with women, has also been identified as a consequence of lack of proper labour management policies in the mining sector in Australia (Rogers, 2013). Creating a regional disparity in the economy can also be regarded as a major disadvantage and a noteworthy international issue faced by the mining industry. To be mentioned, the industry has been criticised to employ around 2% of its total manpower from the local and national employment market, while a majority of the labour force is recruited from foreign collaborators as expatriates. This in turn causes a negative impact on the stability of the job environment in the economy, given that the economic significance of this particular sector has been gaining pace in the recent era to a commendable extent (Colebatch, 2012). Additionally, there are many examples of foreign miners exploiting the host nation’s wealth in the recent decades. For instance, in the recent decades, local benefits were slightly improved from 1% to 20% in Australia, but at the same time companies operating in the mining sector of the economy were able to boost their share to 50%. This implies that a negligible proportion of the profit, earned by the mining companies, are returned in the national economic structure of Australia, which further indicates towards a major international ethical and economic issue concerning the extraction of minerals in the country (Rogers, 2013). Conclusion Based on the above discussion and also with emphasis to the previous research studies reviewed in this research, it can be concluded that the negative impacts of the mining sector in Australia has somewhat overweighed its positive impacts in the recent context. However, it cannot be neglected that the mining sector helps the Australians to collect the capital required for other development activities and thereby, contributes to its overall and all-inclusive growth structure. Nevertheless, Australian mining industry has a severe impact on the environment in the form of contamination of water used for drinking, further hindering its prospects in the agriculture and fishing sectors. In addition, the mining sector companies have also been criticised to be engaged in violating the rights of indigenous people in the forms of gender discrimination and exploitation of host nation’s wealth that collectively imposes severe consequences to the entire economy. As a matter of fact, there is abundant source of natural sources in Australia. Therefore, intelligent use of the natural sources, with due concentration on the above identified domestic and international issues, shall make the Australian economy more competent to obtain the overall benefits from the sector and preserve its distinctive positioning within the global realm. References APPEA, 2007. Statistics. Representing the Australian Gas and Oil Industry. [Online] Available at: http://web.archive.org/web/20080719113945/http://www.appea.com.au/index.php?option=com_content&task=blogsection&id=7&Itemid=32 [Accessed December 07, 2013]. Australian Local Search Pty Ltd, No Date. Opal. Government of South Australia. [Online] Available at: http://www.pir.sa.gov.au/minerals/geological_survey_of_sa/commodities/opal?SQ_DESIGN_NAME=printer_friendly [Accessed December 07, 2013]. Bray, L. E., 2012. Bauxite and Alumina. U.S. Geological Survey, Mineral Commodity Summaries. pp. 26-27. Colebatch, T., 2013. Our Economic Irrationalism. The Sydney Morning Herald. 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