Australias Economic Growth Relies on Asias Continuing Demand for Resources - Literature review Example

Australia’s Economic Growth Relies on Asia’s Continuing Demand for Resources Your full Your ID no. Unit and Lecturer Assignment #Due Date The world’s economy has been unstable in the recent years starting with the financial crisis in the United States that culminated into the global crisis. Another economic instability has been created by the Euro zone crisis. As a result, there have been massive cuts in expenditure by governments and private enterprises that have eventually meant that the production industry and the countries that depend on production activities like mining, have been affected. The Australian economy may have escaped this turmoil because of its connection with the Asian market or might have felt the effects of the credit crunch at a minimal basis as suggested by some analyst. However, there are indications by several observers to the effect that the situation is likely to change especially with the euro zone crisis and the fact that there might be a reduction in the dependence of minerals by large Asian markets like China (Das 2012, p.2). Economic growth may refer to the relative increase in production of goods and services by a country over a definite period. Australia’s economic growth therefore means that it has to continue improving is production in the mineral sector that has been a major driver of its economy. The Asian market refers to the countries in the Asian continent that have continued to import the minerals from Australia. Consequently, the intention of this discussion is to ascertain whether Australia’s economy has largely depended on the Asian market. To further illustrate this, two listed companies that are engaged in exports will be examined. There have been several sentiments that have been put forth to suggest that the country has been reliant on the Asian market especially for its energy and minerals exports. To begin, the Australian economy has been on a sharp rise in decades as a result of its connection with the Chinese market. The country’s mineral sector has largely benefited from the rapidly expanding Chinese economy that has been a great consumer of mineral ores. To illustrate this fact, there are indications that about 23% of Australia’s exports go directly to the Chinese market (Das 2012, p. 3). Moreover, this figure is even likely to be reviewed upwards given that some of the exports to Asian countries are further re-exported to China. As a result, it is stated that the terms of trade between the two nations has increased to over 40% since the year 2004. Capling (2008, p. 610) points the overdependence on the Asian market to the issue of globalization of trade among nations in the Asian continent. The political masters of the Labour party, as cited by Capling (2008, p. 610), influenced the integration or liberalization of the country’ s economy by encouraging more exports to the East Asian market because of the geographical advantage they accord the country. Historically, this integration has put the country at a situation where it has to continually rely on exports to the established trading areas of the East Asia and the competition of identifying itself as one of the Asian giants. This historical bearing on overdependence has been further relayed by Cotton (2011, p. 24) by illustrating the manner in which the country has favoured its economic ties with Asian nations like China and Korea against that of its former “coalition” allies; the United States and New Zealand. It is for this fact that the Chinese market account for about 70% of the country’s Iron ore exports (Cotton 2011, p.25). As a result of these discussions, it is important that the country develop response mechanisms to this situation as will be discussed below. There are several ways in which the country can be able to cope with the increase or decrease in demand for the country’s export so that the economy is not affected by the apparent overreliance on the Asian market. First, there should be policy frameworks that will ensure that consumption is encouraged locally. Production mines in the country may find markets locally when there are policies to promote growth of consumption and expansion of their products. This can be done through establishment of industries that may be involved in processing and even manufacture of finished products that have ready markets as compared to the unprocessed ones (Sotiris 2011, p.36). Brian (2010, p.36) further proposes that there be an input from the broader political community and the formulation of governance structures to ensure that the market is controlled at an early stage. Among raft measures in this include the establishment of large production enterprises to cope with future competition, strengthening regulation rather than relying on market price dynamics and strengthening the labour force through relevant training among others. This expansion strategy can be seen through the examination of two companies in the minerals and energy sector that have been involved in the export of the commodities that have been major economic drivers for Australia. Crest Minerals ltd (CCT) and Allegiance Coal Ltd (AHQ) are examples of companies that have been listed in the ASX that have operated in the export sector. To begin, Crest Minerals Ltd is a company dealing in gold mining and exports with massive investments in the minerals sector. The main motivation for the company’s dealership in gold has been that of the appreciating capabilities of the product in the international market presently and in future (Jones 2012, par. 2). Jones who is the company’s chief executive officer has also expressed interest by the company to continue with its exploration of gold prospects in the country. With a main objective of enhancing shareholder wealth, the company envisages its transformation through large scale operations in the Australian as well as international markets. On the other hand, Allegiance Coal is an energy industry operator that boasts of a combined portfolio of a massive 14 tenements (Allegiance Coal 2013, p. 1). This investment is mainly concentrated in its Queensland based five coalfields. The company has mainly concentrated its efforts on acquiring unexploited fields that have shown high prospects. Even though it concentrates its exploration work in Queensland, the company has adopted a flexible approach with the possibility of venturing in new areas that have shown economic viability. In line with this discussion, it is imperative that there is a close examination of one of the companies in terms of the future expansion or exportation into the Asian market. Combined with other companies that operate in the energy and minerals sector, these two companies have been large contributors in the country’s economy given its dependence on its rich mineral resources. As mentioned earlier, Crest minerals has bagged on future expansion that will likely result in more volumes of its main export commodity- gold. The company is cited to have produced about 5.9 million gold ounces in the year 2010 that overall accounted for 75% of the country’s total production (Jones 2012, par. 3). This depicts a massive control of the gold mining sector by the company. It is therefore important to point out that the company’s future production will have a direct bearing on the country’s overall production and hence exports to the Asian market. With a potential portfolio of about 17 gold licenses, the company’s quest for expansion through acquisition of licenses and projects will be of great significance for the nation’s economy. The increased production that is being envisaged by the company will for sure add more gold for exporting purposes for the Asian market. For instance, the company has been drilling more sites for the purposes of taking advantage of the relative appreciation of gold prices in the market. As a result, the increase in mining volumes may have an effect on the demand of gold in the Asian market. The company also recognizes that the commodity it deals in has a great influence on the financial market because of its potential of being a reserve currency as well as being a caution for inflation. It is therefore evident that the company will be of great importance to the direction the country follows on the issue of Asian market exports. To conclude, it is notable that the country will in future continue to depend on demand for its mineral resources with demand especially coming from the Asian market. A good example is the Chinese manufacturing and construction industry that has had an insatiable demand for minerals like iron ore. Despite the positive outlook for the country’s high income earning and therefore, economic boosting mineral resources in the mining and energy sector, it is important that it will have to put in place measures to prevent a credit crisis-type of economic downfall. It is also evident that companies in the mining sector are looking to exceed their production through more exploration and drilling projects. As a result, the country’s production is likely to be on the upward trend in the coming years. Several indicators have pointed to a promising future for the country’s economic outlook even though the nation must rise to the reality that there might be impediments on the way created by both internal and external factors such as the Euro zone crisis. The Asian market that has been greatly relied on for these exports must be able to cope with this increased supply or the nation’s exports will have to look further than the traditional East Asian market. The government and the private sector should be decisive in the way it is going to deal with the eventuality that might arise in the case of an Asian economic collapse. In the writer’s opinion, it is important that the country adopt a more pragmatic approach of dealing with overreliance for the country’s mineral exports into the Asian market. As much it is important that the country continue to foster the integration of the Asian state trading partners, it is imperative that policy makers look at ways of coping with overreliance. This will go a long way in aiding the efforts of the country to become a giant in the Asian economy and retain its position as an immune economy. Bibliography Allegiance Coal ltd 2013, ‘About the company’, retrieved 15 January 2013, . Brian, P 2010, ‘Governing the market: Threats to Australia’s stability and security’, National Economic Review, no. 64, pp. 33-45. Capling, A 2008, ‘Twenty years of Australia’s engagement with Asia.’ The Pacific Review, Vol. 21, no. 5, pp. 601–622. Cotton, J 2011, ‘Australia, Korea, and East Asia: Re-calibrating Relations with Regional Powers’, Korean Observer, vol. 42, no. 1, pp. 21-45. Das, S 2012,’ The vulnerable state- economic outlook for Australia’, Keeping good companies February, 2012 Jones, S 2012, ‘CEO Media Briefing 10th February, 2012’, retrieved 15 January 20123, . Sotiris, P 2011, ‘The 2008 global crisis and the East Asian developmental states shift of export-driven strategies’, European Journal of East Asian Studies, vol. 10, no. 2, pp.35-46 Read More