The growing failings of Australia as a place to do business

Yesterday in the Australian Financial Review, James Fazzino, the managing director and chief executive of Incitec, had an article in which he explained why his Australian company built its factory in the US rather than in Australia.

It makes sobering reading.

His comparison of Australia and the US very effectively summarised the growing failings of Australia as a place to do business.

Mr Fazzino observed that in contrast to Australia, business in the US is made to feel welcome.

His company built a world class, billion dollar ammonia factory in Louisiana on-time and on-budget. And, he noted, Louisiana has environmental and regulatory standards equal to, if not higher than, Australia’s.

Incitec gained approval for the project in six months. By comparison, it took three years for Costco to simply get zoning approval to open their first warehouse in Victoria!

The key was that authorities in Louisiana worked overtime to expedite approval deadlines to meet the business’s needs.

Incitec had looked at developing a similar project in NSW, but the barriers and bureaucracy meant there was simply no comparison and the project did not proceed.
Incitec found that the approvals process for its proposed plant in NSW took three years. In that time it was able to gain approval, build and even begin commercial operations in Louisiana.

Three key areas where Australia is killing off projects

With the benefit of first hand experience in both the US and Australia, Mr Fazzino identified three key areas where Australia is killing off projects along with their associated jobs and prosperity: (i) bureaucracy, (ii) workplace productivity and (iii) energy costs.

First, he identified that bureaucracy in Australia worked at a snail’s pace in comparison to the US, with no sense of concern for the success of projects.

Second, labour costs and productivity were so uncompetitive that construction costs of a similar plant in Australia would have been 40–50% higher. And remember that Australia suffers a huge gap between labour costs and the actual wages workers receive because of the red tape and tax involved in hiring them.

Third, Mr Fazzino cited Australia’s spiralling energy costs, in particular the cost of gas, now nearly seven times what Incitec pays in the US!

This case of the billion dollar ammonia plant that NSW lost to Louisiana is a perfect illustration of where we are going wrong as a nation:

  • Labyrinthine bureaucracy plus governments suspicious of or even outright hostile to business!
  • Workplace regulations which make our workers less productive; and
  • Energy prices that are a legacy of active discouragement by state and federal governments of investment in reliable new generation capacity.

Too many in this country see business as the enemy and fail to recognise the link between productivity and employment.

Around thirty years ago a book called Australia and Argentina — on Parallel Paths was published. This book drew attention to the fact that Argentina, the quintessential banana republic long associated with coups, dictatorships, runaway inflation and economic crises, was once a very prosperous and stable democracy.

At the beginning of the 20th century, it was suggested Argentina might rival the United States for economic domination of the New World.
But instead of capitalising on it, its successes was squandered by a populist left-wing demagogue, Juan Peron, who along with his successors, picked the fruits of liberal capitalism in order to buy the votes he needed to destroy it.

As Parallel Paths pointed out, thirty years after Argentina, Australia had its own Peron — called Gough Whitlam. And the vote buying, bureaucratic stifling of business and pursuit of grandiose, feel-good schemes, each of which he pioneered, are still with us.

Let’s hope the Australian people wake up to the failure and fraud of the populist enemies of liberal democracy sooner than Argentina, before our political stability and economic future follow a similar path.