Australia's Mining Boom - Case Study Example

Misgivings Over Minerals Boom Misgivings Over Minerals Boom (Name) (Course) (Institution) (Instructor’s name) (Date) Introduction Australia is ranked as the third largest producer of metals and minerals in the world. It produces more than sixty different types of metals and minerals. Recently, Australia’s mining has witnessed a boom in almost all of its mining companies. The report compiled by the Primary Industries Department of NSW, indicate that they had received more than fifteen applications that required expansion of the current mines. Media reports indicate that the recent growth in Australia’s economy depends on the country’s huge land mass that is rich in mineral deposits. The mining sector is said to have experienced five huge mining booms, which have resulted in an increase in the export-based wealth. The boom has also led to an abrupt social and economic change, as well as inflation pressures. It is indeed true that the mining boom has been the main factor propelling the recent economic growth in Australia, but there are more issues to be looked other than just the economic growth. For instance, how long should this boom be welcomed, what impacts will it have, and what would happen at the end of the boom? This essay therefore, seeks to explore into these issues in order to clearly demonstrate the misgivings over minerals boom in Australia. Issues surrounding the mining boom The current mineral boom in Australia can be dated from the year 2005. By 2007 and the start of 2008, the boom was sternly testing the flexibility and productive capacity of the Australian economy. It is not certain as per the length of time the current mineral boom is going to last but it is predicted to be long lasting, but past booms didn’t last more than fifteen years. This was as a result of resource depletion or the action of international or, and domestic developments to slow down the economic activity, bringing the boom to a stop. The mining boom has been the main source of the country’s recovery and the key driver to economic growth. The recent surge in mining activity has brought with it various misgivings, which may affect the country as a whole if not carefully dealt with. At present, the positive challenge for Australia is to manage the mineral boom while evading these misgivings. The mining boom has highly been associated with the competition for the natural resources such as land and water. As highlighted in the Business Day article, the Hunter Valley, which is one of the coal mining hotspots, was already experiencing problems relating to water and land resources. Farmers, councils, wineries, and breeders are complaining about the corrupt procedure of mine approval that failed to consider their plight as well as land development practices. Nikki Williams, who is the chief of the NSW minerals council, in one of the radio interviews acknowledged that there was contest for land use in the Hunter region. However, she is quick to respond that the government has the mandate to determine land use, and since the mineral resource is in Hunter Valley, the government has the mandate to determine whether that resource should be extracted or not. On one side, Nikki, is true to assert that the government has charge over a country’s resources, but also she should be loyal to consider the interests of its citizens (Jessica, 2010). There is also the issue of the ecological sustainability on the immediate living environments in the sites of extraction (Hope, 2007). Considering the case of the Hunter Valley, the impacts of mining in this landscape cannot be reversed. The open cut mines appear like slow moving wounds. These cuts emit dangerous sulphurous fumes that are fatal to the health and safety of the people residing in this area. The health of the people is at risk because of the mining activities. The government should have found away of relocating these people to other areas that is safe to their health. The regular movements of coal and explosions make dust clouds, which appear as an orange brownish tablecloth, which then settle on the valley. These also contain adverse effects on the health of the Hunter Valley’s residents. The mining process requires that all types of trees and vegetation in that area be cleared to provide room for mineral extraction (James, 2011). Removal of these resources can lead to their extinction. In the process of extraction, diesel and ammonium nitrate have to be mixed and planted into the soil and allowed to explode so as to provide room for extraction. This undermines the ability of the soil to support plant growth. As noted in various reports, after the land rehabilitation process, it is hard for grass to grow there and trees as well appear twisted and thin. This therefore means that farming will no longer be practiced in this region since the land has been degraded. According, to the environmental laws, such activities, as mining, are considered lethal as they undermine ecological sustainability. As much as coal mining is now considered as the best industry generation a lot of revenue to the government, this should not be used as a basis to undermine other sectors such as agriculture that have the capacity of generating economic growth as well. There is a possibility that with time, the coal will be depleted and thus, what step should then be taken to ensure there is economic growth if the other resources have all been depleted due to mining. Stringent measures have to be therefore developed to ensure ecological sustainability. Minerals are associated with depletion therefore questions are being asked in Australian case as to what will happen when the mineral boom goes down, as it inexorably will. What industries will be squeezed out and what damage will be caused to the population and the environment at large. The minerals boom in Australia will mean that the mining sector will dominate other sectors and there will be a rise in the local economy’s reliance in mining (Henry, 2010). This will see most of the resources re-allocated to the mining sector leading to a large, valid, and disrupting squeeze on other sectors. Recently, severe scarcities in infrastructure are already apparent. The mining industry will demand more labour and pay high wages to the employees. This increased demand for labour has resulted to speedy population growth in some towns including the local residents and visitors (James, 2011). Mining is classified as a non-renewable resource therefore at risk of exhaustion. When mining ultimately ends, there arise negative outcomes of lack of diversification. In case other sectors have not managed to attain competitiveness individually, the end of the mining activity will result to downturns in all other operations, which rely either directly or indirectly on mining. This will have theatrical reductions in household incomes and increased unemployment rates. Another challenge the country is faced with is to manage the minerals boom while evading inflationary pressures. In the labour markets, wage rate is directly proportional to the demand for labour. Therefore, this will mean that, due to the strong demand for labour by the mining sector, the wage rates will also be high. Inflationary pressures can be defined as rapid increase in general prices or wages over a time period, hence leading to a financial strain in the economy (Henry, 2010). In this case, inflation will be a problem and a severe predicament if wages increases in the fast speed parts of the economy spread to the slower, as it is very probable in a freshly re-regulated labour market. Inflation has severe negative effects to the overall economy as it leads to market inefficiencies, drag on productivity, reduced savings and investments, tax increases, and demand for rapid increases in wage rates from employees which will beget more inflation. Policies to lessen pressure on the Australia economy need to be developed and executed. For instance, the country needs to tighten its monetary policies further in order to contain any inflationary pressures. The crises can also be managed by a flexible exchange rate. External risks are another concern raised by the minerals boom. Currently, the major jeopardy’s to the Australian economy is the possibility of freezing of the global recovery or decline in demand for their products resulting to poor terms of trade. Additionally, concerns related to fiscal sustainability could also disrupt the global financial markets raising the cost of capital to the country borrowers. Such disturbance caused in the global markets may put abundant pressure on the banks due to their short-range offshore funding. Conclusion This essay has focused on misgivings over minerals boom. The current mining boom in Australia is predicted to have several severe effects to the population, the environment and the general economy. As explained in the essay above, inflationary pressures are a major effect of the boom. Due to the country reliance on mining industry, there will be increased demand of labor force calling for high wages. This will result to inflation due to increase in prices as a result of high wages. If not dealt with, increased demand for rapid wages begets inflation. The fact that minerals are a non renewable resource, they are vulnerable to depletion which means that, there will be severe unemployment rates and reduced household incomes. The economy will also suffer severely if it depended only in the mining industry. Additionally, minerals boom will lead to stern effects on the environment. There will be environmental degradation due to the removal of vegetation and increased industrial pollution. Mining will also lead to displacement of people from mineral rich sites. Lastly, there will be land competition as a result of mining. People will be fighting over scarce land and water resources. This has particularly been evidenced in the Hunter Valley. The government argues that, the increased investments and employment from the mines will assist in boosting the country’s economy. Australian flexible markets, flexible exchange rates, and sound monetary and fiscal policies can make the negative results of the recent minerals boom less disruptive. References Henry, T., 2010. Mining boom presents opportunities at the expense of disruption; Business with the wall street Journal. Available at: http://www.theaustralian.com.au/business/opinion/mining-boom-presents-opportunities-at-the-expense-of-disruption/story-e6frg9ix-1225833769278. [Accessed on January 24, 2011]. Hope, H., 2007, New Australia Mining Boom Taking Toll on Outback Life, National Geographic News. Available at http://news.nationalgeographic.com/news/2007/09/070926-australia-mining.html. [Accessed on January 24, 2011]. James, G., 2011. The minerals boom and Australia's 'resource curse, Journal of Australian Political Economy. Available at http://findarticles.com/p/articles/mi_7065/is_61/ai_n28560881/. [Accessed on January 24, 2011] Jessica, I., 2010, Misgivings over minerals boom, Businessday. Available at http://www.smh.com.au/business/misgivings-over-minerals-boom-20100316-qcoj.html. [Accessed on January 24, 2011] Read More