Investment crucial in nation-building sectors

Fiscal and regulatory volatility endangers the competitiveness of Australia’s major export industries at a time when comparative advantage is crucial to our economic recovery.

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-During 2005-2019, Australia fell nine places — from 5th to 14th — in the World Bank’s Ease of Doing Business Index. A similar index, IMD’s World Competitiveness Ranking saw Australia fall from 9th to 18th in the same period.

Closer to home in the upstream oil and gas sector, analysis conducted by Wood Mackenzie earlier this year, showed that the Australian upstream oil and gas industry experienced an unprecedented wave of investment and activity worth $473bn through the early 2010s. This investment boom coincided with a period of regulatory stability in Australia.

Andrew McConville, CEO APPEA

Since 2010 the number of regulatory changes impacting the oil and gas sector has increased. Australia had an average of 1.6 state and federal reviews or legislative changes per year during 2000-2009, which increased to 4.6 per year from 2010-2019. It is telling that this variability has been accompanied by an absence of new LNG project sanctions since 2012.

Put another way, the overarching reason for Australian success was that oil and gas majors with strong balance sheets and development capability were able to make a long-term commitment to the country, predicated on certainty and stability of the long-term regulatory and fiscal environment. The relatively
few regulatory and fiscal changes made in Australia during
2000-2010 formed the foundation for this perception of stability and thus directly contributed to the wave of investment.

In the same way businesses compete for customers, nations compete for capital.

The competitiveness of Australia’s major export industries where we have comparative and competitive advantage is crucial to the strength of the Australian economy. Not only because of export dollars earned, but also because investment of the scale and scope seen in the resources sector in particular yields, as Wood Mackenzie notes, “substantial indirect and induced economic benefits to the regions surrounding these projects in the form of, for example, increased local employment, industrial activity to service construction and engineering tenders, and infrastructure buildout, alongside the inevitable trickle-down effect of this investment”.

But, as our slide in global competitiveness highlights, success for Australia is far from guaranteed. Regulatory and fiscal volatility is increasing and, in a post-COVID environment, the competition for increasingly mobile scarce global capital is fierce. Global upstream investment in oil and gas exploration of $US350bn ($534bn) in 2020, represents just 5 per cent year-on-year growth and a 40 per cent drop from the 2014 peak. Petroleum exploration in Australia has just recorded
its lowest quarter since 1991.

These numbers should serve as a stark reminder that Australia risks losing advantage in one of its global success stories at a time when the world is looking to use more gas, not less. The International Energy Agency’s demand profile for oil and gas to 2040 shows an increase of more than 40 per cent in response to economies decarbonising away from coal, using oil and gas to complement renewables and improving energy security in line with improving living standards. Australia risks missing this growth opportunity because we are now not internationally competitive when it comes to investing in our fields of comparative advantage. 

Australian fiscal and regulatory volatility have increased — right at the time when continued stability
would help build back our competitiveness.

Regulatory instability and the prospect of government intervention into markets, coupled with Australia being considered a high-cost destination for business, has reduced the investment appetite. This is relevant not only to the oil and gas sector as Australia’s second largest export, but for many other industries, such as agriculture, education, defence and infrastructure, that rely on investment for growth.

We are literally playing for sheep stations and more, but only with the right investment settings can we hope to attract a new wave of long-term investment in capital-intense, hi-tech industries such as oil and gas. A recent EY report commissioned by APPEA has quantified the economic benefit of a strong and growing oil and gas sector boosting national output by up to $350bn adding more than 220,000 jobs over the next two decades.


Our economic engines of growth need to be supported by a modern, broad-based taxation system that recognises Australia is built on being able to undertake large-scale, capital-intensive, long-lived projects, a 21st-century industrial relations system, an education system that builds our domestic skills base and intellectual capital and R&D that is geared to play to our strengths.

If we ignore the correlation highlighted by Wood Mackenzie that, in the decade since the investment boom in one of Australia’s major export industries, regulatory intervention has doubled, while investment has dropped away significantly, we will constrain our capacity for future growth and investment.

Businesses are best at doing business while governments should focus on governing — creating the frameworks for markets to operate, unimpeded.

Australia’s reputation as a high-cost and increasingly high-risk business destination can change if we have the courage to make the hard changes needed to our taxation system to reduce duplicative and burdensome regulation, and to let markets work.

We must be prepared as a nation to do the work needed to attract investment into the nation-building sectors where we have a natural competitive advantage — and do it on a globally competitive scale with long-term vision and commitment.

Andrew McConville is chief executive of APPEA

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Content produced in partnership with APPEA. Read our policy on commercial content here.

The oil and gas industry is a key driver of Australia’s economy and community. Through the Future Australia series, APPEA is bringing together other industry leaders to discuss ways of contributing to a better economic, environmental and social future. Visit www.appea.com.au for more information.