Raising productivity is key, says Orica chair Malcolm Broomhead

Malcolm Broomhead: Governments now have the political licence to spend unprecedented allocations of public funding and can take advantage of low interest rates. Picture: Aaron Francis/The Australian

Looking at the year ahead, I see three key sources of optimism for us to rally around.

The first is a promise of a vaccine. Both Britain and America have begun administering vaccinations, which will hopefully reach our shores early next year.

Assuming it is as effective as the trials suggest, and enough people agree to be vaccinated, this will mark the beginning of the end of the pandemic.

The second is the incoming Biden administration in the US. I hope that this will act as a circuit breaker, and lead to a rebalancing of international relations, particularly with China, that Australia can then leverage.

And the third is the opportunity that stimulus packages around the world present to kick start the global economy.

Governments now have the political licence to spend unprecedented allocations of public funding and can take advantage of low interest rates.

But, if we are to go into such levels of debt, we must not squander the opportunity. We urge governments to focus on initiatives that will deliver both medium and long-term returns in higher standards of living, and sustainable growth.

An obvious example is major infrastructure projects that will enable companies to get their goods to market quicker, and that ease congestion so that workers spend less time commuting. At the same time that federal and state governments continue to invest public money sensibly, it will also be helpful to deliver both policy certainty on the fundamentals and regulatory reform that together will drive confidence and boost multifactor productivity.

This is critical because, as the Productivity Commission’s latest report notes, almost all of Australia’s long-term increases in income have been due to labour productivity growth, and that while terms of trade or labour utilisation can make a difference, it is ultimately productivity growth that will determine our future living standards.

In terms of policy certainty, energy is the most obvious area as it impacts so much of what we do and what we will be able to do.

On this front I commend the government for recognising the critical role that gas will play in both Australia’s post-Covid recovery and as a firming technology that will support investment in, and adoption of, new technology in the decarbonisation of our society.

This is a good example of long-term vision that will both provide certainty for domestic manufacturing and the platform for climate resilient economic growth.

Orica is ready to step up on this front. We see great opportunity in the world’s move to a low-carbon economy — not just in playing our part to help achieve global goals, but also in transforming our own operations and driving long-term sustainability.

As I mentioned earlier, we have committed to a 40 per cent reduction in our Scope 1 and 2 operational emissions within this decade — a market leading position.

Alongside ongoing industrial relations reform, we need significant regulatory reform in areas such as corporate taxation and research and development. Together with prudent deregulation, this will encourage capital deepening, and the investment in innovation, that will drive productivity.

As Alberto (Calderon, Orica’s CEO) noted in a recent editorial, private investment over GDP is at its lowest point in 60 years. This has to be addressed.

Again, Orica is ready to step up. We are willing and able to play our part, and our history demonstrates how our enduring commitment to innovation and technology has led to substantial improvements in mining productivity over many decades.

Today, our products such as WebGen, Blast IQ and FRAGTrack are helping our customers find new ways of working that deliver significant increases in both productivity and safety.

The investment we have made in digitising data and workflows is now enabling us to automate workflows, further radically improving reliability, timeliness and cost.

To its credit, the federal government is trying. It reduced the tax rate for small and medium-sized businesses, expanded its instant asset write-off initiative and launched a new Modern Manufacturing Strategy.

I hope that this will go some way towards reversing the way we have deconstructed manufacturing over the past few decades.

We have become a regional powerhouse when it comes to tourism, education and mineral exports, but we are not competitive when it comes to niche manufacturing — we need to find a way to reignite it, particularly in our trade relationship with China.

Underpinning all of this, we need a healthy and skilled workforce. So, we also need the government to invest in education, training and national health, including mental health — an important topic that has come to the forefront during COVID-19.

When you put it all together, it is a significant challenge.

But we have a rare opportunity for government and business to come together, to develop and drive the significant reform that will provide the platform for the productivity growth that will raise the standards of living for our children and grandchildren.

My wish is that COVID-19 is a once-in-a-lifetime event. It has been a deeply challenging and distressing period for countless millions around the world.

We owe it to ourselves to recover as quickly, and as strongly, as we possibly can and take the chance to set ourselves up for a new era of health and prosperity.

This is an edited extract of a speech given by Orica chairman Malcolm Broomhead to investors at the company’s annual meeting