BHP decision on nickel sends a worrying signal for government

BHP’s decision to mothball its nickel operations in Western Australia is another reality check that economic transformation to harness the new green economy will not be as easy as our political leaders suggest. Real-world competition and rising costs because of inflation and labour market reforms led to the difficult decision to effectively shut down the nickel business. Government offers of subsidies to entice BHP to change its mind were not enough. This is a much needed demonstration that the Albanese government’s Future Made in Australia policy of greater government involvement in industry is risky and fraught.

The BHP decision mostly reflects the fact Chinese investment has helped unlock previously uneconomic nickel reserves in Indonesia that have flooded world markets and depressed prices. The BHP board has decided this situation will not change quickly. A sluggish take-up of electric vehicles also weighs heavily on the decision. Similar conditions have beset the local lithium industry, which also relies on the big ambitions of a remodelled world economy based on renewable energy including batteries to move from ambition to reality as it finds stiff competition from China.

The more immediate picture is of a federal government that is making it more expensive and difficult to do business in Australia. Top of the list is a raft of changes to industrial relations laws that increases costs and reduces workplace flexibility. At every turn the government seems determined to pick winners in ways that make it more difficult for established industries. This trend is confirmed in a new set of investment signals being considered by government that is designed to reward some industries at the expense of those less favoured. Top of the list for investment are some of the most expensive options for future energy while the gas, coal and oil industries that underpin today’s energy and prosperity are listed for closure.

BHP’s decision on nickel is a wake-up call that big business makes long-term decisions on how it will deploy capital on economic, not political, terms. As business commentator Eric Johnston wrote on Friday, the BHP decision comes on the back of a string of big heavy value-adding manufacturing job cuts, including Woodside paring back staff at its Pilbara site and east coast plastic maker Qenos closing operations, while a string of lithium and other nickel miners have shelved ambitions. Sovereign risk for coal and gas projects is on the rise.

Similar concerns are now mounting for small business. As we noted this week, the accelerating rate of collapse of hospitality businesses also contains a bigger warning about the health of the economy and rising government intervention. Hospitality businesses are failing at nearly twice the rate of a decade ago because of soaring food and energy prices, higher rents and insurance costs, and changes to employment laws.

The government sector, meanwhile, is booming at both state and federal levels. Research shows that more than eight out of 10 new jobs are in government-aligned industries including healthcare, social assistance, education and training, and public administration and safety. In short, small business increasingly is being squeezed out by new regulations and competition from jobs paid for from the public purse. The less certain outlook for private sector business at both the retail level and the big end of town sends a worrying message about our economic future that demands immediate attention.