State of Mind

Western Australia is the world’s most successful mixed mining and energy province. The diversity of its endowment underwrites a dextrous resources sector that – due to its flexibility, scope and problem-solving expertise – attracts permanent investment from the world’s largest minerals and energy producers, many of whom have their regional headquarters in Perth.

Western Australia produces two-thirds of Australia’s minerals – over forty kinds – and they are present in homes, factories, robots and aeroplanes around the world.

Deposits of rare minerals, including graphite and rare earths such as yttrium and thorium, are either present in Western Australia or being produced. These fascinating minerals are essential to the technology of the future, such as the supercapacitors that will power unconventional, fast-charging electric cars and the lithium-ion batteries in smart devices. Graphene – one hundred times stronger than steel – will be used to create flexible, malleable electronics screens. The substances of the future are here.

In Western Australia, technical capacity and inventiveness is tested in different environments and terrains, all the while extending people’s professional range. Small mining companies – the entrepreneurial junior miners – use their skills and experience abroad, where Western Australian companies pursue exploration and production ventures on six continents.

Western Australia is perfectly located to supply the world with the wide range of minerals that it desires, including the Asian countries that manufacture automobiles and modern electronics. The countries promising the greatest economic growth of the twenty-first century – in the Indo-Pacific and Africa – are either in its region or time zone, or both. Exports and talent can reach these markets faster than that of any other Australian state.

The first decades of this century have been a golden age for Western Australia. By the time the rest of the world woke up to the rise of Asia, Western Australia was a leading global supplier of the region’s minerals and energy. The state is now fifty years into the Asian century, which started in the 1960s when Australia provided iron ore to a fast-growing postwar Japan.

Now, the state is the leading supplier of minerals and energy to the next countries to undergo rapid urbanisation – China, India and South-East Asia. Whole cities in China were built with resources extracted from the state’s rich endowment. Western Australia accounted for forty-seven per cent of global iron-ore exports in 2013.

This created remarkable prosperity for the state as volumes of production and prices soared. While they have suffered major reversals in recent years, production volumes continue to expand to record levels, especially of natural gas, production of which will double over the next three years as the Pilbara Gorgon and Wheatstone projects are completed.

Over this critical period, businesses, government and universities invested in the infrastructure required to expand Western Australia’s capacity to extract natural resources.

Western Australia has welcomed many professionals and technicians from interstate and overseas. Innovative technology companies – such as General Electric, IBM and Cisco – have made their home in the state, heralding its new chapter.

Technological advancement usually starts with a problem. Western Australian mining has faced a few of these: harsh and hot environments, distance, skills shortages, protecting the environment, increasing the purity of a product. Take Rio Tinto and BHP’s massive remote operations projects, for example, conceived at a time when personnel were hard to come by.

Mining is often wrongly assumed to be a simple – or even crude – task. In fact, extracting and producing minerals on a massive, profitable scale requires cutting-edge technological solutions and continual innovation. Mining companies scrutinise their business and production processes every day – continuous improvement is the only way this industry functions.

In the next decade, minerals and energy exploration, discovery and extraction will experience a dramatic transformation as the industry solves more problems: operations will be mainly automated, previously unreachable resources will be accessible, and robots will be par for the course.

Perth has become a capital-raising nerve centre for the world’s resources sector. In recent years, West Perth’s mining cluster and St George’s Terrace – the city’s financial district – have hummed with the establishment of new companies and exploration-focused initial public offerings. Western Australia’s diverse natural endowment and Australia’s stable, low-sovereign-risk, high-calibre regulatory regime have meant the emergence of a thriving capital-raising ecosystem.

Australia’s stable, transparent and efficient policy environment underpins the decision of so many companies to raise capital here. After listing his telecommunications company on the Australian Stock Exchange in 2013, one Chinese entrepreneur, Xiong Yang, said, ‘We didn’t come here to ask for more money. We want to improve our corporate governance and provide a fair and transparent structure to our existing shareholders.’ The Federal Government’s agreement with its state counterparts to eliminate the bureaucratic duplication of environmental assessments and approvals for mining projects has further improved the profile of Australia as a regulatory and listing destination.

Western Australia was the preferred location for company headquarters in 2013 with 763 Australian Stock Exchange–listed companies – forty per cent of all listings – compared to New South Wales’ 557 and Victoria’s 335. Seventy-eight per cent of companies listed in Western Australia have chief executive officers in the resources sector. Listing a company in Perth is dramatically cheaper than listing it in other financial capitals. Taken together, this data reflects the emergence of a world-class mining cluster.

Research demonstrates that the specialised capital-raising experience in Western Australia has created unique benefits for the state in fields such as accounting, stockbroking and law. Professor Ray da Silva Rosa of The University of Western Australia notes that ‘a Perth-based resources lawyer can deliver a legal service that is higher quality and more likely takes fewer hours to deliver than their Eastern-states-based counterparts’. Perth’s mining and capital-raising cluster means that its complementary disciplines, located together, are more competitive.

A successful market also relies on the deep domain knowledge of its entrepreneurs. Western Australia’s long history of serial entrepreneurship means it has a concentration of executives who can appraise geology and management talent judiciously. This network of directors and their governance expertise is integral to Western Australia’s resources ecosystem: they have both the scientific knowledge and the market knowledge – in areas ranging from geology, global demand, assessment of management talent, legal and regulatory affairs – to raise capital effectively on a global scale.

Western Australia must understand and embrace the technological leadership that underpins its exploration and production capabilities. The state – to reap the advantages of its underlying strengths – must pivot from its dominance in minerals and energy production.

Western Australia’s ultimate challenge is its lack of financial backers and venture capitalists willing to fund start-up businesses or transform lab research into commercial realities. To date, this kind of alchemy – the final spark in the process of innovation – has escaped the state. Its entrepreneurial faculties have developed principally around mining exploration and extraction. It must, however, develop technical competence beyond minerals and energy. To turn its prowess in resources extraction into the products and services of tomorrow, Western Australia needs a new breed of entrepreneurs with domain knowledge in other sectors and markets.

Western Australia must create the hospitable environment in which promising new businesses can flourish. Take an international example: the well known story of 3M, a company that has sustained innovation for over a century, and which started as the Minnesota Mining and Manufacturing Company. Or Nokia, which started as a wood-pulp mill, evolved into a telecommunications company and finally developed the revolutionary wireless technology that connected billions of people through networks and mobile phones.

The world’s economic foundations are transforming. From an industrial base, advanced nations are pivoting to economies premised on science, data and knowledge. A 2015 report from Australia’s Chief Scientist notes that the direct contribution of the advanced physical and mathematical sciences in Australia is already equal to eleven per cent of the Australian economy (about $145 billion per year). A further estimated eleven per cent in flow-on benefits brings this number to twenty-two per cent of the Australian economy – a result that is likely to be conservative.

Western Australia, then, like every region, needs to make a profound and enduring commitment to science. Future economic gains from Western Australia’s existing infrastructure and technological capacity will depend upon its ability to translate scientific and technical development into new products, services and whole industries. The next wave of digital technology – cloud computing, data analytics and machine-to-machine technologies like the internet of things – are on the threshold of changing our daily lives and the way we do business radically.

It is important to be brutally realistic about Western Australia’s place in the world in the context of these new technologies. The state should not work in areas to which its expertise are unsuited, or in which there is no prospect of a comparative advantage emerging. An absence of deep domain knowledge means that many global research teams are often working on superceded or redundant projects. Western Australia’s research teams cannot afford to be among them. It must build on its demonstrated strength and defining talents in areas where it has genuinely advanced, sustainable development taking place. This is a difficult task.

State of Mind examines the areas of breakthrough technology that McKinsey Global Institute identifies in its report Disruptive technologies: Advances that will transform life, business, and the global economy. The report names twelve transformational technologies that will have the greatest economic impact – and potential value – in coming decades.

Using this framework, we have evaluated the technological developments underway and above the radar in Western Australia (this exercise is not exhaustive, only indicative and illuminating). The aim is to reveal the areas in which Western Australia is either pursuing breakthrough technologies of global interest and potential impact and where its research approaches the best in the world. Such analysis needs to be augmented continually, this is but a snapshot at a point in time.

The future will be built by people who use their intellect and agility to design solutions to the problems of everyday life. Prosperity – like social harmony – depends on those who can create new value by bringing successful ideas to life: the designers, engineers and scientists. We call them imagineers.

Designers in all their forms, especially technologists and engineers, are the most promising agents of long-term wealth. Engineers deploy technical knowledge to solve society’s problems. History has shown us that the engineers, tinkerers and problem-solvers devise the solutions and technology that actually create – rather than follow – economic growth.
Silicon Valley leads the world in wealth creation, product invention and technology. It has the world’s greatest concentration of engineers. Energy cities – Calgary, Houston and Perth – have the next highest.

Solutions that create value: this is the definition of innovation. Perth – unique in Australia for the density of its engineering talent – has the potential to be the innovation centre of Australia, with particular strengths in mining and resources, big data and life sciences.

Western Australia’s engineers are global in experience and orientation. Between 2006 and 2011 more than seventy-five per cent of new engineers to the state were foreign-born. Talented expatriates bring fresh ideas and global experience to Western Australia’s domestic resources sector and its supporting industries. The presence of these knowledge workers creates an environment in which new businesses, products and services emerge.

Studies have demonstrated that most skilled migrants train local colleagues during their stay. The specialised knowledge of foreign workers – especially on the design, maintenance and operation of complex machinery and technology – spills over to Australian workers. Internationally
, positive correlations have been proven between skilled-visa approval and rates of patenting.

Modern jobs in the knowledge economy require a vast array of skills and experience. Communication, for example, is as necessary to minerals and energy production as it is to media production. The ability to communicate and connect ideas and information is vital; the multidisciplinary nature of contemporary work groups is a key indicator of their success.

It is not just engineers who have changed the fabric of Perth, it’s the other knowledge workers and creatives, as well as the skilled technicians and labourers who make up the state’s modern labour force. Western Australia has had an influx of nearly half a million new migrants in the last decade, fifty thousand of whom were foreign. Perth’s economic growth is inseparable from its creative growth: it has, on average, twenty per cent more design, media and arts professionals building a vibrant, cosmopolitan city that it did a decade ago.