Australia's mining boom was never going to last forever. Tucked away in the budget papers two years ago were estimates from Treasury and Geoscience Australia about how long our minerals would last. Iron ore was set to run out in 70 years at the current rate of extraction, gold in just 30 years.
AUSTRALIA'S mining boom was never going to last forever. Tucked away in the budget papers two years ago were estimates from Treasury and Geoscience Australia about how long our minerals would last. Iron ore was set to run out in 70 years at the current rate of extraction, gold in just 30 years. Black coal would last longer - 90 years, meaning many very young Australians will still be alive when the last lumps of black coal are dug from the soil and thrust into furnaces.
Treasury was careful to say its estimates weren't definitive. Higher prices could ''encourage greater investment in exploration activities and new discoveries''. But its message was clear: mining would be unable to power Australia's economy forever. Sooner or later - within one lifetime or maybe two - we would have to face up to the question of what comes next.
It's the sort of question Australia has faced in the past. Those who grew up in the 1950s were forever being told the nation rode on the sheep's back. Back then the farm sector accounted for a quarter of Australia's production. Today it accounts for a little over 2 per cent.
For the most part that transition away from agriculture has been managed smoothly (although for a while woolgrowers tried to stare change in the face by legislating a floor price for wool, with disastrous consequences). The subsequent decline of manufacturing has been more painful, mainly because of the number of people employed. In the 1960s manufacturing provided jobs to one in every four Australian workers. Today it employs just one in 12.
On Thursday, Resources Minister Martin Ferguson seemed to ring in the next change. Speaking to the ABC's AM program after BHP shelved plans to build what would have been the world's biggest uranium mine at Olympic Dam in South Australia's arid north, he declared the boom over.
''It's about time Tony Abbott stopped talking down Australia both at home and internationally and recognised how well placed we are,'' he said.
''But you've got to understand, the resources boom is over. We've done well - $270 billion in investment, the envy of the world. It has got tougher in the last six to 12 months. Look at Europe, the state of the European and global economies.
''Think about the difficulties in China, with still strong growth. The next round was always going to be difficult and I must say Olympic Dam was always a very, very challenging project - its sheer size.''
Prime Minister Julia Gillard rushed to reassure the public that Ferguson had not meant to say what it sounded as if he had.
''He has indicated that prices have come off a bit - or, if you like, that the commodity price boom has passed its peak,'' she told Parliament. ''But there is a huge investment phase which still has some way to run and the export boom in resources still has a very long way to run.''
The simultaneous industrialisation of the world's two most populated nations - China and India - has decades to run. Another 1.1 billion Asians are expected to move to cities over the next 30 years and they will require housing and supporting infrastructure. The Reserve Bank has estimated a typical Chinese apartment requires about six tonnes of steel, while 10 kilometres of metropolitan subway requires about 75,000 tonnes. Each tonne of steel produced requires about 1.7 tonnes of iron ore and more than half a tonne of coking coal.
But the plummeting mining profits and shelved resource projects have underscored the need for Australia to prepare for a time when it must rely on a different mix of exports, mostly knowledge-based services.
Resources exports have forged deep economic ties between Australia and Asia. But the mining boom may just be the prelude to the main game of Asia's economic emergence. By the middle of this century, more than half of the world's economic activity will occur in Asia.
This landmark shift creates economic possibilities unimagined even a decade ago. As the region's middle class becomes richer, demand for a long and different menu of Australian exports including foodstuffs, tourism, education, financial services, business services, professional services and niche manufacturing will grow steeply. Australia's proximity to the Asian economic powerhouse means it is well placed to capitalise.
But the shift from selling Asian customers bulk commodities such as coal, iron ore and gas to the far more nuanced task of exporting a wide range of goods and services into diverse Asian markets won't be easy.
''It is one thing to sell a homogeneous minerals commodity to a minerals-hungry industrialist in China, and another thing entirely to design and market a sophisticated personal service to someone living in that culture,'' said former Treasury secretary Ken Henry in a speech to business this week.
Australians have become much more aware of Asia, especially through holiday travel in the region. But experts warn that our knowledge is superficial. Even though many more of us are travelling to Indonesia and other south-east Asian destinations, fewer students are studying Indonesian now than in the 1970s. A recent business survey found that less than half of Australian businesses with dealings in Asia have any senior executives or board members with Asian experience or language ability.
Asia's middle classes are emerging as the world's biggest consumer group, but many of them won't speak English. They will also have business cultures and political systems different from ours.
Henry, who is writing the government's forthcoming white paper on preparing Australia for the Asian century, says the nation needs to build its ''Asia-relevant capabilities''. It will be crucial that Australian students gain a much deeper understanding of the cultures and languages of Asia.
Businesses will also need to think differently. Many companies that are defined as Australian will have to start looking at themselves as regional and be willing to move components of their business to Asia in order to survive.
THE Prime Minister and the Resources Minister are both right. The resources boom has ended, but only in a limited sense, for now.
It was kicked off last decade by an explosion of urbanisation in China. The first effect was to push up prices. With Australia and suppliers in Brazil and India ill prepared, the only way China could get the iron ore it needed to cater for its rapidly expanding cities was to bid up the price from a long-term average of about $US13 a tonne in 2002 to an extraordinary $US180 a tonne by last year. For Australian miners the undreamt of price was pure profit - they hadn't needed to spend an extra cent to get it, which is why Kevin Rudd and Wayne Swan wanted to tax some of it away as super profits.
The price boom begat the investment boom as resources companies scrambled to mine more of the stuff. The investment boom is boosting the economy in its own right, drawing in billions in overseas capital and employing more workers constructing mines than will eventually be employed operating them.
But as miners around the world have raised production, prices have eased. A year ago iron ore was fetching about $US180 a tonne but yesterday the price slipped below $US100 for the first time since the global financial crisis.
Investment will turn down soon. Reserve Bank governor Glenn Stevens told Parliament's economics committee yesterday he expected investment spending to peak ''within the next year or two'' although it would remain at an unusually high level for a long time.
Big investments in gas production mean exports are set to quintuple by the end of this decade.
But Peter Coleman, chief executive of Woodside Petroleum, Australia's biggest gas producer, says that as commodity prices fall miners are becoming more cautious about investments.
''We're just seeing a natural part of the cycle, to be honest. It's kind of like that long wave that comes into the beach, it's starting to break. That's what commodity cycles do, and then we'll pick up another one here soon. It just depends on picking the right one.''
But even if the resource price boom is over, and the resource investment boom is coming to an end, our resource income boom still has some way to run. This pay-off from the investment boom - the extra resources Australia is able to ship out of the country - will stay with us for decades.
After China will come India. China has just passed a truly historic milestone: half of its population now live in cities. India's rate of urbanisation is just a third, so it has a long way to go. In the past 15 years India has shot up from being the world's 10th-biggest steel producer to its fourth. While India is blessed with vast reserves of high-quality iron ore, it is desperately short of the coking coal used to turn it into steel. Australia will be in the box seat once more, given our stocks of high-quality coal.
Even so, Deloitte Access director Chris Richardson says there could be a ''tricky phase'' for the Australian economy as commodity prices fall and we wait for recent investment in mining capacity to come on line.
''In late 2014 going into 2015 we are going to have to change gears from construction as an economic driver to export earnings,'' he said. ''There could be a pothole. We don't know how big it will be.''
Some parts of the economy will benefit as the effects of the mining boom fade a little. The Australian dollar will probably fall, providing a boost to important sectors - such as tourism, education and parts of manufacturing and retail - that have been badly affected by the high exchange rate.
The companies in those sectors that have weathered the effects of the soaring exchange rate are likely to thrive if the dollar pulls back.
Meanwhile, Henry says there is no room for complacency. Australia should waste no time adapting and reforming our policy settings to make the most of opportunities beyond the mining boom.
''It would be a mistake to think that geography and/or geology alone will get us where we want to go and allow Australia somehow to ride the wave of the Asian century around us.''
Matt Wade is a senior writer.
Peter Martin is economics correspondent.