Australia Resurrects ‘Northern Myth’ as Cars to Hit Dead End

Australia Resurrects ‘Northern Myth’ as Cars to Hit Dead End

Australia is resurrecting a once-discredited plan to develop its sparsely settled northern region in a spending program that exceeds funds pulled from carmakers in the densely populated southeast.

Under a A$6.2 billion ($4.5 billion) plan, the government intends to develop water resources for farming, build new roads and boost links with Asia in an area the size of India where there is only one person for every three square kilometers.

It aims to defy the conclusions of economist Bruce Davidson who, in his book ‘The Northern Myth’ published 50 years ago, predicted a northern food bowl would never be realized. The government is spending scarce budget resources in the north, a landscape that ranges from the red dust of the Outback to lush green tropical rainforests, even as a falling currency boosts competitiveness of the ailing car industry.

“It is potentially a boondoggle,” Saul Eslake, former chief Australia economist at Bank of America Merrill Lynch, said of developing northern Australia. “If these commercial opportunities are there, why aren’t our risk-taking entrepreneurs, the Australian ones or foreign ones, lining up to take advantage of them?”

In the 1960s and 1970s Australia built the Ord River Irrigation Scheme in the northwest, creating the largest mainland store of fresh water in the hope of fostering a new agricultural industry and population growth. But after trials of 60 different crops, none proved to be profitable or sustainable on a large scale.
Feeding Asia

While Sandalwood is currently being grown in the region and could prove successful, the aim is to develop the area so that it helps feed Asia’s burgeoning middle class.

In Australia’s south, Prime Minister Tony Abbott’s government will save as much as A$500 million a year over a decade in subsidies and incentives from the departure of Toyota Motor Corp., Ford Motor Co. and General Motors Co., which will shut its last plant in 2017.

With the Australian dollar having fallen about 25 percent since the automakers began announcing they would stop production, the opposition Labor party says the industry could have been saved for less than an extra A$100 million in assistance.

“It’s roughly equivalent — the amount of money they’ve taken out of the auto industry and put into northern Australia,” said Kim Carr, the industry minister in the Labor government that was defeated by Abbott in 2013. “It’s an interesting comparison.”
Jobs Lost

The carmakers say no single factor is forcing their departure. “GM and Holden left no stone unturned in trying to make the business case stack up for domestic manufacturing in Australia,” the company said in a statement.

Their demise will see 50,000 jobs lost with unemployment in the manufacturing hub of South Australia state already about 8 percent, the highest in the country. In a move that may blunt the pain of the carmakers’ departure, Abbott said this month a new fleet of navy ships would be built in the state, safeguarding about 2,500 shipyard jobs.

The Abbott government’s Northern Australia plan, which it outlined in a white paper in June, has five focus areas: food, resources, tourism, international education, and health care and medical research.

The first two raise obvious questions.

The Ord River scheme lacks the scale and infrastructure of similar agricultural areas in the south. The region’s remoteness is another hurdle with produce needing to be trucked vast distances on sometimes impassable roads.
Shanghai Policeman

That’s not stopping former Shanghai policeman Yin Jian Zhong. His company, Shanghai Zhongfu Group, is growing the so-called superfood chia on the Ord River floodplain to sell in China. Another potential success in the area is Sandalwood, which requires no refrigeration and so doesn’t suffer in the event of transport disruption.

Australia’s resources and energy industries, meanwhile, have already been exploited during a decade-long mining investment boom, suggesting limited prospects for further development given commodity prices are tumbling.

Australia is the only country within the Organization for Economic Cooperation and Development with a tropical zone so there’s no template for exploiting such a region. Yet, with 40 percent of the world’s people located in the tropics, there is potential to develop tropical health services and renewable energy, said Andrew Campbell, director of the Research Institute for the Environment and Livelihoods at Charles Darwin University.
Tourism Investment

On its other focus areas, Australia is offering tourism investment opportunities in the north including commercial development in national parks. It hopes the number of international students enrolled in northern Australia will double by 2035 and it plans to expand the Australian Institute of Tropical Health and Medicine.

Yet the central thrusts remain resources and agriculture, including better roads to bring cattle to market.

“We seem to default back to a 19th century agenda of cattle and coal and iron ore being shipped out essentially unprocessed,” said Campbell. “The idea of sending boat loads of live cattle seems to be a fairly old-fashioned notion instead of a sophisticated knowledge and services-based economy focused on the tropics.”
Investment Scrutiny

The government committed A$1.2 billion to the north over four years along with a A$5 billion concessional loan facility. Critics say the funding could be funneled to projects for political advantage, particularly by Abbott’s coalition partners, the Nationals, which represent rural voters. Treasury Secretary John Fraser this week sought to assuage concerns, saying his department would “draw on professional investment expertise to scrutinize rigorously all potential investments.”

Still, the government acknowledges success is unlikely if the region’s population of one million only inches up by a few hundred thousand over the next 20 years. Without a population or four to five million by 2060, the region would remain a high-cost, small-scale economy, it said.

Politicians “have taken advantage of the peculiar fascination northern development has for the Australian public,” Davidson wrote in his 1965 book. “Any agricultural product which can produced north of the tropic can be produced far more cheaply south of it.”

Source: Bloomberg.com