Countries around the world are searching for post-Covid 19 economic stimulus and jobs. With an expected $184b+ hole in Treasury’s pocket Down Under, there has never been a better time for Australia to hitch its economic wagon to the fast flowing currents of the electrification trend – and there has never been a more important time to learn the lessons of history.
Compare the share price fortunes of Santos (gas) with Tesla, BYD, CATL and co (electrification), and it is clear where our economic future lies – the only question should be how we shape our role in that future.
Lessons from history:
In 1990, some smart people in Norway had an idea to create a sovereign wealth fund around Oil and Gas reserves. Their approach combined direct investment and taxation, to ensure that significant revenue from oil and gas projects, over and above standard taxation regimes, would be shared for the benefit of all Norwegians.
Just 20 years later, and with an investment mandate and revenue base that has evolved over time, that fund is worth the Australian equivalent of $311,000 for every person in Norway, or $700,000 for every Norweigan family.
Invested globally for a 6% yield, The Norway Sovereign Wealth fund is big enough to pay every man, woman and child in Norway, the equivalent of Australian “Tier 2 Jobkeeper” for the rest of their life. Norway doesn’t worry so much about budget deficits and service cuts these days – they pick and choose to spend money from their investment fund, or borrow from international markets, as they see fit.
Electrification’s importance to Australia
What has this got to do with Australia, electrification, and the next long economic boom?
Post settlement Australia is not new to riding the coat-tails of historical trends. Many remote regional towns became some of the richest cities in the world off the back of the 1850’s gold rush. We then famously rode the sheep’s back for a century, and as global forces moved against our primary production, along came iron ore and coal, driving the mining boom.
Long term structural shifts in the global economy, creating enormous demand for Australian resources, has underpinned post-settlement Australia’s economic health, and one of the biggest structural shifts in the global economy today is the electrification of everything.
In 2016 Tesla built Gigafactory 1, and doubled global battery demand in the process. Just four years later, Tesla have mapped out the pathway to “Terafactory” – the ability to produce Terawatt hours of battery storage, all while delivering a 700%+ return to Tesla shareholders in that time. By analogy, Tesla battery production plans going from “giga” to “tera” are like a salad sandwich at your local corner store going from $10, to $10,000 in four years – the kind of leap most can’t imagine being possible.
The last five years has seen a host of ASX listed lithium miners emerge as serious players on the global stage. Much of that enabled by foreign investment, on terms that very much suit those foreign investors.
We have to be careful with forecasts of any kind, but when it comes to electrification, the auto-market is a key indicator and one thing is clear. The three big auto-makers – Volkwagon, Toyota and Hyundai know they are in an urgent race to survive the Tesla threat. Those competitive forces are predicted to unlock an enormous wave of investment in battery supply capacity.
Australia is very well endowed with the critical metals needed to ride on the back of global battery demand. Nickel, lithium, cobalt, and a host of rare earth elements essential to electric vehicles are available in Australia, in abundance. While Australia faces stiff competition from countries like Indonesia, the Philippines, and Africa, what we lack in resource size and grade, we make up for in low sovereign risk, and environmental management.
Sovereign wealth underpinning the next long boom
But what is the end game for a taxation model that requires the Australian Tax Office to recover funds owed to Australian’s by taking action in the supreme court? Australian coffers cannot afford a repeat of the “sell it once and claw back tax owed”, extraction-only model of the last century.
An Australian Sovereign Wealth Fund, focused on unlocking the potential of battery metal mining, value adding, and metal recycling globally makes compelling sense. We can own these resources not once, but through their life cycle. If conservtive 2030 EV forecasts play out such as those made by the IEA, battery metals could be a $500b/pa global market, before value adding.
An Australian Sovereign Wealth FundIt would de-risk the investment needed to ramp up domestic supply, insulate Australian assets from foriegn corporate raiders, and help unlock foriegn investment in joint ventures, on terms that align to Australia’s long term interest in the pursuit of value-adding on Australian soil.
It would put beyond doubt Australia’s critical role in the battery supply chain, and if executed successfully, ensure the financial security of Australia as a nation for a century to come.
A ship it once, sell it once model, would be not only repeating the mistakes of the past, but it would be selling this country short now and for generations to come.
We can’t let that happen. We have to get organised. Can you dig it?
We are a growing group of independent citizens that believe a sovereign wealth fund must be initiated before the next Federal Election with serious, bi-partisan money – a minimum of $10,000,000,000 at its inception. That investment could be housed within the Future Fund to avoid governance duplication, quarantined for the sole purpose of ensuring the benefits of this once in a lifetime mining boom are shared by all Australians, and invested with oversight from experts working independent of political influence.
If you can dig it? Lets make it happen. For all Australian’s, for all time. We can’t let this moment pass.
Tosh Szatow and Osher Günsberg are founders of “Can We Dig It” – a network of Australians dedicated to a sovereign wealth fund for battery metal mining in Australia. Tosh runs the Good Ideas Factory, and remains active in transforming energy markets via BOOMPower with his two co-founders. Osher is one of Australia’s most recognisable media personalities, runs an independent podcast “Better Than Yesterday” and is a passionate advocate on major challenges facing Australian society from mental health through to sustainability.`