Dr Don Fuller

The valuable final report of the Northern Territory Reconstruction Commission sets out a clear and logical roadmap for the future economic development of the Northern Territory, as it seeks to address the likelihood that the Territory government can achieve the ‘ambitious’ goal of a $40 billion economy by 2030.

The $40 billion figure established by the NT government is based on what are known as Northern Territory Gross State Product calculations published in NT Budget papers.

While GSP may be one of the few available indicators of aggregate Territory economic growth it does have major disadvantages as a measure. This is because it includes a high value of gas exports, where the financial benefits of such exports are captured by companies that do not necessarily reinvest these funds in the Territory.

It is therefore of little financial and economic benefit to the NT if such exports increase in value. However, it does serve to inflate substantially, the calculation of GSP.

Policies aimed at increasing the benefits of such gas exports to NT residents therefore need to be implemented. I will discuss this later.

The final reconstruction commission report also points out that even using the figure of GSP, to reach the $40 billion target established by the NT government by 2030, would require a sustained average annual growth rate of 4 per cent.

However, over the five years to 2026-27, NT Budget papers estimate growth at an average of 0.9 per cent, which is well below the required figure.

It is therefore most unlikely that the NT economy can grow at the rate required, particularly when the value of gas exports are removed from the calculation.

Lop-sided industry structure in the NT economy

Government and community services, and the mining industry contribute a much greater share to the Territory economy compared to those industries’ national contribution.

Since self-government, the Territory has relied on the government to employ a high proportion of its workforce. Around 40 per cent of total employment in the Territory works in government and community services.

This can serve to crowd out private sector investment and employment generating activities, and stifle entrepreneurship and innovation, essential to economic growth and development. Unfortunately however, it is often seen as the easy way out, with attendant political advantages, by those in government.

In the NT, mining contributes over 30 per cent to GSP, and government and community Services around 25 per cent. Manufacturing, on the other hand contributes less than 5 per cent.

It is clear that ways must be found to diversify and grow the Territory economy and employment.

The importance of gas in growing and diversifying the NT economy

As pointed out in the reconstruction commission report, the use of gas is expected to rise globally, both as a feedstock to industry and a source of power. This will occur alongside a rapid growth of consumer demand for carbon neutral products and technological innovations in storage and efficiency of renewables, including the production of hydrogen.

It is likely that the continued development of gas on a commercial basis, for electricity generation and firming of electricity systems, facilitates greater use of renewables in the Territory, Australia, and the region more broadly.

It is seen as critical that the Territory be able to capitalise on the opportunity the Beetaloo Basin will bring to the economy.

Accelerating the creation of low emissions advanced manufacturing businesses, utilising onshore and offshore gas, can make a major contribution to the Territory’s economy across all sectors – creating demand for local jobs and supply opportunities.

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The need for new policies regarding Territory gas

Within the Territory so far, gas development has had few ongoing economic and employment benefits beyond the short term, and those that flow to the gas industry itself.

Large gas projects have a short, intensive construction period that can have the effect of driving up costs such as rents and housing, and competing for scarce employees against existing businesses. This can also have the effect of driving up labour costs for local businesses.

Beyond the construction phase, gas projects provide a relatively small number of ongoing jobs, and the benefits of these projects flow largely to the owners of the gas companies rather than the wider economy and community.

Policies need to be developed and implemented that can capture long term benefits to the Territory from gas developments.

Gas resources are ultimately owned by the community, and as such, companies make payments to governments for the exploitation of these resources in the form of royalties.

If royalties are not paid, as outlined by the Australia Institute, the companies are receiving the gas for free. The Northern Territory budget does not disclose how much revenue it receives in royalties from oil and gas activities.

INPEX’s Ichthys liquid natural gas project and the Santos-operated Darwin LNG project are the two largest oil and gas projects in the Northern Territory. Both have large LNG processing and export facilities in Darwin.

However, neither pay royalties to the Northern Territory government because the gas supplying these facilities is extracted outside of Northern Territory coastal waters: the gas that feeds Santos’s LNG plant is extracted in Timore Leste’s waters, while Ichthys LNG is fed by gas from the Ichthys gas field, which is in commonwealth waters, specifically, in the Browse Basin off the Western Australian coast. The commonwealth government could impose royalties on the latter but does not.

For the NT to benefit from the gas industry, royalties need to be paid – and a gas reservation policy put in place.

Every major gas producing country has a form of gas reservation policy to assist the development of local industry and the domestic and household users of energy. Western Australia has a domestic reservation policy that has been operating successfully for a number of years.

Against this background it is difficult to understand why previous Territory governments dismissed the idea of a gas reservation policy, claiming it would make the Territory less attractive to investors.

Such a policy can only be described as very short sighted. It has acted to significantly undermine Territory economic development and the diversification of the Territory economy. It results in far higher energy prices to both Territory industry as well as households.

Industries that gas can develop

Methane from natural gas is made into methanol and this is used to make four main products. These are ammonium nitrate, sodium cyanide, methanol and peroxide from which a wide range of important products can be made.

These include, for example, building products, paints and resins, carpeting, adhesives, agricultural products, agents for the treatment of sewage and waste water, cleaning products, fertilisers, refrigerants, medical applications, agricultural and irrigation piping, glycol for antifreeze, and surface wetters for agricultural applications – and a number of others.

Greater natural gas production can therefore help build foundation industries and propel economic growth and exports from the Territory. It will help to keep manufacturing domestic which in turn, will create more jobs, and reduce the cost of goods.

However, if the Territory is not to be continually left behind, it is also very important that the government and university are awakened to the opportunities available in the rapidly emerging sectors and products of what has been termed the ‘new economy’ and ‘advanced manufacturing’.

Such products include new computer software technologies and applications (e.g. for defence), high precision cutting and welding and building technologies, advanced robotics and intelligent computer based production systems, automation of processes, control systems to monitor manufacturing processes and products and systems for environmental management.

The essential requirements for NT economic development

Many of these sectors could be located in the Territory if institutions such as government and the university provided the required support and leadership. Universities and government partnerships with industry are essential for development and growth, as pointed out in the NT reconstruction commission report.

Universities should have a high level of interest in building research expertise and capabilities and forming networks with industry. Most successful universities are characterised by such partnerships.

For example, Flinders University in Adelaide is involved in connecting world-leading biomedical engineers, scientists and clinicians with medical implant global supply chain providers from Australia, China, Belgium, the United Kingdom and the United States of America. Research is underway to identify best practices for industry and clinical practice, new products, processes and solutions. It assists in training researchers and entrepreneurs on the commercialisation pathway of new medical technologies.

The University of Sydney is also heavily involved with industry partnerships and collaborations to assist develop new products and services. Such partnerships include, preparing for the future of work with Telstra, qantum computing with Microsoft, mining automation with Rio Tinto, nanotechnology with Sirtex Medical, and defence science with Defence, Science and Technology.

One is left wondering how far behind Charles Darwin University has fallen in key areas of research responsibility, vital to the economic and industry interests of the Territory. Certainly the industry partnerships mentioned in the last available annual report, while important, appear insufficient for the needs of the Territory.

CDU also seems to have vacillated on whether or not to cut the delivery of key trades and technical skills in Territory centres, and has taken a long time to take advantage of its status as a dual sector university, able to successfully deliver both vocational education and training and higher education courses to students.

It appears to be mainly focussed on attempting to attract international students rather than providing leadership in the building of high quality, high technology relationships with business and industry in the Territory.

In addition, the NT government has been relatively silent on the policies in place to attract and develop new and important industries for the Territory. In particular, it has not demonstrated an ability to keep up with the pace and intellectual and practical challenges associated with rapid technological change occurring within industry.

It is valuable to have business and community leaders come together to produce a high quality document such as the NT Reconstruction Commission report.

However, very good ideas and concepts well presented, even in a step-by-step road map form, require politicians, government administration and the university to work closely together to actually implement such ideas, even if the key concepts, ideas and strategies need to be developed by others.

An inability by those responsible to actually implement these objectives and strategies, acts as a major brake on NT development and growth.

Much academic and practical research points to the fact that developing and growing economies are heavily dependent on a high level of skills development, or what is known as human capital.

A major problem apparent in NT development occurs at the critical level of the required skills development, essential to underpin economic development.

Increasing evidence suggests that education and skills training in the NT is failing to keep pace with the requirements of a rapidly changing economy. This is occurring at each of the primary, secondary and tertiary levels.

Where an economy fails in its ability to produce a high level of required skills, efforts are often made to import these skills from outside the region. The Territory has long recruited skilled people from other regions within Australia.

However, given failing governance and increasing evidence of social dislocation in Territory centres, with associated increasing levels of violence and lawlessness, it is unlikely that the Territory will be able to depend in the future on this source of skilled labour to support economic development and growth.

It is likely to be increasingly difficult to convince families to live and work in the NT if violence and social dislocation continues to escalate and educational opportunities for those families with children continue to decline.

There are four major resources that power economic development and growth: resource endowments, highly skilled people, investment and technology, and innovative management and organisational know-how.

The NT is most fortunate to have very strong resource endowments in the form of location, land, water and mineral resources, for example.

However, compared with other jurisdictions in Australia, it is currently very weak with regard to highly skilled people and innovative management and organisational know-how.

This includes the critical role of governance in the NT.

Given continuing failures in the education system at the primary, secondary and tertiary levels. it is also severely constrained in its ability to contribute to the second very important requirement.

This has been further worsened by the declining attraction of the Territory as a home destination by skilled people and families wishing to move and work in the NT.

Such significant constraints mean that the NT is unable to successfully take advantage of its high quality resources which should act as a major competitive advantage.

These constraints restrict the willingness of investors to risk capital investment in such an uncertain environment.

Without skilled people, organisational know-how and investment, economic and social development comes to a halt.

Unfortunately, this appears to be happening in the Northern Territory.

Far more needs to be done by government and educational institutions to understand and act to reduce the serious barriers to growth and development if the Territory is to take advantage of the rich resource endowments that the Territory possesses.

This is not only very important for the NT but for Australia, as a whole.

Practical problems and constraints need to be faced head on and tackled, rather than governments and institutions using obfuscation to obscure and delay action on the main economic and social challenges facing the Territory.

In the 21st century in an increasingly competitive and dangerous world, it will not be enough to rest on the words of the great Australian poet, A.B. ‘Banjo’ Paterson, who in 1898 wrote: “Some day it may be civilised and spoilt, but up to the present it has triumphantly overthrown all who have tried to improve it.”

Dr Don Fuller holds a first class Honours degree and PhD in economics from the University of Adelaide. He has worked as a senior public servant in the Territory and as Professor of Governance and Head of the Schools of Law and Business at Charles Darwin University. He grew up in Darwin and attended Darwin High School.

He was also an adviser to the former CLP MLA Maralampuwi Francis Xavier, was briefly the senior private secretary to Chief Minister Paul Everingham, and is a former member of the CLP and the ALP.