5260.0.55.001 - Information paper: Experimental Estimates of Industry Multifactor Productivity, 2007  
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Contents >> Mining >> Capital inputs

CAPITAL INPUTS

The significant increases in income for the Mining industry might be expected to flow through to increased investment in order to exploit the returns available. This expectation seems to be reflected in the gross fixed capital formation (GFCF) estimates for the industry (figure 4.4). Figure 4.4 also shows this pattern occurring around the mining boom of the late 1970s, where a significant rise in investment occurred in the early 1980s.

4.4 Mining gross fixed capital formation, Chain volume measure (a)
Graph: 4.4 Mining gross fixed capital formation, Chain volume measure (a)



The slowdown in the growth in capital services in 1999-00 was due to a significant fall in investment (GFCF) in that year. However, it has since rebounded, although in volume terms this rebound seems to have returned the series to the trend growth rate that occurred over the 1990s (see figure 4.2). The volume of investment jumped significantly in 2005-06, especially in non-dwelling construction (figure 4.5).

4.5 Mining gross fixed capital formation, by asset, Chain volume measures (a)
Graph: 4.5 Mining gross fixed capital formation, by asset, Chain volume measures (a)



In the last few years the two assets with the fastest growth in GFCF, non-dwelling construction and industrial machinery, also increased their contribution to capital services, which is a product of the rental price weights in figure 4.6 and the growth in the productive capital stock in figure 4.7.

4.6 Mining rental price weights (a)
Graph: 4.6 Mining rental price weights (a)


4.7 Mining productive capital stock, (2004-05 = 100)
Graph: 4.7 Mining productive capital stock, (2004-05 = 100)



The changes in the industry composition discussed above may also indicate that the capital-labour mix required has changed. Figure 4.8 shows a move from more capital intensive (oil and gas) to more labour intensive activities. Despite the changes to the capital-labour ratio, Mining remains a very capital intensive industry, and has one of the highest levels of capital to labour of any Australian industry at $1.35 million of net capital stock per person employed in 2005-06. This is also reflected in the fact that capital's share of income is on average 70%, although in recent years this has risen to 80%.

4.8 Mining capital-labour ratio, (2004-05 = 100)
Graph: 4.8 Mining capital-labour ratio, (2004-05 = 100)



There are a number of issues to consider when examining how the changes in capital impact on the MFP estimates. For instance, while investment has been increasing in recent years it may be that there is a lag preceding the use of the asset in production. This may be another reason that might explain the slowdown in productivity. Another possible issue with capital services measurement is that the fall in oil production is not mirrored by a fall in the associated capital services. That is, the current capital services measure assumes that oil rigs are operating at a constant level of capacity even though this level of capacity utilisation may be falling, given declining oil and gas volumes. See the appendix at the end of this chapter for more details.


Two further issues to consider when examining capital services for Mining are the scope of assets and the treatment of mineral exploration. Subsoil assets are not included in the capital services measure for Mining at present and further work in this area is required. The second issue is the treatment of the efficiency decline for mineral exploration. The ABS treatment is such that it is assumed that there is no decline in the efficiency of mineral exploration, that is, the asset delivers the same level of capital service throughout its life. The assumption is that there is no decline in exploration knowledge or obsolescence. If the efficiency of exploration knowledge did decline over time then the growth in capital services would be slower than is currently measured. This is because there would be less capital services being delivered to the owner from mineral exploration.


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