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Risk analysis: Australia vs. Colombia and the Democratic Republic of Congo

New taxes are always worrisome, and the Australian government's recent decision to pass a 30% tax on profits from iron ore and coal have left many investors scurrying in search of other investment opportunities in alternate countries with lower tax rates and labor costs (Scott 2011). However, simply looking at a balance sheet to determine average tax rates and wages is only a small component of deciding whether a country is a worthwhile investment. With this caveat in mind, it must be cautioned that the proposed decision to shift resources to investing in the coal mining sector in Colombia and the iron ore sector in the Democratic Republic of Congo is neither viable nor cheaper in the long run. In fact, given the marked political instability in both regions, such a move could cause great potential losses.

The Democratic Republic of Congo is so volatile that travelers are asked not to venture there, as the "ability to provide consular services" in the wake of an emergency is limited (Travel warning: DRC, 2012, U.S. State Department). The lack of personal safety and security will make employees very unwilling to relocate to the Congo to supervise operations. The DRC is a veritable 'wild, wild West' of lawlessness: the government has a tenuous hold upon power and there is little popular respect for the formal institutions and laws necessary for economic progress. Moreover, "armed groups, bandits, and elements of the Congolese military remain security concerns in eastern and northeastern DRC. These armed groups, primarily located in the North Kivu, South Kivu, and Orientale provinces, as well as the northern part of Katanga province, and the eastern part of Maniema province, are known to pillage, steal vehicles, kidnap, rape, kill, and carry out military or paramilitary operations in which civilians are indiscriminately targeted" (Travel warning: DRC, 2012, U.S. State Department). Westerners imported from abroad to work in the Congo can get very easily caught in the crossfire. It is also very difficult to find workers with viable, employable skills given that the prolonged nature of the political instability has made educating the populace challenging.

Even if the political instability of the region begins to abate, there is no infrastructure to support sustained economic cooperation. "There is no reliable public transportation system in the DRC" for employees to get to work on time, and "the DRC has few viable roads or railways, but does have several major waterways" (Travel warning: DRC, 2012, U.S. State Department). However, water transport is notably unsafe, and there have been many accidents. Political corruption is rife and improvements to the infrastructure are unlikely, given the focus of most government officials upon self-enrichment rather than improving the circumstances of citizens. Foreign investors would likely face continual frustrations because of the corruption in the DRC and even if it might be 'cheap' on paper to invest, the considerable hidden costs of illegal bribery necessary to do business in the DRC must be taken into account.

Colombia is marginally safer than the DRC in terms of how the government has extended greater control over the narcotics trafficking industry, but still remains a far too unstable area for foreign investment. "Violence linked to narco-trafficking continues to affect some rural areas and parts of large cities" (Travel warning: Colombia, 2012, U.S. State Department). Car-bombings and kidnappings are common: both could significantly disrupt business operations and also make employees reluctant to settle there. Both terrorist groups and organized criminal organizations have been known to kidnap foreign nationals to secure large ransoms or to generate awareness about the cause. The safety of workers could thus not be guaranteed. Additionally, many of these organizations compete for the loyalty of potential employees in their places of origin.

This is not to dismiss the serious concerns which arise regarding Australia's future in the natural resource industry. When the tax increase was announced "the nation's third-biggest iron-ore exporter, said the tax was 'unfair, narrowly based, complex, inefficient and will reduce investment and future jobs in the Australian mining industry'" (Scott 2012). However, it should be noted that the tax was passed in the first place because of the robust nature of the energy sector: "We've got a spectacular resources boom,' [Prime Minister Julia] Gillard said…'It makes sense to take some money from the turbo-charged section of the economy and share it more broadly around the nation and that is what the mining tax does'" (Scott 2012).

Australia still remains "the largest shipper of the steel-making and energy- producing materials" and it is uniquely well-poised in terms of its geography to address the needs of China and other expanding Pacific Rim countries (Scott 2012). It is a politically stable industrial democracy with a long history of support for the coal and gas industries. This is likely to continue, given that positive data regarding Australia's gas and coal imports have offered some of the brightest news about the Australian economy in some time. In February 2013, "exports of metal ores and minerals were up 12 per cent, coal up 5 per cent and 'other' manufactures up 9 per cent. Rising export volumes contributed most to the increase in commodity sales, with the quantity of iron ore shipped up around 20 per cent, and the amount of thermal coal (used for power stations) sold overseas rising 23 per cent, while steelmaking coal sales were up 8 per cent" (Janda 2013). As the Chinese economy and its neighboring economies have rebounded, so has its dependence upon Australian coal and iron. Australia's natural resource industry, despite the increased taxation, continues to thrive based upon this upsurge in external demand.