This multi-billion dollar industry makes Australia look like Gumtree

Australia has long been known as the lucky country. We are indeed a very lucky country – to go without a recession for 25 years requires a fair bit of luck.

One of the key reasons for the strength of Australia’s economy is the mighty resources sector. It makes Australia look like Gumtree – we’re just looking around the country for things to sell for as much as someone will pay.

In all seriousness, resource businesses have unlocked a lot of wealth for the Federal Government, State Governments, CEOs, employees and founders.

Various stages of resource booms have kept the money flowing, from the early gold rush, to BHP Billiton Limited’s (ASX: BHP) and Rio Tinto Limited’s (ASX: RIO) long history, the emergence of Fortescue Metals Group Limited (ASX: FMG) and now the growing LNG & lithium sectors.

Sadly, two of the most important stakeholders have been the least to gain from this. The mining regions don’t see much benefit themselves with many workers flying in to work and then flying out again.

A new report for the Government has said that the resources sector is responsible for $226 billion of exports per annum. The report said that tax incentives could be used to encourage people to live and work in the mining regions.

I’ve always thought that Australia is missing a trick by not having more of the value-add capabilities based in our country. Simply digging up the material and sending it to Asia, Europe or North America means many secondary industry opportunities are being skipped. Lithium batteries would be a good place to start.

The other issue for me is that resource businesses are notoriously difficult investments. They sell materials that are available in other regions of the world, meaning they don’t have much pricing power. They are also at the whim of cycles, so in any given year the earnings and share price could fall. They require enormous amounts of capital to fully construct and maintain a working mine.

Foolish takeaway

So, whilst I’m glad that the resources industry exists and I’m supportive of its success, I think Australia could be utilising the resources better and investors looking to outperform consistently would be better off looking at other industries.

For example, these top shares are all proven market-beaters and have long-term growth prospects.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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