Wednesday 06 Oct 2021 | 20:33 | SYDNEY
Wednesday 06 Oct 2021 | 20:33 | SYDNEY

Australia the commodities cop?

26 April 2012 08:38

Dr Daniel Woker is the former Swiss Ambassador to Australia, Singapore and Kuwait.

In his wide-ranging and insightful contribution of 20 April to this blog, Bandid Nijathawan cites 'gatekeeper for the international commodities market' as potentially Australia's most useful contribution to Asia.

This important remark shines a spotlight on a widely known but rarely discussed fact: an important percentage of all commodities produced worldwide are not brought to market by the producer but by little-known and partly unregulated traders. These traders either 'do God's work' by bringing much needed commodities in time and to the required quality to where it is needed, or they are 'bloodsucking speculators' needlessly pushing up prices for the consumer and depriving producers of their just remuneration. It depends on who looks at their activity.

Where more and more experts and an increasing number of governments agree is on the necessity to better know, regulate and where necessary police these trading activities. This should preferably be done through international agreements.

Impossible, you say? Probably not, as shown by the recent process of bringing (somewhat) under control another vast area of previously unregulated international economic activity: offshore banking. Following the global financial crisis of 2008, national and international legislation — from the Volker Rule to Basel III — brought under control banking activities hitherto unregulated and mostly escaping national regulators. Some such activities were eliminated altogether.

Switzerland was the world's numero uno in this activity, but this country, at the crossroads of Europe, with excellent connections worldwide and a business-friendly climate, has over the last couple of years become the global hub for commodity trading.

Figures are hard to come by, but all agree that traders legally located in Geneva and Zug have the largest share globally of all privately-traded commodities (as opposed to trade under direct government-to-government agreement), from coal to pork bellies and from grains to oil and gas. The 2011 IPO of the world's largest trading company, the Zug-based Glencore, and the ongoing process of merging Glencore with the world's fourth-largest miner, Xstrata, also based in Zug, brought this point home to the Swiss public, which is now asking its government to provide more clarity and eventually prepare legislation.

This should be accompanied by intergovernmental activity in a structure such as the OECD (which is losing its sobriquet as the rich men's club and quickly becoming a global institution with a proven track record in regulation). And this is where Australia comes in: because of the location of its economic activity and by the nationality of its employees, Xstrata is much more an Australian (and South African, and Colombian) company than a Swiss one. And so it goes for many Swiss-based traders; their centre of activity is global, and concentrated in the large producing and consuming countries.

Shouldn't these countries get together, across all G20 vs BRICS divisions, and start looking at commodity trading? How many instant billionaires will be created (as the IPO of Glencore did for its core management) before the spoils of commodities start to be distributed more equally?

Photo by Flickr user colinlogan.