Tag Archives: politics

RSPT – A Fair Valuation Based on True Value of New and Existing Mines

Following on from the interest generated by his last post, Mule Stable regular Zebra (James Glover) returns to the subject of the Resources Super Profits Tax in another guest post.

In a previous post I explained how the formula for the RSPT (Resource Super Profits Tax) was derived by considering the Government to be a 40% silent investor in any mining project. I showed that the correct deduction from the return on investments is indeed GBR (Government Bond Rate), as proposed, not a higher rate that includes a “price of risk”. One important thing I missed in this analysis, however, was whether the investment amount (I) was the correct basis for valuing the Government’s new 40% “investment”. I aim to show that the correct variable should actually be the Market Value of Assets (MVA) and as such the appropriate deduction from profits is several times (maybe as much as 4 times) higher for established mines.In the example given based on the mining industry “price to earnings ratio” of 14 the RSPT would only be 9% of earnings. I should emphasise this is not about having separate formulas for new and existing mines but correctly taking into account the fair, market based, price the Govt should pay for it’s 40% share of the earnings.

For new mines MVA = I (where all “=” signs should be taken to mean “approximately equal” to head off the pedants) so the proposed tax is correct in this case.

The Government says that in return for this tax take they are taking downside risk as well as upside benefit. One of the criticisms of the RSPT is that the Government is effectively nationalising 40% of ongoing mines and the GBR deduction is irrelevant as there is no serious downside risk. In the framework I propose the Government is not currently proposing to pay a fair price for this “nationalisation”. If the fair price of the Government’s stake is taken into account then the tax from existing mines is considerably lower than proposed. It may be as low as 9% of earnings. This does not require a backdown by either the miners or the Government, although the Government’s tax take might be less than forecast

If the Government is going to nationalise 40% of a mine – at a fair price – then it needs to effectively pay 40% of the Market Value of Assets (or MVA) for the mine. For new mines the Investment = Equity + Debt is pretty much set at this value. The Government RSPT tax is then:

Tax = 40% x (Earnings – GBR x MVA)

The first term is the Government’s 40% share of the earnings (here taken as Earnings before Tax). The second term is the deduction for the interest that recognizes that the funding of the Government’s share is undertaken by the mine at the Government Bond Rate or GBR. There is no good reason for the Government to pay less than the market value of this asset or MVA. For a new mine just starting up MVA = I, the investment amount, so

Tax = 40% x (Earnings – GBR x I)

If ROI = Return on Investment = Earnings/I then we can write this as:

Tax = 40% x (ROI – GBR) x I

which is the proposed RSPT formula.
For an ongoing mining operation with established operations and contracts, the market value will exceed the book value several times over. I am going to take the very simple assumption that MVA = Price ie the market value of the assets is the market value of the equity. This ignores leverage and is probably too simplistic. Price is based on share price and the number of outstanding shares. In terms of PE-ratio (the ratio of Price to Earnings as determined by the share price) we can write

Tax = 40% x Earnings x (1 – GBR x PE-ratio)

Compared to the original formula the deduction is  40% x GBR x PE-ratio x Earnings. Alternatively we can write this as 40% x GBR x I x MBR where MBR is the Market to Book ratio = MVA/I. So the original Govt funding deduction is just multiplied by MBR. The current formula assumes implicitly that MBR = 1. For existing businesses eg. banks MVA/BVA can be as high as 4 (which is BHPs current value). This gives a very simple deduction in terms of % of earnings, rather than Investment/I, of 40% x GBR x PE-ratio. Note that this is really the same formula for new and existing mines; it just makes proper allowance for the true value of established mines.

So what is the fair deduction for existing mines? It obviously varies with share price and hence market conditions. For mines which are privately held we need a proxy based on publicly traded stocks. The PE-ratio for traded mining stocks is currently about 14. So now, using GBR=5.5%, the  fair deduction for the Govt’s nationalised share for existing mines is not 5.5% (as many erroneously claim) or 22% (allowing for a 25% ROI) but 31%! Note this deduction is off the 40% so the total RSPT tax on earnings would be 9%.

So under a scheme based on a fair deduction for existing mining assets the tax should be:

RSPT = 40% x  Earnings x (1 – 5.5% x 14) = 9% x Earnings.

After 30% company tax this represent a total tax of 38%. Even if we don’t know what the PE-ratio would be for mines which aren’t publicly traded we can use an industry based proxy for the mines whose stocks are publicly traded. Currently this is in the range 13-14. If I was the miners I’d be pretty happy with that. Maybe they should have taken a closer look at the RSPT before opposing it. All the miners have to do is get the Govt to accept it should pay a fair value for its stake and the framework I propose makes that transparent.

Resource Super Profit Tax Everything Correctly Explained (R.S.P.T.E.C.E.)

This guest post from Mule Stable regular Zebra (James Glover) delves into the details of the proposed Resources Super Profits Tax.

The Australian Government (hereby known as the Govt) has proposed a Resources Super Profits Tax (RSPT) for mining companies. Superficially it appears to be a 40% tax on all profits (measured by Return On Investment or ROI) in excess of the Govt Bond Rate (or GBR, the interest rate at which the Govt borrows money, over the long-term).

The key points of this article are:

1. The GBR is the correct threshold level for RSPT,

2. If the Govt increases the threshold above GBR this will represent a subsidy of miners by taxpayers,

3. The RSPT will benefit small and marginal mining projects to get finance through partial Govt backing of risks.

So for example suppose miner Mineral Wealth of Australia (MWA) invests $1bn in the Mt Koalaroo Iron-Ore mine. MWA is a wholly owned subsidiary of Silver Back Mining (SBM). In the year following they make $200m profit or a return on investment (ROI) of 20%. If the GBR = 5.5% then the 40% RSPT means a tax revenue to the Govt of Tax = 40% x (20%-5.5%) x $1000m = $58m.

This seems very straight forward. It appears that the Govt is saying that GBR represents some “fair” level of return and anything in excess of this is a “super profit” to be taxed accordingly. Not at the normal company tax rate of 30% but a “super tax” rate of 40%. This is how it has been presented by both sides in the media. Arguments against the RSPT have focused on whether the GBR as a “risk-free” rate is the appropriate benchmark for a risky profit stream. Indeed it is not but in fact this isn’t what the RSPT is about. For example normally taxes on profits have no negative impact on the Govt if the company loses money. In the case of the RSPT though the Govt has stated that 40% of any losses can either be claimed back from the Govt (as a refund) or carried over to other projects.

So what is the RSPT? A good way to consider it is if the Govt took a 40% stake in MWA as a “silent partner”,  leaving SBM with a 60% stake. In this case we would expect the Govt to contribute $400m of the investment costs (raised presumably through issuing bonds at the GBR or equivalent). In return it would get 40% of the profit. The Govt return would therefore be 40% of the profit less the cost of funding its 40% investment ie Tax = ROI x 40% x I – GBR x 40% x I = 40% x (ROI – GBR) x I.

This appears to be the formula that the Govt has presented to calculate the RSPT and in this derivation it is quite straightforward. However the Govt appears to be getting something for nothing since it isn’t actually stumping up the $400m in investment capital. So what’s going on? A clever piece of financial engineering that’s what. The Govt avoids raising the capital itself (and hence have it be counted as Govt debt) by getting the project to raise it on the Govt’s behalf.

(You can easily skip the next paragraph if you aren’t interested in the details of mine financing costs)

Whilst MWA raises 100% of the $1bn in capital the Govt appears to get the upside (and potential downside) as if it has contributed $400m without doing so. Money for old rope you say. However consider MWA not to be the stand-alone mining company SBM, but the joint venture beween the Govt and SBM. Suppose MWA borrows $1bn in capital at its Project Funding Cost (or PFC). This PFC will be lower than the SBM’s Miner’s Funding Cost (or MFC) as the Govt is now backing 40% of all liabilities. In fact in an efficient market we deduce PFC = 60% x MFC + 40% x GBR. If MWA then allocated these funding costs accordingly it would charge the Govt its share, risk-weighted, not PFC, but GBR. If the GBR = 5% and MFC = 8% then we expect PFC = 6.8% not the 8% if SBM was the sole investor. Under this arrangment SBM’s cost of funding (in % terms) its effective 60% share of the joint project is the same as its stand alone cost of funds, as it should be.

An argument against raising the threshold above GBR is that this will effectively lower the miners’ cost of funds, the difference being borne by the Govt and hence us taxpayers. No wonder miners are arguing so vehemently for the threshold to be raised. In fact it can be shown that raising the threshold to 11%, as some propose, and using a GBR of 5.5% would effectively reduce the miners’ cost of funds by a whopping 3.67%! If you want a formula for the Miners’ Taxpayer Subsidy(MTS) it is: MTS = 2/3 x (Threshold – GBR) in terms of the miners’ funding cost discount (paid for by the taxpayers remember); or MTS = 40% x I x (Threshold – GBR) in $ terms. For the Koalaroo mine this would represent $22m of funding cost transferred from the mining company SBM to the taxpayer. That’s you and me. You don’t see that in their ads.

From the Govts perspective the advantage to them is that the investment does not sit on their balance sheet but the project company MWA’s and in effect SBM’s balance sheet. From a financial engineering point of view all this makes perfect sense. Having said that, it was precisely this sort of clever off-balance sheet flim-flammary that got Greece (and Lehman’s et al) in trouble. We need to make absolutely sure it is properly accounted for.

Update: Several commenters have pointed out the effect on mine financing of the RSPT. Specifically with the Govt backing 40% of any losses smaller stand-alone projects will find it easier to get project finance. As discussed above the funding cost will be lower with the Govt’s partial backing. The operating profit (so called EBITDA) of the project is unchanged so this makes them more, not less, viable. This is at odds with what the miners have been saying. Even existing projects with refinancing clauses in their loans should find it easy to convince their lenders to reduce their interest payments. For large global miners such as BHP-Billiton, who issue bonds, it will be harder to disentangle the Australian RSPT benefit to their overall cost of funds and hence spreads. But the market should over time price this in with lower spreads on their bonds. With a reduced cost of funds miners will be able to leverage their existing equity across more projects and make up for the 40% the Govt now takes out of individual profits (and losses) through the RSPT.

Update: Tom Albanese, CEO of Rio Tinto was on Inside Business on ABC on Sunday May 30. It is interesting that in arguing against the RSPT he referred to the unfairness of the Govt coming in as a 40% “silent partner”, and not about the GBR threshold. He clearly understands the true nature of the RSPT. While it was self-serving he emphasised (in my terminology) the determination of Investment or “I” for existing projects. Depreciation comes into it but some of these projects are decades old and it would an accountant’s dream/nightmare to work out the correct value of I to base the Govt’s GBR deduction on. He also questioned the “principle” (his word) of the Govt forcibly coming in as a “silent partner” on projects which are clearly profitable going forward, having survived to this point. After all they are not compensating mining companies for mining projects that failed in the past. I’m afraid I have to agree with this point, though I think it is more complex than I currently comprehend. It is good to see the RSPT being debated for once without the disinformation we have seen from less eloquent opponents. After all the Govt did say at the beginning that it was these sort of aspects of the RSPT they were prepared to negotiate on, not the 40% and not the GBR threshold.

UPDATE: Zebra looks at a fair value approach to the RSPT.

The Australian Resources Tax

The recent announcement by the Australian Treasurer of plans to introduce a “Resource Super Profits Tax” (RSPT) has led to the longest discussion thread on the Mule Stable yet. A lot of the discussion turned on whether or not share investors can be considered to have lost anything when share prices fall if they have not sold their shares.

Whether or not “unrealised losses” should be considered real losses takes us back to an oft-visited topic: the nature of money. Money has many guises: store of wealth, medium of exchange and, most relevant here, unit of value. Finance has its jargon like any other discipline and when money serves as a unit of value, it is known as a numéraire. Today, however, I will not explore the theory of money any further (although, you can trawl through the Mule Stable discussion to gather some of my thoughts). Instead, I will focus on what has happened to mining stocks.

The chart below shows the performance of the S&P/ASX 300 share price and the Metals and Mining index. While not quite as broad as the All Ordinaries index, the Australian stock market is dominated by large companies and in fact the market capitalization* of the ASX 300 is around 85% of the All Ordinaries, so it does give a very good indication of the performance of the overall market. The Metals and Mining index simply consists of those companies in the ASX 300 that are categorised as being (no surprise) in the business of metals or mining. In order to provide a direct comparison, both of these indices have been scaled to a common base of 100 on 30 April. This was this the Friday before the weekend announcement of the RSPT.
Performance of resources since RSPT announcement

Performance of the Mining Sector following the RSPT announcement*

As the chart clearly shows, the metals and mining index certainly did suffer more than the market as a whole in the first couple of days after the announcement. By the end of Tuesday, resources had fallen 4% more than the ASX 300.  Since the RSPT can only serve to decrease not increase profits of resources companies, this fall would seem quite reasonable. Curiously though, this week resources closed the gap once more. In fact, the resources sector has now performed 0.35% better than the overall market!

Of course, one could argue that the sector returns would have been even better over the last two weeks if the tax had never been announced. That may well be the case, but it is hard to argue that the Government had caused a terrible mischief to the superannuation savings of all working Australians when resource have, well, matched the performance of the broader market.

*Data source: Standard and Poor’s

No hiding the cost of emissions reduction

In today’s Sydney Morning Herald, Ross Gittins has an opinion piece entitled Mealy-mouthed pollies see voters as a bunch of suckers. In it he argues that politicians are not to be believed when they start talking about taxes: they are more interested in playing issues for their electoral effect than actually saying what they believe about a tax. After all, if Labor really believed all their arguments against the goods and services tax (GST) back in the days of Kim Beazley‘s 2001 “Rollback” campaign, wouldn’t you expect to hear something from the current Labor government about the GST?

Perhaps this goes some way to explain why no politician in Australia is brave enough to enunciate the unavoidable fact that if, as a nation, we want to reduce carbon emissions, there will be a cost.

This is true regardless of whether your scheme of choice be Labor’s proposed emissions trading scheme (ETS), a carbon tax or the latest offering from the coalition, an emissions reduction fund. The reason is simple. The bulk of Australia’s power generation is sourced from coal-burning power-stations and this is because coal is cheaper than any other source, including natural gas, solar, wind or geothermal. Achieving a meaningful reduction in Australia’s carbon emissions will require a gradual phasing out of coal-burning power stations, replacing those reaching the end of their life with generators using more expensive alternative sources. Ultimately someone, somewhere must bear this cost if the shift is to occur.

Some would argue that “the big polluters have to pay”. That is easier said than done: these polluters would want to preserve their profit margins and so in practice any additional costs imposed on power generators and other industrial polluters would be passed directly on to their customers anyway.

Others would prefer to rely on people opting to reduce their own emissions. One avenue for this currently open to Australians is provided by the GreenPower program. Established by Commonwealth Government in 1997, GreenPower allows energy retailers to provide their customers with an accredited “green” option. This allows households and businesses to buy some or all of their power from lower emission generation sources. Needless to say, these options cost more than the standard offering. According to the 2008 GreenPower audit, 947,268 customers were using a GreenPower product, representing around 10% of Australian households. While this may appear at first glance to be an impressive take-up in 10 years, digging into the figures a little deeper gives a different picture. For many of the retailers, close to 90% of the retail customers have elected to buy the cheapest GreenPower product which only sources 10% of the householder’s power from alternative sources. For businesses the number using the 10% option is even higher. So, relying on customer choice alone, the GreenPower program has only resulted in a shift to lower emission sources of about 1 or 2%.

Both emission trading schemes and carbon taxes aim to provide a far bigger shift by closing the price gap between cheap but carbon-intensive power sources and the more expensive alternatives. Economically the key difference between a tax and a trading scheme is that the cost of carbon imposed by a tax is fixed by the government, while the price imposed by a trading scheme would vary with supply and demand.

Most economists are attracted to trading schemes, pointing out that the problem with a tax aimed at reducing emissions is that you do not know how high to set the tax to get a desired reduction in emissions. While government can progressively tweak the tax to get to the target, it still requires significant guesswork. In contrast, under a trading scheme, the emissions target can be set in advance and then an appropriate number of “emissions permits” are issued (at which point, some environmentalists get queasy at the thought of providing business with the right to pollute, but that is an emotional distraction). These permits can be bought and sold, so any polluters unable to reduce their emissions to the level of the number of permits they have can purchase additional permits from others who can achieve greater reductions. In the process, the price should automatically adjust (thanks to the famous–or infamous–invisible hand of markets) to a level that achieves the desired reduction target. Any emissions not backed by permits are subject to punitive financial penalties set at a sufficiently high level to make the purchase of permits preferable.

For carbon taxes the price is known in advance, but the amount of reduction achieved is unknown. For a trading scheme, the reduction is known in advance, but the price is not.

That is the theory at least. In practice, both approaches have enormous practical complexities, not least the challenges of monitoring compliance. Furthermore, the trading scheme proposed by the Labor government, known as the Carbon Pollution Reduction Scheme (CPRS), is not quite as pure a trading model as economists would like since it comes with a price cap. This means that, while the market is allowed to determine the price of carbon, the price cannot trade above a pre-determined level. Under the proposal, the cap would be set at $40 per ton of carbon for the first few years. This means that if the market price of emissions was in fact higher than $40 per ton, the CPRS scheme would in fact operate more like a fixed-price carbon tax.

As for the coalition’s reduction fund, it resembles a carbon tax approach to some extent in that it does not impose a particular emissions target. But the key difference between the reduction fund and either a carbon tax or a trading scheme is that it would be up to the government to determine the most promising approaches to reducing emissions and offering financial inducements to pursue these approaches. So it involves the government “picking winners”, to use a phrase favoured by free-market enthusiasts who consider markets far more efficient than governments at making decisions about allocation of scarce resources and, presumably, the best approach to dealing with climate change. To see the Labor government advocating a market solution and the Liberal/National Party coalition advocating a government-led approach is perhaps the most peculiar aspect of the current climate change debate.

While there are many reasonable discussions that could be had about the relative merits of all of these schemes, sadly the debate driven by the politicians is far more likely to be which scheme is or is not a “great big new tax”. The fact that a trading scheme is not a carbon tax does not somehow mean than taxpayers and other consumers will not end up paying for the emissions reductions. Equally, the money in a reduction fund has to come from somewhere and, since the scheme is being advocated by a party with a deep-rooted fear of government deficits, it is safe to say that it will come from increased taxes, reduced public spending elsewhere or a combination of the two. Again, someone will pay.

The last Federal election and opinion polls held before and since then all suggest that, recent visits by Lord Monckton notwithstanding, the majority of Australians want something to be done about reducing our country’s emissions. Is it too much to ask of our politicians to stop shouting “It’s a tax!”, “No it’s not a tax, yours is!”? I hope it is not, but in the process, everyone else has to accept the fact that reducing our emissions will come at a cost and do not believe any politician who tries to claim otherwise.

Carly’s Law

Fifteen-year-old South Australian Carly Ryan was murdered in 2007. The 50-year-old man found guilty of her murder had used fabricated online identities to attempt to seduce the girl and, when she ultimately rejected his advances, he used another identity to lure her to a beach-side town where he bashed and drowned her.

Independent South Australian senator Nick Xenophon now intends to introduce a private member’s bill which would make it an offence for an adult to misrepresent their age online for the purpose of meeting minors. Carly’s mother, who plans to establish a foundation to promote awareness of the risks children face online, has said she supports the bill.

The story of Carly Ryan is terrible. Just hearing the story triggers a shiver of disgust and horror and those who are parents themselves may well be worrying about the risks posed to their own children by shadowy online stalkers. Politicians are human too and react the same way. Indeed Nick Xenophon’s reaction follows a common pattern that has emerged around the world in recent decades.

The pattern starts with a terrible crime committed against a child. This is followed by extensive and sometimes lurid media coverage. A politician will then call for new laws to “prevent this happening to others”. It would be a brave politician who would argue against such a law and thereby risk appearing insensitive to the plight of the victim and the grief of their distraught family. So they do not oppose it and new laws are passed. The pattern is clearest in the United States. The archetypal example is Megan’s Law. In 1994 seven-year-old Megan Kanka was raped and murdered by a repeat sexual offender. Her name has since been attached to laws introduced across the country requiring a public register of sex offenders. Other examples fitting the pattern include Jessica’s Law in Florida which imposes a minimum 25-year sentence on sex offenders. Nick Xenophon’s “Carly’s Law” could well be another in this sequence.

But, how effective are laws like this in curbing the criminal behaviour they are targeting? Continue reading

Left, Right and Climate Change

In the wake of the singularly unproductive COP15 Climate Change conference in Copenhagen, I have been reflecting on the polarisation of views on climate change along political lines. Whether or not human activity is leading to climate change is a question of scientific fact: it is either happening or it is not. So knowing someone’s politics should not help to predict their attitudes towards climate change, and yet it does.

It is not conclusive of course. Most people do believe that climate change is occurring and this includes people of a full range of political views. But, climate change skeptics seem to sit overwhelmingly on the right side of the political spectrum, while those most concerned about the effects of climate change are largely left of centre. Why is this?

Some would offer conspiracy theories to explain the dichotomy. The Australian Liberal senator Nick Minchin is an outspoken critic of climate change and in November last year he claimed that the left has been intentionally stirring up fears about global warming. While his comments elicited a storm of angry responses, including from his then party leader, Malcolm Turnbull, these views are widely held among skeptics. Indeed the controversy about climate change within the Liberal Party and its coalition partner the National Party was an important contributing factor to the downfall of Turnbull from his leadership position a few weeks later. For another conspiratorial slant, Ian Plimer regularly argues that academics are pushing the idea of climate change simply to help boost their research grant money.

Continue reading

Is Australia taking its fair share of asylum-seekers?

In Crikey this week, Bernard Keane made the point that Australia accepts a disproportionately small number of asylum-seekers given our population size. So, where exactly do we rank in the world in terms of generosity towards displaced persons? The United Nations Refugee Agency provides a wide range of statistics about refugees and asylum-seekers. The latest monthly data gives the number of asylum-seeker applications by country for 2009 up to and including August. The chart below shows a ranking of the 44 countries who reported accepting asylum-seekers over this period. Australia finds itself well down the list in 20th place. Mind you, the United States ranks a few spots behind us and, despite having a better reputation when it comes to taking refugees, New Zealand is even further behind. Malta is by far the most welcoming country for refugees.

Asylum-seekers per capita

Continue reading

Malcolm Turnbull’s Word Cloud

My last post looked at the favourite words of Australia’s prime minister, Kevin Rudd. In the interests of balance, I will now turn the word cloud lens onto the opposition leader, Malcolm Turnbull. Turnbull’s speeches are conveniently assembled online and the graphic below illustrates the frequency of his words from speeches made in 2009. Unlike the analysis of Rudd’s speeches, this analysis does include some speeches given in parliament.

Turnbull Word Cloud

Just like Rudd, Turnbull’s favourite word is “Government”, and “Australia” is not far behind. But from there, differences appear. The word “billion” is far more prominent, reflecting the opposition leader’s obsession with growing public debt. The appearance of “Rudd”, “Labor” and “Coalition” clearly reflect the realities of life in opposition where so much time is taken attacking the other side.

Interestingly, the word “emissions” is clearly visible in the cloud, whereas nothing relating to climate change was visible in Rudd’s cloud.

“Now” is as prominent as Rudd’s “also”. Does this reflect a constant sense of urgency from a man of little patience?

The Big Arms Traders

My last post looked at the international arms trade. Taking data from SIPRI, I produced maps showing arms exports for a number of countries, including Australia and the USA. While these maps gave an indication of the spread of arms trading, it did not show which are the biggest overall importers and exporters of arms.

To remedy this, I have created two “word clouds”. The first shows arms importers. The size of the text varies with the total value of arms imported over the period 1980 to 2008 (figures are adjusted for inflation and are expressed in 1990 US dollars). The three biggest arms importers over this period were India ($58 billion), Japan ($37 billion) and Saudi Arabia ($35 billion). Australia’s imports over this period totaled $15 billion.

Arms Import Cloud

Arms Importers (1980-2008)

The word cloud for exporters is far more concentrated. Between them the USA and Russia* accounted for almost 65% of total arms exports, with exports of $60 billion and $48 billion respectively. France then comes in at a distant third with exports totaling just under $12 billion.

Arms Imports Cloud

Arms Exporters (1980-2008)

If you like the look of these word clouds, you can easily create your own. With Wordle you can create word clouds which are based on word frequency. This example is based on words used here on the Stubborn Mule (notice the prominent appearance of the word “debt”). For a bit more flexibility, IBM have a freely available Word-Cloud Generator, which can either work on word frequencies or take columns of words and numbers. It is written in java and is very easy to configure and run. I used it to produce the images in this post.

* As in the previous post, figures for the USSR and Russia have been aggregated.

The Arms Trade

Yesterday iconoclastic commentator on technology, politics and culture, Stilgherrian, shared an interesting discovery on twitter. He had come across the website of the Stockholm International Peace Research Institute (SIPRI) and their Arms Transfer Database. SIPRI has been monitoring international arms trades since 1968 and in the process have assembled an extraordinary database with details of all international transfers of major conventional weapons since 1950. Since March 2007 this database has been available online.

The business of international arms trading is certainly not within my area of expertise, but a rich data-set like this presents a perfect opportunity for a type of data visualization that has not yet appear on the blog: maps. The SIPRI database provides “Trend Indicator Value (TIV)” tables which aggregate trade values between countries. Values are inflation-adjusted, expressed in 1990 US dollars.

Starting with Australia, the data shows that the total value of arms imported by Australia from 1980 onwards exceed exports by a factor of almost 30 times. Imports are largely sourced from North America and Europe, while exports are spread more broadly and include a range of Asian and Pacific countries. Click on the charts to see larger images.

From Australia (Small 2)

Arms transfers from Australia (1980-2008)

To Australia  (Small 2)

Arms transfers to Australia (1980-2008)

Needless to say, the distribution of arms transfers in and out of the USA looks very different. Over the last 30 years, the USA has exported arms to well over 100 countries across every continent other than Antarctica.

From USA (Small 2)

Arms transfers from the USA (1980-2008)

To USA (Small 2)Arms transfers to the USA (1980-2008)

Another big exporter of arms to a wide range of countries is the United Kingdom.

From UK (Small 2)

Arms transfers from the UK (1980-2008)

To UK (Small 2)Arms transfers to the UK (1980-2008)

Russia offers a rather different distribution of arms transfers. Russia has exported arms to almost 100 counties, most notably China, but since 1980 has only imported from Germany, Poland and the Ukraine.


Arms transfers from Russia (1980-2008)

To Russia (Small 2)Arms transfers to Russia (1980-2008)

I will not offer any further comment on this data, but will leave the maps to speak for themselves. If you would like to see a map for any other countries, feel free to contact me on twitter, @seancarmody. I will add them to this flickr image set.

UPDATE: As Mark Lauer correctly pointed out, these maps were originally inaccurate when it came to countries which were formerly part of the Soviet Union. This has now been corrected in the maps above.