22/05/2011
Queensland Economic Development Forum 2011
Making the most of the resources boom by building strong regional economies and resilient communities was the subject of the 2011 Queensland Economic Development Forum, writes Anna Reynolds.
Queensland's Treasurer and Minister for State Development and Trade had a difficult task. In the process of building the state's budget for 2010/2011 but still a month ahead of its delivery, he needed to give the audience at the CEDA Queensland Economic Development Forum some information about the factors determining the budget settings, without giving too much away.
He chose to be very frank about the significantly changed circumstances facing the State Government since the December quarter last year, and the specific challenges the budget needed to address.
"This is not going to be the budget I had hoped to deliver," he said. The final quarter's national accounts for 2010 showed all indicators were tracking in the right direction. Although the retail industry was soft, and the domestic housing and construction sector stalled, business investment was up and jobs growth was strong. The national and state accounts told the story of a slow but solid recovery, with high prices in the resource sector keeping exports strong.
Then a series of natural disasters struck, with significant implications for Queensland's economy. Personal tragedy hit many individuals, families and companies. Widespread flooding dampened demand and damage to infrastructure in central Queensland halted exports. Cyclone Yasi did massive damage in the north. Abroad, the Japanese earthquake decimated the economy of one of our largest trading partners, and an earthquake in New Zealand impacted inbound tourism.
While a number of speakers referred to the remarkable spirit of cooperation and collaboration between government agencies and the private sector specifically driven by the adversity of the conditions, the long term impacts for the States bottom line made the preparation of a state budget particularly challenging.
"So this year then, shapes up as an economic rollercoaster," Mr Fraser said. "We'll dip and then we'll soar. The ride from one per cent to five per cent (growth) looks to be a fast one. While jobs losses are likely in the first half of the year, skills demand and capacity constraints are likely to dominate the agenda by the end of 2011. So economically, the forecast is as wild as the weather has been."
He said the budget would contain the required fiscal discipline, hinting there would be fewer traditional election sweeteners, and it would also see the government winding back the major public infrastructure spend, to enable the private sector to continue to grow.
"This is the last Budget before the state election due at the start of next year. It won't be a typical state election and this won't be a typical election Budget."
In setting the scene for the discussion which would follow, Mr Fraser and QIC Ltd Chief Executive Doug McTaggart painted a picture of a patchwork economy, with different sectors and different regions facing very different challenges and risks.
"I don't subscribe, actually, to the view about the two speed economy," Mr Fraser said. "I'm more in the 10 speed economy view. There's very different dynamics at play. If you're in the Japanese inbound tourism market in Cairns, then you're in a really different space to an engineering firm in Oakhampton right now."
Dr McTaggart said global growth has returned to pre GFC levels and that in Australia, growth was continuing to be fuelled by the resources sector at the expense of manufacturing and retail. He noted that Queensland had been hit hard by the GFC, and was coming out of it slower than other states, taking growth in investment, household consumption and final domestic demand as indicators. However, the commodity exporting states, Queensland and Western Australia were still performing ahead of the other states in SPG growth.
"Investment and production in the resources sector should provide the underpinning for stronger future growth," he said, acknowledging that while coal prices are currently strong, they will experience a modest decline over the next few years.
Coal exports are expected to increase over the next few years, before capacity constraints kick in. Other potential constraints beyond 2015 include increased global coal supply, growth of cleaner energy sources, and slowing rates of urbanisation in China and India.
Industries linked to mining will outperform others, with those struggling including import competing firms or non mining exporters.
LNG is expected to be the major growth area. With prices and volumes expected to increase dramatically in coming decades. Westside Corporation CEO Dr Julie Beeby talked of the huge potential in terms of supply, and noted: "Without the export LNG industry, Queensland coal seam gas supplies would last over a century at current usage rates."
Many speakers addressed the challenges faced by the regions of the dramatic and sometimes unpredictable economic drivers, particularly in the resource sector. Providing the skills required for the actual exploration and extraction work is one issue, particularly, as Dr Beeby pointed out with Coal Seam Gas, the field is relatively new and only recently being included in some university engineering courses. It takes time to produce graduates with skills, but there are also the challenges of attracting people to work in associated service industries to those regions.
Parsons Brinckerhoff Director of Sustainability Darren Bilsborough told how sandwiches for a board meeting in Karatha were flown in from Perth. Scarcity of skills distorts relative salary levels, and fails to provide the basis for strong community development.
Dr Riccardo Welters from the Business School at James Cook University is currently studying the maturity and future capacity of regional labor markets. "Crucial to growth is the presence of skilled people (bachelor degree and higher) in any labour market (be it rural, regional or metropolitan). The reason for this is skilled people (predominantly) create jobs; the unskilled take jobs," he said. Compounding the skills issue is that Queensland already has a participation rate higher than the national average.
Most growth is prompted by the emergence of economic drivers in a variety of forms. Minister for Agriculture, Food and Regional Economies Tim Mulherin talked of the need for tough decisions, and prioritizing services in areas of Queensland where a paucity of economic activity leads to declining population. He gave the example of a small regional town in difficulty. "The Mayor dug a hole, filled it with fish, and created a local tourist attraction, based on fishing," he said.
But looking to Western Australia, the challenge of creating a series of cities from scratch to service the booming Pilbara area has given Darren Bilsborough some insights into what makes strong regional centers that he believes are applicable in other areas.
The first is clearly economic development and diversity, which brings employment, entrepreneurship, trade and economic supply chains. "Infrastructure (social and physical), including health, education, justice, transport, waste, power and water need to be coordinated. Planning and 'Place Making' is important. The creation of place, meaning an area that is affordable, livable, amenable, and has the capacity to create a home."
The importance of good governance and new ways of thinking about regionalisation were also key themes.
Governments' role, noted Department of Employment, Economic Development and Innovation Director-General Ian Fletcher, is to provide a scoop of information, and to unblock the pathways to action to provide opportunity for business, education and skills which can be leveraged when and where they are required. Fletcher talked of the importance of looking at regional economic development by looking at the firm, and understanding the essential role of small and medium-sized enterprises who have proven their ability to learn from mistakes, to be resilient and responsive, to adapt to changing circumstances and move quickly on opportunities.
He also posed the questions when unpacking regional development: "what are the opportunities and what is the capacity."
CEDA Research Director Michael Porter talked of rethinking regional policy in the digital age, by looking at the opportunities presented by a virtual world. "How can we leverage economic opportunity from the current digital revolution?" he asked. Fast and efficient download speeds would allow for the creation of virtual communities, he said, with implications for service delivery, community building and new markets and business models.
It was noted by several speakers that government policy settings that are transparent and well planned and implemented are important for business confidence, planning and continued success.
Dr Beeby noted that legislative uncertainly, especially the Federal Government's proposed resource rent tax and the carbon tax, but also, the state wild rivers legislation, made it difficult for small companies like hers to plan ahead with certainty. She gave the example of "flaring'' a process used in the exploration phase, where the gas is burned, and emits considerable carbon dioxide. She said it was not clear if a carbon tax would be payable on such an emission, but if it were, there would be considerable additional costs associated with exploration.
New Hope Ltd Chief Financial Officer Shane Stephan also noted the challenges of the external legislative framework, stressing it was government's role to "ensure approval processes are effective and efficient, and not seek to maximise the sale value of their assets in the short term to the detriment of the industry's long term ability to grow."
Another key theme was how to capitalise on the boom, and a number of speakers suggested some type of sovereign wealth fund. Shane Stephan suggested this could be used to finance higher education, making the point that taxing tertiary studies, (by imposing fees) in an environment where there is such a dramatic shortage of skilled labour is not sensible public policy.
Griffith University adjunct senior research fellow, and director of three cooperative research centres, Kathryn Adams, talked of the risks associated with food security. Food production would need to double by 2050 to feed the world's population, at a time when agricultural production is retracting. She said increasing productivity is important, pointing to the valuable work being done by CRC's in using perennials in farming, and using genetics and genomics to increase productivity on farms.
She also talked of the perennial challenges of competing land use, and in a theme addressed by many, spoke of the need for open and honest collaboration between all sectors. Dr Beeby spoke of the success of Westside Corporation's community engagement strategies, and of the importance of collaborating with stakeholders from an early stage. Darren Bilsborough spoke of the importance of engaging with the indigenous community at the earliest opportunity.
Shane Stephan articulated the issue this way: "Only through working as part of the community for the overall benefit of the community will the resource industry be able to create the changes required to take advantage of the boom in demand," he said.
To do this, he said it was crucial to "recognise and appreciate the views of other critical community stakeholders, communicate honestly and effectively with community stakeholders the potential outcomes of change, and to demonstrate the real benefits to communities of changes brought about by resource investment."
Regional Development Australia Townsville and North West Qld CEO Glenys Schuntner explained the way the RDA structures can facilitate the collaborative process, importantly, using local knowledge and skills to maximise outcomes.
In summing up, NBC Capital General Partner Bernard Stapleton and Local Government Association of Queensland CEO Greg Hallam both picked up on the themes of collaboration and information sharing that had emerged throughout the day.
Mr Hallam noted that the disasters which confronted Queensland in December, January and February of 2010 and 2011, forced the best, most effective collaboration between all levels of government, the private sector, and other stakeholders than had been seen for some time.
If only, he said, we could harness this spirit of cooperation in the long term, we could really capitalise on the resources boom to the advantage of all.
The Queensland Economic Development Forum was held in Brisbane in May 2011. An initiative of CEDA, working with major sponsors the Queensland Government Department of Employment, Economic Development and Innovation, the QEDF brought together practitioners, policy makers and industry to analyse the factors of success for Queensland economic development. CEDA members can access full presentations and audio from QEDF speakers here.
Anna Reynolds is a formerABC and News Ltd journalist and managing editor of Brisbane's Courier-Mail newspaper, she was moderator of CEDA's 2011 Queensland Economic Development Forum.