OPINION - South Australian economicactivity set to bounce back

South Australia continues to be one of Australia’s steadiest economies despite COVID-19 challenges, with one senior economist predicting the state’s history for manufacturing might even provide longer-term growth opportunities.

Shane Oliver, head of investment strategy and chief economist, AMP Capital, says South Australia has been less affected by Coronavirus than other states and territories, which will help the economy bounce back from restrictions faster. “Generally, those states that have controlled the virus with less severe lockdowns will come out of this better,” reasoned Oliver. At the end of the first week of June, South Australia had recorded just 440 cases of COVID-19 and four tragic deaths 1 . By comparison, neighbouring Victoria, had recorded 1,685 cases and 19 deaths.

In early June, South Australian pubs, gyms, cinemas, places of worship, beauty salons and other sites were allowed up to 80 people on their premises as long as they could comply with appropriate safeguards 2 . SA Premier Stephen Marshall said, “Thousands of jobs throughout our state will now potentially be reactivated earlier and in greater numbers, fasttracking our economic road to recovery in a safe and responsible way.”

Oliver commented, “South Australia has done well on this front, where Victoria by contrast will experience a bit of a lag because it had more problems with [infection] clusters. South Australia should come out of this reasonably well.”

In a sign of improving business optimism, commercial property group, Raine & Horne Commercial reveals that leasing enquiries for commercial property are collecting pace in Adelaide. “Enquiries from businesses are up but they are not back to the levels we saw before COVID-19 just yet,” said James Trimble, General Manager, Raine & Horne. “Enquiry for industrial property led the way and didn’t drop off during the period of restrictions.

“There is improving enquiry for office and retail but there is not enough stock.”

On the residential property front, valuation firm, Herron Todd White reports the SA markets are holding up reasonably well with days on the market for metropolitan Adelaide homes currently at 54 compared to 45 in May 2019 3 . Interestingly, dwelling values have been resilient too, recording a 0.4% increase over the month of May 4 . By comparison, Melbourne values were down 0.9% in May and Sydney’s housing values dropped by 0.4%.

LONG TERM CHALLENGES REMAIN

Before the pandemic hit, the SA economy was expected to grow by 2.5% in 2019-20 and then slow to 2.25% p.a. in each of the three years to 2022-23. Employment was predicted to grow by 2.0% p.a. in 2019-20 and then slow to 2.25% p.a. in subsequent years. SA’s unemployment rate before COVID-19 was 5.8% 5 . It will be a case of wait and see how growth and employment are impacted by COVID-19. Although, in May, South Australian Treasurer Rob Lucas, reportedly said he was ‘horrified’ at the inevitable debt the state would accrue over coming years, largely due to spending on coronavirus measures 6 .

To fight the economic impact of COVID-19, the SA Government hit hard and early with $1 billion in emergency funding including $650 million for the Jobs Rescue Package as well as the establishment of two new funds – the $300m Business and Jobs Support Fund, and the $250m Community and Jobs Support Fund. There was payroll tax relief, land tax relief and the waiver of liquor licence fees for 2020-21 for those hotels, restaurants, cafes and clubs forced to close as a result of social distancing restrictions.

Since March, the Marshall Liberal Government has continued to inject money into the economy demonstrated by the announcement of $33 million for a desalination plant at Kangaroo Island 7 which is expected to create an estimated 500 jobs and add over $200 million of economic value to Kangaroo Island in the next 15 years. The Marshall Government also committed $1.3 billion to an education capital works program 8 In total, SA has a $12.9 billion pipeline of infrastructure projects over the next four years 8 .

Trimble said COVID-19 has forced the SA Government’s hand with $120 million of new infrastructure projects also fast tracked to support 165 jobs, including $52 million for targeted regional road network repair and improvement. These road projects include the Stuart Highway, Yorke Highway, Dukes Highway and Riddoch Highway. There is also $35 million to rehabilitate and resurface the South Eastern Freeway between the Tollgate and Crafers. The upgrade of the Heysen Tunnel is getting $15 million, there is $12 million for a higher capacity North- South Freight Route by-passing Adelaide and, $6 million to seal Adventure Way and Innamincka Airport Road 9 . Trimble commented, “Projects that were due in three years have been brought forward.

“SA will flatline on population growth as there isn’t interstate or overseas immigration now. So, we must look at ways to attract people, and developing and building projects are ways to attract people to the state.”

While these infrastructure investments will support South Australian jobs and the economy, Oliver says the state’s dependence on Government money continues to be an Achilles heel. “SA has been dependent on government support generally compared to the other states that have other things to keep them going.

“This is why when you hear about any major project such as building submarines South Australia tends to get a look in. The other states are less desperate because they have other drivers of growth.”

ONSHORING COULD DRIVE ECONOMIC GROWTH FOR SA

Oliver says in the past, SA has lacked the comparative advantages of other states, although there might be some COVID-19 inspired green shoots of economic hope. “(South Australia) doesn’t have the resources that Western Australia has,” stated Oliver.

Where South Australia had a comparative advantage was in manufacturing, Oliver advised. “While, manufacturing is in relative decline, where SA could benefit is if the Coronavirus leads to a degree of ‘onshoring’.

“That is if manufacturers bring production back to Australia in areas such as medical equipment and supplies and possibly food processing. It’s hard to see car production ramping up again. But you wouldn’t rule it out.”

Oliver continued, “The Australian Government doesn’t look like it’s going down a full-on protectionist path like the US Government would like to do. But I suspect some things will come back to Australia.

“To the extent that South Australia has had a history of manufacturing then it may benefit from that, particularly as it has also performed reasonably well through the Coronavirus shutdown and is coming out of it faster.”

In the short term, if state and international borders remain ramrod shut, these restrictions might play into the hands of SA tourism. Traffic to the South Australian Tourism Commission’s southaustralia.com website from intra-state visitors increased by nearly 82% to over 200,000 visits in the two weeks following the announcement of the easing of restrictions on 8 May, with direct leads to tourism operators increasing, up almost 30% on the same time last year to 42,000 11 .

Oliver concluded, “Australians want to get out and have holidays. Apart from New Zealand, they can’t travel overseas, so South Australia might be able to capitalise on this as it’s reasonably safe.”

Written by Anthony O’Brien