The Northern Inland Economy
What Does It Look Like, How Can We Grow It?
Agriculture – Still a Big Deal
The economic comparative advantage of our region lies in the natural resource base – land, water and increasingly minerals. Any way you look at it, agriculture is still a dominant force in our economy, and anything which impacts on farming has flow-on effects to other businesses.
Figure 1. Structure of the Northern Inland Economy (Source: CARE 2011)
From Figure 1, you might conclude that the services sector (wholesale & retail trade, mechanical repairs, accommodation, cafes, transport, communications, finance, legal, accounting, marketing, government, education, health) dominates, but those sectors largely exist to service the needs of the other five ‘production’ sectors, of which agriculture is the largest.
Some of our towns are more specialised in agriculture than others, Moree for example. A study of the Moree economy has revealed that the gross value of production in the shire fell by almost 50% during severe drought. Compare that to the 7% impact the closure of the steelworks in Newcastle had.
The Diversification Conundrum
Economies reliant upon natural resources and ‘commodities’ face some challenges. Natural resources are subject to on-going policy change. Commodities are subject to the vagaries of climate and international price fluctuations. A good agricultural season benefits most sectors in our economy, but a poor season can be disastrous.
It would be good to have some new industry options which are not at the mercy of the weather and commodity price cycles, such as technology and knowledge based industries which service markets outside the region and internationally. Finding markets outside the region is essential, given our population is not growing as rapidly as in other markets.
However, regional areas have been seeking diversification opportunities for decades and by and large, results have been disappointing. One reason is the lack of business support services. Technology and knowledge based businesses need rapid access to a range of services which are typically only found in major metropolitan centres. Businesses are not willing to re-locate for fear of losing access to these services, and the synergies they achieve by having other businesses in their supply chain in close proximity. Perhaps for some businesses, the NBN rollout may help in this regard?
The Location Quotients shown in Figure 2 measure employment levels in each sector of the economy, relative to the State as a whole. We are strong in agriculture and agricultural support services, but weak in areas like finance, accounting and IT – sectors which support businesses. We are also weak in the technology and knowledge based sectors – sectors which have highly qualified and well paid employees. Well-paid jobs mean higher household incomes and more expenditure in other local businesses.
Figure 2. Location Quotients for the Namoi Economy (Source: CARE 2011)
Are There Any Solutions?
Expecting a new industry to materialise and solve our problems is a long-shot. Mining expansion does fall into this category, but it comes with challenges including attracting labour away from other industries, pressure on transport, pressure on local government, and the multiplier effects from mining are about half those generated by a local business, as many inputs are sourced from outside the region.
In the U.S., it took several decades for the regional economic development fraternity to realise that their best option was to find existing local businesses with the capacity for significant growth. They have gone down that path with some remarkable success stories (e.g. the town of Littleton), but there are no easy wins. It takes time and resources to identify businesses with potential and to help them to grow. Only a small percentage will have the capacity for significant growth.
Small to medium size businesses are driving employment growth in the U.S., while the large corporates are shedding jobs. The same is happening in Australia. The U.S. experience revealed that access to capital was often not the major hurdle, but rather the need to develop business management skills and to find new markets was the key to small business growth.
There is also the concept of building on our strengths. Are there opportunities to add-value our agricultural products, to diversify into higher-value commodities, or to build R&D and technology based ‘clusters’ which service agriculture? The Narrabri area for example, has developed knowledge, technology and R&D expertise in servicing the cotton industry. Similar opportunities may exist to service the growing mining sector.
There are some important lessons in all this that we should heed as we work toward growing the Northern Inland economies.
Senior Project Officer