Hunter Region Annual Report

As 2009 draws to a close the Hunter has suffered the “worst recession since the Great Depression” remarkably well. Unemployment peaked at 6.8% and has returned below 5% – well below the anticipated 9%. Business activity is high, investment in plant and equipment is increasing, and consumer confidence is holding up.

The Hunter has been barely impacted by two main issues that dogged business in 2008/09 – the slowdown in the world economy and the meltdown in the financial sector. There are straight forward reasons for this:

• The Hunter is an exporting region and world demand for our products has not diminished. Our major markets in South East Asia have suffered less than other parts of the world – in particular the Chinese economy, which has emerged first from the global crisis. Australian industry is benefitting directly from demand from our Asian customers.
  
• Consequently, the major resource and manufacturing industries operating in the Hunter have seen demand for their products returning to normal levels. 
  
• Investment in major infrastructure has continued – in particular private and public sector spending in the coal chain, and in key service infrastructure including $12 billion by Hunter Water and EnergyAustralia. 
  
• Hunter industries have retained their skilled workers, enabling them to quickly return to full production. Businesses have also used the recession to upskill existing staff to better prepare them for emerging opportunities.
  
• Access to credit has, in general, not been an issue with a major consequence of the economic crisis being an increased emphasis on customer service by the major banks – illustrated recently by the Westpac CEO Gail Kelly during her visit to the Hunter. 
  
• The Federal Government’s tax cuts, social welfare increases and stimulatory spending, combined with the decrease in inflationary pressures (in particular petrol prices), has held consumer confidence up. Hunter shoppers have stayed shopping and supported local businesses.
  
• Finally, and we have already seen this, when the business sector is fragile, Government will not rock the boat. There were reasons why the introduction of the CPRS (Carbon Pollution Reduction Scheme) was conservative, and the new IR laws are being claimed by the Union movement as too soft on business. Government recognises it must support industry in difficult economic time.

Indicators that the Hunter has endured the economic crisis are many – low unemployment which has consistently been below the NSW average, record exports from the Newcastle Port, high retail spend figures, increasing motor vehicle sales, high bank home lending rates, high consumer confidence levels – the list goes on and on. Emerging from the current recession, the Hunter is positioned to continue to be the economic driver for the State. This industry breakdown reveals why.

Energy and Resources

The world’s insatiable demand for the Hunter’s thermal coal remains unchanged. The increased capacity being built into the Hunter coal chain will double coal exports to 200 million tonnes by 2014. The wealth of Upper Hunter and Gunnedah basin towns will increase substantially as coal mining increases.

With an ongoing demand for construction of a new baseload generator, the imminent sale of power assets under the NSW Government’s gentrader model, and planned investment of $10 billion by EnergyAustralia, the energy and resources sector will continue to create economic wealth for the Hunter.

Manufacturing

The fate of Hunter manufacturing is tied to activity in the resources sector and Asian economies, and whilst 2009 has been a difficult year, demand is picking up. The appreciation of the Australian dollar will hinder business opportunities, however the quality of Hunter manufacturing companies – some of which are the most cost effective and modern in the world, including Razer Industries, Jurox, OneSteel, Ampcontrol and Tomago Aluminium – will see manufacturing continue to be an important part of the Hunter economy.

Construction

Despite the impending end to the first home owner grants and increasing home loan interest rates, the frenetic activity in the sub $400,000 component of the residential home market will flow to other sectors. There is a substantial pent up demand for rental accommodation which will continue to spur the residential property market.

The major decision in the commercial market will be whether GPT go ahead with their Newcastle CBD development. This $650 million project has the potential to create 2,000 construction jobs and will encourage other Hunter developers waiting for this decision to commit to CBD developments.

With Charlestown Square completing in 2010, the jobs of more than 1,000 construction workers and $1.4 billion in investments are hanging on this decision.

Agriculture

With rain finally returning to normal levels, the Hunter’s agriculture industry quickly recovered. In 2009 the Hunter GrainCorp terminal experienced the best year of wheat export since 2004-05 with 1.2 million tonnes exported. Despite poor rains in the second half of 2009, the forecast for Hunter agriculture remains positive with flow on economic benefits to Upper Hunter towns.

Construction of the Hunter Expressway and improvements to rail infrastructure will see more efficiencies in the transport of Upper Hunter agricultural products to market.

Equine Industry

The Hunter Valley is the focal point for Australia’s thoroughbred breeding industry, with local and international investment in stud farms and horses. It is also the home of a number of support industries that have gravitated to the area, in particular veterinary industries.

The $2 billion industry employs 40,000 people in NSW and is relatively recession proof. Although horse sale numbers and prices are down, turnover has dropped by 6% when some were forecasting it would be closer to 40%. The Hunter equine industry will quickly recover as studs such as Arrowfield, Coolmore, Emirates Park and Woodlands are major industries that are relatively recession proof.

Wine

The wine industry’s difficulty is its dependence upon exports – Australia exported 62% of its wine in 2008 and in some markets the percentage sold on promotion was above 80% as Australia looked to repeat 2007’s export high milestone of $3 billion. The value of the Australian dollar has the potential to cripple the export industry in an extremely competitive marketplace.

The positive for the Hunter wine industry is its proximity to Sydney and increased local tourism with the decline in overseas travel. Hunter winemakers are increasingly tapping this market to ensure their ongoing economic viability.

Information and Communications Technology

The Australian Government has announced the largest Government contract ever – $43 billion – to build Australia’s national broadband network. This is a 10 year high technology program that will offer opportunities for many Hunter companies to engage as sub-contractors in fibre optic production, installation and servicing.

One of the interesting technology outcomes of the Global Financial Crisis – the rapid acceleration in growth of internet traffic – has ensured that the ICT industry will be one of the major growth industries in the Hunter.

Health and Education

19% of the Hunter workforce, or more than 55,000 employees, are engaged in the education and health industry in the Hunter. Given the Hunter has a higher proportion of older people than the NSW average, these (in particular health) are growth industries. Health and health support are areas of opportunity – witnessed by large scale investments by companies including Maroba, Anglican Care, Mater Hospital and CCA.

Hospitality

The Hunter has a vibrant hospitality industry that has seen an explosion in new businesses in areas including the vineyards, Newcastle CBD and Lake Macquarie. The biggest obstacle to business growth remains access to skilled staff and the impending increase in penalty rates to start in 2010 under the new Fair Work Act.

Business Services

Hunter businesses including legal, financial and accounting firms are reporting extreme levels of business activity. The local banking and investment sector is taking advantage of the new market to expand into areas they previously gave up to low cost opponents.

The Hunter has always been underserviced in this sector – NSW employs 43% of Australia’s finance and insurance workforce and only 3% are employed in the Hunter. Whilst the high growth of the last decade will not be repeated the business services sector will continue to expand.

Retail

As 2009 closes many Hunter businesses report record sales on the back of increased consumer spending. The impact of falling interest rates, lower petrol prices and Government welfare payments flowed straight into the economy, and with more of the same expected in 2010 there is no reason why the retail and business services sector shouldn’t hold up. Major Hunter retail centres including Westfield Kotara and Charlestown Square are expanding, and this is encouraging consumer activity and spending.

Summary

The Hunter is the second most populated and economically significant area in NSW. It is the most important of Australia’s non-capital cities, with an extraordinary mix that includes residential, industrial, rural, tourism and recreational generators.

With 10% of the State’s population, the Hunter produces 32% of NSW exports and 20% of gross state product. The region is not accustomed to, nor is it dependent upon, Government handouts to thrive. Rather it is the home to 25,000 businesses and is an entrepreneurial and economic powerhouse.

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