Inside Story

The vision thing

In uncertain economic times, South Australia has found a few niches but is looking for more, writes Robert Milliken

Robert Milliken 23 May 2013 1496 words

Festivals including the Adelaide Fringe (above) are generating tens of millions of extra spending in South Australia. Michael Coghlan/Flickr

CROWDS flocking to Adelaide’s Botanic Park for the recent WOMADelaide festival were treated to an innovation: a talkfest on top of the music. Together with the twenty-six groups playing at the biggest world music festival outside Britain, where Womad started, “The Planet Talks” marked the Adelaide event’s twenty-first birthday. Concertgoers could wander from performances by South African trumpeter Hugh Masekela or Jamaican reggae artist Jimmy Cliff to discussions about food security, climate change and population growth with the likes of Paul Ehrlich, the American population biologist, and Ian Lowe, president of the Australian Conservation Foundation.

“Debate on these issues has become so uncivilised in Australia,” says Ian Scobie, WOMADelaide’s director. “The advent of minority government has turned political debate into grenade-throwing. This puts it back as a conversation to enrich people’s lives.”

It’s a very Adelaidean perspective. And South Australia seems to be looking for such innovative spirit on a broader front, as it charts another economic watershed. Few states would have watched more closely the Reserve Bank of Australia’s decision on 7 May to cut the benchmark interest rate to 2.75 per cent. Economists saw the move as an effort to bring down the value of the Australian dollar, which had traded above its American counterpart throughout the previous eleven months and for much of the previous two years. The high dollar had made it harder for manufacturers to export goods and compete against cheaper imports; and nowhere has the impact been felt harder than in South Australia, where manufacturing comprises a bigger share of the economy, 10 per cent, than in any other state.

“We’ve borne the brunt of the high dollar,” says Jay Weatherill, South Australia’s Labor premier. Publicly Weatherill is a contrast in style to Mike Rann, whom he succeeded after a party coup in late 2011: less outwardly ebullient, more low-key and reflective. But he faces the same problem: how to recapture the momentum for change and diversification in a state with just 7.3 per cent of Australia’s population, most of whom live in Adelaide.

In his Adelaide office, Weatherill charts how economic diversification has been a recurring challenge for the state under both sides of politics for almost seventy years. After the second world war the Liberal and Country League Premier, Thomas Playford, tried to end South Australia’s dependence on farming by offering manufacturers low costs and big subsidies. Car makers and whitegoods factories followed. The Playford model of sheltered manufacturing lost steam when Australia joined the more competitive international economy from the 1970s. And now it’s moved offshore, especially to China. As the state’s Manufacturing Green Paper put it last year, South Australia has been hit by a double whammy: a combination of the strong dollar and the “rise of low-wage, low-cost manufacturing economies.”

In the 1970s, Labor premier Don Dunstan chose culture to take up where subsidised manufacturing left off. Dunstan promoted Adelaide as a cultural capital, encouraging groundbreaking arts festivals to attract people from the rest of Australia. He presided over the building of the Adelaide Festival Centre, which marks its fortieth anniversary this year. Dunstan’s name is still evoked, long after he put South Australia on the visitors’ map. As Anthony Steel, the centre’s inaugural artistic director, wrote in the Adelaide Review recently, “Adelaide needs a bold vision again. We yearn for the next Don Dunstan to stand up.” Even Weatherill concedes, “It’s time for another Don Dunstan to attract a new wave of ideas, people and industries here.”

Indeed, the economic impact of the so-called “Dunstan decade” is still being felt. An analysis by Barry Burgan, director of Business Development at the University of Adelaide, shows that about 11,500 WOMADelaide patrons last year, about half its total audience, came from interstate, a bigger visitor component than for any of Adelaide’s nine other arts and culture festivals. Of the $15 million that WOMADelaide audiences spent, about $11 million was “created”: money that otherwise would not have been spent in South Australia. “Unlike other festivals, a world music festival like this doesn’t happen elsewhere in Australia,” Burgan says. “That makes its economic profile unique.”

The other festivals also pack an economic punch. The combined “created” spending for three festivals across a fortnight in March last year, the Adelaide Festival, Adelaide Fringe and WOMADelaide, was $50 million. The boost to gross state product from the three festivals, from wages and other economic stimulants, was about $45 million. Burgan says the impact from the recent 2013 festivals perhaps could be bigger. And this financial spinoff brings important long-run benefits. “With its contribution to creativity and innovation, a strong cultural component is critical to an economy built around smart manufacturing,” he says. “It plays an important part in restructuring a manufacturing-dependent economy.”

JUST how important emerged when BHP Billiton, the world’s biggest resources company, deferred plans last year for a $20 billion expansion of its copper, gold and uranium mine at Olympic Dam, in outback South Australia. Big hopes rode on Olympic Dam to help shield the state from the dollar by giving a fresh lease of life to manufacturing linked to the project. In April, further hopes evaporated when Holden, one of Australia’s biggest car makers, cut 500 more jobs, most of them in Adelaide. Mike Devereux, Holden’s managing director, blamed the high dollar. The currency’s appreciation, he said, meant that making things in Australia was almost three-fifths dearer than it was ten years ago. According to the manufacturing green paper, South Australia’s manufactured exports fell almost a fifth in value in three years from their peak in 2007–08. Car-making led the fall: exports crashed in value over three years from $1.5 billion to $290 million. Wine, South Australia’s third-biggest commodity export, also suffered. The value of its exports dropped by 5 per cent in 2011–12. Weatherill skates over the Olympic Dam deferral when asked to assess its impact: “It was the absence of something very positive more than something negative.” Nonetheless, he concedes it was a blow to confidence in South Australia.

The premier sees the future in niche manufacturing outfits like Codan, an Adelaide electronics company. Codan started fifty-four years ago making high-frequency radios for the School of the Air network across the outback. It has evolved into one of the world’s most successful companies making radio systems, metal detectors and mining technology. The rush to mine gold on the back of high gold prices, and the demand for landmine detectors and sophisticated military communications equipment since 11 September 2001, have opened up demand for Codan’s products in Africa, South America Iraq and Afghanistan. The company exports about 90 per cent of its products. “We’re not a household name in Australia,” says Matt Csortan, Codan’s general manager of group operations. “In Africa, we are.”

As well as keeping a relatively low profile, Codan has managed to buck the trend of other manufacturers who are overexposed to the dollar. From its home base in Adelaide, it has turned into a global business, the reverse of the original Playford model of sheltered manufacturers protected by high tariffs. The company employs about 500 people worldwide (more than half of them still in Adelaide), and makes many of its products in Malaysia, where it trades in American dollars. It also manufactures in Canada and Brazil. By doing so, Csortan explains, Codan spreads its currency risk as much as its market risk. “We never sought to go overseas to avoid employing locals,” he says. “The market is just too big to make everything here. You can’t hope to be competitive globally for a company like ours today if you do all your manufacturing in Australia. We like to think that growing the South Australian company globally is just as significant as doing it all here.”

Other hopes shimmer on the horizon for defence and mining, two industries that post-Playford premiers opened up to help the state diversify. The Gillard government’s defence white paper in May named Adelaide as the assembly base for twelve Future Submarines, “the biggest and most complex defence project Australia has ever embarked upon.” Mining companies are scrambling to explore gas from untapped shale deposits in the Cooper Basin. The forecaster BIS Shrapnel says that while South Australia’s economic and population growth rates were lower than Australia’s as a whole over the five years to June 2012, the state economy actually outperformed the national economy in per capita terms. If the dollar keeps falling and a new Dunstan visionary emerges, perhaps it will do even better. •