A call-out to South Australia's SMEs: where has your mojo gone?

Where in the world are South Australia’s SMEs?  We’ve lost our inspiration, innovation, productivity and competiveness.  In essence, the mojo we once had as a State.  So what’s to be done?

There is cautious but authoritative optimism for the world economy in 2014 that may help boost SA’s economic growth, currently expected to be weak and according to Deloitte Access Economics, settling at only about half the national average for the foreseeable future.

Approaching the half way mark of this financial year, SMEs’ expectations were recorded by the Sensis business index at the highest level since August 2010. That would be a lift of 33% in 12 months.  But, since December, a Business SA Survey of Business Expectations shows that in fact they have dropped back 20% and that SA has the weakest performing economy of the mainland States.

While this sounds pretty grim, “Can Do Better” would, nonetheless, be a fair comment on SA’s report card.

A national advisory firm declares that Australia’s SMEs, looking to grow this year, must have innovation as their major focus.  Fortunately, SA businesses have a formidable history as world class innovators.

Then there is the Australian Bureau of Statistics (ABS) reporting that, since the global financial crisis (GFC), SA’s then existing 146,823 businesses have, at 63.1%, the second highest survival rate of any State – only 0.8% less than that of Tasmania.  Similarly, for businesses created post GFC, SA again has the second best survival rate of any State – 52% compared with Tasmania’s at 54 2%.

Given that clearly SA has so much going for it - including businesses which both pre and post GFC are surpassed for flexibility and survival capacity by so very few in Australia – what is it then that has diluted last year’s momentum of positive expectations?   What needs to be done to rid SA of its persistent economic malaise?

Competitiveness lacking

Our national share of the economy was 7.3% in 1990. It is now 6.3%. Over this period corresponding figures for employment went from 8.3% down to 7%, population from 8.4% to 7%, and health and social security 9.3% to 7.6% (despite SA having the oldest population of the mainland States). Similarly, SA’s share of the professional, scientific and technical services sector (a prime source of innovation) has dropped from 6.6% to 4.9%, and for manufacturing the figures are 8.3% to 7.5%. Indeed, we have performed at a worse level in manufacturing than Australia generally for the past 23 years.

But guess what?  The only SA economic area that has increased relative to Australia as a whole (which includes the public service in the ACT) is our State’s public administration/safety sector (up from 6.4% to 7%). It is in this sector alone that we out-perform the rest of Australia.

In 1990 SA’s share of private investment in Australia was 7%.  It’s now down to 5%.  Economic growth is stimulated by investment, and so long as SA’s economy is structured to support public spending and deter private investment to a greater extent than other States, our economy must continue to lag behind Australia’s as a whole.

And, again, it is because of our lack of competitiveness that SA exports are only 14% of the State’s economy compared with 20% for the nation’s economy as a whole. Exports are static, according to 88.9% of respondents to a recent ABS survey.

But gloom is not doom

The ABS’s current key economic indicators show the SA economy to be lack lustre, characterised by marginal gains in sales of goods and services but yoked to high costs of doing business.

Thus, 67.8% of businesses will not be taking on employees in the March quarter, 16.5% will cut jobs and 81% expect the rate of unemployment to increase during this quarter.

Three major threats to the economy in the next four years are tending to intensify the gloom – Holden’s exit, the pending “infrastructure cliff” in 2016, and the so-called “valley of death” for defence projects between 2017 and 2020.

But Deloitte Access Economics not only argues that the impact of Holden’s departure is “often exaggerated” and SA’s economy “is larger and more resilient than many realise”, but also points out that “while projected growth is weak, it’s not negative”.

Deloitte indicates agriculture and education as possible new growth industries for SA and says that the stalled Olympic Dam expansion “must go ahead at some stage”, adding, “this is a world class asset and demand for its potential production will continue to rise over time”.

It also notes that “initial exploration in the Arcaringa Basin suggests there may be enormous shale gas opportunity in the area surrounding Coober Pedy”.

So what’s to be done?

Whatever else the State Government does – with the Budget deep in the red – it seems to us the focus should be on finding low cost ways to deliver boosts to productivity.

The Government’s focus on WorkCover reform is an example of its realisation that in fact the employment rate can be increased without costing taxpayers a cent.

So what about the Master Builders’ Association - with its members claiming they are being choked by red tape and recently detailing mind-boggling examples of artificial costs for which there is no discernible need. Surely these costs can and should go.

SA’s most resilient businesses are in healthcare and social assistance, agriculture, forestry and fishing, retail hiring and real estate – all backed by world class technology.

Adelaide’s Rising Sun Pictures has a growing global clientele of film companies for which it provides computer-generated effects. Simon Hackett, who has just sold Internode to iiNet for $105m, is now teaming with fellow internet multimillionaire Ross Williams and Swedish-born Adelaide author Anna Solding in a new venture. They’re launching Midnight Sun to exploit opportunities of new technology that will meet demand from readers for multi-platform and multi-format books that are transforming the industry.

SA Business’s Chief Executive, Nigel McBride, says SA’s economic revival should and can be led by export industries such as food production combined with food and beverage manufacturing, all of which rely on access to efficient freight routes linked to strategically located ports. “We must also continue to develop our education and tourism industries, both major service exports for the State.”

As our international reputation continues to grow, and he believes it will, Mr McBride sees the urgent need to reform migration policy so that preferred migration status “allows for the best and brightest to come to work in SA”.

Of New York is said that if you can make it there you can make it anywhere, and in an odd coincidence, that’s also what is said about SA. For, as the evidence shows, we have a collection of SMEs among the most resilient and best survivors in the nation.

So there’s no doubt that given a break or two by governments (that have nothing to do with financial handouts, but everything to do with taxation and regulatory reforms) that South Australia can indeed do better, and build a critical mass of SMEs sufficient to ensure the State’s economic future.

To join or start the discussion, simply click on the word comment below and tell us what you think.

Your guest blog today was written by Mr Peter Macks of Macks Advisory.

Based in Adelaide, Macks Advisory is a boutique advisory firm specialising in Corporate Advisory, Restructure & Turnaround and both Corporate & Personal Insolvency.

Their focus is on dealing with companies and individuals in financial stress, turning them around where possible and working closely with stakeholders to maximise returns or minimise losses.

Don't hesitate to contact Macks Advisory if you have questions or would like advice, remembering of course that the initial enquiry does not cost and is obligation free.  Their aim is to enable people in difficult financial circumstances, whether corporate or personal to make informed decisions.

Peter Macks, Principal
Macks Advisory, Level 11, 99 Gawler Place Adelaide.
Telephone 08 8231 3323 or email us at info@macksadvisory.com.au

www.macksadvisory.com.au