Rebooting the local economy

Continuing the theme from my previous, post-lockdown blog, there are definitely some growing challenges ahead as the local economy tries to gather momentum. Yes, the jobs recovery looks encouraging for the hoped-for recovery (at least, based on headline numbers); and property prices (that staple of banks and economists alike) are getting very frothy again. But the end of JobKeeper later this month will hurt both employees and employers – it will be especially hard to stomach when you consider that a few household brands have chosen to keep their government-funded windfalls, despite making significant profits even during (or as a result of) the pandemic, while these same public companies have also been paying out shareholder dividends.

It will be very interesting to monitor ABS data on the number of business entries and exits (CABEE), which is now also being reported quarterly, instead of just annually. The latest annual data released in February (for the period ending June 30, 2020) shows that there were more new businesses registered than the number of businesses that were de-registered – but the net gain was a lot lower than in recent years, as can be seen from this graph:

Even after a few months of the pandemic, the number of new entries looks to have declined significantly, with a corresponding rate of increase in exits – and the net increase was already on a steep downward trajectory from 2017-18.

According to the ABS data, “In 2019-20 three industries accounted for more than half of the net annual increase in businesses, these were:

  • Transport, postal and warehousing
  • Professional, scientific and technical services
  • Health care and social assistance”

None of this data should be too surprising; further, we should expect to see a significant number of exits from the retail, hospitality and tourism sectors. Government support in the form of domestic travel vouchers and discounted air tickets will only go so far to reverse the fortunes of airline, hotel and tour operators. (The folks in Queensland must be happy with the twin benefit of being a desirable destination for both domestic holidays and Hollywood film production.)

While on-line shopping has helped to keep retail afloat, bricks and mortar retail has been dealt a heavy blow, from which it will take a long time to recover – many people have no doubt got used to e-commerce, and can’t be enticed back to the shops.

From what I see in Melbourne, the CBD is still running at 40-60% capacity (depending on location, sector, and day of the week). Mondays are definitely quiet, it gets busier on Wednesdays and Thursdays, and then starts to taper off again on Fridays, with people opting to “work from home” as the weekend draws near. Last week, one business group wants companies to close at 4.00pm on Fridays, to encourage workers to hang out in the city after work – but Fridays has always been known as POETS day, so I hardly think anyone still here at the end of the week needs any encouragement to down tools any earlier…

There are still so many construction sites within the CBD, both new build and renovations. But who is going to be occupying this new and refurbished real estate – especially as offices are still limited to 75% capacity, and employees seem reluctant to come back to the office full time? Many shops (old and new) remain boarded up. Some cafes have not even bothered to re-open at all, let alone just on the busy days. Doubtless some current construction projects have been brought forward to take advantage of JobKeeper payments, quieter streets and low interest rates – but it means that in some areas, whole blocks lie empty and virtually devoid of any business, and it feels that many shops don’t see a customer all day.

Unfortunately, with politicians distracted by non-economic matters (plus the small tasks of managing hotel quarantine and rolling out a vaccination programme), we are only seeing short-term responses and band-aid solutions, rather than strategic and visionary policy-making. Neither our governments nor the opposition parties (of all persuasions) seem willing or capable of serious (and non-partisan) debate on things like Universal Basic Income, structural reform of the economy, and instilling innovation across all areas of industry. Instead, they prefer to tinker at the edges (tax, superannuation, industrial relations), engage in Parliamentary point-scoring, and maintain the status quo within their respective supporter base. Something has to change, and soon.

Next week: Victorian Tech Startup Week

Transition – post-pandemic career moves

Even before the latest lock-down v3.0 in Melbourne, one of the other members of my co-working space in the CBD decided they’d already had enough of being confined to a 5km radius, working from home, and other lock-down related restrictions. Having had their interstate travel curtailed over the past 12 months, and suffering from cabin fever, they have opted to spend the next few months living in and working from various Airbnb locations around regional Victoria. Even though they are used to WFH, recent experience has shown that they don’t need to be confined to one place. And this post-COVID shift in our work/life patterns (already being disrupted and enabled by remote working) is only increasing.

Likewise, a client I spoke to in the USA last week informed me that they had just settled into a new location on the west coast, and was “living the dream” of a nomadic existence.

More extreme is the recent example of a Guardian employee who, having had to travel from Sydney to the UK for a family funeral last year, then took several months to get back home (due to flight cancellations), but managed to keep working remotely from various European locations as he moved around to stay ahead of border closures.

Prior to this past weekend, and despite the city being out of Stage 4 lock-down for 3 months, private offices in Melbourne’s CBD have only been allowed to operate at 50% of capacity – the proposed move to 75% capacity has been put back. It means, for example, that even on a really good day, my local coffee shop is still only doing 60% of its pre-COVID business.

It’s my guess that the combination of office restrictions and many retail and hospitality businesses simply not bothering to re-open at all means the CBD is barely operating at 40-50%. It’s deceptive – some activities (e.g., construction) have continued pretty much unabated (even expanding while there is less traffic on the roads); while others have been shut down altogether (e.g., entertainment). Certainly food delivery services are still in demand, while some retail has been doing a bit better as customers appreciate the novelty of shopping in-person.

Monday to Friday in the CBD is like a bell-curve distribution – Mondays and Fridays are much quieter, as people choose to WFH part of the week. Which is challenging for employers, as they try to revert to “normal”. But assuming a mix of remote and on-site working continues, it probably means less overall demand for office space. (It’s also difficult to assess the impact of the CBD exodus on suburban hubs.)

So all that construction work suggests we will have an over-supply of commercial premises (offices, shops, restaurants and hotels).

Residential property is a similar story – student accommodation is far from full, as overseas students aren’t returning; and more inner-city apartment buildings are still going up, but there is something of an exodus from the city to regional and rural locations.

The latter tree- and sea-changes are being fueled by a number of factors: a desire to leave the city (which is more prone to lock-downs); low interest rates (so, cash out the equity in your suburban home and move to the country where your money buys you more); increased opportunity to WFH (see, 5G and the NBN have their benefits!); and a broader wish for a different work/life balance.

Unfortunately, this shift is also putting pressure on local housing supply – average property prices are going up faster in some regional centres than in the capital cities; and more nomadic lifestyles are driving up demand for short-stay accommodation. The combined effect is higher rental costs and reduced supply, tending to squeeze out the locals.

Ironically, we’ve heard farmers and primary producers in rural and regional Australia complain that they can’t get seasonal workers due to COVID restrictions on international visitors (especially students, back-packers and experienced fruit pickers). Conversely, we’re told that 90% of jobs lost after March last year have now been recovered – although this apparent rebound is mainly in part-time roles, not full-time positions. It would be interesting to see a detailed breakdown by industry, as some sectors (tourism, aviation, universities) are still struggling.

The hiatus (and disruption) brought about by COVID and subsequent lock-downs has no doubt prompted many people to reassess their careers: where do I want to live/work? what type of work do I want to do? which industries or companies are hiring? and for what roles? As part of a wider re- and up-skilling initiative, the Federal and State governments are offering a range of free vocational courses (mostly Cert I to IV programmes), as well as some enhanced “pathways” to trade apprenticeships.

While this is to be applauded, I can’t help feeling the effort is at least 5-10 years too late to address the technological, demographic and societal changes that began at the end of the last century, with the advent of the internet, cheaper technology, an ageing population, increased globalisation, inefficient taxation and tariff systems, and general economic restructuring. If nothing else, COVID has demonstrated the need for more resilience in the domestic economy, (and a reduced reliance on overseas imports and supply chains) such as smart manufacturing and food security.

Meanwhile, a friend of mine recently related that a nephew of his had dropped out of college (like many of his peers in the USA and elsewhere) and decided to become a self-taught expert in DeFi, as there is more chance of financial success (and career satisfaction) than obtaining an “off the shelf” bachelor degree….

Next week: Corporate Art

Expats vs Ingrates?

Just as we were starting to think that Australia has largely beaten Covid, the past few weeks has seen the topic heat up again on a number of fronts, especially the thorny issue of border control.

First, a series of community outbreaks in and around Brisbane, Sydney and Melbourne were all traced back directly or indirectly to returning overseas travellers. This again brought the hotel quarantine programme into the spotlight – and given the poor record of Victoria’s HQP management (which led to the Stage 4 lock-down for much of last year, as well as causing several hundred deaths among aged care residents), State Governments are under increased scrutiny not to stuff it up (again).

Second, there are something like 35,000 Australian citizens living and working overseas who are still trying to get home. Since many of them are based in countries with escalating infection rates (and extra-contagious strains of Coronavirus), it’s no wonder there is a lot of circumspection about bringing them back in a hurry. While I have a lot of sympathy for those expats who are stranded overseas, at the same time, they went abroad by choice. There is always a risk that international travel can be disrupted, as we have witnessed with increased regularity over the past 20 years, thanks to terrorism, volcanoes, tsunamis and geopolitical events. However, this has not stopped some expats complaining that their fellow Australians don’t want them back; some have been highly critical of this “smug” attitude: “we’re all right, but you can stay away and fend for yourselves”.

Third, the latest domestic border closures left numerous Victorian residents stuck in NSW. Many of them had only recently managed to travel interstate for the holidays, having just emerged from months of local lock-down. No doubt some of those affected may have a bit more sympathy for those Australians stranded abroad?

Of course, all these border restrictions might not be so hard to stomach if we didn’t have the spectacle of professional sports players being flown in (specially from overseas) to hit a few balls around. The fact that one cohort of these international visitors has managed to bring Covid back into the country is not helping. Nor the fact that a few of these over-paid sports “stars” and their partners appear to be acting like spoiled brats as they endure quarantine in 5-star hotels…..

Talk about being ungrateful.

Next week: The Day That Can’t Be Named…

Goodbye 2020

Just when we thought it was safe to go out and about, Covid19 has once again put much of Australia on high alert, following the latest virus outbreak in New South Wales. And with impeccable timing, this cluster has emerged only a few days before the Christmas holidays – peak super-spreader season. On top of the months of lock-down, working from home, toilet paper shortages, job losses, food deliveries, economic disruption, closed borders, non-stop streaming, social distancing, restricted movements, panic buying, mask wearing, night-time curfews, Zoom calls, on-line shopping, cancelled events and home-made entertainment, we now have the prospect of a muted festive period. Like most people, I will be glad to see the back of 2020 – not that 2021 will necessarily be a whole lot better, given the ongoing rates of infection around the world, and the other knock-on effects of the pandemic.

My holiday plans are all mapped out….

Overall, I can count myself fortunate to have had a “good pandemic” – I managed to keep working from home, I don’t work in any of the front line sectors (health, education, hospitality, logistics, tourism), I live close to public parks and open spaces for daily exercise, and none of my immediate family or circle of friends caught the virus (although I have spoken to a number of people who were not so lucky). However, my travel plans were severely disrupted, so I have been unable to see any of my family overseas, and the prospect of visiting them in 2021 still looks remote.

As I write, the Report into Victoria’s failed Hotel Quarantine Program has just been released. The findings conclude that no single person was responsible for the ill-fated decision to engage private security firms to enforce the quarantine restrictions (which in turn led to Victoria’s second wave and Stage 4 lock-down for over 100 days). Instead, the Report underscores the notion of “acquiescence” (and “creeping assumptions“) – and of course, the failure of governance and proper decision-making.

The significance of this Report is now being brought into stark relief in light of the latest NSW outbreak – which appears to be as a result of a breach in hotel quarantine measures. Having read the Executive Summary, it’s clear that respective Victorian government departments and agencies charged with implementing and managing the HQP did not understand their specific roles and responsibilities. Regardless of the decision to engage private security firms, it seems that the procurement process was seriously flawed; and even if the Department of Jobs, Precincts and Resources was not at fault in how it hired certain private-sector security firms, it’s a serious oversight (and failure of process) that neither it nor the Department of Health and Human Services were fully aware of who was accountable for monitoring these contractors.

Of course, the ramifications of the US Presidential Election and a no-deal Brexit are still playing out – and the New Year is unlikely to bring immediate closure. For myself, I am lying low and staying close to home during the Saturnalia celebrations. As the above photo suggests, my plans involve nothing much more than catching up on my reading, and exploring my wine collection. Consequently, this blog will be taking a break for a few weeks, but I trust that this holiday season will bring a welcome respite from the events of 2020 for you and yours. Thanks for reading.

Next: The NGV Triennial