Life in the country – how do regional economies cope in the 21st century?

Life in the country – how do regional economies cope in the 21st century?

Having moved to Portland, Victoria, in January, as part of the Teach For Australia program, my economic experience has changed drastically. From studying economics at the University of Melbourne, I am now teaching it to VCE students at a rural secondary school. However, the biggest change has been in developing a greater understanding of the acute challenges that exist for regional economies, more prone to hardship as Australia’s two-speed economy has existed for the last decade or so.

Most country towns are heavily reliant on one or two major industries or businesses for their economic livelihood. The Portland economy typifies this summation. As per The Committee for Portland’s summary, this town, Victoria’s oldest, of approximately 11,000 people is heavily reliant on its manufacturing base. The town’s two major employers in the manufacturing sector are Alcoa and Keppel Prince, producing aluminium and construction materials respectively. Whilst the Port of Portland has developed considerably in recent years, the town is still defined by the aluminium smelter.

Production at the Alcoa aluminium smelter began in 1986, supported by the then-Labor government who agreed to subsidise the electricity required to power the smelter, at an impost of nearly $2 billion to the Victorian government in the intervening 20 years. Today the smelter produces approximately 358,000 tonnes of aluminium a year, thus making it one of the biggest sources of exports from Victoria. Primarily exported to emerging Asian economies, the produced aluminium adds an approximate $649 million in exports to the Victorian economy.

On a more local level, Alcoa contributes approximately $150 million to the Portland (and greater region) economy annually; made up of wages, capital investment and regulatory compliance fees amongst others. In terms of jobs, Alcoa provides work for 540 employees and 180 contractors. In a town of 11,000, an employer that employs over 700 people is obviously an incredibly influential factor in the state of the town’s economy. Were it to close, it would undoubtedly lead to flow-on effects that would see families move away for work, hurting every industry throughout the town.

However, the future is not bright for Alcoa in Victoria. As recently as February, Alcoa announced that it would be closing down its aluminium smelter in Port Henry (near Geelong), at the expense of 1,000 local jobs. As has been the case with the numerous manufacturing closures to hit Australia in recent years, the reason was attributed to escalating competition from overseas, and the high costs of production associated with operating in Australia.

Whilst Alcoa assured that the Portland smelter would remain operational, the global context makes it particularly challenging for it thrive, let alone survive in today’s economy. The price of aluminium – used in the aerospace, construction and automotive sectors – has nearly halved since 2008 due to a massive global surplus of the metal, forcing loss-making firms to slash capacity and make savings.

Further challenges to Portland’s primary employer stem from the requirements for industries such as aluminium to meet the Renewable Energy Target, designed to ensure Australia gets 20% of its electricity from renewable sources by 2020. In response to this, there has been a push led by federal MP for the area, Dan Tehan, to have aluminium smelting fully exempted from the costs of the RET, which he suggests could cost the industry upwards of $80 million a year by 2017.

As these pressures continue to mount, it’s clear that the mindset amongst locals has shifted towards life post-smelter. As Alcoa places greater emphasis on cutting costs and finding efficiencies in the Portland operation, the local community has responded by seeking to diversify the foundation for employment and production in the area.

Fortunately, policymakers and the business community have been developing the seeds of growth post-smelter. Since 2009, there has been a big push to make the southwest of Victoria a hub for green energy, with wind farms dotting the community as you drive along the Princes Highway. This drive has been accompanied by significant growth to the Port of Portland, now a sophisticated international deep-water port that serves as an export point for grain, wool, timber, livestock and metals produced across Victoria, as well as a hub for the community’s pre-eminent fishing industry.

To further enhance this development in the Portland economy, local and state governments have invested in bringing cruise ships to dock, anticipated to bring upwards of $4 million in tourism revenue to the greater area. Testament to the government’s commitment is the fact that this drive for cruise ships began almost 7 years ago.

With the arrival of the MS Europa, on the 8th of March, came a great sense of optimism amongst locals that with a wave of over 300 German tourists visiting for the day would begin a new era for the Portland economy.

It remains to be seen whether this is a false dawn for the Portland community. I, for one, am optimistic about the future for Portland, but am mindful of the immense role the smelter still plays in the local economy, and what its closure could do as the effects flow-through the area. What cannot be doubted, however, is the commitment of all members in the community to ensuring that at least for this country town, it has a future in the 21st century Australian economy.

You can follow me on Twitter @CRJWeinberg.