The Winds of Economic Change

 

These are turbulent times in the global economy. Depending on who you listen to, we are still in the midst of the GFC; or, the GFC ended but we are now on the cusp of GFC Mark II; China’s growth is either teetering or marching on; and the European sovereign debt crisis is threatening to usher in a possible Great Depression Mark II.

 

What does it all mean for Australia’s long-term economic and demographic outlook? And more importantly, what does it mean for football?

 

The short answer is “look north.”

 

For the long answer, well, without dwelling on too many of the economic and financial themes, GFC Mark I (or whatever you want to call it) has essentially highlighted two key underlying issues for us:

 

1. The rise of China (and the relative demise of the US & Europe). Put simply, the US and Europe have been living beyond their means (both at a government level and at the individual consumer’s level) for yonks, and that’s now all unravelling. Meanwhile, China has been quietly buying up assets all over the world, first US Treasuries (underwriting America’s debt), and then mines, ports and roads to secure their supply-chain. Debate on the timing of China’s economic leadership has raged in The Economist recently, with China projected to surpass the US on most economic measures by 2015, and with Shanghai tipped by some to eclipse New York as the world’s leading financial centre by 2018.

 

1. The importance of actually producing something tangible. When I went to Uni, the established orthodoxy that they would teach you in Economics was that Primary Industries (agriculture and mining) were really basic and the bottom-rung of the economic ladder; then Secondary Industries (manufacturing) were the next thing you might graduate to; then the most advanced level that everyone aspired to was when your economy was full of Tertiary Industries (services). Reality has since overtaken those theories, and Tertiary-centric economies without an underlying ‘real’ basis have now been exposed as a ‘house of cards’.

 

Heeding these themes and looking into the longer term, there are both opportunities and threats for Australia, and I reckon it may drive a fair bit of upheaval within the country over the next couple of decades.

 

Whilst many footy fans will voice a great resentment for “economics” and the role money plays in the game, it is inescapable. At the end of the day, someone has to pay for it. So if the economy faces upheaval, how does the AFL position itself for it?

 

The great strength of our sport is how it is so embedded in our national culture and psyche. And, not coincidentally, both our great game and our broader national folklore are centred on the bush, the inner-suburban industrial heartland, and the traditional harbours across the south.

 

But what if the nation changes? How does football keep pace with that, and preserve its revered place in our society and culture? Or to put it another way, when the winds of change start blowing, how do make sure we’re kicking with the breeze?

 

Before I go on any further, I should preface my remarks by stressing that the economic trends I’m talking about are in the ‘long-term’ sense: the next 30 years. Ironically, since I first started writing this about 3 weeks ago, some of the issues I’ll touch on have had considerable airplay in the news: the car industry has needed another lot of hand-outs; the new Darwin LNG Project has been approved; BHP’s Board has signed off on the expansion of the Port Hedland outer harbour; PNG has gone through another round of political instability; and today, the Geelong Alcoa plant is on the brink.

 

So, where are we headed?

 

Well, first, here’s a brief synopsis of the Australian economy.

 

It’s great that we think we’re all benefitting from this tremendous ‘mining boom’ at present. But for those of us that live in cities in the nation’s south-east, the great plus of this is really just in the strong Aussie dollar – our increased purchasing power when buying goods from overseas, and the reduced cost of overseas travel.

 

It’s difficult to escape the notion that what most of us in Sydney and Melbourne do is shuffle stuff around, as we provide services to each other. Our advanced ‘Tertiary sector’ economy is primarily about non-export services (finance, telecommunications, retail sales, property), with education probably the main ‘services’ industry that generates export income (ie. foreign students). In the main, we are just re-circulating wealth, which is all great if there’s an underlying source creating that wealth.

 

The ‘shuffling around’ phenomena is compounded by the sick state of Australian manufacturing. Sajayit Das (who admittedly is a bit of a ‘bear’ at the best of times, but whose logic I find hard to fault) recently forecast that Australia will lose twice as many manufacturing jobs in the next decade as we’ve lost in the last decade. My only surprise in that prediction is that we still have that many manufacturing jobs left to lose.

 

Part of the manufacturers’ pain is a result of the stronger Aussie dollar. This isn’t going away. Whilst speculators and those who have moved away from holding their foreign reserves in US$ have fuelled the current peak, when we adjust, it’ll be to a new baseline. NAB’s economists are predicting the A$’s long-term average over the next decade will be US$0.90, as opposed to the US$0.70 that it has averaged since floating in 1983.

 

Presumably, most of that job-loss pain will be felt in Sydney, Wollongong, Melbourne & Geelong. It could be particularly bad for Geelong & Adelaide if the car industry is in the gun, though Adelaide will claw some of that back from engineering services to support the huge Olympic Dam mine. Similarly, Newcastle will hurt on manufacturing, but benefit from coal exports.

 

We can’t compete in ‘old manufacturing’, that other countries (with lower wages) have since mastered. It’d be great if we could be clever and steal a march in some new technologies where there might be an opportunity to become a world-leader. Credit to Evan Thornley and Better Place for having a crack at this with electric vehicles, but here seems to be little other evidence of this happening.

 

Up until now, we’ve generally got away with our Tertiary sector ‘house of cards’. Housing prices have risen over the last few decades, sustaining many individuals’ sense of growing their wealth. Unemployment has so far remained reasonably low all round the country, such that the booming regions in the north and west struggle to attract Australian labour (WA Premier Colin Barnett recently declared that it’s easier to get workers for Pilbara mines from the UK and Ireland than from Sydney and Melbourne).

 

But I worry about how sustainable that is, and whether our prosperity in the south-east in really underpinned either by property speculators or being propped up by government. There seems to be a lot of construction work around Melbourne in the form of government-funded road works (eg. Peninsula Link; extensions at the southern end of the Geelong by-pass), but that sort of industry is only as sustainable as the government coffers (ie. tax revenues) are.

 

The key areas of growth (both in economic terms, and in population) in Australia will inevitably occur in the locations that produce Primary sector exports that go to China, India and other Asian markets. And to use the parlance common in articles published in the financial media, this might be the appropriate place to disclose that the author owns (modest) share-holdings in Woodside, Santos, Fortescue, Mt Gibson Metals and ERA.

 

In terms of mineral deposits (and for key exports, the focus is coal, oil & gas, iron ore, copper and uranium), this all points to the north and west, and perhaps also to Papua New Guinea. And if we focus on agricultural potential in terms of volumes of fresh water and scope for irrigation for ‘the food bowl of Asia’, we are again looking at Australia’s north. This is going to see the cities like Darwin, Cairns and Townsville take on increasing importance within the country, followed by Gladstone, Rockhampton, Mackay, Emerald, Broome, Port Hedland, Karratha and Geraldton. Perth and Brisbane will continue to do well from fly-in-fly-out mine-workers and engineering services, whilst other WA centres like Bunbury-Busselton will continue to grow as fly-in-fly-out bases.

 

Perhaps the 3 greatest regions of growth are:

(i)                  Central Queensland, bounded by Gladstone, Emerald and Mackay, where there’s a mix of large-scale LNG developments, coal mines, and new exports ports being constructed

(ii)                Darwin, with the mix of a new LNG plant to process and export gas from the WA/NT border, the produce from SA’s huge Olympic Dam mine to go out through its harbour, and greater potential in uranium

(iii)               The Pilbara, particularly at the ports towns of Karratha-Dampier and Port Hedland

 

Geraldton may loom as the fourth such zone, if the Oakajee port and rail complex (for iron ore exports) and the Square Kilometre Array global telescope project both go ahead. It is perhaps the ‘boom region with an asterix’, awaiting the outcome of those 2 dependencies.

 

Whilst Cairns is reportedly a basket-case right now (its tourism industry suffering from the trifecta of Cyclone Yasi, dampened consumer spending in Australia, and the strong Aussie dollar), it will come back at some point, aided by its role as a service centre for the mining industries at Weipa and PNG, and as well as benefitting from larger populations nearby.

 

Talking of PNG, the UN has predicted its population will double from 7 million in 2010 to 14 million in 2030, influenced by improved health standards and reduced infant mortality, and not hurt by considerable deposits of oil & gas, gold and copper. A feature in The Australian recently highlighted the rate of urbanisation, improving incomes and commercialisation (eg. rates of mobile phone ownership), and projected that Port Moresby will be bigger than Brisbane by 2030. It desperately needs its security and political issues sorted out, and its people will only enjoy wealth once the rule of law is established, but it is entirely realistic that its population will be half Australia’s within two decades.

 

I also reckon Canberra and Newcastle will continue to grow from the ‘spill-over’ from Sydney, from people that are priced out of Sydney housing and/or fleeing its congestion, particularly with Sydney’s suburban sprawl hemmed in by physical barriers in all directions.

 

So putting those things together, taking a holistic view of our region (ie. including NZ & PNG), and rolling forward to (say) 2040, then the populations of our largest cities (including adjoining towns within a commutable distance) might look like the following:

 

Cities of 3 million or more:

• Sydney-Wollongong
• Melbourne-Geelong
• Port Moresby
• Brisbane-Gold Coast
• Perth-Mandurah

 

Cities of between 1 & 2 million:

• Auckland
• Adelaide

 

Cities of between 0.5 & 1 million:

• Newcastle
• Canberra
• Cairns
• Townsville
• Darwin
• Wellington
• Rockhampton-Gladstone
• possibly also the Sunshine Coast, if that’s not bracketed with Brisbane-Gold Coast
• Mandurah-Bunbury would join this category, if they were to be bracketed together

 

Getting back to footy now, and the key point is that if the AFL was to do nothing, demographics (and economic development) may move against us. Our competition currently has teams based in only 5 of those cities (and ignoring 2 of the largest 7), with a few token games in a couple of others.

 

The NRL, however, is quite well naturally disposed to these economic trends. They already have teams in Auckland, Newcastle, Canberra and Townsville, and are currently assessing a series of expansion bids. Assuming they do the sensible thing and overlook Gosford’s bid (the Greater Sydney basin is already over-represented in their competition), they will progressively expand to 18 and then to 20, likely including:

• a 4th Qld team (whether that’s Rockhampton, an established Brisbane QRL team like the Ipswich Jets or Redcliffe Dolphins, or the proposed composite Brisbane Bombers)
• Perth
• Wellington
• Port Moresby

 

At that point, they will have teams in all of the largest 5 cities (and be considered the pre-eminent sporting competition in 3 of those 5), as well as in 5-6 of the next largest 9-11 cities.

 

Our game’s challenge is to maintain relevance on a national level, as the nation changes. This is important for the game as a whole, but also for those in the south-eastern heartland who might want their own current existence to remain untouched. If manufacturing withers away to nothing and services collapse without a sound local economic under-pinning, then south-eastern economies (and football club finances) will be in real trouble.

 

To stay afloat, south-eastern clubs will need distributions from a bigger pool of national tv rights – which needs the sport to be relevant to a bigger chunk of the nation. In particular, the game needs to be relevant in the places where people are employed and have high disposable incomes – like it or not, the game (and its clubs) now live off people being able to buy Foxtel subscriptions and the products advertised on free-to-air tv.

 

When it comes to that ‘maintaining national relevance’, the VFL/AFL has a mixed record – on one hand, it let slip previous positions of leadership among the football codes in places like Canberra and PNG, but the more recent moves to expand into Gold Coast and West Sydney are a recognition that those suburban areas have been expanding, and that we need to get our sport ‘in on the ground’ in those areas, so that locals there will grow up with our game. The AFL has rightly stressed that GWS is not about ‘converting’ people, but about pitching to people who haven’t been born yet.

 

The same thing goes for places like Cairns, and for that matter Port Moresby, Auckland, Hong Kong and Shanghai. The best way to be integral to the city’s sporting fabric in 2035 is to have been a part of the city’s scene for the previous 20 years.

 

The cases for the AFL to have a greater presence in Cairns and Port Moresby are inextricably linked. PNG’s security and health issues will hopefully gradually improve in time, but there’s no way we could in any good conscience send young draftees off to live there at the moment. But a Cairns-based team (playing a game or 2 in PNG annually) could represent the sport for the next 20 years and help prepare the ground. When I trekked to Kokoda in 2008, it was notable that most of the locals we met were not only NRL addicts, but specifically fans of the North Queensland Cowboys.

 

Of the 3 regions for intensive growth that I mentioned above (Central Queensland, Darwin and Pilbara, plus Geraldton as the ‘fourth with an asterix’), the issue is more about footholds and consolidation. Of those, only Darwin is realistically likely to grow to a level where it has the critical mass for an AFL team, and even that’s only after a fair chunk of the forecast growth has been realised. But playing an annual AFL game or 2 in each of the others might be the requirement to ensure the sport is sufficiently embedded in the local culture and foster tv ratings there.

 

It’s worth noting that the NRL is staging a game for premiership points in Darwin this year (South Sydney vs North Queensland). There’s also no shortage of New South Welshman and Queenslanders working in the Pilbara, so we shouldn’t let complacency get the better of us in those regions.

 

We also need to do more in the southern half of WA, a market which Demetriou has admitted is “under-serviced,” and which will continue to be the major point of supply for the Pilbara and the Murchison. Perth’s new stadium will help somewhat (though if they only build it for 60,000, West Coast will quickly have waiting-lists again), but the case for a 3rd WA team will emerge, particularly to ensure the sport continues to dominate the sporting culture there. Perhaps the expansion of the NRL to Perth will prove the catalyst, just as the first incarnation of the Western Reds prompted the AFL to expedite the creation of the Fremantle Dockers. Or perhaps it will be the growth in a geographically-distinct area (eg. Mandurah) that will trigger it. In any case, the WA economy should march on, with Perth and surrounds remaining in the thick of it.

 

And then there is the linkage to China. Firstly (and most obviously), this is why northern Australia is increasingly important, given that’s where a lot of our stuff goes. Currently, 25% of Australia’s exports go to China, but that figure probably understates the reality, with a chunk of the other 75% going elsewhere in Asia (eg. Singapore) and then being re-exported to China.

 

Then there are sponsors. The economic linkages will be an issue for the companies that are prospective football sponsors, so there will be clear commercial value for football to be able to show a China presence. We are never going to be a truly ‘global’ sport, but perhaps we should be taking the chance now to get a foot-hold in a country that might end up having 4 of the world’s 10 leading cities.

 

That’s not to say anything stupidly ambitious about becoming the national sport up there, and making an impression in China will ultimately need local player production. But the AFL is right to plant some seeds. The mooted player academy in Guangzhou, and nurturing the game in Tianjin under the banner of being Melbourne’s sister-city, both make a lot of sense.

 

So what do we need to do then?

 

To start with, as well as fostering grass-roots footy, we need to play games for premiership points at the highest-level in more of these growth regions, and quickly. We could do this either of 2 ways:

 

1. Give every club 10 home and 10 away games, and have 2 ‘neutral rounds’ in the growth centres, across the north from Gladstone to Geraldton, and overseas.

 

1. Recognising the travel burden of some clubs (and the distortions of this shown in stats like player retirement ages), have each of the Victorian clubs take 1 home game (or more, if they wish) to a northern or overseas venue (I would probably excuse Hawthorn from this, giving the contribution they make to the game in taking multiple games to another state).

 

From some of the recent media talk, it may be that Melbourne takes a home game to China. Perhaps they could take their home games against (say) an SA team, GWS or Gold Coast, and a lower-drawing Victorian opponent up there and have an annual tour, in (say) Tianjin, Shanghai and Guangzhou. They could potentially build up a reasonable home-ground advantage with greater familiarisation, whilst showcasing the sport.

 

In taking the AFL to the growing mining regions of WA, it would be unreasonable to make West Coast or Fremantle give up home games, given that they already carry an enormously disproportionate share of the league’s travel burden. Perhaps West Coast could contribute to the cause in the form of providing money, by funding the upgrades of grounds in the likes of Geraldton and Karratha-Dampier.

 

Beyond taking those few games a year into those growing regions in the near-term, we also need to plan for expansion. Much as that seems to be a dirty word amongst most Melbourne football columnists at the moment, the long-term viability of the game ultimately requires that we have more clubs located in the places where there’s growth in the number of tv viewers (and consumers with disposable income). As mentioned above, the sooner you put teams in places like North Queensland or Shanghai, the more entrenched they will be in the local sporting culture in 20 years.

 

I sincerely hope I’m wrong in my gloomy outlook for the south-eastern economy – after all, I live in Melbourne, own property here, and work in financial services.

 

And I don’t think we’re in for a immediate or sudden ‘doomsday’. But the trend is there: the balance of economic power is moving to the places that generate the export income, and the places that buy it from us. Footy is going to have to get with that, or else it’s going to get overtaken by it.