'Effects of the bust' without 'benefits of the boom': NT's Inpex hangover


March 29, 2019 06:15:16

Over more than two decades selling high-end fashion clothes in Darwin, Sylvia Majetic has ridden out the gas booms and busts of the Northern Territory’s small but volatile economy.

Key points:

  • Business closures are rising across the NT after the Inpex gas project finished construction
  • Firms call for more effective stimulus measures from the NT Government
  • The NT Government is banking on a future onshore gas boom to help the economy recover

But she’s never experienced a downturn this severe.

“I’ve never seen it worse in my lifetime. I’ve seen things go down but I have never seen anything like this,” she said.

She was in business when Darwin had a gas construction boom in 2003 as ConocoPhillips built the city’s first LNG processing plant.

After Japanese company Inpex announced it was going to build a $37 billion LNG plant and pipeline in Darwin in 2012, the fashion retailer prepared for the next boom by expanding her business from one, to three shops.

Now she expects she’ll lose them all.

“If sales continue to decline, in six months I won’t be able to keep the business open. I mean, I could lose my house,” she said.

Like many of her customers she was sucked in by the hype around Inpex.

Then chief minister Paul Henderson talked it up as “a transformational project” which would “underpin the Northern Territory’s economy for the next 40 to 50 years.”

“The government did talk it up, so people went and purchased properties, determined to get good rentals out of it,” Ms Majetic said.

“But now the property market has fallen through the floor and that has devastated the Darwin economy; and people who would normally shop here, they’ve got no money.

“Customers who have been here for a long time are slowly leaving, their finances have been badly affected for their retirements.”

‘We can’t fill those spaces’

With the wind-up of Inpex construction work last year, 10,000 mostly fly-in, fly-out (FIFO) workers left Darwin permanently.

“At the moment, commercially, we’ve got one of the largest ever vacancy rates, and we can’t fill those spaces,” Ruth Palmer, the NT Property Council’s executive director, said.

It’s the same in the residential sector.

“There are foreclosures on residential properties because valuations are now coming in less than what the mortgages are, so people can’t sustain that, they’re having troubles renting those properties and they’re having problems selling those properties,” Ms Palmer said.

Darwin steel fabricator Owen’s Pike’s long-time family business MMC, which services the mining and gas industries, is hanging on.

“This is definitely the lowest economic activity I’ve seen since my parents and I have been in business,” he said.

He thinks the Inpex promise was exaggerated.

“If you overstimulate the economy during a boom cycle then your bust is going to be bigger,” he said.

“We’re having the effects of the bust, but we don’t have the benefits of the boom, because most of the jobs on Inpex were FIFO.”

“It is very easy to oversell these large projects, the political temptation is large, the reality is, often there are not that many jobs involved,” John Daley, economist and chief executive of the Grattan Institute, said.

“If we do oversell them we create a tendency for people to take government at its word, to build residential housing, to open businesses that actually won’t be sustainable, because the big numbers that are being thrown around aren’t going to happen and were never going to happen.”

Northern Territory Treasurer Nicole Manison was a media adviser to the treasurer in Paul Henderson’s government when Inpex was secured.

She is not backing away from endorsing the Inpex project’s benefits.

“Most jurisdictions would be thrilled to receive a project of that size because it is so significant,” she said.

“We were always going to feel the full transition of that.”

‘I paid wages with a credit card’

The Territory has had five consecutive quarterly falls in state final demand (which records all goods and services sales) since September 2017.

The Territory’s gross state product (the value of everything produced) is still growing at a rate of 1.7 per cent, but that’s mostly driven by gas exports, of little benefit to locals.

The other main inputs into the economy — public service and defence employment, mining, farming and tourism — have grown only slightly or remained flat.

But Mr Daley said it is not a depression.

“If we look at how much households are spending, if we look at how much is being produced by the Northern Territory economy, it’s slower than it was, but it’s not too bad,” he said.

“Unemployment is around 5 per cent, that’s worse than in New South Wales, Victoria and the ACT, but better than in the rest of the country.”

Although that unemployment rate is the worst in five-and-a-half years and above the Territory’s average jobless rate since the year 2000 of 4.5 per cent.

In Darwin, the effects of the bust are visible on every high street and in each industrial estate.

Restaurants and bars, steel fabricators, aluminium manufacturers, decorators, a sports club, a cinema and a small airline have closed.

The main streets of Alice Springs, Katherine and Tennant Creek are also dotted with for lease signs.

Last month, Sam Weston was forced to shut one of his two Darwin cafes, in the Winnellie industrial area where businesses were closing around him.

“I got to the point where I had to pay wages with a credit card,” he said.

After working in Darwin in the 1990s, he returned to open his cafes two years ago, despite finding that the gas boom had pushed out other industries.

“Darwin used to be a massive tourist town — the Paul Hogan adverts, the Never Never, everyone used to love to come to the Territory — and it seems with expensive flights, expensive accommodation, now a lot of people aren’t coming,” he said.

Government stimulus efforts

The Northern Territory Government is now spending $100 million over two years trying to attract tourists back, and millions more on roads, car parks and public housing to try to cushion the economy’s freefall.

“We’ve fast-tracked a whole range of infrastructure projects to keep people in jobs, and to support businesses as well as important services for the Territory,” the Treasurer said.

“We’re looking at that stimulus investment in tourism and in housing construction.”

But, unlike the New South Wales Government, which squirrelled money away during its property boom for the leaner times, the Territory Government is broke.

It is spending $4 million a day more than the revenue it collects to pay interest on its ballooning debt and to cover day-to-day operational costs, including public servant wages.

“Northern Territory governments have not run surpluses big enough to be running the kind of spending programs that they’re running at the moment,” Mr Daley warned.

Ms Manison would rather more private investment was going into the economy.

“Of course you do not want to be out there constantly putting stimulus in. It’s about growing your economic base,” she said.

“We’ve got some great projects that will be going forward into the future. The luxury hotel in Darwin is coming out of the ground, we’re going to see some huge investment into Kakadu.

“We are chasing down more offshore gas projects, we are certainly looking at the development of the onshore gas industry.”

Onshore gas expectations

Some business people including Mr Pike are banking on planned shale gas fracking developments south of Darwin delivering a longer economic bounce than Inpex, “because it’s more of a staggered increase, there’s a lot more local opportunities and local opportunities for growth”.

But Mr Daley has again urged caution.

“The way to think about that project is, it’s not materially different from the ones that we’ve just seen, and therefore it’s very unlikely to have a different outcome,” he said.

Many in the business community aren’t reassured by the Territory Government’s plans.

“At the moment the business community is very sceptical. They don’t see the light at the end of the tunnel that we’ve been promised for a couple of years,” Ms Palmer said.

She called on the Federal Government to fast track its plan to fund the building of a university campus in the Darwin city centre under its Cities Deal, and the Territory Government to do more to regenerate “tired, worn out” tourism infrastructure.

“We also need to look at ways that we can cut that red and green tape to fast track more projects,” Ms Palmer added.

Mr Daley also said the Territory Government should concentrate on creating a good environment for business, rather than trying to plug the gaps itself.

“Governments can’t control economies particularly well, and at the point where they do, usually it ends up very badly,” he said.

“What they can do is manage their budgets, and the other thing they can do is get the overall settings right, and put a stable policy framework in place.”

Mr Weston said the business community also needs to focus on more self help.

“There’s no point in blaming the Government,” he said.

“As Territorians we need to do it ourselves, help ourselves, to get Darwin back to the cool bustling city that it used to be years ago when I remember it.

“So, I have faith, maybe its optimism, but I think it’s going to happen.”








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